Management's Discussion and Analysis of Financial Condition and Results of Operations.

This information should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of Part I of this Form 10-Q. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as "may," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor's expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed below, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments. Although the Sponsor does not make forward-looking statements unless it believes it has a reasonable basis for doing so, the Sponsor cannot guarantee their accuracy. Except as required by applicable disclosure laws, neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor's expectations or predictions.

Overview of the Trust

Fidelity Ethereum Fund (the "Trust") is an exchange-traded product that issues shares of beneficial interest (the "Shares") that trade on the Cboe BZX Exchange, Inc. (the "Exchange"). The Trust's investment objective is to seek to track the performance of ether, as measured by the performance of the Fidelity Ethereum Reference Rate (the "Index"), adjusted for the Trust's expenses and other liabilities, plus an amount based on the staking rewards associated with ether. As a result of the Trust's receipt of staking-based amounts, the Trust is expected to outperform the Index before consideration of the Trust's expenses and other liabilities. The Index is constructed using ether price feeds from eligible ether spot markets and a volume-weighted median price ("VWMP") methodology, calculated every 15 seconds based on VWMP spot market data over rolling sixty-minute increments. The Index is designed to reflect the performance of ether in U.S. dollars. In seeking to achieve its investment objective, the Trust holds ether and values its Shares daily based on the same methodology used to calculate the Index. The Trust is sponsored by FD Funds Management LLC (the "Sponsor"), a wholly owned subsidiary of FMR LLC. The Trust may custody its ether at Anchorage Digital Bank N.A., BitGo Bank & Trust N.A. (formerly BitGo Trust Company, Inc.) and Fidelity Digital Assets, N.A., an affiliate of the Sponsor (formerly Fidelity Digital Asset Services, LLC) (each a "Custodian" and collectively the "Custodians"), each of which provides custody services for digital assets.

The Trust is passively managed and does not pursue active management investment strategies, utilize leverage, or invest in derivatives in seeking to meet its investment objective. The Sponsor believes that the Shares are designed to provide investors with a cost-effective and convenient way to invest in ether without purchasing, holding and trading ether directly. The Trust sells and redeems Shares only with Authorized Participants in exchange for ether or cash and only in blocks of 25,000 Shares (a "Basket").

Pursuant to the Trust's investment objective, the Sponsor utilizes the services of the Custodians to stake, or cause to be staked, all of the Trust's ether with one or more trusted node operators (which may include the Custodians or their affiliates) (each, a "Node Operator"), except for ether reserved by the Sponsor in its sole discretion to facilitate foreseeable redemption transactions, pay Trust expenses, protect the Trust and its assets, and comply with the Sponsor's adopted liquidity risk management program (the "Liquidity Program") that provides a variety of mechanisms to monitor and manage the liquidity of the Trust's assets. Accordingly, while under normal circumstances the Trust may stake up to 100% of the Trust's ether, there is no minimum percentage the Trust is required to stake. The Sponsor generally considers normal circumstances to be periods when the Ethereum network is operating without material disruption, redemption activity is within expected ranges, and there are no extraordinary events requiring the Sponsor to reserve additional ether for liquidity management purposes. The Trust receives a portion of the staking rewards generated by a Node Operator.

The Shareholders of the Trust take no part in the management or control, and have no voice in, the Trust's operations or business. Except in limited circumstances, Shareholders have no voting rights under the Trust Agreement.

Valuation of Ether and Computation of Net Asset Value ("NAV")

For purposes of calculating the Trust's net asset value ("Trust's NAV") per Share, the Trust's holdings of ether are valued using the same methodology as used to calculate the Index.

