##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

Form 10-Q



---

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2006

or



| ̈ | 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 0-30889



---

Harbor Global Company Ltd.

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Bermuda                                                        |  | 52-2256071                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

ONE FANEUIL HALL MARKETPLACE

4THFLOOR

BOSTON, MASSACHUSETTS

(Address of
principal executive offices)

02109

(Zip Code)

(617) 878-1600

(Registrants telephone number, including area code)

NO CHANGES

(Former name, former address and former fiscal year, if changes since last report)



---

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  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule12b-2 of the Exchange Act (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

As of October 27, 2006, the registrant had 5,673,311 common shares, par value $.0025 per share, issued and outstanding.



---



---

##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

INDEX



|              |  |                                                                                                                                        |  |   
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.       |  | FINANCIAL INFORMATION                                                                                                                  |  |   
|              |  |                                                                                                                                       
|Item 1.       |  | Financial Statements (Unaudited)                                                                                                       |  | 3 
|              |  |                                                                                                                                       
|              |  | Consolidated Balance Sheets September 30, 2006 and December 31, 2005                                                                  |  | 3 
|              |  |                                                                                                                                       
|              |  | Consolidated Statements of Operations three months ended September 30, 2006 and 2005 and nine months endedSeptember 30, 2006 and 2005 |  | 4 
|              |  |                                                                                                                                       
|              |  | Consolidated Statements of Cash Flows nine months ended September 30, 2006 and 2005                                                   |  | 5 
|              |  |                                                                                                                                       
|              |  | Notes to Consolidated Financial Statements                                                                                             |  | 6 
|              |  |                                                                                                                                       
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                  |  | 16
|              |  |                                                                                                                                       
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                             |  | 21
|              |  |                                                                                                                                       
|Item 4.       |  | Controls and Procedures                                                                                                                |  | 23
|              |  |                                                                                                                                       
|PART II.      |  | OTHER INFORMATION                                                                                                                      |  |   
|              |  |                                                                                                                                       
|Item 1A.      |  | Risk Factors                                                                                                                           |  | 23
|              |  |                                                                                                                                       
|Item 5.       |  | Other Information                                                                                                                      |  | 27
|              |  |                                                                                                                                       
|Item 6.       |  | Exhibits                                                                                                                               |  | 28
|              | 
|SIGNATURE     |  | 29                                                                                                                                    
|              | 
|EXHIBIT INDEX |  | 30                                                                                                                                    



2



---

##### Table of Contents

PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------ | -
|                                                                                                                                                                |  | September 30,2006 |         |   | December 31,2005 |  
|ASSETS                                                                                                                                                          |  |                   |         |   |                  |   |        |  
|Cash and Cash Equivalents                                                                                                                                       |  | $                 | 11,209  |   |                  | $ | 17,064 |  
|Restricted Cash                                                                                                                                                 |  |                   | 16,494  |   |                  |   | 13,145 |  
|Marketable Securities                                                                                                                                           |  |                   | 3,051   |   |                  |   | 10,185 |  
|Accounts Receivable                                                                                                                                             |  |                   | 1,395   |   |                  |   | 1,460  |  
|Prepaid Expenses                                                                                                                                                |  |                   | 1,765   |   |                  |   | 1,987  |  
|Other Current Assets                                                                                                                                            |  |                   | 7       |   |                  |   | 7      |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Current Assets                                                                                                                                            |  |                   | 33,921  |   |                  |   | 43,848 |  
|                                                                                                                                                                |  |                  
|Polish Venture Capital Investment                                                                                                                               |  |                   | 221     |   |                  |   | 208    |  
|Marketable Securities                                                                                                                                           |  |                   | 43,128  |   |                  |   | 28,145 |  
|Long-term Investments                                                                                                                                           |  |                   | 223     |   |                  |   | 826    |  
|Building, Net of Accumulated Depreciation                                                                                                                       |  |                   | 21,397  |   |                  |   | 21,548 |  
|Other Long-term Assets                                                                                                                                          |  |                   | 1,247   |   |                  |   | 1,477  |  
|Goodwill                                                                                                                                                        |  |                   | 1,253   |   |                  |   | 1,253  |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Assets                                                                                                                                                    |  | $                 | 101,390 |   |                  | $ | 97,305 |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                   |         |   |                  |   |        |  
|Accounts Payable                                                                                                                                                |  | $                 | 1,136   |   |                  | $ | 1,053  |  
|Dividend Payable                                                                                                                                                |  |                   | 16,494  |   |                  |   | 13,145 |  
|Accrued Expenses                                                                                                                                                |  |                   | 772     |   |                  |   | 543    |  
|Accrued Fees Payable to Calypso Management                                                                                                                      |  |                   | 546     |   |                  |   | 714    |  
|Deferred Income                                                                                                                                                 |  |                   | 1,394   |   |                  |   | 810    |  
|Foreign Taxes Payable                                                                                                                                           |  |                   | 292     |   |                  |   | 76     |  
|Deferred Taxes                                                                                                                                                  |  |                   | 73      |   |                  |   | 217    |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Current Liabilities                                                                                                                                       |  |                   | 20,707  |   |                  |   | 16,558 |  
|                                                                                                                                                                |  |                  
|Deferred Taxes                                                                                                                                                  |  |                   | 4,078   |   |                  |   | 3,286  |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Liabilities                                                                                                                                               |  |                   | 24,785  |   |                  |   | 19,844 |  
|                                                                                                                                                                |  |                  
|Minority Interest                                                                                                                                               |  |                   | 30,644  |   |                  |   | 30,484 |  
|                                                                                                                                                                |  |                  
|SHAREHOLDERS EQUITY                                                                                                                                            |  |                   |         |   |                  |   |        |  
|                                                                                                                                                                |  |                  
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,673,311 shares issued and outstanding as of September 30, 2006
and December 31, 2005 |  |                   | 14      |   |                  |   | 14     |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                            |  |                   |        |   |                  |   |       |  
|Paid-in Capital                                                                                                                                                 |  |                   | 47,481  |   |                  |   | 47,512 |  
|Accumulated Deficit                                                                                                                                             |  |                   | (8,259  | ) |                  |   | (5,993 | )
|Other Comprehensive Income                                                                                                                                      |  |                   |         |   |                  |   |        |  
|Net Unrealized Gains on Available-for-Sale Marketable Securities                                                                                                |  |                   | 6,725   |   |                  |   | 5,444  |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Shareholders Equity                                                                                                                                      |  |                   | 45,961  |   |                  |   | 46,977 |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  
|Total Liabilities and Shareholders Equity                                                                                                                      |  | $                 | 101,390 |   |                  | $ | 97,305 |  
|                                                                                                                                                                |  |                   |         |   |                  |   |        |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



3



---

##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                        |  | Three Months EndedSeptember 30, |        |   | Nine months EndedSeptember 30, |  
|                                                                                                                        |  | 2006                            |        |   | 2005                           |   |        | 2006 |  |   | 2005    |  
|Revenues:                                                                                                               |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Real Estate Revenue                                                                                                     |  | $                               | 2,139  |   |                                | $ | 2,127  |      |  | $ | 6,391   |   |  | $ | 6,349   |  
|Management Fee Income                                                                                                   |  |                                 | 641    |   |                                |   | 687    |      |  |   | 1,914   |   |  |   | 1,670   |  
|Other Income                                                                                                            |  |                                 | 497    |   |                                |   | 383    |      |  |   | 1,217   |   |  |   | 1,201   |  
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total Revenues                                                                                                          |  |                                 | 3,277  |   |                                |   | 3,197  |      |  |   | 9,522   |   |  |   | 9,220   |  
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Operating Expenses:                                                                                                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Salary and Benefit Expenses                                                                                             |  |                                 | (1,128 | ) |                                |   | (1,174 | )    |  |   | (3,751  | ) |  |   | (3,601  | )
|Facility Expenses                                                                                                       |  |                                 | (376   | ) |                                |   | (374   | )    |  |   | (1,125  | ) |  |   | (1,106  | )
|Building and Property Management Expenses                                                                               |  |                                 | (554   | ) |                                |   | (568   | )    |  |   | (1,667  | ) |  |   | (1,787  | )
|Management Fee Expense                                                                                                  |  |                                 | (582   | ) |                                |   | (586   | )    |  |   | (1,952  | ) |  |   | (1,962  | )
|Operating Taxes                                                                                                         |  |                                 | (327   | ) |                                |   | (311   | )    |  |   | (1,386  | ) |  |   | (1,047  | )
|Advertising Expense                                                                                                     |  |                                 | (166   | ) |                                |   | (234   | )    |  |   | (1,012  | ) |  |   | (746    | )
|Translation Gain (Loss)                                                                                                 |  |                                 | 171    |   |                                |   | 228    |      |  |   | 1,123   |   |  |   | (225    | )
|Legal Expenses                                                                                                          |  |                                 | (615   | ) |                                |   | (415   | )    |  |   | (1,180  | ) |  |   | (537    | )
|Other Expenses, Net                                                                                                     |  |                                 | (906   | ) |                                |   | (733   | )    |  |   | (2,510  | ) |  |   | (2,380  | )
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                                |  |                                 | (4,483 | ) |                                |   | (4,167 | )    |  |   | (13,460 | ) |  |   | (13,391 | )
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Operating Loss                                                                                                          |  |                                 | (1,206 | ) |                                |   | (970   | )    |  |   | (3,938  | ) |  |   | (4,171  | )
|                                                                                                                        |  |                                 |        |  
|Other Income (Expense):                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Unrealized Gains (Losses) on Equity and Fixed Income Securities                                                         |  |                                 | 21     |   |                                |   | (3     | )    |  |   |        |   |  |   | (90     | )
|Realized (Losses) Gains on Equity and Fixed Income Securities                                                           |  |                                 | (128   | ) |                                |   | 933    |      |  |   | 2,258   |   |  |   | 5,778   |  
|Interest Income                                                                                                         |  |                                 | 655    |   |                                |   | 409    |      |  |   | 1,661   |   |  |   | 1,323   |  
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total Other Income, Net                                                                                                 |  |                                 | 548    |   |                                |   | 1,339  |      |  |   | 3,919   |   |  |   | 7,011   |  
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|(Loss) Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) On Investment |  |                                 | (658   | ) |                                |   | 369    |      |  |   | (19     | ) |  |   | 2,840   |  
|Provision for Income Taxes                                                                                              |  |                                 | (228   | ) |                                |   | (522   | )    |  |   | (945    | ) |  |   | (1,955  | )
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|(Loss) Income from Operations before Minority Interest and Equity (Loss) Gain on Investment                             |  |                                 | (886   | ) |                                |   | (153   | )    |  |   | (964    | ) |  |   | 885     |  
|Minority Interest Expense                                                                                               |  |                                 | (121   | ) |                                |   | (224   | )    |  |   | (1,316  | ) |  |   | (1,725  | )
|Equity (Loss) Gain on Venture Capital Investment                                                                        |  |                                 | (70    | ) |                                |   | (5     | )    |  |   | 14      |   |  |   | (25     | )
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net Loss                                                                                                                |  | $                               | (1,077 | ) |                                | $ | (382   | )    |  | $ | (2,266  | ) |  | $ | (865    | )
|                                                                                                                        |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Loss Per Share:                                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Basic and Diluted Loss Per Share                                                                                        |  | $                               | (0.19  | ) |                                | $ | (0.07  | )    |  | $ | (0.40   | ) |  | $ | (0.15   | )
|                                                                                                                        |  |                                 |        |  
|Weighted Average Basic and Diluted Shares Outstanding                                                                   |  |                                 | 5,673  |   |                                |   | 5,667  |      |  |   | 5,673   |   |  |   | 5,667   |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



