Quarterly Report – June 30, 2006

July 18, 2006

Select’s portfolio performance was achieved notwithstanding a sharp decline in natural gas prices, as the impact from last year’s hurricanes receded, and 17 consecutive increases in interest rates. We are encouraged that despite the jump in rates our holdings of utilities and Master Limited Partnership (MLP) investments actually appreciated during the most recent quarter. We attribute this to: 1) our utility holdings are not the “plain vanilla” regulated interest rate sensitive companies, but rather have growth characteristics associated with non-regulated, or lightly regulated, businesses; i.e. they are “growth type equities” that typically also offer attractive yields; 2) the MLPs have been successful in raising their distributions (dividends) at a faster pace than interest rates have increased; and 3) industry consolidation has had a favorable impact on oil and gas producers, utilities and MLPs. The latter development, which we have long predicted, has cut across all energy sectors. As examples, the following have been announced, a) Kinder Morgan’s purchase by private capital investors; b) Anadarko Petroleum’s acquisition of Kerr McGee and Western Gas Resources; c) Oneok Inc’s acquisition of Northern Border Partners; d) sale of Teppco Partners; e) sale of Duquesne electric, f) MDU Resources purchase of Cascade Natural Gas, g) the purchase of Peoples Energy by Wisconsin Electric, h) the purchase of Keyspan by National Grid, and j) the merger of Exelon and Public Service Enterprise Group. In our opinion these transactions are only the beginning of major global M&A involvement in all sectors of energy. We view this very important development as a significant theme and stock price driver in management of the Fund.

Looking ahead to the second half of 2006 and 2007, we remain optimistic but very selective in choosing our investments. Fundamentals remain favorable given the limited spare capacity and continued demand growth in the oil and gas E&P producing, drilling and services industries. Rapid field decline rates and geopolitical concerns are the major reason for oil prices now trading at close to $76 per barrel, a historic high. Reserve replacement declined in 2005, for the seventh consecutive year, dropping from 142% in 1998 to 90%. In contrast, inventories largely reflecting the past mild winter, are the major reasons natural gas prices have declined significantly over the past year. Noteworthy, is that net total production of oil and gas has dropped 1% annually over the past five years and 2% in 2005. Accordingly, we look for a rebound in gas prices by the fourth quarter as the cold weather arrives and supply tightens. With respect to oil, it is significant that most of the more easily accessed reserves must come from higher risk countries or more remote regions and/or more complex reservoirs. Therefore, given that most future oil supplies will be obtained from the Middle East, the former Soviet Union and West Africa, we conclude that the risks associated with obtaining oil are likely to increase and continue to place pressure on pricing. Although producer costs are rising, industry cash flow continues to expand which is very positive for the industry and the oil service portion of the fund.

As noted, equity diversification and the energy chain approach to managing the portfolio continues to be very helpful to our performance. Specifically, we started out in 2003 heavily invested in the E&P sector. As time wore on and cash flow skyrocketed, it became apparent that the oil services and contract drilling space was the place to be. Initially, we emphasized land drillers, later jack up drillers and finally the offshore deep drillers. At the same time, Elco benefited from its investment in MLPs and Canadian Royalty Trusts. Currently, we are well positioned in Master Limited Partnerships and utilities to benefit when the increases in interest rates ends. Additionally, we see opportunities in the decision of MLP managements to take their GP’s (General Partnerships) public. Although offering lower initial yields, their dividends grow at a faster rate. Also we are becoming more bullish on the energy merchants and have added to our holdings of AES, NRG, and TXU.

In summary, we are very positive about the Funds future. The entire energy sector complex now looks to be in more of a tightened supply position than it has been historically. We have performed well despite two years of rising interest rates and we anticipate that a slowing economy could actually result in some Fed easing beginning sometime in 2007or early 2008.

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.

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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.