The Trust's NAV per Share is calculated by:

The Administrator calculates the Trust's NAV once each Exchange trading day. The Trust's NAV for a normal trading day is released after 4:00 p.m. Eastern time ("EST"). Trading during the core trading session on the Exchange typically closes at 4:00 p.m. EST. However, the Trust's NAVs are not officially struck until after 4:00 p.m. EST. The pause after 4:00 p.m. EST provides an opportunity for the Sponsor to algorithmically detect, flag, investigate, and correct unusual pricing should it occur. The Sponsor has established a Valuation and Liquidity Committee to carry out the day-to-day fair valuation responsibilities and has adopted policies and procedures to govern the fair valuation process and the activities of the Valuation and Liquidity Committee. If the Valuation and Liquidity Committee determines in good faith that the Index does not reflect an accurate ether price, then the Valuation and Liquidity Committee instructs the Administrator to employ an alternative method to determine the fair value of the Trust's assets. In determining an alternative fair value method, the Valuation and Liquidity Committee generally considers such criteria as observable market-based inputs, including market quotations and last sale information from third-party pricing services and/or trading platforms on which ether is traded. The Valuation and Liquidity Committee's selection of third-party pricing services used considers the qualifications, experience, and history of the pricing services and whether their valuation methodologies and procedures are reasonably designed to produce prices that reflect fair value under the prevailing market conditions.

In addition, in order to provide updated information relating to the Trust for use by Shareholders and market professionals, a third-party financial data provider will calculate and disseminate throughout the core trading session on each trading day an updated intraday indicative value ("IIV"). The IIV is calculated based on the Trust's Ether Holdings and any other assets expected to comprise that day's Trust's NAV calculation. The third-party financial data provider will use the Blockstream Crypto Data Feed Streaming Level 1 as the pricing source for the spot ether. The Blockstream Crypto Data Feed Streaming Level 1 calculates an average of current ether price levels of the ether trading platforms that are available on its feed. The Trust will provide an IIV per Share updated every 15 seconds, as calculated by the Exchange or a third-party financial data provider during the Exchange's regular trading hours of 9:30 a.m. to 4:00 p.m. EST ("Regular Trading Hours"). The IIV disseminated during Regular Trading Hours should not be viewed as an actual real-time update of the Trust's NAV, which will be calculated only once at the end of each trading day as described herein.

Critical Accounting Policies and Estimates

Principal Market and Fair Value Determination

The Trust's periodic financial statements are prepared in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 820, "Fair Value Measurements and Disclosures" ("ASC Topic 820"). ASC Topic 820 requires the fair value measurement of ether to assume that transactions take place in the principal market or, in the absence of a principal market, the most advantageous market, for ether that the Trust has access to. The Trust may buy and sell ether through brokered, dealer, over-the-counter, exchange or other markets. The Sponsor determines in its sole discretion the valuation sources and policies used to prepare the Trust's financial statements in accordance with GAAP. The Trust engaged a third-party pricing service to obtain an exchange-traded price from a principal market for ether, which was determined and designated based on its consideration of several exchange characteristics, including oversight, and the volume and frequency of trades. The exchange-traded price from the principal market on the periodic financial statements is as of 11:59:59 p.m. EST on the Trust's financial statement measurement date.

Results of Operations

The Quarter Ended September 30, 2026

The Trust's net assets increased from approximately $0.8 billion as of June 30, 2026, to $1.6 billion as of September 30, 2026. The change in the Trust's net assets was driven by an increase in outstanding Shares, which increased from 47,800,000 as of June 30, 2026 to 58,625,000 as of September 30, 2026 as a result of 28,250,000 Shares (1,130 Baskets) being created and 17,425,000 Shares (697 Baskets) being redeemed, coupled with an increase in the price of ether, which increased 69.11% from $1,593.01 as of June 30, 2026 to $2,693.88 as of September 30, 2026.

The NAV per Share increased 69.00% from $15.87 as of June 30, 2026 to $26.82 as of September 30, 2026. The Trust's NAV per Share increased 69.32% from $15.71 as of June 30, 2026 to $26.60 as of September 30, 2026.

