Quarterly Report - March 31, 2009

April 23, 2009

The performance for our Fund during the first quarter of 2009 reflects a recovery in a group that had previously outperformed for over a decade, but was “crushed” last year. MLPs were particularly hard hit in 2008 due to hedge fund and private equity portfolio liquidations and redemptions that manifested in indiscriminate selling. The problem was exasperated by Lehman Brothers, one of the largest holders of MLPs and its bankruptcy forced huge quantities of stock to be sold just when other economic issues were putting pressure on equities.

Looking ahead, as we move into the second quarter, it is important to note that commodities typically lead economic recovery as investors focus more on value than near-term fundamentals. Although caution is still warranted, we now believe that much of the uncertainty is behind us and that expectations remain very modest. Therefore, the Fund’s portfolio should benefit as investor perception changes from deep pessimism to belief that economic data points are starting to show some improvement.

In our judgment, energy investments should have a meaningful place in all portfolios and a mix of pure oil and gas commodity plays, energy infrastructure (MLPs), electric utilities, (both regulated and non-regulated) renewables, merchants, etc., offers broad exposure while diversification reduces risk. Our strategy is to reduce company positions as near-term price targets are reached and add to equities on pullbacks. While this has always been our approach, given the markets more extreme volatility, it is now more critical.

As this letter is being written, we continue to add to our holdings of high yield MLPs (initially the investment grade pipelines), but now also, selectively, some commodity related mid-stream companies, early cycle oil service stocks, and selected high quality electric utilities. We are also reducing holdings in some of the high growth E&P shale plays that contributed to our improved record in the first quarter and in April.

Importantly, in conclusion, we continue to favor companies with defensive characteristics, especially those offering above average, well covered dividend yields. We also are now beginning to be more comfortable adding certain higher beta early cycle stocks. Therefore, as noted in our last communication to you on January 30, 2009, we have begun to take advantage of attractive opportunities we see in the wake of last year’s decline.

While the energy space is significantly oversold, it is difficult to quantify the timing of when the oil price will move up to $50-$60/bbl, a level that we believe would be the necessary positive catalyst for the energy space to once again show strong performance. In the meantime, we continue to upgrade the portfolio in various sub sectors while maintaining a reasonable long/short relationship.

In summary, it is our opinion that although the United States and other countries remain caught in a long and very difficult recession, there are signs that may suggest that the long bear market may be approaching its bottom, if it has not already done so, because major moves in the stock market historically precede changes in the economy by around six months. For example, during recent weeks, equities have absorbed bad news more calmly than in 2008, and there is a determined effort by the new Obama Administration and the Federal Reserve to restructure the banking system and stimulate the economy by significantly increasing the money supply and providing over $1 trillion in various fiscal spending and tax relief programs. Therefore, we and other investors are cautiously beginning to take advantage of the attractive opportunities we see in the wake of last year’s decline.

Certain statements contained herein may contain "forward-looking statements" within the meaning of the Private Securities and Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among others, risks and uncertainties associated with the timing and costs of energy sector production, the demand for and prices of oil/gas products, the timing and amount of capital spending in the nation and world wide, and general economic factors. This report is not a recommendation to either buy or sell any securities mentioned.

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About ELCO Management, LLC
Established in 1995 and based in New York, ELCO Management (www.elcomanagement.com) offers investment solutions to high net worth individuals and institutions. ELCO also manages two highly specialized energy funds: the ELCO Energy Fund, L.P. and the ELCO Select Fund L.P.