4



---

##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                           |  |                                 |         |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                           |  | NINE MONTHS ENDED SEPTEMBER
30, |        
|                                                                                           |  | 2006                            |         |   | 2005 |  
|Cash Flows from Operating Activities:                                                      |  |                                 |         |   |      |   |         |  
|Net Loss                                                                                   |  | $                               | (2,266  | ) |      | $ | (865    | )
|Adjustments to Reconcile Net Loss to Net Cash Provided By (Used in) Operating Activities  |  |                                 |         |   |      |   |         |  
|Depreciation and Amortization                                                              |  |                                 | 931     |   |      |   | 1,003   |  
|Unrealized and Realized Gains on Marketable Securities, and Long-term Investments, Net     |  |                                 | (2,258  | ) |      |   | (5,688  | )
|Translation Loss (Gain)                                                                    |  |                                 | 1,644   |   |      |   | (317    | )
|Minority Interest                                                                          |  |                                 | 1,316   |   |      |   | 1,725   |  
|Equity (Gain) Loss on Venture Capital Investment                                           |  |                                 | (14     | ) |      |   | 25      |  
|Purchase of Trading Securities                                                             |  |                                 | (11,481 | ) |      |   | (8,591  | )
|Proceeds from Sale of Trading Securities                                                   |  |                                 | 14,778  |   |      |   | 11,864  |  
|Changes in Operating Assets and Liabilities                                               |  |                                 |         |   |      |   |         |  
|Accounts Receivable                                                                        |  |                                 | 66      |   |      |   | (334    | )
|Other Assets                                                                               |  |                                 | 368     |   |      |   | (519    | )
|Accounts Payable                                                                           |  |                                 | 108     |   |      |   | (533    | )
|Accrued Expenses                                                                           |  |                                 | 61      |   |      |   | (217    | )
|Deferred Income                                                                            |  |                                 | 584     |   |      |   | (164    | )
|Foreign Taxes Payable and Deferred Taxes                                                   |  |                                 | 72      |   |      |   | 431     |  
|                                                                                           |  |                                 |         |   |      |   |         |  
|Total Adjustments and Changes in Operating Assets and Liabilities                          |  |                                 | 6,175   |   |      |   | (1,315  | )
|                                                                                           |  |                                 |         |   |      |   |         |  
|Net Cash Provided By (Used in) Operating Activities                                        |  |                                 | 3,909   |   |      |   | (2,180  | )
|                                                                                           |  |                                 |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                                      |  |                                 |         |   |      |   |         |  
|Building Improvements                                                                      |  |                                 | (342    | ) |      |   | (276    | )
|Purchase of Long-term Investments and Marketable Securities                                |  |                                 | (65,507 | ) |      |   | (34,372 | )
|Purchase of Other Long-term Assets                                                         |  |                                 | (92     | ) |      |   | (75     | )
|Proceeds from Sale of Long-term Investments and Marketable Securities                      |  |                                 | 60,433  |   |      |   | 47,354  |  
|Restricted Cash for Minority Dividends                                                     |  |                                 | (3,348  | ) |      |   | (246    | )
|                                                                                           |  |                                 |         |   |      |   |         |  
|Net Cash (Used In) Provided by Investing Activities                                        |  |                                 | (8,856  | ) |      |   | 12,385  |  
|                                                                                           |  |                                 |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                                      |  |                                 |         |   |      |   |         |  
|Dividends Paid to Minority Interest                                                        |  |                                 | (30     | ) |      |   | (39     | )
|Purchase of Restricted Stock                                                               |  |                                 | (56     | ) |      |   |        |  
|Subsidiary Level Treasury Stock Repurchase                                                 |  |                                 |        |   |      |   | (1      | )
|                                                                                           |  |                                 |         |   |      |   |         |  
|Net Cash Used In Financing Activities                                                      |  |                                 | (86     | ) |      |   | (40     | )
|                                                                                           |  |                                 |         |   |      |   |         |  
|Net (Decrease) Increase in Cash and Cash Equivalents                                       |  |                                 | (5,033  | ) |      |   | 10,165  |  
|                                                                                           |  |                                 |         |   |      |   |         |  
|Effect of Exchange Rate Changes on Cash and Cash Equivalents                               |  |                                 | (822    | ) |      |   | 97      |  
|                                                                                           |  |                                 |         |   |      |   |         |  
|Cash and Cash Equivalents, Beginning of Period                                             |  |                                 | 17,064  |   |      |   | 7,754   |  
|                                                                                           |  |                                 |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                                   |  | $                               | 11,209  |   |      | $ | 18,016  |  
|                                                                                           |  |                                 |         |   |      |   |         |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



5



---

##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

September 30, 2006

(1) BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND

Harbor Global Company Ltd., a Bermuda limited duration company (Harbor Global or the
Company), was formed in May 2000 as a wholly owned subsidiary of Pioneer Investment Management USA Inc. (formerly known as The Pioneer Group, Inc.), a Delaware corporation (Pioneer), to facilitate the merger between Pioneer
and UniCredito Italiano, S.p.A., an Italian financial institution (UniCredito). As a condition to closing the merger and pursuant to a Distribution Agreement dated as of October 24, 2000 by and among the Company, Pioneer and Harbor
Global II Ltd. (Harbor Global II), a wholly owned subsidiary of the Company (the Distribution Agreement), Pioneer agreed to transfer certain of its assets to Harbor Global and distribute all of the outstanding Harbor Global
common shares to its stockholders. Pioneer transferred to Harbor Global all of the assets required to be transferred pursuant to the merger agreement and the Distribution Agreement, and on October 24, 2000, Pioneer distributed all of the
outstanding common shares of Harbor Global to its stockholders (the Spin-off).

The Companys primary
assets as of September 30, 2006 by segment consist of the following:



| |  |  | Russian Real Estate Management and Investment Management Operations: investment advisory and management services
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Real Estate Management Operations: real estate management services, including property management and advisory services
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Other:
| | - |  | ------



| |  |  | approximately $4.6 million in cash and cash equivalents held directly by Harbor Global
| | - |  | --------------------------------------------------------------------------------------



| |  |  | an approximately 8% limited partnership interest in the Prospect Poland Fund
| | - |  | ----------------------------------------------------------------------------

Harbor Global seeks to liquidate its assets in a timely fashion on economically advantageous terms and continues to operate its assets as going concern businesses until they are liquidated. Harbor Globals memorandum of association
dated May 22, 2000 provides that the liquidation of its assets must be completed upon the earlier of October 24, 2005, the fifth anniversary of the date of the Spin-off, or the distribution by Harbor Global of all its assets to its
shareholders. Pursuant to the Companys memorandum of association, on October 18, 2004, the Harbor Global board of directors (Board of Directors) unanimously authorized the Company to continue to operate its assets for an
additional one-year period, or until October 24, 2006, unless and until the Company had distributed all of its assets to its shareholders to the extent permitted by the Bermuda Companies Act of 1981. On October 18, 2006, the Board of
Directors, pursuant to Harbor Globals memorandum of association, approved the Company continuing to operate its assets for an additional one year period or until October 24, 2007 (the Extension), unless and until the Company
earlier distributes all of its assets to its shareholders to the extent permitted by the Bermuda Companies Act of 1981, and subject to the consummation of the proposed amalgamation of the Company with Namredips Ltd., which amalgamation is referred
to below. Pursuant to Harbor Globals memorandum of association, if the Company has not liquidated all of its assets before October 24, 2007, the Board of Directors, in its discretion, may authorize the Company to continue to operate its
assets for an additional one-year period.

On August 18, 2006, the Company entered into an Agreement and Plan of Amalgamation (the Amalgamation
Agreement) with Isvias Trading Limited, a company incorporated under the laws of the Republic of Cyprus (Buyer), and Namredips Ltd., a Bermuda company and a wholly owned subsidiary of Buyer (Newco), pursuant to which
the Company will amalgamate with Newco (the Amalgamation), and as a result of the amalgamation, the Company and Newco will continue as one company incorporated under



6



---

##### Table of Contents

the laws of Bermuda as a wholly owned subsidiary of Buyer. Pursuant to the Amalgamation Agreement and subject to the
terms and conditions thereof, at the effective time of the Amalgamation, the Companys issued and outstanding common shares will be cancelled and extinguished and converted into the right to receive $11.5663 per share in cash, without interest.
The Amalgamation Agreement has been approved by the Board of Directors. Consummation of the Amalgamation is subject to the satisfaction or waiver of certain conditions, including approval of the Amalgamation by the shareholders of Harbor Global. A
special general meeting of Harbor Globals shareholders has been scheduled to be held on November 13, 2006 for consideration and vote on the proposed Amalgamation. The Company expects the transaction to close in the fourth quarter of 2006.
The foregoing description of the Amalgamation Agreement is only a summary and is qualified in its entirety by the Amalgamation Agreement, a copy of which was filed as an exhibit to the Companys Current Report on Form 8-K dated August 18,
2006 and filed with the Securities and Exchange Commission on the same date. For further information regarding the Amalgamation and the Amalgamation Agreement, please refer to the Companys definitive proxy statement which was filed with the
Securities and Exchange Commission on October 10, 2006.