The Trust's NAV per Share of $27.53 at September 21, 2026, was the highest during the three months ended September 30, 2026, compared with a low of $16.13 at July 1, 2026.

The quantity of ether owned by the Trust and held by the ether custodians increased from 476,311 as of June 30, 2026, to 583,807 as of September 30, 2026. The increase in quantity resulted from net proceeds from issuance of capital shares which corresponded to net purchases of ether.

The net increase in net assets resulting from operations for the three months ended September 30, 2026, was approximately $0.5 billion, primarily resulting from a net change in unrealized appreciation on investment in ether of approximately $0.6 billion.

The Quarter Ended September 30, 2025

The Trust's net assets increased from approximately $1.2 billion as of June 30, 2025, to $3.2 billion as of September 30, 2025. The change in the Trust's net assets was driven by an increase in outstanding Shares, which rose from 49,925,000 as of June 30, 2025 to 76,500,000 as of September 30, 2025 as a result of 67,750,000 Shares (2,710 Baskets) being created and 41,175,000 Shares (1,647 Baskets) being redeemed, coupled with an increase in the price of ether, which rose 66.18% from $2,485.81 as of June 30, 2025 to $4,130.84 as of September 30, 2025.

The Trust's NAV per Share increased 64.58% from $25.07 as of June 30, 2025 to $41.26 as of September 30, 2025.

The Trust's NAV per Share of $48.12 at August 22, 2025, was the highest during the three months ended September 30, 2025, compared with a low of $24.11 at July 1, 2025.

The quantity of ether owned by the Trust and held by the ether custodians increased from 498,722 as of June 30, 2025, to 763,730 as of September 30, 2025. The increase in quantity is the result of the net increase from capital share transactions.

The net increase in net assets resulting from operations for the three months ended September 30, 2025, was approximately $0.9 billion, primarily resulting from a net unrealized appreciation on investment in ether of approximately $1.0 billion and a net realized loss of $0.1 billion from the sale of the investment in ether for the redemption of Shares.

The Nine Months Ended September 30, 2026

The Trust's net assets decreased from approximately $2.2 billion as of December 31, 2025, to $1.6 billion as of September 30, 2026. The change in the Trust's net assets was driven by a decrease in outstanding Shares, which decreased from 74,550,000 as of December 31, 2025 to 58,625,000 as of September 30, 2026 as a result of 74,325,000 Shares (2,973 Baskets) being created and 90,250,000 Shares (3,610 Baskets) being redeemed, coupled with a decrease in the price of ether, which decreased 9.34% from $2,971.55 as of December 31, 2025 to $2,693.88 as of September 30, 2026.

The NAV per Share decreased 9.51% from $29.64 as of December 31, 2025 to $26.82 as of September 30, 2026. The Trust's NAV per Share decreased 10.01% from $29.56 as of December 31, 2025 to $26.60 as of September 30, 2026.

The Trust's NAV per Share of $33.67 at January 14, 2026, was the highest during the nine months ended September 30, 2026, compared with a low of $15.47 at June 5, 2026.

The quantity of ether owned by the Trust and held by the ether custodians decreased from 743,795 as of December 31, 2025, to 583,807 as of September 30, 2026. The decrease in quantity is the result of net redemptions of Shares during the nine months which corresponded to net sales of ether.

The net decrease in net assets resulting from operations for the nine months ended September 30, 2026, was approximately $0.4 billion, primarily resulting from a net realized loss of approximately $0.5 billion from the sale of the investment in ether for the redemption of Shares.

The Nine Months Ended September 30, 2025

The Trust's net assets increased from approximately $1.6 billion as of December 31, 2024, to $3.2 billion as of September 30, 2025. The change in the Trust's net assets was driven by an increase in outstanding Shares, which rose from 47,175,000 as of December 31, 2024 to 76,500,000 as of September 30, 2025 as a result of 104,300,000 Shares (4,172 Baskets) being created and 74,975,000 Shares (2,999 Baskets) being redeemed, coupled with an increase in the price of ether, which rose 23.92% from $3,333.60 as of December 31, 2024 to $4,130.84 as of September 30, 2025.

