UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended ~~February 28~~May 31, 2026

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission file number: 001-42643

COTWO ADVISORS

PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

(Exact Name of Registrant as Specified in Its Charter)

Delaware		92-6338429
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

c/o COtwo Advisors LLC

140 Elm Street, Suite 6,

New Canaan, CT 06840

(Address of Principal Executive Offices)

(866) 990-6442

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s) Name		Name of each exchange on which registered
COtwo Advisors Physical European Carbon Allowance Trust		CTWO		NYSE Arca

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April~~July 152, 2026, the Registrant had 100,000 Shares outstanding.

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

INDEX

		Page
PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Statements of Financial Condition at February 28, 2026 (unaudited) and November 30, 2025	1
	Statements of Financial Condition at May 31, 2026 (unaudited) and November 30, 2025	1
	Schedules of Investments at February 28, 2026 (unaudited) and November 30, 2025	2
	Schedules of Investments at May 31, 2026 (unaudited) and November 30, 2025	2
	Statement of Operations for the three months ended February 28, 2026 (unaudited)	3
	Statements of Operations for the three and six months ended May 31, 2026 (unaudited) and the period ended May 31, 2025 (unaudited)	3
	Statement of Cash Flows for the period December 1, 2025 to February 28, 2026 (unaudited)	4
	Statements of Cash Flows for the six months ended May 31, 2026 (unaudited) and the period ended May 31, 2025 (unaudited)	4
	Statement of Changes in Net Assets for the three months ended February 28, 2026 (unaudited)	5
	Statements of Changes in Net Assets for the three and six months ended May 31, 2026 (unaudited) and the period ended May 31, 2025 (unaudited)	5
	Notes to the Unaudited Financial Statements (unaudited)	6
	Notes to the Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1213
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
PART II - OTHER INFORMATION		19
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
SIGNATURES		21

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

PART I - FINANCIAL INFORMATION:

Item 1. Financial Statements (Unaudited)

Statements of Financial Condition

	February 28, 2026		November 30, 2025
	May 31, 2026 (unaudited)		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~~827,~~267~~188	$	1,900,519
Cash & Cash Equivalents		1613,~~816~~754		20,497
Interest Receivable		4843		68
Total Assets	$	1,~~622~~840,~~131~~985	$	1,921,084
LIABILITIES
Sponsor’s Management Fees	$	1,~~053~~160	$	1,205
Total Liabilities	$	1,~~053~~160	$	1,205
Net Assets	$	1,~~621~~839,~~078~~825	$	1,919,879
Shares issued and outstanding(1)		100,000		100,000
Net asset value per Share	$	1618.2140	$	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.

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

Schedules of Investments

February 28, 2026 (unaudited)	Units Held		Cost		Fair Value			% of Net Assets
May 31, 2026 (unaudited)	Units Held		Cost		Fair Value			% of Net Assets
EUAs		19,700	$	1,667,361	$	1,~~605~~827,~~267~~188			99.0231	%
State Street Institutional U.S. Government Money Market Fund - Premier Class (a)		1613,~~816~~754		1613,~~816~~754		1613,~~816~~754			10.0475	%
Total Investment			$	1,~~684~~681,~~177~~115	$	1,~~622~~840,~~083~~942			100.06	%
Liabilities in Excess of Other Assets						(1,~~005~~117	)		-0.06	%
Net Assets					$	1,~~621~~839,~~078~~825			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~~May 2831, 2026 and November 30, 2025, were 3.6358% and 3.94%, respectively.

See notes to the unaudited financial statements.

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

~~Statement~~ Statements of Operations (unaudited) ~~(a)~~

	For the Three months ended February 28, 2026 (unaudited)
	Three Months Ended May 31, 2026 (unaudited)			Six Months Ended May 31, 2026 (unaudited)			Period ended May 31, 2025 (a) (unaudited)
INVESTMENT INCOME
Interest Income	$	~~171~~137		$	308		$	-
EXPENSES
Sponsor’s Management Fees	$	3,~~720~~311		$	7,031		$	-
Total expenses		3,~~720~~311			7,031			-
Net investment income/(loss)	$	(3,~~549~~174	)	$	(6,723	)	$	-
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~~221,~~252~~921	)		(73,331	)		-
Net realized and change in unrealized gain/(loss) on investment in EUAs and foreign currency		~~(295~~221,~~252~~921	)		(73,331	)		-
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	~~(298~~218,~~801~~747	)	$	(80,054	)	$	-
Net decrease in net assets per share from operations	$	(2.99	)
Net increase/(decrease) in net assets per share from operations	$	2.19		$	(0.80	)	$	-
Weighted average number of shares outstanding		100,000			100,000			-

(a) NoThe ~~comparative~~Fund ~~financial statements have been provided as the Trust~~ had not commenced operations as of ~~February~~May 2831, 2025.