As a result of the Extension, the term of the Companys amended and restated
administration and liquidation agreement with Calypso Management LLC (Calypso Management) was automatically extended until the earlier of (i) October 24, 2007, (ii) the date the Company is liquidated or (iii) the date
of termination of the amended and restated administration and liquidation agreement, pursuant to Section 1 of the amendment to the amended and restated administration and liquidation agreement contemplated to be entered into between the Company
and Calypso Management pursuant to the Amalgamation Agreement, subject to the Company and Calypso Management entering into such amendment (such earliest date, the Termination Date). In addition, in connection with the Extension, the term
of the employment agreement between Calypso Management and Mr. Stephen G. Kasnet, the President and Chief Executive Officer of Harbor Global and Calypso Management was extended until the Termination Date.

BASIS OF PRESENTATION

The interim
financial data included as part of this Quarterly Report on Form 10-Q is unaudited. However, in the opinion of management, the accompanying Consolidated Financial Statements contain all adjustments, consisting of normal and recurring adjustments,
necessary for a fair statement of the financial position of the Company as of September 30, 2006 and the results of operations of the Company for the three and nine months ended September 30, 2006 and 2005 and cash flows of the Company for
the nine months ended September 30, 2006 and 2005. Results for interim periods may not be necessarily indicative of the results to be expected for the year. The interim Consolidated Financial Statements included in this Quarterly Report on Form
10-Q should be read in conjunction with the Companys 2005 Annual Report on Form 10-K for the year ended December 31, 2005 (the Form 10-K) filed with the Securities and Exchange Commission on March 16, 2006.

Since Harbor Global is a Bermuda limited duration company, the Company expects that for United States federal income tax purposes it will be taxed as a partnership, and
as a result, virtually all United States federal income tax expenses have been and will be borne by its shareholders. The provision for income taxes includes United States federal income tax expense of approximately $7,000 for the nine months ended
September 30, 2006. On April 12, 2004, Pioglobal First Russia, Inc., an indirect subsidiary of the Company, through which a portion of the Companys Russian real estate management and investment management operations are conducted,
converted from a Delaware corporation into a Delaware limited liability company, Pioglobal First Russia, LLC (Pioglobal First Russia). As a result of the conversion, the Company expected to indirectly (through Pioglobal First Russia)
incur a United States federal income tax liability of approximately $1,061,000. Based on the final federal tax return filed during the third quarter of 2005, the actual federal income tax due was $733,550. Accordingly, the Company recorded a credit
of approximately $327,000 in its provision for income taxes in the third quarter of 2005. The provision also includes United States federal income tax expense of approximately $34,000 and $96,000 for the three and nine months ended
September 30, 2005, respectively.

Other than the foregoing United States federal income tax, the income tax provisions and deferred taxes included in
the accompanying Consolidated Financial Statements relate to the Companys corporate subsidiaries that are located in the Russian Federation (Russia).



7



---

##### Table of Contents

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PRINCIPLES OF CONSOLIDATION

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements
include the accounts of Harbor Global and its majority-owned subsidiaries. The Company maintains an approximate 8% interest in two limited partnerships which comprise the Prospect Poland Fund. Because it is a limited partner investor, the Company
accounts for this investment using the equity method of accounting. Equity gains and losses from this investment are included in equity gain or loss on venture capital investments on the accompanying Consolidated Statement of Operations. All
intercompany accounts and transactions have been eliminated from the Consolidated Financial Statements.

USE OF ESTIMATES

The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.

CURRENT MARKETABLE SECURITIES

United States Treasury securities are classified as held-to-maturity and are recorded at amortized cost. Russian Government and Municipal securities are classified as trading securities and are marked-to-market, with
unrealized gains or losses reported in the Consolidated Statement of Operations pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS No. 115). Russian municipal government securities are held primarily in the PIOGLOBAL Real Estate Investment Fund, an approximately 52% owned subsidiary of the Company. Security transactions are recorded on settlement date.
For all periods presented, the difference between trade date and settlement date is immaterial. Investments are valued at the weighted average daily price if they are traded on valuation date; otherwise, the bid price is used. Russian corporate
bonds are classified as available-for-sale and recorded at fair value pursuant to SFAS No. 115. Such securities with maturities of less than one year are recorded in current marketable securities based on quoted prices on the Russian Trading
System. The cost of securities sold is based on the weighted-average method. Unrealized gains and unrealized losses for corporate bonds are recorded net of deferred taxes and minority interest in other comprehensive income.

Set forth in the following tables are the balances of marketable securities, segregated between United States Treasury obligations and Russian obligations at
September 30, 2006 and December 31, 2005. Unrealized gains and losses recorded on Russian government securities are presented for the three and nine months ended September 30, 2006 and 2005. Cumulative unrealized gains and losses on
Russian corporate bonds, before deferred taxes and minority interest, are recorded at September 30, 2006 and December 31, 2005 in other comprehensive income and are presented in the table below.

Balances of Current Marketable Securities



|                                 |  |                   |       |                  |   |       
|-------------------------------- |  | ----------------- | ----- | ---------------- | - | ------
|                                 |  | September 30,2006 |       | December 31,2005
|                                 |  | (In Thousands)   
|Russia (trading)                 |  | $                 |      |                  | $ | 3,424 
|Russia (available-for-sale)      |  |                   | 3,051 |                  |   | 3,126 
|United States (held-to-maturity) |  |                   |      |                  |   | 3,635 
|                                 |  |                   |       |                  |   |       
|Total Marketable Securities      |  | $                 | 3,051 |                  | $ | 10,185
|                                 |  |                   |       |                  |   |       



8



---

##### Table of Contents

Net Unrealized Gains (Losses) on Russian Federal and Municipal Government Securities Recorded in the Consolidated
Statement of Operations



|                              |  |                                 |     |   |                                |   |      |      |  |      |   |  |   |      |  
|----------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | ---- | ---- |  | ---- | - |  | - | ---- | -
|                              |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                              |  | 2006                            |     |   | 2005                           |   |      | 2006 |  | 2005 |  
|                              |  | (In Thousands)                  |    
|Gross Unrealized Gains        |  | $                               | (50 | ) |                                | $ | 104  |      |  | $    |  |  | $ | 292  |  
|Gross Unrealized Losses       |  |                                 | 71  |   |                                |   | (107 | )    |  |      |  |  |   | (382 | )
|                              |  |                                 |     |   |                                |   |      |      |  |      |   |  |   |      |  
|Net Unrealized Gains (Losses) |  | $                               | 21  |   |                                | $ | (3   | )    |  | $    |  |  | $ | (90  | )
|                              |  |                                 |     |   |                                |   |      |      |  |      |   |  |   |      |  

Cumulative Unrealized Gains (Losses) on Russian Corporate Bonds Recorded in Other Comprehensive Income



|                              |  |                   |     |   |                  |   |     |  
|----------------------------- |  | ----------------- | --- | - | ---------------- | - | --- | -
|                              |  | September 30,2006 |     |   | December 31,2005 |  
|                              |  | (In Thousands)    |    
|Gross Unrealized Gains        |  | $                 |    |   |                  | $ | 53  |  
|Gross Unrealized Losses       |  |                   | (14 | ) |                  |   | (29 | )
|                              |  |                   |     |   |                  |   |     |  
|Net Unrealized (Losses) Gains |  | $                 | (14 | ) |                  | $ | 24  |  
|                              |  |                   |     |   |                  |   |     |  

LONG-TERM MARKETABLE SECURITIES

Long-term Marketable Securities consist primarily of Russian equity and fixed income securities, including Russian corporate bonds held in the portfolio of the PIOGLOBAL Real Estate Investment Fund.

Equity securities and corporate bonds are classified as available-for-sale and recorded at fair value pursuant to SFAS No. 115. In this regard, such securities are
recorded in long-term marketable securities based on quoted prices on the Russian Trading System. The cost of securities sold is based on the weighted-average method. Dividend income received on investments is recognized on a cash basis. Unrealized
gains and unrealized losses for equity securities and corporate bonds are recorded net of deferred taxes and minority interest in other comprehensive income.

Set forth in the following tables are the balances of long-term marketable securities, as well as cumulative unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at
September 30, 2006 and December 31, 2005:

Balance of Long-term Marketable Securities Classified as Available-for-sale



|                            |  |                   |        |                  |   |       
|--------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                            |  | September 30,2006 |        | December 31,2005
|                            |  | (In Thousands)   
|Equity Securities           |  | $                 | 27,382 |                  | $ | 17,103
|Corporate Bonds             |  |                   | 15,746 |                  |   | 11,042
|                            |  |                   |        |                  |   |       
|Total Marketable Securities |  | $                 | 43,128 |                  | $ | 28,145
|                            |  |                   |        |                  |   |       



9



---

##### Table of Contents

Cumulative Unrealized Gains and Losses Recorded in Other Comprehensive Income



|                        |  |                   |        |   |                  |   |        |  
|----------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                        |  | September 30,2006 |        |   | December 31,2005 |  
|                        |  | (In Thousands)    |       
|Equity Securities       |  |                   |        |   |                  |   |        |  
|Gross Unrealized Gains  |  | $                 | 17,731 |   |                  | $ | 13,874 |  
|Gross Unrealized Losses |  |                   | (733   | ) |                  |   |       |  
|                        |  |                   |        |   |                  |   |        |  
|Net Unrealized Gains    |  | $                 | 16,998 |   |                  | $ | 13,874 |  
|                        |  |                  
|Corporate Bonds         |  |                   |        |   |                  |   |        |  
|Gross Unrealized Gains  |  | $                 | 89     |   |                  | $ |       |  
|Gross Unrealized Losses |  |                   | (97    | ) |                  |   | (207   | )
|                        |  |                   |        |   |                  |   |        |  
|Net Unrealized Losses   |  | $                 | (8     | ) |                  | $ | (207   | )

BUILDING

The
building represents an office building in Moscow, Russia, the Meridian Commercial Tower. The Meridian Commercial Tower is carried at cost and is being depreciated on a straight-line basis over 40 years. Building improvements are depreciated on a
straight-line basis over either five or ten years. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of Meridian Commercial Tower. Meridian Commercial Tower lease revenues accounted for
approximately 73% of the total revenue generated by Harbor Globals Russian real estate management and investment management operations during the nine months ended September 30, 2006, and approximately 67% of Harbor Globals total
revenue during the same period.

CONCENTRATION OF RISK

The Companys operations are generally concentrated in Russia. The Company does not maintain political risk insurance for any of its businesses.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2005 amounts to conform to the 2006
presentation.

(3) EARNINGS PER SHARE

Basic and diluted
earnings per share (EPS) are computed by dividing reported earnings by weighted average shares outstanding. There are currently no potentially dilutive securities.

