COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST 10-Q

Item 1. Financial Statements (Unaudited) Statements of Financial Condition February 28, 2026 November 30, 2025 ASSETS (unaudited) Investments in European Union Carbon Emission Allowances (“EUAs”), at fair value (cost $ 1,667,361 and $ 1,667,361 , respectively) $ 1,605,267 $ 1,900,519 Cash & Cash Equivalents 16,816 20,497 Interest Receivable 48 68 Total Assets $ 1,622,131 $ 1,921,084 LIABILITIES Sponsor’s Management Fees $ 1,053 $ 1,205 Total Liabilities $ 1,053 $ 1,205 Net Assets $ 1,621,078 $ 1,919,879 Shares issued and outstanding(1) 100,000 100,000 Net asset value per Share $ 16.21 $ 19.20 (1) Authorized share capital is unlimited and the par value of the Shares is $0.00. See notes to the unaudited financial statements. 1 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Schedules of Investments February 28, 2026 (unaudited) Units Held Cost Fair Value % of Net Assets EUAs 19,700 $ 1,667,361 $ 1,605,267 99.02 % State Street Institutional U.S. Government Money Market Fund - Premier Class (a) 16,816 16,816 16,816 1.04 % Total Investment $ 1,684,177 $ 1,622,083 100.06 % Liabilities in Excess of Other Assets ( 1,005 ) - 0.06 % Net Assets $ 1,621,078 100.00 % November 30, 2025 Units Held Cost Fair Value % of Net Assets EUAs 19,700 $ 1,667,361 $ 1,900,519 98.99 % State Street Institutional U.S. Government Money Market Fund - Premier Class (a) 20,497 20,497 20,497 1.07 % Total Investment $ 1,687,858 $ 1,921,016 100.06 % Liabilities in Excess of Other Assets ( 1,137 ) - 0.06 % Net Assets $ 1,919,879 100.00 % (a) The annualized 7-day yields as of February 28, 2026 and November 30, 2025, were 3.63% and 3.94%, respectively. See notes to the unaudited financial statements. 2 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Statement of Operations (unaudited) (a) For the Three months ended February 28, 2026 (unaudited) INVESTMENT INCOME Interest Income $ 171 EXPENSES Sponsor’s Management Fees $ 3,720 Total expenses 3,720 Net investment income/(loss) $ ( 3,549 ) NET REALIZED AND UNREALIZED GAIN/(LOSS) Net realized gain/(loss) from EUAs sold to pay expenses $ - Net realized gain/(loss) from Foreign Exchange Transactions - Net change in unrealized gain/(loss) on investment in EUAs ( 295,252 ) Net realized and change in unrealized gain/(loss) on investment in EUAs and foreign currency ( 295,252 ) NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ ( 298,801 ) Net decrease in net assets per share from operations $ ( 2.99 ) Weighted average number of shares outstanding 100,000 (a) No comparative financial statements have been provided as the Trust had not commenced operations as of February 28, 2025. See notes to the unaudited financial statements. 3 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Statement of Cash Flows (unaudited) (a) For the Three months ended February 28, 2026 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net increase/(decrease) in net assets resulting from operations $ ( 298,801 ) Adjustments to reconcile net increase/(decrease) resulting from operations to net cash provided by (used in) operating activities EUAs purchased $ - EUAs sold - Unrealized (gain)/loss on investment in EUAs 295,252 (Increase)/decrease in interest receivable 20 Increase/(decrease) in Sponsor’s Management Fee payable ( 152 ) Net realized (gain)/loss from EUAs sold to pay expenses - Net realized (gain)/loss from foreign exchange transactions - Net cash provided by (used in) operating activities $ ( 3,681 ) CASH FLOWS FROM FINANCING ACTIVITIES Capital Contributed for Purchase of EUAs $ - Capital Distributed for Redemption of Shares - Net cash provided by (used in) financing activities $ - Net increase (decrease) in cash and cash equivalents $ ( 3,681 ) Cash and cash equivalents at beginning of period $ 20,497 Cash and cash equivalents at end of period $ 16,816 (a) No comparative financial statements have been provided as the Trust had not commenced operations as of February 28, 2025. See notes to the unaudited financial statements. 4 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Statement of Changes in Net Assets (unaudited) (a) For the three months ended February 28, 2026 (unaudited) Operations Net investment loss $ ( 3,549 ) Net realized gain/(loss) from EUAs and foreign currency sold - Net change in unrealized gain/(loss) from EUAs $ ( 295,252 ) Net decrease in net assets resulting from operations $ ( 298,801 ) Capital Share Transactions: Creations - Redemptions - Net increase/(decrease) in net assets from capital share transactions - Net decrease in net assets $ ( 298,801 ) Net Assets - Beginning of Period $ 1,919,879 Net Assets - End of Period $ 1,621,078 Shares issued and redeemed Shares issued - Shares redeemed - Net increase/(decrease) in Shares issued and outstanding - (a) No comparative financial statements have been provided as the Trust had not commenced operations as of February 28, 2025. See notes to the unaudited financial statements. 