See notes to the unaudited financial statements.

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

~~Statement~~ Statements of Cash Flows (unaudited) ~~(a)~~

	For the Three months ended February 28, 2026 (unaudited)
	Six Months Ended May 31, 2026 (unaudited)			Period ended May 31, 2025 (a) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase/(decrease) in net assets resulting from operations	$	(~~298~~80,~~801~~054	)	$	-
Adjustments to reconcile net increase/(decrease) resulting from operations to net cash provided by (used in) operating activities
Adjustments to reconcile net increase/(decrease) in net assets resulting from operations to net cash provided by (used in) operating activities
EUAs purchased	$	-		$	-
EUAs sold		-			-
Unrealized (gain)/loss on investment in EUAs		~~295~~73,~~252~~331			-
(Increase)/decrease in interest receivable		2025			-
Increase/(decrease) in Sponsor’s Management Fee payable		(~~152~~45	)		-
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	$	(36,~~681~~743	)	$	-
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	)
Net increase/(decrease) in cash and cash equivalents	$	(6,743	)	$	-
Cash and cash equivalents at beginning of period	$	20,497		$	-
Cash and cash equivalents at end of period	$	1613,~~816~~754		$	-

(a) NoThe ~~comparative~~Fund ~~financial statements have been provided as the Trust~~ had not commenced operations as of ~~February~~May 2831, 2025.

See notes to the unaudited financial statements.

COTWO ADVISORS PHYSICAL EUROPEAN CARBON ALLOWANCE TRUST

~~Statement~~ Statements of Changes in Net Assets (unaudited) ~~(a)~~

	For the three months ended February 28, 2026 (unaudited)
	Three months ended May 31, 2026 (unaudited)			Six months ended May 31, 2026 (unaudited)			Period ended May 31, 2025 (a) (unaudited)
Operations
Net investment loss	$	(3,~~549~~174	)	$	(6,723	)	$	-
Net realized gain/(loss) from EUAs and foreign currency sold		-			-			-
Net change in unrealized gain/(loss) from EUAs	$	~~(295~~221,~~252~~921	)	$	(73,331	)	$	-
Net decrease in net assets resulting from operations	$	(298,801	)
Net increase/(decrease) in net assets resulting from operations	$	218,747		$	(80,054	)	$	-
Capital Share Transactions:
Creations		-			-			-
Redemptions		-			-			-
Net increase/(decrease) in net assets from capital share transactions		-			-			-
Net decrease in net assets	$	(298,801	)
Net increase/(decrease) in net assets	$	218,747		$	(80,054	)	$	-
Net Assets - Beginning of Period	$	1,~~919~~621,~~879~~078		$	1,919,879		$	-
Net Assets - End of Period	$	1,~~621~~839,~~078~~825		$	1,839,825		$	-
Shares issued and redeemed
Shares issued		-			-			-
Shares redeemed		-			-			-
Net increase/(decrease) in Shares issued and outstanding		-			-			-

(a) NoThe ~~comparative~~Fund ~~financial statements have been provided as the Trust~~ had not commenced operations as of ~~February~~May 2831, 2025.

See notes to the unaudited financial statements.

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~~May 2831, 2026 and the Statements of Operations, Cash Flows and Changes in Net Assets for the ~~reporting~~periods ~~period~~ ended ~~February~~ 28May 31, 2026 and May 31, 2025 as presented 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~~as ~~the~~presented ~~three months ended February 28, 2026~~ have been made. The results of operations ~~for~~as ~~the three months ended February~~presented ~~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.

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~~has 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

May 31, 2026

Level 1

Level 2

Level 3

EUAs

1,~~605~~827,~~267~~188

Short-Term Investments

1613,~~816~~754

Total

1613,~~816~~754

1,~~605~~827,~~267~~188

7There were no transfers between Level 1 and other Levels for the period ended May 31, 2026.