(4) CHANGES IN SHAREHOLDERS EQUITY

For the three and nine months ended September 30, 2006 and 2005, the Company
reported changes in shareholders equity as follows:



10



---

##### Table of Contents

|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                             |  | THREE MONTHS ENDED SEPTEMBER 30, |       
|                                                                                                                                                                             |  | 2006                             |        |   | 2005 |  
|                                                                                                                                                                             |  | (In Thousands)                   |       
|Net Loss                                                                                                                                                                     |  | $                                | (1,077 | ) |      | $ | (382   | )
|Other Comprehensive Income                                                                                                                                                   |  |                                  |        |   |      |   |        |  
|Holding Gain                                                                                                                                                                 |  |                                  | 470    |   |      |   | 2,233  |  
|Reclassification Adjustment                                                                                                                                                  |  |                                  | (44    | ) |      |   | (736   | )
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Net Unrealized Gains on Marketable Securities                                                                                                                                |  |                                  |        |   |      |   |        |  
|(Net of deferred taxes of ($269,000) and ($496,000) and minority interest of ($414,000) and ($563,000) for the three months ended
September 30, 2006 and 2005, respectively) |  |                                  | 426    |   |      |   | 1,497  |  
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Total Comprehensive (Loss) Gain                                                                                                                                              |  | $                                | (651   | ) |      | $ | 1,115  |  
|Additional Paid In Capital                                                                                                                                                   |  |                                  | (31    | ) |      |   |       |  
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Change in Shareholders Equity                                                                                                                                               |  | $                                | (682   | ) |      | $ | 1,115  |  
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|                                                                                                                                                                             | 
|                                                                                                                                                                             |  | NINE MONTHS ENDEDSEPTEMBER 30,   |       
|                                                                                                                                                                             |  | 2006                             |        |   | 2005 |  
|                                                                                                                                                                             |  | (In Thousands)                   |       
|Net Loss                                                                                                                                                                     |  | $                                | (2,266 | ) |      | $ | (865   | )
|Other Comprehensive Income                                                                                                                                                   |  |                                  |        |   |      |   |        |  
|Holding Gain                                                                                                                                                                 |  |                                  | 2,898  |   |      |   | 5,018  |  
|Reclassification Adjustment                                                                                                                                                  |  |                                  | (1,617 | ) |      |   | (4,334 | )
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Net Unrealized Gains on Marketable Securities                                                                                                                                |  |                                  |        |   |      |   |        |  
|(Net of deferred taxes of $789,000 and ($402,000) and minority interest of $1,215,000 and $445,000 for the nine months ended
September 30, 2006 and 2005, respectively)      |  |                                  | 1,281  |   |      |   | 684    |  
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Total Comprehensive Loss                                                                                                                                                     |  | $                                | (985   | ) |      | $ | (181   | )
|Additional Paid In Capital                                                                                                                                                   |  |                                  | (31    | ) |      |   | (25    | )
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  
|Change in Shareholders Equity                                                                                                                                               |  | $                                | (1,016 | ) |      | $ | (206   | )
|                                                                                                                                                                             |  |                                  |        |   |      |   |        |  

(5) LEASING ARRANGEMENTS

The Meridian Commercial Tower is an 18-story, 20,707 square meter office building in Moscow, Russia. The Meridian Commercial Tower is managed by PREA, L.L.C. (PREA) and occupied primarily by United States and European corporate
tenants or their Russian subsidiaries. PREA leases the building from the PIOGLOBAL Real Estate Investment Fund under a master lease agreement and in turn, subleases the premises to tenants. Generally, the tenant subleases have terms ranging from
approximately eleven months to approximately seven years and three months and annual base rent ranging from approximately $167 to approximately $600 per square meter. In addition to base rent, each tenant pays a pro rata share of the operating
expenses relating to the building, including utilities, maintenance expenses, management expenses (including fees payable to PREA for management of the building pursuant to the master lease agreement with PIOGLOBAL Real Estate Investment Fund),
license fees, insurance premiums and taxes, other than income taxes relating to PREA. In addition, a small number of subtenants also pay additional contingent rent based on gross revenues and other financial measures. Rent and operating expenses are
typically payable quarterly at the beginning of the applicable calendar quarter.



11



---

##### Table of Contents

The following is a schedule by year of minimum future rental income on noncancellable operating subleases as of
September 30, 2006:



|                                   |  |   |           
|---------------------------------- |  | - | ----------
|Year Ending December 31,           |  |   |           
|                                   | 
|2006                               |  |   | 1,566,555 
|2007                               |  |   | 5,324,672 
|2008                               |  |   | 3,552,756 
|2009                               |  |   | 1,494,975 
|2010                               |  |   | 807,660   
|Beyond                             |  |   |          
|                                   |  |   |           
|Total minimum future rental income |  | $ | 12,746,618
|                                   |  |   |           

Total minimum future rental income does not include contingent rental income based on a percentage of gross
revenues which may be received under a sublease for the rental of cafeteria space or contingent rental income based on a percentage of billed fees for telephone services and a fixed amount per installed phone line which may be received under a
sublease for the rental of roof space for an aerial tower.

Contingent rental income for the three and nine months ended September 30, 2006 was
approximately $53,000, and $147,000, respectively. Contingent rental income for the three and nine months ended September 30, 2005 was approximately $47,000, and $138,000, respectively.

(6) RELATED PARTY TRANSACTIONS

On July 10, 2003, the Company entered
into an amended and restated administration and liquidation agreement with Calypso Management LLC (Calypso Management), pursuant to which Calypso Management manages the liquidation of the Company and operates the Companys assets
pending their liquidation. Calypso Management is owned and operated by Stephen G. Kasnet, the Companys Chief Executive Officer, and Donald H. Hunter, the Companys Chief Financial Officer. Mr. Kasnet is Calypso Managements
President and Chief Executive Officer and Mr. Hunter is Calypso Managements Chief Operating Officer and Chief Financial Officer. Calypso Management performs its services pursuant to operating plans and budgets approved by the Harbor
Global Board of Directors in accordance with the amended and restated administration and liquidation agreement.

The amended and restated administration
and liquidation agreement provides that the Company pays the operating expenses of Calypso Management incurred in connection with the provision of services to the Company.

In addition, as compensation for its provision of services to the Company, Calypso Management receives a portion of the total net proceeds distributed from the liquidation of the Companys assets, generally
according to the following schedule:



| |  |  | with respect to the first $36 million in net proceeds to be distributed, Calypso Management shall receive a payment equal to 10% of such net proceeds;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | with respect to the next $72 million in net proceeds to be distributed, Calypso Management shall receive a payment equal to 7.5% of such net proceeds; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | with respect to any additional net proceeds to be distributed, Calypso Management shall receive a payment equal to 10% of such net proceeds.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

Net proceeds do not include any unexpended portion of the approximate $19,100,000 contributed by Pioneer to Harbor Global at the time of the Spin-off. However, because
Harbor Global entered into a transaction in which it was released from its indirect obligation to fulfill its existing capital commitment of approximately $5.4 million to the Polish Real Estate Fund, $5.4 million of the amount contributed by Pioneer
is included in the calculation of net proceeds. In addition, the proceeds received by Goldfields II in connection with the sale of its Ghanaian gold mine to Ashanti are not subject to the preceding fee schedule. Instead, Calypso Management received
only 5% of the Ashanti proceeds that are distributed to shareholders.

In addition, if an individual, entity or group acquires at least 80% of the
Companys outstanding common shares or Harbor Global is a party to a merger, reorganization or similar business combination and the shareholders immediately prior to such transaction cease to own at least 50% of the outstanding common shares



12



---

##### Table of Contents

and voting power entitled to vote generally in the election of directors of the resulting entity (a Deemed
Sale), Calypso Management is entitled to receive a portion of the consideration, in accordance with the compensation schedule described above, as would be received by all shareholders if all of the outstanding common shares were sold at the
valuation of Harbor Global based on the per share consideration received by each shareholder who sold, exchanged or otherwise disposed of shares in the transaction. Also, in the event of a change in control (as defined in the agreement) coupled with
a material change in the engagement status of Calypso Management or the employment status of its principal officers, Calypso Management will be paid a cash amount equal to a portion of the value of the underlying assets, in accordance with the
compensation schedule described above, with such value determined pursuant to a predetermined valuation schedule.

If consummated, the Amalgamation will
constitute a Deemed Sale, and accordingly, Calypso Management will be entitled to receive a cash payment in the amount of $5,380,783 pursuant to the compensation schedule included in the amended and restated administration and liquidation agreement.
With respect to ongoing asset sales, Harbor Global accrues management fees at the earlier of (1) the formal declaration by the Board of Directors of a distribution and (2) the time when a distributable amount is estimable following the
sale or liquidation of an asset. Harbor Global will also accrue management fees when a distribution to Calypso Management is triggered following a Deemed Sale of the Company or a change in control as defined in the amended and restated
administration and liquidation agreement.

The Company incurred management fee expenses of approximately $582,000, and $586,000 for the three months ended
September 30, 2006, and 2005, respectively, related to the reimbursement of expenses. For the nine months ended September 30, 2006 and 2005, the Company incurred management fee expenses of approximately $1,952,000 and $1,962,000,
respectively related to the reimbursement of expenses incurred by Calypso Management. Of this management fee, approximately $546,000 and $559,000 were outstanding at September 30, 2006 and 2005, respectively.

Calypso Management pays the rent on behalf of the Company for its offices at One Faneuil Hall Marketplace, Boston, Massachusetts and is reimbursed by the Company
pursuant to the administration and liquidation agreement.

Pursuant to the Amalgamation Agreement, Buyer will pay Calypso Management $1,992,000 for Calypso
Management to fund post-closing obligations of Buyer, the amalgamated company and their affiliates, including purchasing a tail insurance policy, paying pro rata accrued employee bonuses, preparing closing financial statements and preparing and
distributing Schedule K-1s for applicable shareholders. During a post-closing period expected to last approximately two months, the funds from this payment will also be used for normal employee compensation and benefits for Calypso Management
employees in connection with Calypso Managements performance of these services, as well as for rent and other operational costs. Pursuant to the amendment to the amended and restated administration and liquidation agreement contemplated to be
entered into between the Company and Calypso Management pursuant to the Amalgamation Agreement, Calypso Management will be obligated to pay, or to cause to be paid, out of those funds, amounts for those post-closing obligations in the ordinary
course of business. Under that contemplated amendment, the Company will be obligated to indemnify Calypso Management and its members, officers and employees for certain costs, expenses and liabilities in connection with providing these services. In
addition, prior to the closing of the Amalgamation, the Company will pay to Calypso Management $319,000 for certain operating expenses that will accrue up to the closing of the Amalgamation.