The Trust's NAV per Share increased 23.39% from $33.44 as of December 31, 2024 to $41.26 as of September 30, 2025.

The Trust's NAV per Share of $48.12 at August 22, 2025, was the highest during the nine months ended September 30, 2025, compared with a low of $14.64 at April 8, 2025.

The quantity of ether owned by the Trust and held by the ether custodians increased from 471,750 as of December 31, 2024, to 763,730 as of September 30, 2025. The increase in quantity is the result of the net increase from capital share transactions.

The net increase in net assets resulting from operations for the nine months ended September 30, 2025, was $0.5 billion, primarily resulting from a net unrealized appreciation on investment in ether of $0.9 billion and a net realized loss of approximately $0.4 billion from the sale of the investment in ether for the redemption of Shares.

Cash Resources and Liquidity

The Trust does not hold a cash balance except in connection with the issuance and redemption of Baskets or to pay expenses not assumed by the Sponsor. To the extent the Trust does not have available cash to facilitate redemptions or pay expenses not assumed by the Sponsor, the Trust will sell ether. When selling ether on behalf of the Trust, the Sponsor endeavors to minimize the Trust's holdings of assets other than ether. As a consequence, the Sponsor expects that the Trust will have an immaterial amount of cash flow from its operations and that its cash balance will be insignificant at the end of each reporting period. The Trust's only sources of cash are proceeds from the sale of Baskets and ether. The Trust intends to make cash
distributions at least quarterly in order to rely on the safe harbor conditions established by IRS Revenue Procedure 2025-31
applicable to grantor trusts that stake digital assets.

The Trust's staking program involves the temporary loss of the ability to transfer or otherwise dispose of the Trust's ether. As part of the "bonding" and "unbonding" processes of staking, any staked portion of ether will be inaccessible for a period of time, which is variable by network demand and a range of other factors. While the Trust does not have long-term capital resource requirements or obligations, there can be no guarantee that the process for the Custodians to unstake or "exit" the Trust's staked ether positions will result in the Trust regaining complete control of its ether in time to satisfy its short-term obligations to facilitate foreseeable Shareholder redemption requests and pay Trust expenses. The Trust maintains the Liquidity Program that provides a variety of mechanisms to monitor and manage the liquidity of the Trust's assets. The Liquidity Program is available in full at the Trust's website at www.fidelity.com.

Under the Liquidity Program, the Trust maintains a portion of its investments as readily available to facilitate foreseeable redemption requests, pay Trust expenses, or protect the Trust and its assets. Assets that are readily available to meet redemption requests include cash and cash equivalents, and any investment or portion of an investment reasonably expected to be able to be liquidated, sold, transferred, or assigned within the Trust's established redemption distribution period without the conversion or disposition significantly changing the market value of the investment.

The Trust may, in its discretion and subject to the Liquidity Program, suspend the right of creation or redemption or postpone the redemption or purchase settlement date for (1) any period during which an emergency exists as a result of which the fulfillment of a purchase order or the redemption distribution is not reasonably practicable, or (2) such other period as the Sponsor determines to be necessary for the protection of Shareholders.

The Trust may exchange its staked ether for an amount of unstaked ether. In such transactions, the ether trading counterparty facilitating such trade will generally deliver an amount of unstaked ether that is less than the amount of staked ether the Trust has delivered in exchange, with such spread representing the ether trading counterparty's compensation. While such spreads are generally expected to be de minimis in relation to the Trust's overall assets, any such spread charged by an ether trading counterparty will reduce the amount of ether represented by a Share and the value of Shares.

As part of the Liquidity Program, the Trust may establish various liquidity sources, which it may use to temporarily finance the redemption requests of Shareholders or for other short-term liquidity requirements. These liquidity sources may include borrowing arrangements made via uncommitted and committed lines of credit.