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

For the Three Months Ended May 31, 2026

For the Six Months Ended May 31, 2026

For the Period Ended May 31, 2025

Activity in Number of Shares Created and Redeemed:

Creations

Redemptions

Net Change in Number of Shares Created and Redeemed

For the
Three Months
Ended
May 31,
2026

For the
Six Months
Ended
May 31,
2026

For the
Period
Ended
May 31,
2025

Activity in Value of Shares Created and Redeemed:

Creations

Redemptions

Net Change in Number of Shares Created and Redeemed

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~~May 2831, 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~~May 2831, 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~~May 2831, 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~~Statements 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 Statements ~~Statement~~ of Operations.

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~~periods December 1, 2025 to ~~February~~May 2831, 2026 and April 29, 2025 (a) to November 30, 2025, respectively:

	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~~73,~~252~~331	)
Ending Balance, February 28, 2026		19,700	$	1,605,267
Ending Balance, May 31, 2026		19,700	$	1,827,188

	EUAs			Fair Value
Opening Balance, April 29, 2025 (a)		-		$	-
EUAs Purchased		30,000			2,544,145
EUAs Sold		(10,300	)		(904,312	)
Realized Gain/(Loss) from EUAs sold to fund redemption		-			28,146
Realized Gain/(Loss) from EUAs sold to pay expenses		-			(618	)
Net change in Unrealized Appreciation/(Depreciation)		-			233,158
Ending Balance, November 30, 2025		19,700		$	1,900,519

(a)

Effective date of registration statement.

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~~May 2831, 2026 and November 30, 2025, there was $1,~~053~~160 and $1,205 payable to the Sponsor, respectively.

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.

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 and six months ended ~~February~~May 2831, 2026, ~~(a)~~and the period ended May 31, 2025.

Per Share Performance (for a Share Outstanding Throughout the Period)	Three Months Ended May 31, 2026			Six Months Ended May 31, 2026			Period Ended May 31, 2025 (a) (unaudited)
Net Asset Value per Share, beginning of period	$	1916.2021		$	19.20		$	-
Net investment loss (1)		(0.0403	)		(0.07	)		-
Net realized and unrealized gain/(loss) from investment in EUAs		(2.9522	)		(0.73	)		-
Net change in net assets resulting from operations		(2.9919	)		(0.80	)		-
Net Asset Value per Share, end of period	$	1618.2140		$	18.40		$	-
Market Value per Share, beginning of period	$	1918.1080		$	19.10		$	-
Market Value per Share, end of period	$	1817.8058		$	17.58		$	-
Total Return, at Net Asset Value (2)		~~-15~~13.5751	%		-4.17	%		-	%
Total Return, at Market Value (2)		-16.5749	%		-7.96	%		-	%
Average Net Assets (b)	$	1,~~906~~667,~~520~~948		$	1,785,924		$	-
Ratio to average net assets
Net investment loss (3)		-0.7675	%		-0.76	%		-	%
Expenses (3)		0.79	%		0.79	%		-	%

(1)

Calculated using the average shares outstanding method.

(2)

Percentage not annualized.

(3)

Percentage annualized.

(a) NoThe ~~comparative~~Fund ~~financial statements have been provided as the Trust~~ had not commenced operations as of ~~February~~May 2831, 2025.

(b) Average Net Assets for the ~~period~~periods March 1, 2026 to May 31, 2026 (three months) and December 1, 2025 to ~~February~~May 2831, 2026 (six months), and the period ended May 31, 2025, respectively.

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.

1112

Item 2. 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 included in Item 1 of Part I of this Quarterly Report. The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to future events and financial results. In some cases, you can identify such forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in this Quarterly Report that address activities, events or developments that may occur in the future, including such matters as changes in asset prices and market conditions (for EUAs and the Shares), the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar matters are forward-looking statements. 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 in this Quarterly Report, 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. See “Risk Factors.” Consequently, all the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, the Trust’s operations or the value of the Shares. Moreover, neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of the forward-looking statements. Neither the Trust nor the Sponsor undertakes an obligation to publicly update or conform to actual results any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Trust Overview

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 (“Trust Agreement”) dated November 27, 2023 between COtwo Advisors LLC (the “Sponsor”) and Wilmington Trust, National Association (the “Trustee”), and a “Sponsor Agreement,” dated December 21, 2023, between the Trust and the Sponsor. The Trust issues common units of beneficial interest, or “Shares,” which represent units of fractional undivided beneficial interest in the Trust’s net assets. The Shares of the Trust are listed for trading on NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”).