PREA L.L.C., the subsidiary through which the Companys real estate management operations are conducted (PREA), leases the Meridian Commercial Tower
from PIOGLOBAL Real Estate Investment Fund under a master lease agreement and in turn, subleases the premises to tenants. PREA pays PIOGLOBAL Real Estate Investment Fund an amount equal to gross revenues less building operating expenses, the PREA
property management fee and any value added taxes or similar taxes. The master lease agreement between PIOGLOBAL Real Estate Investment Fund and PREA expires in 2043.

Under a management agreement between PIOGLOBAL Asset Management and PIOGLOBAL Real Estate Investment Fund, PIOGLOBAL Asset Management provides portfolio management services to PIOGLOBAL Real Estate Investment Fund for
an annual fee of 5% of all assets owned by PIOGLOBAL Real Estate Investment Fund net of any value added taxes or similar taxes.



13



---

##### Table of Contents

(7) INDEMNIFICATION CONTRACTS

Under the Distribution Agreement, Harbor Global agreed to indemnify Pioneer for liabilities, other than tax liabilities, incurred by Pioneer relating to the businesses or operations of the Harbor Global assets. Currently, there are no suits
pending under the indemnification or other provisions of the Distribution Agreement.

(8) SUBSEQUENT EVENTS

On October 18, 2006, the Board of Directors of the Company, pursuant to the Companys memorandum of association, approved the Company continuing to operate its
assets for an additional one-year period or until October 24, 2007 (the Extension), unless and until the Company earlier distributes all of its assets to its shareholders to the extent permitted by the Companies Act 1981 of Bermuda,
and subject to the consummation of the proposed amalgamation of the Company with Newco contemplated by and in accordance with the terms and conditions of the Transaction Agreement and the Amalgamation Agreement, dated as of August 18, 2006,
between the Company and Newco.

In addition, pursuant to the Letter Agreement, as a result of the Extension, the term of the Administration and Liquidation
Agreement was automatically extended until the Termination Date.

The Companys lease for its principal executive offices in Boston, Massachusetts
expired on October 15, 2006. However, the landlord for this space has agreed to allow Calypso Management to continue to lease the space on behalf of Calypso Management and the Company through December 31, 2006.

(9) FINANCIAL INFORMATION BY BUSINESS SEGMENT

In accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company presents its segment information for continuing operations using the management approach. The management approach is based on the way that
management organizes the segments within a company for making operating decisions and assessing performance. The Companys operating segments are organized around services and products provided, as well as geographic regions.

The Company derives its revenues from the following products and services by segment:



| |  |  | Russian Real Estate Management and Investment Management Operations: investment advisory and management services
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Real Estate Management Operations: real estate management services, including property management and advisory services
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Other
| | - |  | -----



14



---

##### Table of Contents

SEGMENT DISCLOSURES



|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ----- | - | ------------------------------- | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | Russian Real EstateManagementAnd InvestmentManagementOperations |       |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the three months ended September 30, 2006                                           |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Gross Revenues                                                                                    |  | $                                                               | 3,036 |   |                                 | $ | 279  |       |  | $ |      |   |  | $ | 3,315  |  
|Elimination of Intersegment Revenues                                                              |  |                                                                 |      |   |                                 |   | (38  | )     |  |   |      |   |  |   | (38    | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net Revenues                                                                                      |  | $                                                               | 3,036 |   |                                 | $ | 241  |       |  | $ |      |   |  | $ | 3,277  |  
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                 | (444  | ) |                                 |   | (262 | )     |  |   | 48    |   |  |   | (658   | )
|Provision for Income Taxes                                                                        |  |                                                                 | (228  | ) |                                 |   |     |       |  |   |      |   |  |   | (228   | )
|Minority Interest Expense                                                                         |  |                                                                 | (121  | ) |                                 |   |     |       |  |   |      |   |  |   | (121   | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                                 |      |   |                                 |   |     |       |  |   | (70   | ) |  |   | (70    | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net Loss                                                                                          |  | $                                                               | (793  | ) |                                 | $ | (262 | )     |  | $ | (22   | ) |  | $ | (1,077 | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                               | 277   |   |                                 | $ | 9    |       |  | $ |      |   |  | $ | 286    |  
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|                                                                                                  |  |                                                                 |       |  
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations  |       |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the three months ended September 30, 2005                                           |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Gross Revenues and Sales                                                                          |  | $                                                               | 2,886 |   |                                 | $ | 311  |       |  | $ | 155   |   |  | $ | 3,352  |  
|Elimination of Intersegment Revenues                                                              |  |                                                                 |      |   |                                 |   |     |       |  |   | (155  | ) |  |   | (155   | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net Revenues and Sales                                                                            |  | $                                                               | 2,886 |   |                                 | $ | 311  |       |  | $ |      |   |  | $ | 3,197  |  
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment        |  |                                                                 | 416   |   |                                 |   | (152 | )     |  |   | 105   |   |  |   | 369    |  
|Provision for Income Taxes                                                                        |  |                                                                 | (497  | ) |                                 |   | 23   |       |  |   | (48   | ) |  |   | (522   | )
|Minority Interest Expense                                                                         |  |                                                                 | (224  | ) |                                 |   |     |       |  |   |      |   |  |   | (224   | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                                 |      |   |                                 |   |     |       |  |   | (5    | ) |  |   | (5     | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                               | (305  | ) |                                 | $ | (129 | )     |  | $ | 52    |   |  | $ | (382   | )
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                               | 293   |   |                                 | $ | 6    |       |  | $ |      |   |  | $ | 299    |  
|                                                                                                  |  |                                                                 |       |   |                                 |   |      |       |  |   |       |   |  |   |        |  



15



---

##### Table of Contents

|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ------ | - | ------------------------------- | - | ---- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                  |  | Russian Real EstateManagementAnd InvestmentManagementOperations |        |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2006                                            |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Gross Revenues                                                                                    |  | $                                                               | 8,694  |   |                                 | $ | 942  |       |  | $ |      |   |  | $ | 9,636   |  
|Elimination of Intersegment Revenues                                                              |  |                                                                 |       |   |                                 |   | (114 | )     |  |   |      |   |  |   | (114    | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Net Revenues                                                                                      |  | $                                                               | 8,694  |   |                                 | $ | 828  |       |  | $ |      |   |  | $ | 9,522   |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                 | 599    |   |                                 |   | (755 | )     |  |   | 137   |   |  |   | (19     | )
|Provision for Income Taxes                                                                        |  |                                                                 | (938   | ) |                                 |   | (7   | )     |  |   |      |   |  |   | (945    | )
|Minority Interest Expense                                                                         |  |                                                                 | (1,316 | ) |                                 |   |     |       |  |   |      |   |  |   | (1,316  | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                                 |       |   |                                 |   |     |       |  |   | 14    |   |  |   | 14      |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Net (Loss) Income                                                                                 |  | $                                                               | (1,655 | ) |                                 | $ | (762 | )     |  | $ | 151   |   |  | $ | (2,266  | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                               | 909    |   |                                 | $ | 22   |       |  | $ |      |   |  | $ | 931     |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Total Assets                                                                                      |  | $                                                               | 95,837 |   |                                 | $ | 424  |       |  | $ | 5,129 |   |  | $ | 101,390 |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|                                                                                                  |  |                                                                 |        |  
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations  |        |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2005                                            |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Gross Revenues and Sales                                                                          |  | $                                                               | 8,359  |   |                                 | $ | 862  |       |  | $ | 464   |   |  | $ | 9,685   |  
|Elimination of Intersegment Revenues                                                              |  |                                                                 | (1     | ) |                                 |   |     |       |  |   | (464  | ) |  |   | (465    | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Net Revenues and Sales                                                                            |  | $                                                               | 8,358  |   |                                 | $ | 862  |       |  | $ |      |   |  | $ | 9,220   |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                 | 2,730  |   |                                 |   | (184 | )     |  |   | 294   |   |  |   | 2,840   |  
|Provision for Income Taxes                                                                        |  |                                                                 | (1,765 | ) |                                 |   | (81  | )     |  |   | (109  | ) |  |   | (1,955  | )
|Minority Interest Expense                                                                         |  |                                                                 | (1,725 | ) |                                 |   |     |       |  |   |      |   |  |   | (1,725  | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                                 |       |   |                                 |   |     |       |  |   | (25   | ) |  |   | (25     | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Net Loss                                                                                          |  | $                                                               | (760   | ) |                                 | $ | (265 | )     |  | $ | 160   |   |  | $ | (865    | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                               | 985    |   |                                 | $ | 18   |       |  | $ |      |   |  | $ | 1,003   |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  
|Total Assets                                                                                      |  | $                                                               | 87,984 |   |                                 | $ | 575  |       |  | $ | 7,816 |   |  | $ | 96,375  |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |   |       |   |  |   |         |  

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

The Companys discussion and analysis of its financial condition and results of operations are based upon the
Companys Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of the Consolidated Financial Statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, income and expenses. The Company
evaluates its estimates on an on-going basis. The Companys estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the Companys assets, liabilities, income and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



16



---

##### Table of Contents

The Company considers its critical accounting policies to include those related to (i) current marketable securities
and (ii) long-term marketable securities.

Current marketable securities consist primarily of United States Treasury securities, Russian government
and municipal securities, and the current portion of Russian corporate bonds. United States Treasury securities are classified as held-to-maturity and recorded at amortized cost. Russian government and municipal securities are classified as trading
securities and are marked-to-market, with unrealized gains or losses reported in other income (expense) in the Consolidated Statements of Operations pursuant to Statement of Financial Accounting Standards (SFAS) No. 115. Russian
corporate bonds are classified as available-for-sale and are recorded at fair value pursuant to SFAS No. 115. Russian government securities are held primarily in the PIOGLOBAL Real Estate Investment Fund. Security transactions are recorded on
the settlement date. For all periods presented, the difference between trade date and settlement date is immaterial. Investments are valued at the weighted average daily price if they are traded on the valuation date; otherwise, the bid price is
used.