As of the date of this Quarterly Report, the Trust has not entered into any line of credit or other borrowing arrangement, nor suspended the rights of creations or redemptions or postponed redemption or purchase settlement dates nor exchanged its staked ether for an amount of unstaked ether.

In exchange for the Sponsor Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. In addition to the Sponsor Fee, the Trust bears Staking Fees.

Off Balance Sheet Arrangements and Contractual Obligations

The Trust has not used, nor does it expect to use in the future, special purpose entities to facilitate off balance sheet financing arrangements and has no loan guarantee arrangements or off balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services for the Trust. While the Trust's exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on a Trust's financial position.

Sponsor Fee payments made to the Sponsor are calculated as a fixed percentage of 0.25% of the Trust's Ether Holdings. As such, the Sponsor cannot anticipate the payment amounts that will be required under these arrangements for future periods as the Trust's Ether Holdings are not known until a future date. In addition to the Sponsor Fee, the Trust bears the Staking Fees, which the Sponsor, the custodians, and node operators each receive from the proceeds of the node operators' staking activities that the Trust receives from the Ethereum network. The total amount of the Staking Fee equals 15% of all staking rewards received by the Trust; the Trust retains the remaining 85%. As the Sponsor cannot anticipate the amount of staking rewards that will be received by the Trust in future periods, the amount of the Staking Fee or the portion of the Staking Fee any party is entitled to will not be known until a future date.

Selected Operating Data

As of 4:00 p.m., EST, on the last business day of the quarter ended September 30, 2026, the Trust's total value of ether based on the Index Price (non-GAAP methodology) was $1,559,850,389, a difference of $12,855,429 to the GAAP value, which was $1,572,705,818, and the total market value of the Trust's ether based on the price of ether at 4:00 p.m., EST, in the principal market was $1,558,104,806, a difference of $14,601,012 to the GAAP value, which was $1,572,705,818.

As of 4:00 p.m., EST, on the last business day of the year ended December 31, 2025, the Trust's total value of ether based on the Index Price (non-GAAP methodology) was $2,204,520,518, a difference of $5,704,911 to the GAAP value, which was $2,210,225,429, and the total market value of the Trust's ether based on the price of ether at 4:00 p.m., EST, in the principal market (non-GAAP methodology) was $2,210,515,510, a difference of $290,081 to the GAAP value, which was $2,210,225,429.

Monthly Staking Information for the Quarter Ended September 30, 2026

Analysis of Price Movements

Investors should understand the relationship between the Index Price (non-GAAP measurement of the price of ether), the Trust's NAV per Share (non-GAAP measurement of the price of ether affected by non-ether net assets, such as the Sponsor Fee), the Trust's market price per Share, and ether's principal market price. Investors should also be aware that past movements are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world.

The following chart illustrates the movement in the Index Price, the principal market price, and the Trust's NAV per Share during the nine months ended September 30, 2026.

During the nine months ended September 30, 2026, the Index Price has ranged from $1,553.00 on June 5, 2026, to $3,375.83 on January 14, 2026. The Sponsor has not observed a material difference between the Index Price and average prices from the constituent ether spot markets individually or as a group.

During the nine months ended September 30, 2026, the 11:59:59 p.m. EST market price of ether, as reported on the Trust's principal market, has ranged from $1,556.21 on June 25, 2026, to $3,337.73 on January 13, 2026.

Shares trade in the secondary market on the Exchange. Shares may trade in the secondary market at prices that are lower or higher relative to the Trust's NAV per Share. The amount of the discount or premium in the trading price relative to the Trust's NAV per Share may be influenced by various factors, including the number of Shareholders who seek to purchase or sell Shares in the secondary market and the liquidity of ether. The following chart sets out the historical closing prices for the Shares as reported by the Exchange and the Trust's NAV per Share during the nine months ended September 30, 2026.