5 COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST Notes to the Financial Statements (unaudited) 1. ORGANIZATION COtwo Advisors Physical European Carbon Allowance Trust (the “Trust”) was formed as a Delaware statutory trust on January 12, 2023. The Trust is governed by the Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”) dated November 27, 2023 between COtwo Advisors LLC (the “Sponsor”) and Wilmington Trust, National Association (the “Trustee”). On April 29, 2025 , the Trust was declared effective by the U.S. Securities and Exchange Commission. The Trust began investment operations of investing in EUAs on June 17, 2025, and was listed for secondary market trading on NYSE Arca on June 20, 2025. The offering of the Trust’s Shares is registered with the SEC in accordance with the Securities Act of 1933. The Trust currently offers one class of shares. The Trust has a fiscal year ending November 30th. The investment objective of the Trust is for the Shares to reflect the performance of the price of EU Carbon Emission Allowances for stationary installations (“EUAs”), less the expenses of the Trust’s operations. The Trust’s assets will consist of EUAs, which are issued via the European Union Emission Trading System (“ETS”) and permit the holder to emit one ton of carbon dioxide equivalent or other greenhouse gas. The Trust expects to periodically sell EUAs to maintain approximately 1 % of its assets in cash or cash equivalents for use in connection with creation transactions or to pay expenses. COtwo Advisors LLC is the sponsor of the Trust. The Sponsor: (1) will select the Trust’s trustee, administrator, transfer agent, cash custodian, marketing agent and any other Trust service providers; (2) will negotiate various agreements and fees for the Trust; (3) will develop a marketing plan for the Trust on an ongoing basis and prepare marketing materials regarding the Shares; (4) will maintain the Trust’s web site; and (5) will perform such other services as the Sponsor believes that the Trust may require. State Street Bank and Trust Company (the "Administrator") has been selected by the Sponsor to serve as Administrator, Transfer Agent, and Cash Custodian to the Trust. The Statement of Financial Condition and Schedule of Investments at February 28, 2026 and the Statements of Operations, Cash Flows and Changes in Net Assets for the reporting period ended February 28, 2026 have been prepared on behalf of the Trust without audit. In the opinion of management of the Sponsor of the Trust, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the three months ended February 28, 2026 have been made. The results of operations for the three months ended February 28, 2026 are not necessarily indicative of the operating results for the full fiscal year. 2. SIGNIFICANT ACCOUNTING POLICIES The Sponsor has determined that the Trust falls within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services — Investment Companies, and has concluded that for reporting purposes, the Trust is classified as an Investment Company. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires those responsible for preparing financial statements to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 6 Notes to the Financial Statements (unaudited) (continued) The following is a summary of significant accounting policies followed by the Trust. 2.1. Emerging growth company The Trust is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations that are not otherwise applicable to the Trust. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, the Trust is choosing to “opt out” of such extended transition period, and as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. 2.2. Valuation of EUAs The Trust follows the provisions of ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 provides guidance for determining fair value and requires increased disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All EUAs will be held in the Trust’s account at the European Union Registry (the “Union Registry”). The cost basis of EUAs received in connection with a creation order is recorded by the Trust at the fair value of EUAs at 4:00 p.m., E.T., on the creation date for financial reporting purposes. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. The fair value of EUAs is determined using the daily settlement price for the single day futures contract on EUAs (the “Daily EUA Future”) exclusively traded on the ICE Endex Markets B.V. (the “ICE Endex”). ICE Endex is regulated in the Netherlands by the Dutch Authority for the Financial Markets. The Daily EUA Future is a deliverable contract that settles each day at the close of trading. Each person with a position open at cessation of trading is obliged to make or take physical delivery of EUAs upon the expiration of the contract at the end of each trading day. The settlement price is fixed each business day and is published by the exchange at approximately 12:15 p.m. E.T. ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Level 2 – Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments and similar data. Level 3 – Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Trust’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available. The Sponsor had determined the Trust’s investment in EUAs are Level 2 assets within the ASC 820 hierarchy. The following table summarizes the Trust’s investments at fair value: February 28, 2026 Level 1 Level 2 Level 3 EUAs $ - $ 1,605,267 $ - Short-Term Investments $ 16,816 $ - $ - Total $ 16,816 $ 1,605,267 $ - 7 Notes to the Financial Statements (unaudited) (continued) There were no transfers between Level 1 and other Levels for the period ended February 28, 2026. November 30, 2025 Level 1 Level 2 Level 3 EUAs $ - $ 1,900,519 $ - Short-Term Investments $ 20,497 $ - $ - Total $ 20,497 $ 1,900,519 $ - There were no transfers between Level 1 and other Levels for the period ended November 30, 2025. 2.3. Calculation of Net Asset Value ("NAV") On each business day, as soon as practicable after 4:00 p.m. (Eastern Time), the net asset value of the Trust is obtained by subtracting all accrued fees, expenses and other liabilities of the Trust from the fair value of the EUAs and other assets held by the Trust. The Administrator computes the net asset value per Share by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made. 2.4. Expenses The Trust’s only ordinary recurring fee is the fee paid to the Sponsor, which is equal to 0.79 % per annum of the daily net asset value of the Trust, paid monthly in arrears. 2.5. Creations and Redemptions of Shares The Trust issues and redeems in one or more blocks of 50,000 Shares (a block of 50,000 Shares is called a “Basket”) only to Authorized Participants. The creation and redemption of Baskets will only be made in exchange for the delivery to the Trust or the distribution by the Trust of the amount of cash or EUAs represented by the Baskets being created or redeemed, the amount of which will be based on the amounts of cash and EUAs represented by the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received. Orders to create and redeem Baskets may be placed only by Authorized Participants. An Authorized Participant must: (1) be a registered broker-dealer and a member in good standing with the Financial Industry Regulatory Authority (“FINRA”); (2) be a participant in DTC; and (3) have entered into an Authorized Participant Agreement with the Sponsor. The Authorized Participant Agreement provides the procedures for the creation and redemption of Baskets and for the delivery of the cash or EUAs required for such creations and redemptions. A transaction fee of $ 100 will be assessed on all creation and redemption orders. Multiple Baskets may be created on the same day. Authorized Participants who make deposits with the Trust in exchange for Baskets will receive no fees, commissions or other form of compensation or inducement of any kind from either the Sponsor or the Trust, and no such person has any obligation or responsibility to the Sponsor or the Trust to affect any sale or resale of Shares. For the Three Months Ended February 28, 2026 Activity in Number of Shares Created and Redeemed: Creations - Redemptions - Net Change in Number of Shares Created and Redeemed - 8 Notes to the Financial Statements (unaudited) (continued) For the Three Months Ended February 28, 2026 Activity in Value of Shares Created and Redeemed: Creations $ - Redemptions - Net change in Value of Shares Created and Redeemed $ - 2.6. Organization Costs The costs of the Trust’s organization and the initial offering of the Shares were borne directly by the Sponsor. The Trust is not obligated to reimburse the Sponsor . 2.7. Income Taxes The Trust is classified as a “grantor trust” for United States federal income tax purposes. As a result, the Trust itself is not subject to United States federal income tax. Instead, the Trust’s income and expenses “flow through” to the shareholders, and the Administrator reports the Trust’s income, gains, losses, and deductions to the Internal Revenue Service on that basis. The Sponsor has analysed applicable tax laws and regulations and their application to the Trust, and does not believe that there are any uncertain tax positions that require recognition of a tax liability as of February 28, 2026. The Trust is required to determine whether its tax positions are more likely than not to be sustained on examination by the applicable taxing authority, based on the technical merits of the position. Tax positions not deemed to meet a more likely than not threshold would be recorded as a tax expense in the current year. As of February 28, 2026 the Trust has determined that no provision for income taxes is required and no liability for unrecognized tax benefits has been recorded. The Trust does not expect