Long-term marketable securities consist primarily of Russian equity and fixed income securities, including Russian corporate bonds, held in the
portfolio of the PIOGLOBAL Real Estate Investment Fund. Russian corporate bonds and investments in unit fund and trust management accounts are characterized as available-for-sale and recorded at fair value based on quoted market prices pursuant to
SFAS No. 115. The equity securities are also classified as available-for-sale and recorded at fair value pursuant to SFAS No. 115. In determining fair value, individual equity securities must first satisfy certain trading volume and
bid-ask spread criteria established by management to demonstrate that there is sufficient breadth and scope in the market for that security. Equity securities that satisfy these criteria are recorded in long-term marketable securities based on the
quoted price in the Russian Trading System. Investments that do not have a readily determinable fair value are recorded in long term investments at cost with adjustments for other-than-temporary impairment. The cost of securities sold is based on
the weighted-average method. Dividend income received on investments is recognized on a cash basis. Unrealized gains and unrealized losses are recorded net of deferred taxes and minority interest in shareholders equity as other comprehensive income
in the Consolidated Balance Sheets. Realized gains or losses and any other-than-temporary declines in value are reported in other income in the Consolidated Statements of Operations.

OVERVIEW

The Consolidated Financial Statements of Harbor Globals principal operations include
its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and Analysis of Financial Condition and Results of Operations are presented in three
sections: Results of Operations for the three and nine months ended September 30, 2006 and 2005, Liquidity and Capital Resources, Off-Balance Sheet Arrangements, and Future Operating Results.

On August 18, 2006, the Company entered into an Amalgamation Agreement with Isvias Trading Limited, a company incorporated under the laws of the Republic of Cyprus
(Buyer), and Namredips Ltd., a Bermuda company and a wholly owned subsidiary of Buyer (Newco), pursuant to which the Company will amalgamate with Newco (the Amalgamation), and as a result of the amalgamation, the
Company and Newco will continue as one company incorporated under the laws of Bermuda as a wholly owned subsidiary of Buyer. Pursuant to the Amalgamation Agreement and subject to the terms and conditions thereof, at the effective time of the
Amalgamation, the Companys issued and outstanding common shares will be cancelled and extinguished and converted into the right to receive $11.5663 per share in cash, without interest. The Amalgamation Agreement has been approved by the Board
of Directors. Consummation of the Amalgamation is subject to the satisfaction or waiver of certain conditions, including approval of the Amalgamation by the shareholders of Harbor Global. A special general meeting of Harbor Globals
shareholders has been scheduled to be held on November 13, 2006 for consideration and vote on the proposed Amalgamation. The Company expects the transaction to close in the fourth quarter of 2006. The foregoing description of the Amalgamation
Agreement is only a summary and is qualified in its entirety by the Amalgamation Agreement, a copy of which was filed as an exhibit to the Companys Current Report on Form 8-K dated August 18,



17



---

##### Table of Contents

2006 and filed with the Securities and Exchange Commission on the same date. For further information regarding the
Amalgamation and the Amalgamation Agreement, please refer to the Companys definitive proxy statement which was filed with the Securities and Exchange Commission on October 10, 2006.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

Consolidated Operations.

Harbor
Global reported a net loss of $1.1 million ($0.19 per share) on revenues of $3.3 million for the third quarter of 2006 compared to a loss of $0.4 million ($0.07 per share) on revenues of $3.2 million in the third quarter of 2005. The $0.7 million
increase in net losses during the third quarter of 2006 compared to the third quarter of 2005 was attributable primarily to the $0.3 million credit recorded in the Companys provision for income taxes in the third quarter of 2005 related to the
conversion of Pioglobal First Russia from a Delaware corporation into a Delaware limited liability company and a $0.2 million increase in legal expenses in connection with the proposed amalgamation transaction.

For the nine months ended September 30, 2006, the Company reported a net loss of $2.3 million ($0.40 per share) on revenues of $9.5 million compared to a net loss
of $0.9 million ($0.15 per share) on revenues of $9.2 million for the nine months ended September 30, 2005. The $1.4 million increase in net losses was attributable primarily to a $1.2 million decrease in portfolio gains, a $0.6 million
increase in legal expenses in connection with the proposed amalgamation transaction and the $0.3 million credit recorded in the Companys provision for income taxes in the third quarter of 2005 related to the conversion of Pioglobal First
Russia; offset partially by a $0.8 million increase in translation gains.

Set forth on the following table are the details of revenues and net (loss)
income by business segment for the three and nine months ended September 30, 2006 and 2005:

REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  |                                |     |                                |   |      |                               |   |                               |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  
|------------------------------------------------------------------- |  | ------------------------------ | --- | ------------------------------ | - | ---- | ----------------------------- | - | ----------------------------- | - |  | ---- | ---- | ---- |  | ---- | --- |  | ---- | --- |  | - | ---- | - |  | - | ---- | -
|                                                                    |  | REVENUES                       |     | NET INCOME(LOSS)               |   |      | REVENUES                      |   | NET INCOME(LOSS)              |  
|                                                                    |  | THREE MONTHSENDEDSEPTEMBER 30, |     | THREE MONTHSENDEDSEPTEMBER 30, |   |      | NINE MONTHSENDEDSEPTEMBER 30, |   | NINE MONTHSENDEDSEPTEMBER 30, |  
|BUSINESS SEGMENT                                                    |  | 2006                           |     | 2005                           |   | 2006 |                               |   | 2005                          |   |  | 2006 |      | 2005 |  | 2006 |     |  | 2005 |    
|Russian Real Estate Management and Investment Management Operations |  | $                              | 3.0 |                                | $ | 2.9  |                               | $ | (0.8                          | ) |  | $    | (0.3 | )    |  | $    | 8.7 |  | $    | 8.3 |  | $ | (1.7 | ) |  | $ | (0.8 | )
|Real Estate Management Operations                                   |  |                                | 0.3 |                                |   | 0.3  |                               |   | (0.3                          | ) |  |      | (0.1 | )    |  |      | 0.8 |  |      | 0.9 |  |   | (0.8 | ) |  |   | (0.3 | )
|Other                                                               |  |                                |    |                                |   |     |                               |   |                              |   |  |      |     |      |  |      |    |  |      |    |  |   | 0.2  |   |  |   | 0.2  |  
|                                                                    |  |                                |     |                                |   |      |                               |   |                               |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  
|Totals                                                              |  | $                              | 3.3 |                                | $ | 3.2  |                               |   | (1.1                          | ) |  | $    | (0.4 | )    |  | $    | 9.5 |  | $    | 9.2 |  | $ | (2.3 | ) |  | $ | (0.9 | )
|                                                                    |  |                                |     |                                |   |      |                               |   |                               |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  

Russian Real Estate Management and Investment Management Operations.

The Russian real estate management and investment management operations reported a net loss of $0.8 million for the third quarter of 2006 compared to a net loss of $0.3
million for the third quarter of 2005. The $0.5 million increase in net losses during the third quarter of 2006 compared to the third quarter of 2005 was attributable principally to the $0.3 million credit recorded in the Companys provision
for income taxes in the third quarter of 2005 related to the conversion of Pioglobal First Russia from a Delaware corporation into a Delaware limited liability company, a $0.1 million decrease in portfolio gains and a $0.1 million increase in
corporate overhead allocations due to increased legal expenses.

During the nine months ended September 30, 2006, the Russian real estate management
and investment management business reported a net loss of $1.7 million compared to a net loss of $0.8 million for the comparable period in 2005. The $0.9 million increase in net losses was attributable principally to a $0.8 million decrease in



18



---

##### Table of Contents

portfolio gains, a $0.4 million increase in corporate overhead allocations due to increased legal expenses, the $0.3
million credit recorded in the Companys provision for income taxes in the third quarter of 2005 related to the conversion of Pioglobal First Russia from a Delaware corporation into a Delaware limited liability company, and a $0.3 million
increase in advertising expense offset partially by a $0.8 million increase in translation gains.

PIOGLOBAL Asset Management provides management services
to PIOGLOBAL Real Estate Investment Fund. PIOGLOBAL Asset Management also serves as an investment manager to three Russian open-end unit investment funds, an index interval fund and an institutional interval fund, whose assets under management at
September 30, 2006 and 2005 are set forth on the following table:



|                        |  |               |       |      |   |      
|----------------------- |  | ------------- | ----- | ---- | - | -----
|                        |  | September 30,
|                        |  | 2006          |       | 2005
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 71.0  |      | $ | 77.0 
|Interval Funds          |  |               | 7.6   |      |   | 4.0  
|Trust Management        |  |               | 69.2  |      |   | 62.9 
|                        |  |               |       |      |   |      
|Assets under management |  | $             | 147.8 |      | $ | 143.9

Real Estate Management Operations.

The real estate management operations recorded a net loss of $0.3 million for the third quarter of 2006 compared to a net loss of $0.1 million in the third quarter of 2005. The $0.2 million increase in net losses is
attributable principally to a $0.1 million increase in corporate overhead allocations due to increased legal expenses and a $0.1 million increase in salary and benefit expense.

For the nine months ended September 30, 2006 the real estate management operations reported a net loss of $0.8 million compared to a net loss of $0.3 million for the nine months ended September 30, 2005. The
$0.5 million increase in losses is attributable to a $0.4 million gain on the sale of marketable securities recorded in 2005 and a $0.2 million increase in corporate overhead allocations due to increased legal expenses.

Other.

Harbor Globals other operations broke even for both the
three months ended September 30, 2006 and 2005. For both the nine months ended September 30, 2006 and 2005, Harbor Globals other operations reported net income of $0.2 million, representing interest income.

LIQUIDITY AND CAPITAL RESOURCES

Liquid
assets held directly by Harbor Global consisting of cash and cash equivalents maintained for general corporate purposes were $4.6 million as of September 30, 2006. This amount represents an approximately $1.3 million decrease from the 2005
fiscal year end. The decrease in cash and cash equivalents, and marketable securities is attributable principally to the funding of operations including increased legal expenses and the settlement of year end accruals less the receipt of the
approximately $2.2 million dividend received from PIOGLOBAL Real Estate Investment Fund. Management believes that the cash available for general corporate purposes, after considering future dividends from subsidiaries, is sufficient to fund
operations over the next two years. It should be noted that so long as the Amalgamation Agreement is in force, the Company is prohibited from paying dividends on its common shares without Buyers or Newcos written consent.

The assets of the Companys majority-owned Russian subsidiary, PIOGLOBAL Real Estate Investment Fund, consist of cash and cash equivalents, equity securities (both
liquid and illiquid), marketable securities, real estate holdings, and other miscellaneous assets.

OFF-BALANCE SHEET
ARRANGEMENTS

The Company does not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on the
Companys financial



19



---

##### Table of Contents

condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.