The Sponsor, COtwo Advisors LLC, is a Delaware limited liability company. The Sponsor’s mailing address is 140 Elm Street, Suite 6, New Canaan, CT 06840. The Trust pays the Sponsor a Sponsor Fee. The Trust is managed and controlled by the Sponsor pursuant to the terms of the Trust Agreement and the Sponsor Agreement. The Sponsor arranged for the creation of the Trust, the registration of the Shares for their public offering in the United States and the listing of the Shares on the Exchange. The Sponsor also paid the costs of the Trust’s organization and the initial sale of the Shares, including applicable SEC registration fees. In exchange for the Sponsor Fee, the Sponsor has agreed to assume to pay all of the routine operational, administrative and other ordinary expenses of the Trust, including, but not limited to, the following administrative and marketing expenses incurred by the Trust: each of the Trustee’s, Trust administrator’s, Trust cash custodian’s, Trust transfer agent’s and marketing agent’s monthly fee and out-of-pocket expenses and expenses reimbursable in connection with such service provider’s respective agreement; 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 sole Trustee of the Trust is Wilmington Trust, National Association, a national banking association. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890. The Trustee is unaffiliated with the Sponsor. The Trustee is the trustee of the Trust for the sole and limited purpose of fulfilling the requirements of the Delaware Statutory Trust Act (“DSTA”). The Trustee will accept service of legal process on the Trust in the State of Delaware and will make certain filings under the DSTA. Under the Trust Agreement, the Trustee has delegated to the Sponsor the exclusive management and control of all aspects of the activities of the Trust.

On April 29, 2025, the initial Form S-1 for the Trust was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 17, 2025, two Baskets (as defined below) for the Trust were issued representing 100,000 shares. The Trust began trading on NYSE Arca on June 20, 2025.

Shares are issued by the Trust only in blocks of 50,000 Shares called “Baskets” in exchange for European Union Carbon Emission Allowances (“EUAs”) or cash from certain registered broker-dealers (“Authorized Participants”). Baskets will be redeemed by the Trust in exchange for the amount of EUAs or cash corresponding to their redemption value. The Trust issues and redeems Baskets on an ongoing basis at net asset value (“NAV”) per Share to Authorized Participants who have entered into a contract with the Sponsor and the Trust’s transfer agent.

Trust Objective

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 intends to achieve this objective by investing substantially all of its assets in 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’s assets will consist of EUAs and cash. The Trust may hold cash in connection with cash purchases and redemptions of Shares and it also will occasionally hold cash for short periods to pay the management fee to the Sponsor (the "Sponsor's Management Fee") and any other Trust expenses and liabilities not assumed by the Sponsor. The Trust will not hold any assets other than EUAs and cash or cash equivalents.

Trust Objective

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 intends to achieve this objective by investing substantially all of its assets in 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’s assets will consist of EUAs and cash. The Trust may hold cash in connection with cash purchases and redemptions of Shares and it also will occasionally hold cash for short periods to pay the management fee to the Sponsor (the “Sponsor’s Management Fee”) and any other Trust expenses and liabilities not assumed by the Sponsor. The Trust will not hold any assets other than EUAs and cash or cash equivalents.

Other than sales of EUAs to pay certain expenses, discussed below, the Trust may only purchase or sell EUAs in connection with the purchase (creation) or redemption of Baskets by Authorized Participants. For a creation in cash, the Authorized Participant will deliver the cash to the Trust’s account at the Cash Custodian, which the Sponsor will then use to purchase EUAs from a third party selected by the Sponsor who (1) is not the Authorized Participant and (2) will not be acting as an agent, nor at the direction, of the Authorized Participant with respect to the delivery of EUAs to the Trust (such third party, a “Liquidity Provider”). For a redemption in cash, the Sponsor shall arrange for the EUAs represented by the Basket to be sold to a Liquidity Provider selected by the Sponsor and the cash proceeds distributed from the Trust’s account at the Cash Custodian to the Authorized Participant in exchange for its Shares. In the case of “in-kind” creation or redemption orders for Shares, Authorized Participants may deliver or direct the delivery of EUAs by third parties, or take delivery or direct the taking of delivery of EUAs by third parties.

In addition to selling EUAs to distribute cash to Authorized Participants redeeming Shares, the Trust may sell EUAs to pay certain expenses not assumed by the Sponsor (described above), including the Sponsor’s Management Fee, which may be facilitated by one or more Liquidity Providers.

