Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements.

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 Fidelity Ethereum Reference Rate ("the Index"), adjusted for 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 is passively managed and does not pursue active management investment strategies. 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.

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 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 Committee. If the Valuation Committee determines in good faith that the Index does not reflect an accurate ether price, then the Valuation 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 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 are traded. The Valuation 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 will be 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 Trust's commencement of operations was July 23, 2024. The Trust had no operations prior to July 23, 2024, other than matters relating to its organization and the registration of the Shares under the Securities Act of 1933 (the "1933 Act").

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 custodian 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 Quarter Ended September 30, 2024

The Trust's net assets increased from $4.4 million on June 30, 2024 to $424.5 million on September 30, 2024. The change in the Trust's net assets was driven by an increase in outstanding Shares, which increased from 125,000 on June 30, 2024 to 16,150,000 on September 30, 2024 as a result of 16,375,000 Shares (655 Baskets) being issued and 350,000 Shares (14 Baskets) being redeemed during the period July 23, 2024 (commencement of operations) through September 30, 2024, partially offset by a decrease in the price of ether, which fell 23.79% from $3,448.77 on July 23, 2024 to $2,628.44 on September 30, 2024.

The Trust's NAV per Share decreased 25.50% from $34.79 on July 23, 2024 to $25.92 on September 30, 2024.

The Trust's NAV per Share of $34.79 at July 23, 2024 was the highest during the period July 23, 2024 through September 30, 2024, compared with a low of $22.24 at September 6, 2024.

During the quarter ended September 30, 2024, the quantity of ether owned by the Trust and held by the ether custodian increased from 1,250 on June 30, 2024 to 161,500 on September 30, 2024. The increase in quantity is the result of the net increase from capital share transactions.

The net decrease in net assets resulting from operations for the quarter ended September 30, 2024 was $58.6 million, resulting from a net unrealized depreciation on investment in ether of $56.5 million and a net realized loss of $2.1 million 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 custodian 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.

The Period Ended September 30, 2024

Prior to June 4, 2024, the Trust had no operations other than matters relating to the sale and issuance of one seed share of the Trust for an aggregate purchase price of $40 on May 24, 2024. On June 4, 2024, the seed share was redeemed for cash and the Seed Capital Investor purchased 125,000 Shares at a per-Share price of $38 (the "Seed Baskets"). On June 4, 2024, the Trust purchased 1,250 ether with the $4.8 million proceeds of the Seed Baskets. The Trust's net assets increased from $4.8 million on June 4, 2024 to $424.5 million on September 30, 2024. The change in the Trust's net assets was driven by an increase in outstanding Shares, which increased from 1 on May 24, 2024 (seeding date) to 16,150,000 on September 30, 2024 as a result of 16,500,000 Shares (660 Baskets) being issued and 350,000 Shares (14 Baskets) being redeemed during the period July 23, 2024 (commencement of operations) through September 30, 2024, partially offset by a decrease in the price of ether, which fell 23.79% from $3,448.77 on July 23, 2024 to $2,628.44 on September 30, 2024.

The Trust's NAV per Share decreased 25.50% from $34.79 on July 23, 2024 to $25.92 on September 30, 2024.

The Trust's NAV per Share of $34.79 at July 23, 2024 was the highest during the period July 23, 2024 through September 30, 2024, compared with a low of $22.24 at September 6, 2024.

During the period ended September 30, 2024, the quantity of ether owned by the Trust and held by the ether custodian increased from 1,250 on June 4, 2024 to 161,500 on September 30, 2024. The increase in quantity is the result of the net increase from capital share transactions.

The net decrease in net assets resulting from operations for the period ended September 30, 2024 was $59.0 million, resulting from a net unrealized depreciation on investment in ether of $56.9 million and a net realized loss of $2.1 million 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.

In exchange for the Sponsor Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. The Sponsor contractually waived the Sponsor Fee until December 31, 2024. On January 1, 2025, the Sponsor Fee began accruing at an annual rate of 0.25% of the Trust's Ether Holdings.

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 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.

Selected Operating Data

As of 4:00 p.m., EST, on the last business day of the quarter ended September 30, 2025, the Trust's total value of ether based on the Index Price (non-GAAP methodology) was $3,156,886,464 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 $3,178,347,283.

As of 4:00 p.m., EST, on the last business day of the quarter ended December 31, 2024, the Trust's total value of ether based on the Index Price (non-GAAP methodology) was $1,577,725,418 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 $1,575,833,700.

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, 2025.

During the nine months ended September 30, 2025, the Index Price has ranged from $1,465.30 on April 8, 2025, to $4,822.31 on August 24, 2025. 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, 2025, the 11:59:59 p.m. EST market price of ether, as reported on the Trust's principal market, has ranged from $1,417.92 on April 8, 2025, to $4,787.51 on August 23, 2025.

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, 2025.