FORWARD LOOKING STATEMENTS AND FUTURE OPERATING RESULTS

Management has made or implied certain forward-looking statements in this Quarterly Report on Form 10-Q. All statements, other than statements of historical facts
included in this Quarterly Report, including the statements under Managements Discussion and Analysis of Financial Condition and Results of Operations regarding the Companys business strategy, future operations, financial
position, estimated revenues, projected costs, prospects and objectives of management are forward-looking statements. When used in this Quarterly Report, the words anticipate, intend, plan, estimate,
believe, expect, project, could, will, should, may and similar expressions are also intended to identify forward-looking statements, although not all forward-looking
statements contain such identifying words.

Since these forward-looking statements are based upon current expectations of future events and projections and
are subject to a number of risks and uncertainties, many of which are beyond managements control, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these
statements. Important factors that could cause the Companys actual results to differ materially from those expressed or implied herein include, without limitation:



| |  | the ability to consummate the Amalgamation;
|- |  | -------------------------------------------



| |  | economic, political and regulatory stability in Russia;
|- |  | -------------------------------------------------------



| |  | increased competition in the Russian commercial real estate market;
|- |  | -------------------------------------------------------------------



| |  | increased competition in the Russian investment management market;
|- |  | ------------------------------------------------------------------



| |  | the loss of one or more key officers;
|- |  | -------------------------------------



| |  | the effects of political or economic conditions in international markets; and
|- |  | -----------------------------------------------------------------------------



| |  | the effect of the announcement of the Amalgamation, and events that may develop with respect to or which may impact the Amalgamation, on our customer relationships, ability to
retain key employees, operating results and business generally.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Some of the above-mentioned factors are described in further detail in the
section entitled Risk Factors in this Quarterly Report on Form 10-Q. Forward-looking statements are based on currently available information and managements expectations of future results but involve certain assumptions. Management
cautions readers that assumptions involve substantial risks and uncertainties. Consequently, any forward-looking statement could turn out to be wrong. Many factors could cause actual results to differ materially from expectations. Except as required
by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise to reflect actual results or changes in factors or assumptions
affecting such forward-looking statement.

RECENT PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 156, Accounting for Servicing of Financial Assets, an Amendment of FASB No. 140 (SFAS 156). On
March 17, 2006, the FASB issued SFAS 156, which amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, (SFAS 140) with respect to the accounting for separately recognized
servicing assets and servicing liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006, with earlier adoption permitted. The Company does not expect SFAS 156 to have a material impact on its results of operations
or financial condition at the time of adoption. SFAS No. 157, Fair Value Measurements (SFAS 157). In September 2006, the FASB issued SFAS 157, which defines fair value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements when the FASB has previously concluded in those pronouncements that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years, with early adoption permitted. The Company has not yet determined the effect that the adoption of SFAS 157 will have on its results of operations or financial condition.



20



---

##### Table of Contents

SEC Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). On September 13, 2006, the SEC issued SAB 108 to provide guidance in the process of quantifying financial statement misstatements. SAB 108 requires registrants to quantify an
error under both the rollover and iron curtain approaches. Consequently, a registrants financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant
quantitative and qualitative factors. SAB 108 is effective for financial statements issued for fiscal years after November 15, 2006, with early adoption encouraged. The Company does not expect SAB 108 to have a material impact on its results of
operations or financial condition at the time of adoption. SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS
158). In September 2006, the FASB issued SFAS 158 which reconsiders the guidance in FASB Statements No. 87, Employers Accounting for Pensions, No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, and
No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits. SFAS 158 requires the recognition of a net liability or asset to report the funded status of defined benefit pension and other postretirement
benefit plans on the statement of financial position. SFAS 158 is effective for fiscal years ending after December 15, 2006 for public entities, and fiscal years ending after June 15, 2007 for nonpublic entities, with early adoption
permitted. The Company plans to adopt SFAS 158 as of December 31, 2006. The management of the Company does not expect SFAS 158 to have a material impact on its results of operations or financial condition.

Emerging Issues Task Force (EITF) 06-03, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That
Is, Gross versus Net Presentation). In September 2006, the FASB issued EITF 06-03 which clarifies that any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a
seller and a customer may be presented on either a gross basis (included in revenues and expenses) or a net basis (exclude from revenues). For any such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in
interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF 06-03 is effective for financial reports for interim and annual reporting periods beginning after
December 15, 2006 with early application permitted. The Company does not expect EITF 06-03 to have a material impact on its results of operations or financial condition at the time of adoption.

FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109. In June 2006, the
FASB issued FIN 48 which provides certain disclosures regarding income taxes in the year of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006 with early adoption permitted. The Company does not expect FIN 48 to
have a material impact on its results of operations or financial condition at the time of adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Harbor Global monitors its exposure to adverse changes in
interest rates, foreign currency exchange rates and market fluctuations.

The Companys interest rate risk involves the short-term investment of
excess cash. This risk impacts fair values, earnings and cash flows. Excess cash is primarily invested in foreign government bonds and United States treasury bills. These short-term investments are reported either as cash and cash equivalents or
marketable securities. The balance of cash and cash equivalents at September 30, 2006 and December 31, 2005 was approximately $4.5 million and $1.2 million, respectively, and the balance of marketable securities at September 30, 2006
and December 31, 2005 was approximately $0.0 million and $7.1 million, respectively. Earnings from excess cash invested were approximately $0.1 million for the nine months ended September 30, 2006. Based on excess cash invested at
September 30, 2006, a one percent increase or decrease in current market interest rates would have the effect of causing an approximately $0.1 million additional pre-tax credit or charge to the Consolidated Statements of Operations.



21



---

##### Table of Contents

Harbor Global is exposed to certain changes in foreign currency exchange rates, primarily as a result of its operations
in Russia. The United States dollar (the Companys reporting currency) has been designated as the Companys functional currency. Translation gains and losses that result from remeasuring into the United States dollar are included in the
Consolidated Statement of Operations. To mitigate against currency translation risk, the Company primarily contracts for most of its costs and revenues in United States dollars. This acts as a natural hedge to protect against currency fluctuations
from the Companys operations. For the three months ended September 30, 2006 the Company reported net currency exchange gains of approximately $171,000 compared to net currency exchange gains of approximately $228,000 for the three months
ended September 30, 2005. For the nine months ended September 30, 2006, the Company reported net currency exchange gains of approximately $1,123,000 compared to net currency exchange losses of $225,000 for the nine months ended
September 30, 2005.

The Russian ruble is not a fully convertible currency outside of Russia. The translation of ruble denominated assets and
liabilities into United States dollars for the purpose of these financial statements does not indicate that the Company could realize or settle in United States dollars the reported values of these assets and liabilities. The Company reports all of
its non-monetary assets and liabilities held in Russia at historical exchange rates, and any fluctuation in foreign exchange rates would not have any impact on reported non-monetary assets and liabilities.

The table below sets forth in the Companys reporting currency a summary of the monetary assets and liabilities held in rubles at September 30, 2006 and
December 31, 2005.



|                          |  |                   |        |                  |   |       
|------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                          |  | (IN THOUSANDS)   
|                          |  | September 30,2006 |        | December 31,2005
|Monetary Assets           |  |                   |        |                  |   |       
|Cash and Cash Equivalents |  | $                 | 5,460  |                  | $ | 11,825
|Restricted Cash           |  |                   | 16,494 |                  |   | 13,145
|Securities Held for Sale  |  |                   | 46,342 |                  |   | 33,935
|Other                     |  |                   | 2,791  |                  |   | 3,211 
|                          |  |                   |        |                  |   |       
|                          |  | $                 | 71,087 |                  | $ | 62,116
|                          |  |                   |        |                  |   |       
|Monetary Liabilities      |  |                   |        |                  |   |       
|Dividend Payable          |  | $                 | 16,494 |                  | $ | 13,145
|Taxes Payable             |  |                   | 292    |                  |   | 76    
|Deferred Taxes            |  |                   | 4,151  |                  |   | 3,439 
|Other                     |  |                   | 860    |                  |   | 571   
|                          |  |                   |        |                  |   |       
|                          |  | $                 | 21,797 |                  | $ | 17,231
|                          |  |                   |        |                  |   |       
|Net Position              |  | $                 | 49,290 |                  | $ | 44,885
|                          |  |                   |        |                  |   |       

The Company indirectly invests in equity instruments of privately-held companies through its approximately 52%
interest in the PIOGLOBAL Investment Fund and its approximately 8% interest in the Prospect Poland Fund. Investments in privately held companies by the PIOGLOBAL Investment Fund are recorded at cost in long-term investments. With respect to the
Companys limited partnership interest in the Prospect Poland Fund, such interests are recorded under Polish Venture Capital Investment using the equity method of accounting. The Company is exposed to market risk as it relates to the market
value of its indirect investments in privately held companies. The carrying value of the Companys interest in the Prospect Poland Fund was written down by approximately $25,000 for both the nine months ended September 30, 2006 and 2005,
reflecting the Companys proportional share of operating expenses. Additionally, during the first nine months of 2006, the Company recorded a realized gain of approximately $19,000 and an unrealized gain of approximately $19,000 on its
remaining investment.

The PIOGLOBAL Real Estate Investment Fund is also invested in equity instruments of public companies, which are classified as
available-for-sale pursuant to SFAS No. 115. Those publicly traded equity investments that have evinced a sufficient breadth and scope of market activity are valued based on the quoted price for such securities according to the Russian Trading
System and are recorded in long-term



22



---

##### Table of Contents

marketable securities. Investments that do not have a readily determinable fair value are recorded in long term
investments at cost with adjustments for other than temporary impairment. These available-for-sale equity investments, primarily in oil and gas companies, energy companies and the telecommunications industry, are subject to significant fluctuations
in fair value due to the volatility of the stock market and the industries in which these companies participate. As of September 30, 2006 and December 31, 2005, the fair value of equity investments contained in long-term marketable
securities aggregated approximately $27.4 million and $17.1 million, respectively. PIOGLOBAL Real Estate Investment Fund recorded unrealized gains after deferred taxes and after minority interest of approximately $6.7 million and $5.5 million at
September 30, 2006 and December 31, 2005, respectively, as a separate component of shareholders equity. Although the breadth of industries represented on the Russian Trading System is severely limited, the Company attempts to manage
its exposure to stock market fluctuations and minimize the impact of stock market declines to the Companys earnings and cash flow by increased diversification of the portfolio.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures. The Companys Chief Executive Officer and
Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as
of September 30, 2006 (the Evaluation Date). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective to provide reasonable assurance
that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission
rules and forms and is accumulated and communicated to such officers to allow timely decisions regarding required disclosure.