European Union Carbon Emission Allowances (“EUAs”)

The European Union Emissions Trading System (“EU ETS”) is a “cap and trade” system that caps the total volume of greenhouse gas (“GHG”) emissions from installations and aircraft operators responsible for around 40% of European Union (“EU”) GHG emissions. The EU ETS is administered by the EU Commission, which issues a predefined amount of EUAs through auctions or free allocation. EUAs entitle the holder to emit one ton of carbon dioxide equivalent or other GHG. Entities covered by the EU ETS are required to surrender each year sufficient EUAs to cover all their emissions for the previous year.

In 2012, EU ETS operations were centralized into a single EU registry operated by the EU Commission (the “Union Registry”), which covers all countries participating in the EU ETS. The Union Registry is an online database that holds accounts for all entities covered by the EU ETS as well as for participants (such as the Trust) not covered under the EU ETS. An account must be opened in the Union Registry in order to transact in EUAs and the Union Registry is at all times responsible for holding the EUAs. The EU ETS is the largest cap and trade system in the world and covers more than 11,000 power stations and industrial plants in 31 countries, and flights between airports of participating countries.

There is no assurance that cap and trade regimes will continue to exist. Cap and trade may not prove to be an effective method of reduction in GHG emissions. As a result or due to other factors, cap and trade regimes may be terminated or may not be renewed upon their expiration. The EU ETS is organized into a number of phases, each which a predetermined duration. Currently, the EU ETS is in Phase IV. There can be no assurance that the EU ETS will enter into a new phase as scheduled.

New technologies may arise that may diminish or eliminate the need for cap and trade markets. Ultimately, the cost of carbon allowances is determined by the cost of actually reducing emissions levels. If the price of credits becomes too high, it will be more economical for companies to develop or invest in green technologies, thereby suppressing the demand for credits and adversely affecting the price of the Trust.

Cap and trade regimes set emission limits (i.e., the right to emit a certain quantity of GHG emissions), which can be allocated or auctioned to the parties in the mechanism up to the total emissions cap. This allocation may be larger or smaller than is needed for a stable price of credits and can lead to large price volatility, which could affect the value of the Trust. Depending upon the industries of end users of EUAs, unpredictable demand for their products and services can affect the value of GHG emissions credits. For example, very mild winters or very cool summers can decrease demand for electric utilities and therefore require fewer carbon credits to offset reduced production and GHG emissions.

The ability of the GHG emitting companies to pass on the cost of emissions credits to consumers can affect the price of the EUAs. If the price of emissions can be passed on to the end customer with little impact upon consumer demand, it is likely that industries may continue emitting and purchase any shortfall in the market at the prevailing price. If, however, the producer is unable to pass on the cost, it may be incentivized to reduce production in order to decrease its need for offsetting emissions credits, which could adversely affect the price of EUAs and the Trust.

Regulatory risk related to changes in regulation and enforcement of cap and trade regimes could also adversely affect market behavior. If fines or other penalties for non-compliance are not enforced, incentives to purchase GHG credits will deteriorate, which could result in a decline in the price of emissions credits and a drop in the value of the Trust. In addition, as cap and trade markets develop, new regulation with respect to these markets may arise, which could have a negative effect on the value and liquidity of the cap and trade markets and the Trust.

Results of Operations

For the period ~~December~~March 1, ~~2025~~2026 to ~~February~~May 2831, 2026, no Shares were issued in exchange for EUAs and no Shares were redeemed in exchange for EUAs. The Trust’s NAV per Share began the period at $1916.2021 and ended the period at $1618.2140.

The change in net assets from operations for the period ~~December~~March 1, ~~2025~~2026 to ~~February~~May 2831, 2026 was $(2.~~99)~~19 per share, which was due to (i) payment of the Sponsor’s Management Fee of $3,~~720~~311, (ii) interest income earned on short-term investments of $~~171~~137, and (iii) a net change in unrealized ~~depreciation~~appreciation on investment in EUAs of ($~~295~~221,~~252)~~921. Other than the Sponsor’s Management Fee the Trust had no expenses during the period ~~December~~March 1, ~~2025~~2026 to ~~February 28~~May 31, 2026.