that its assessment related to unrecognized tax benefits will materially change over the next 12 months. However, the Trust’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, the nexus of income among various tax jurisdictions; compliance with U.S. federal, U.S. state, and tax laws of jurisdictions in which the Trust operates in; and changes in the administrative practices and precedents of the relevant authorities. The Trust is required to analyze all open tax years. Open tax years are those years that are open for examination by the relevant income taxing authority. As of February 28, 2026, all tax years since inception remain open for examination. There were no examinations in progress at period end. 2.8. Investment Transactions and Revenue Recognition The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investment in EUAs. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor's Fee in EUAs. Interest income is recognized on an accrual basis and includes, where applicable, the amortization of premium or discount, and is reflected as Interest Income in the Statement of Operations. 2.9. Cash The Trust expects to periodically sell EUAs to maintain approximately 1 % of its assets in cash or cash equivalents for use in connection with creation transactions or to pay expenses. 2.10. Foreign Currency Translations Investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the close of business on the valuation date. Purchases and sales of investments, and income and expenses, are translated at the rates of exchange prevailing on the respective dates of such transactions. Realized gains or losses on foreign currency transactions can represent gains or losses between trade and settlement dates on securities transactions or gains or losses arising from the disposition of foreign currency. Unrealized gains and losses on foreign currency translations arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in exchange rates. These amounts are summarized and disclosed in the unaudited Statement of Operations. 9 Notes to the Financial Statements (unaudited) (continued) 2.11. Segment Reporting Ronald Gutstein acts as the Trust’s Chief Operating Decision Maker (“CODM”) and is responsible for assessing performance and allocating resources with respect to the Trust. The CODM has concluded that the Trust operates as a single operating segment since the Trust has a single investment strategy as disclosed in its prospectus, against which the CODM assesses performance. The financial information provided to and reviewed by the CODM is presented within the Trust’s financial statements. 3. Investment in EUAs Changes in EUAs held and their respective values for the period December 1, 2025 to February 28, 2026: EUAs Fair Value Opening Balance, December 1, 2025 19,700 $ 1,900,519 EUAs Purchased - - EUAs Sold - - Realized Gain/(Loss) from EUAs sold to pay expenses - - Net change in Unrealized Appreciation/(Depreciation) - ( 295,252 ) Ending Balance, February 28, 2026 19,700 $ 1,605,267 4. RELATED PARTIES — SPONSOR, TRUSTEE, CUSTODIAN AND MARKETING FEES A fee is paid to the Sponsor as compensation for services performed under the Trust Agreement. In exchange for the Sponsor fee, the Sponsor has agreed to assume all routine operational, administrative and other ordinary expenses of the Trust, including, but not limited to, the monthly fee, out-of-pocket expenses and expenses reimbursable in connection with such service provider’s respective agreement payable to each of the Trust’s trustee, administrator, cash custodian, transfer agent and marketing agent; the marketing support fees and expenses; exchange listing fees; SEC registration fees; printing and mailing costs; maintenance expenses for the Trust’s website; audit fees and expenses; and routine legal expenses. The Sponsor’s fee, paid monthly in arrears, is equal to 0.79 % per annum of the daily net asset value of the Trust. As of February 28, 2026, there was $ 1,053 payable to the Sponsor. 5. RISKS In accordance with Statement of Position No. 94-6, Disclosure of Certain Significant Risks and Uncertainties, the Trust’s sole business activity is the investment in EUAs. The price of EUAs is affected by numerous factors beyond the Trust’s control, including the following: (a) global or regional political, economic, environmental or financial events and situations (including pandemics, such as COVID-19); (b) investors’ expectations with respect to the future rates of inflation and movements in world equity, financial, environmental, commodity and property markets; (c) the activities and emissions of energy-intensive sectors (including manufacturing facilities, oil refineries, power stations and, aviation) may impact the demand for EUAs; (d) the relevant rules of cap and trade programs outside the European Union (including how allowances are made available to operators or market participants, such as free allocations or auctions) and links put in