~~Below~~For the isperiod aDecember ~~comparison~~1, of2025 ~~per~~to ~~Share~~May ~~net~~31, ~~asset~~2026, ~~value (“NAV”)~~no toShares ~~the~~were issued in exchange for EUAs and no Shares’ ~~market~~were ~~value~~redeemed in exchange for EUAs. The Trust’s NAV per Share began the period ~~from~~at ~~December~~$19.20 1,and ~~2025~~ended tothe ~~February~~period ~~28,~~at ~~2026~~$18.40.

~~Trust~~The change ~~NAV~~in vsnet assets from operations for the period December 1, 2025 to May 31, 2026 was $(0.80) ~~Trust~~per ~~Closing~~share, ~~Price~~which was due to (i) payment of the Sponsor’s Management Fee of $7,031, (ii) interest income earned on short-term ~~December~~investments of $308, and (iii) a net change in unrealized depreciation on investment in EUAs of ($73,331). Other than the Sponsor’s Management Fee the Trust had no expenses during the period December 1, 2025 -to ~~February~~May 2831, 2026.

Below is a comparison of per Share net asset value (“NAV”) to the Shares’ market value for the period from March 1, 2026 to May 31, 2026.

Trust NAV vs. Trust Closing Price - March 1, 2026 - May 31, 2026

During the period of ~~December~~March 1, ~~2025~~2026 through ~~February~~ 28May 31, 2026 the market for European Union Allowances (EUA) traded in a range of $7872.6934 (~~February~~March 1619, 2026) to $~~104~~92.6075 (~~January~~May 1529, 2026) with the closing price on ~~February~~May 2729, 2026 of $7992.9675. There were a variety of influences on the price in the EUA market. Some of those factors influencing EUA prices during the period were: (i) the ongoing tightening of allowance supply driven by the emissions cap reduction schedule and Market Stability Reserve withdrawals; (ii) record speculative long positioning by investment funds, which amplified price swings in both directions; (iii) the relative mildness of winter and spring temperatures across Northern Europe ~~through January 2026~~, which moderated near-term power demand and reduced compliance buying pressure; (iv) ongoing uncertainty regarding economic conditions and industrial activity within the EU; (v) macroeconomic and currency dynamics resulting from trade policy discussions between the United States and the European Union; (vi) continued evolution of the Ukraine-Russia conflict and its impact on natural gas supply and pricing with the additional impact of hostilities in the Middle East compounding these pressures; and (vii) the ~~emergence~~ongoing implications of politically-driven regulatory risk surrounding the upcoming ETS revision, which intensified materially following the Antwerp Summit. Going forward, the Sponsor expects the primary drivers of EUA price levels to continue to be: (i) overall weather patterns and their impact on European power demand; (ii) aggregate EU industrial activity; (iii) the outcome of the EU ETS legislative revision process, expected to betake ~~formally~~place during ~~initiated in~~ Q3 2026; (iv) the ongoing Ukraine-Russia conflict and its effect on energy prices and EU industrial cost structures; ~~and~~ (v) the continued pace of institutional investor positioning in EUAs and the extent to which speculative long positions are maintained, reduced, or reversed in response to political developments.; Itand ~~should~~(vi) bethe ~~noted~~length Inof ~~mid-January~~the ~~2026,~~Middle ~~following~~East conflict and the overall supply of oil. Following ongoing public commentary suggesting possible structural modifications or adjustments to the EU ETS framework, EUA prices experienced significant ~~short-term~~ fluctuations. ~~On January 15, 2026, EUAs traded at an intraday high of approximately $107.57 per EUA,~~ and bynow ~~February~~react ~~16,~~swiftly ~~2026, had declined~~ to anany ~~intraday~~headline ~~low~~indicating ~~of approximately $78.49 per EUA, representing a price swing of approximately 27% within a one-month period. Such movements reflect heightened sensitivity of the EUA markets to regulatory signaling and~~ policy ~~uncertainty~~movements. Market participants are currently focused on the outcome of the EU’s regularly scheduled comprehensive review of the EU ETS framework, which is expected to conclude inat the ~~third~~end of the third quarter of 2026. Until greater clarity is provided regarding the scope and timing of any potential amendments to the program, we expect elevated price volatility in EUAs to persist. Continued uncertainty surrounding the EU ETS framework may impact trading volumes, pricing stability, and market liquidity.

~~Generally~~The ongoing ~~speaking,~~volatility ~~for~~created ~~the~~by ~~first~~policy ~~two~~uncertainty ~~months~~contributed ~~of the~~to ~~quarter~~a ~~the~~notable ~~market~~shift ~~price~~in ofhow the Trust’s Shares ~~tracked~~traded ~~closely~~relative to NAV over the ~~NAV~~period, ~~per~~moving ~~Share~~from a premium to a discount. On February 11, 2026, an industrial competitiveness conference ~~was~~ held in Antwerp ~~where~~ prompted public comments ~~were~~regarding ~~made about~~ the future structure of the EU ETS., ~~Following~~which ~~these~~contributed ~~comments,~~to a ~~period~~subsequent ofdecline ~~uncertainty~~in EUA prices and, in turn, the Trust’s NAV. Because of the limited number of Shares outstanding and ~~increased~~the ~~volatility~~small ~~caused~~public float, the market price of the Shares adjusted to ~~decouple~~this ~~from~~decline only gradually. As a result, the Shares initially traded at a premium to NAV, ~~with~~as the market price ~~trading~~lagged atthe decline in NAV, and then, as the market price caught up over the following weeks while NAV recovered, the same limited liquidity carried the Shares to a ~~premium~~discount to NAV by the ~~NAV~~end of the period. Management believes ~~this~~these istrading dynamics are primarily the result of the limited number of ~~shares~~Shares outstanding and the small public float. Over time, as more Shares are issued, we expect the frequency and magnitude of the trading premiums and discounts to NAV to decline.

In the period December 1, 2025 to ~~February~~May 2831, 2026, no Shares were created, no Shares were redeemed, and no EUAs were sold to maintain a cash position in line with fund policy. For accounting purposes, CTWO reflects creations and redemptions on the date of receipt of a notification of a creation but does not issue Shares until the requisite amount of EUAs are received. Upon a redemption, CTWO delivers EUAs upon receipt of Shares.

At May ~~February 28~~31, 2026, the number of EUAs owned by the Trust and held at the Union Registry was 19,700, with a market value of $1,~~605~~827,~~267~~188 based on the Daily EUA Futures price determined by the ICE Endex on ~~February~~May 2831, 2026.

Calculating NAV

The Trust’s Net Asset Value (NAV) is calculated by:

●

Determining the current market value of the Trust’s total assets;

●

Subtracting any liabilities (which include estimated accrued but unpaid fees and expenses); and

●

Dividing that total by the number of outstanding shares.

The Administrator calculates the NAV of the Trust once each NYSE Arca trading day. The NAV for a particular day is released after the markets close, which is typically 4PM ET. The Administrator uses the settlement price for the Daily EUA Futures as established by the ICE Endex. The ICE Endex determines and releases this value daily shortly after the close of the Calculation Period, generally by at 5:15pm C.E.T. The Administrator also converts the value of Euro denominated assets into USD equivalent using published foreign currency exchange prices by an independent pricing vendor. Third parties supplying quotations or market data may include, without limitations, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources of market information.

If the Sponsor determines in good faith that the settlement price of the Daily EUA Future does not reflect an accurate EUA price, then the Sponsor will instruct 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 Sponsor may consider such criteria as observable market-based inputs, including market quotations and/or trading platforms on which EUAs or Daily EUA Futures are traded. Moreover, the terms of the Trust Agreement do not prohibit the Sponsor from changing the valuation method used to calculate the net asset value of the Trust. Any such change in the valuation method could affect the value of the Trust’s shares and investors could suffer a substantial loss on their investment in the Trust. In the event of a material change, the Sponsor will notify shareholders in a prospectus supplement and/or a current report on Form 8-K or in its annual or quarterly reports, as applicable.

In addition, in order to provide updated information relating to the Trust for use by investors and market professionals, an updated indicative fund value (“IFV”) is made available through on-line information services throughout the core trading session hours of 9:30 am E.T. to 4:00p.m. E.T. on each trading day. The IFV is calculated by using the prior day’s closing NAV per share of the Trust as a base and updating that value throughout the trading day to reflect changes in the most recently reported mid-point of the bid/ask spread of the Daily EUA Future traded on the ICE Endex. The IFV disseminated during the NYSE Arca core trading session hours should not be viewed as an actual real time update of the NAV, because the NAV is calculated using a different manner and it is calculated only once at the end of each trading day based upon the relevant end of day values of the Trust’s investments.