place between mandatory cap and trade programs and voluntary schemes (enabling carbon allowances of one mandatory program or voluntary scheme to be used for the purposes of another mandatory program or voluntary scheme) may impact the supply of EUAs; (e) the rate of progress in the innovation, introduction and expansion of technologies and techniques in the reduction of emissions of greenhouse gases (or the capture and storage thereof); (f) the use by governments of different policies to encourage or require the reduction of emissions of greenhouse gases; (g) lobbyist, political or governmental goals or policies with respect to climate change and the imposition of environmental plans or climate goals; (h) the cost and implications of non-compliance with the European Union Emissions Trading System (including both monetary and non-monetary penalties on operators subject to the European Union Emissions Trading System for failure to surrender sufficient EUAs); (i) investment and trading activities of hedge funds, commodity funds and other speculators; (j) interest rates and currency exchange rates, particularly the strength of and confidence in the Euro; and (k) the ability of the greenhouse gas emitting companies to pass on the cost of emissions credits to consumers. An investment in the Trust is not intended as a complete investment plan. Because the Trust only holds EUAs or cash, an investment in the Trust may be more volatile than an investment in a more broadly diversified portfolio. Accordingly, the NAV may be more volatile than another investment vehicle with a more broadly diversified portfolio and may fluctuate substantially over time. An investment in the Trust may be deemed speculative; therefore, investors should review closely the objective and strategy, the investment and operating restrictions and the redemption provisions of the Trust and familiarize themselves with the risks associated with an investment in the Trust. 10 Notes to the Financial Statements (unaudited) (continued) 6. INDEMNIFICATION FOOTNOTE The Trust’s members, managers, directors, officers, employees, affiliates (as such term is defined under the Securities Act) and subsidiaries) (collectively, the “Trust Parties”) shall be indemnified from the Trust and held harmless against any loss, liability or expense incurred without (1) gross negligence, bad faith or willful misconduct on the part of such indemnified party arising out of or in connection with the performance of its obligations under the Trust Agreement and under each other agreement entered into by the Trust Parties in furtherance of the administration of the Trust (including, without limiting the scope of the foregoing, the administration agreement, the transfer agency agreement, the cash custody agreement, the marketing agent agreement and any Authorized Participant Agreement) or any actions taken in accordance with the provisions of the Trust Agreement or such other agreement or (2) reckless disregard on the part of such indemnified party of its obligations and duties under the Trust Agreement or such other agreement. Such indemnity shall include payment from the Trust of the reasonable costs and expenses incurred by such indemnified party in investigating or defending itself against any claim or liability in their capacity as Trust Parties. Any amounts payable to an indemnified party may be payable in advance or shall be secured by a lien on the Trust’s assets. The Trust Parties may, in their discretion, undertake any action which it may deem necessary or desirable in respect of the Trust Agreement and the interests of the shareholders and, in such event, the reasonable legal expenses and costs of any such actions shall be expenses and costs of the Trust and the Trust Parties shall be entitled to be reimbursed therefor by the Trust. 7. FINANCIAL HIGHLIGHTS For the three months ended February 28, 2026 (a) Per Share Performance (for a Share Outstanding Throughout the Period) Net Asset Value per Share, beginning of period $ 19.20 Net investment loss (1) ( 0.04 ) Net realized and unrealized gain/(loss) from investment in EUAs ( 2.95 ) Net change in net assets resulting from operations ( 2.99 ) Net Asset Value per Share, end of period $ 16.21 Market Value per Share, beginning of period $ 19.10 Market Value per Share, end of period $ 18.80 Total Return, at Net Asset Value (2) - 15.57 % Total Return, at Market Value (2) - 1.57 % Average Net Assets (b) $ 1,906,520 Ratio to average net assets Net investment loss (3) - 0.76 % Expenses (3) 0.79 % (1) Calculated using the average shares outstanding method. (2) Percentage not annualized. (3) Percentage annualized. (a) No comparative financial statements have been provided as the Trust had not commenced operations as of February 28, 2025. (b) Average Net Assets for the period December 1, 2025 to February 28, 2026 8. SUBSEQUENT EVENTS Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosures. 11