It should also be noted that although the IFV is disseminated throughout the core trading session, the customary trading hours for EUAs, the Trust’s primary asset, are 2am to 12 pm ET. This means that there is a gap in time at the end of each day during which the Trust’s shares are traded on the NYSE Arca, but real-time trading prices for EUAs are not available. During such gaps in time the IFV will be calculated based on the last reported mid-point of the bid-ask spread of the Daily EUA Future in the immediately preceding trading session until the day’s settlement price is reported, in which case the day’s settlement price will be used.

The NYSE Arca disseminates the IFV through the facilities of CTA/CQ High Speed Lines. In addition, the IFV is published on the NYSE Arca’s website and is available through on-line information services such as Bloomberg. The Trust, the Sponsor and its affiliates are not involved in, or responsible for, the calculation or dissemination of the IFV and make no warranty as to its accuracy.

Critical Accounting Estimates

Preparation of the financial statements and related disclosures in accordance with U.S. generally accepted accounting principles requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Trust’s application of these policies involves judgments and the use of estimates. Actual results may differ from the estimates used and such differences could be material. Please refer to Note 2 to the Financial Statements included in this report for further discussion of the Trust’s accounting policies.

There were no material estimates, which involve a significant level of estimation uncertainty and had or are reasonably likely to have had a material impact on the Trust’s financial condition, used in the preparation of these financial statements.

Liquidity and Capital Resources

The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. In exchange for a fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s Management Fee. The Trust intends to satisfy this obligation through the transfer of cash (generated, if necessary, through the sale of EUAs) in the necessary amount. At ~~February~~May 2831, 2026, the Trust held $1613,~~816~~754 in cash & cash equivalents.

Off-Balance Sheet Arrangements

The Trust does not have any off-balance sheet arrangements.

Sponsor and CTA Fees

The Trust is obligated to pay the Sponsor’s Management Fee, calculated daily and paid monthly, equal to 0.79% of the Trust’s average daily net assets. From the Sponsor’s Management Fee, the Sponsor has contractually agreed to pay all of the routine operational, administrative, and other ordinary expenses of the Trust, excluding brokerage fees, interest expenses, and certain non-recurring or extraordinary fees and expenses. The Sponsor’s Management Fee is paid in consideration of the Sponsor’s management services to the Trust.

The parties cannot anticipate the amount of future payments that will be required under these arrangements for future periods as the NAV and trading levels to meet investment objectives for the Trust will not be known until a future date.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to Smaller Reporting Companies.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Trust maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the Trust’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

The duly appointed officers of the Sponsor, including its principal executive officer and principal financial officer, have evaluated the effectiveness of the Trust’s disclosure controls and procedures and have concluded that the disclosure controls and procedures of the Trust have been effective as of the end of the period covered by this quarterly report on Form 10-Q.

Internal Control Over Financial Reporting

There has been no change in the internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

PART II - OTHER INFORMATION:

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable to Smaller Reporting Companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

b)	Not applicable.

c) For the three months ended ~~February~~May 2831, 2026 no baskets were redeemed.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information

None.

b)	Not applicable.

c) No officers or directors of the Trust have adopted, modified or terminated trading plans under either a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K under the Securities Act of 1933, as amended) for the period ended ~~February~~May 2831, 2026.

Item 6. Exhibits

The exhibits listed on the accompanying Exhibit Index, and such Exhibit Index, are filed or incorporated by reference as a part of this report.

EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

Exhibit No.		Description of Exhibit
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, with respect to the Trust’s Quarterly Report on Form 10-Q for the quarter ended ~~February~~May 2831, 2026.
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, with respect to the Trust’s Quarterly Report on Form 10-Q for the quarter ended ~~February~~May 2831, 2026.
32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the Trust’s Quarterly Report on Form 10-Q for the quarter ended ~~February~~May 2831, 2026.
32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the Trust’s Quarterly Report on Form 10-Q for the quarter ended ~~February~~May 2831, 2026.
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated thereunto duly authorized.

	COtwo Advisors LLC
	Sponsor of the COtwo Advisors Physical European Carbon Allowance Trust
	(Registrant)
	/s/ Ronald Gutstein
	Ronald Gutstein
	Principal Executive Officer*
	/s/ Shari Crawford
	Shari Crawford
	Principal Financial Officer*
	Principal Accounting Officer*
Date: April 15, 2026
Date: July 2, 2026

*	The Registrant is a trust and the persons are signing in their capacities as officers of COtwo Advisors LLC, the Sponsor of the Registrant.

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