Internal Control Over
Financial Reporting. There have not been any significant changes in the Companys internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

Limitations on the Effectiveness of Controls. The Companys management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Companys disclosure controls and procedures or the
Companys internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

PART II  OTHER INFORMATION

ITEM 1A. RISK FACTORS

As previously discussed, actual results could differ materially from forward looking statements.
Factors that might cause or contribute to such differences include, but are not limited to, those discussed below. Further, the risks and uncertainties described below are not the only ones Harbor Global faces. Additional risks and uncertainties not
presently known to management or that are currently deemed immaterial may also impair our business, financial condition and results of operations. If any of these risks actually occur, our business, financial condition and results of operations
could be materially adversely affected.

IF THE AMALGAMATION IS NOT COMPLETED, HARBOR GLOBAL AND ITS BUSINESS, OPERATING RESULTS AND SHARE PRICE MAY BE
MATERIALLY ADVERSELY AFFECTED.

The Amalgamation Agreement provides for a two-step closing structure. The first or initial closing is subject to
(i) approval by the Companys shareholders, (ii) receipt of Russian antimonopoly regulatory approvals, (iii) the execution and delivery of the proposed amendment to the Companys amended and restated



23



---

##### Table of Contents

administration agreement with Calypso Management and (iv) other customary closing conditions. A special general
meeting of Harbor Globals shareholders has been scheduled to be held on November 13, 2006 for consideration and vote on the proposed Amalgamation. Following the initial closing, the Companys applicable subsidiaries will affect a
pledge of the shares of the Companys indirect subsidiaries PIOGLOBAL Asset Management and PIOGLOBAL Real Estate Investment Fund that are owned by the Companys indirect subsidiaries for the benefit of Newco. Upon receipt of evidence from
the custodian holding the pledged shares that the pledged shares have been blocked in pledge for Newcos benefit, the closing of the Amalgamation would occur, subject to the applicable conditions to the closing having been satisfied or waived.
The closing is subject to (i) the initial closing having occurred, (ii) the completion in all material respects of certain actions in connection with the pledge and escrow actions required to be completed prior to the closing, including
effecting the blocking in pledge with the custodian of the pledged shares and depositing of the Amalgamation consideration by Buyer with the escrow agent, (iii) the pledged shares being blocked in pledge with the custodian as of closing and
(iv) other customary conditions, which are more limited in scope than the other customary conditions applicable to the initial closing. The Company expects the transaction to close in the fourth quarter of 2006.

There can be no assurance that the conditions to the Amalgamation will be satisfied or that the Amalgamation Agreement will be consummated. In addition, the Amalgamation
Agreement contains certain termination rights for both Buyer and the Company, and further provides that, upon termination of the Amalgamation Agreement under specified circumstances, the Company may be required to pay Buyer a termination fee of
$2,000,000.

Also, as a significant portion of our assets are located in the Russian Federation and certain parties involved in connection with the
proposed Amalgamation transaction are located in the Russian Federation, there is a risk that certain disputes or actions may be brought in or before Russian courts or regulatory agencies, which may not honor or enforce the applicable agreements and
related documents in accordance with their terms, and that the Company may not be able to enforce Buyers and its affiliates obligations in connection with the applicable agreements and related documents.

If the Amalgamation is not consummated, the Company and its business, operating results and share price may be materially adversely affected, including for, among other
reasons, the following reasons:



| |  |  | the market price of the Companys common shares could decline;
| | - |  | --------------------------------------------------------------



| |  |  | the Company could, under specified circumstances, be required to pay Buyer a termination fee of $2,000,000;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the Company would remain liable for the costs incurred by it related to the Amalgamation.
| | - |  | -----------------------------------------------------------------------------------------

AN INCREASE IN COMPETITION IN THE RUSSIAN COMMERCIAL REAL ESTATE MARKET MAY ADVERSELY AFFECT HARBOR GLOBALS REVENUES AND THE VALUE OF HARBOR GLOBALS PRINCIPAL ASSET, THE MERIDIAN COMMERCIAL TOWER.

PIOGLOBAL Real Estate Investment Fund is Harbor Globals principal asset. A significant portion of the assets of PIOGLOBAL Real Estate Investment
Fund consists of its ownership of the Meridian Commercial Tower, an office building located in Moscow, Russia. During the third quarter of 2006, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 67% of Harbor
Globals total revenue. Furthermore, Meridian Commercial Tower lease revenues accounted for 95% of the revenues of PIOGLOBAL Real Estate Investment Fund and approximately 73% of the total revenue generated by Harbor Globals Russian real
estate management and investment management operations.

There is currently a shortage of commercial real estate in Moscow, Russia, which has brought about
a significant increase in planned commercial real estate construction. If and when such new buildings are commissioned, competition for tenants may increase and adversely affect Harbor Globals ability to attract new, and retain existing,
tenants. The loss of more than a few tenants could materially adversely affect Harbor Globals revenues. In addition, an increase in supply of commercial real estate in Russia may adversely affect the value of the Meridian Commercial



24



---

##### Table of Contents

Tower, Harbor Globals interest in PIOGLOBAL Real Estate Investment Fund and Harbor Globals ability to sell
its interest in PIOGLOBAL Real Estate Investment Fund on economically advantageous terms.

HARBOR GLOBALS RUSSIAN BUSINESSES ARE SUSCEPTIBLE TO
NUMEROUS RISKS AND UNCERTAINTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS.

Harbor Global conducts business primarily in Russia. Harbor Global will
continue to operate its Russian businesses until those businesses are liquidated and will continue to be subject to the risks of doing business in Russia, including:



| |  |  | unexpected changes in regulatory requirements and the legal system;
| | - |  | -------------------------------------------------------------------



| |  |  | tariffs and other trade barriers;
| | - |  | ---------------------------------



| |  |  | difficulties in staffing and managing Russian operations;
| | - |  | ---------------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | fluctuations in currency exchange rates;
| | - |  | ----------------------------------------



| |  |  | restrictions on currency exchange and repatriation;
| | - |  | ---------------------------------------------------



| |  |  | restrictions on foreign investment in its businesses; and
| | - |  | ---------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

For example, in recent years
Russia has undergone substantial political, economic and social change. As is typical of an emerging market, Russia does not possess a well-developed business, legal and regulatory infrastructure that would generally exist in the United States or in
a more mature free market economy. The Russian ruble is not freely convertible in most countries outside of Russia and the country possesses restrictive currency controls and relatively high inflation. In addition, the tax, currency and customs
legislation within Russia is subject to varying interpretations and changes, which can occur frequently. Consequently, Harbor Globals Russian real estate management and investment management operations involve significant risks, such as those
listed above, which are not typically associated with developed markets. While there have been improvements in economic trends, the future economic direction of Russia is largely dependent upon the effectiveness of economic, financial and monetary
measures undertaken by the government, together with tax, legal, regulatory, and political developments. The liquidation of these businesses, as well as the successful operation of these businesses pending their liquidation, will depend on the
stability of, and economic conditions in, Russia.

THE LOSS OF KEY OFFICERS AND MANAGERS COULD IMPAIR THE ABILITY OF HARBOR GLOBAL TO SUCCESSFULLY OPERATE
AND MANAGE ITS ASSETS PRIOR TO THEIR LIQUIDATION.

Mr. Kasnet is the President and Chief Executive Officer, and Mr. Hunter is the Chief Operating
Officer and Chief Financial Officer of Harbor Global. Mr. Kasnet previously served as the President, and Mr. Hunter previously served as the Chief Operating Officer and Senior Vice President of Pioneer Global Investments, a division of
Pioneer. As executive officers of Pioneer Global Investments, Mr. Kasnet and Mr. Hunter operated substantially all the businesses that Harbor Global now owns. In addition Calypso Management, an entity owned and operated by Mr. Kasnet
and Mr. Hunter, manages the liquidation of Harbor Global and operates Harbor Globals assets pending their liquidation pursuant to the terms of an amended and restated administration and liquidation agreement.

Because Harbor Globals assets are located in Russia, where successfully conducting and selling businesses requires significant experience, Harbor Global believes
that its success in liquidating its assets and operating its assets pending their liquidation will depend to a significant extent upon the continued efforts of Mr. Kasnet and Mr. Hunter. The loss of the services of either Mr. Kasnet
or Mr. Hunter could have a material adverse effect upon Harbor Globals results of operations and financial condition. The services of Mr. Kasnet and Mr. Hunter may also be critical to Harbor Globals ability to liquidate
its assets at prices that will enable Harbor Global to make meaningful distributions to its shareholders.

Mr. Kasnet and Mr. Hunter both entered
into employment agreements with Calypso Management. On December 8, 2004, the term of Mr. Kasnets employment agreement was extended to coincide with the term of the amended and restated administration and



25



---

##### Table of Contents

liquidation agreement between the Company and Calypso Management, which is the earlier of (i) October 24, 2007,
(ii) the date the Company is liquidated or (iii) the date of termination of the amended and restated administration and liquidation agreement, pursuant to Section 1 of the amendment to the amended and restated administration and
liquidation agreement contemplated to be entered into between the Company and Calypso Management pursuant to the Amalgamation Agreement, subject to the Company and Calypso Management entering into such amendment. Mr. Hunters employment
agreement provides that Mr. Hunters employment with Calypso Management is at will, subject to termination by either Calypso Management or Mr. Hunter upon 60 days prior written notice. If either Mr. Kasnets or
Mr. Hunters employment with Calypso Management is terminated, the individual whose agreement is terminated will cease to be an officer of Harbor Global. Harbor Global has obtained key officer life insurance policies on the lives of
Mr. Kasnet and Mr. Hunter with benefits payable to Harbor Global.

If the announcement of the Amalgamation or events that may develop or impact
the Amalgamation negatively affect the Companys ability to retain key employees, the Company and its business, operating results and share price may be materially adversely affected.

HARBOR GLOBAL WILL INDEMNIFY PIONEER FOR SOME LIABILITIES ACCRUING AFTER THE SPIN-OFF.

Under the Distribution Agreement, Harbor Global agreed to indemnify Pioneer for liabilities, other than tax liabilities, incurred by Pioneer relating to the businesses or operations of the Harbor Global assets.
Currently, there are no suits pending that would require payment by Harbor Global to Pioneer under the indemnification provisions of the Distribution Agreement. However, Harbor Global cannot provide assurances that no legal proceeding or other claim
will occur that would require Harbor Global to indemnify Pioneer. Furthermore, Harbor Global and its subsidiaries may be subject to legal proceedings or other claims arising in the ordinary course of business, including employment related claims,
environmental claims and regulatory fees or fines associated with its international operations.

THERE CAN BE NO ASSURANCE THAT SHAREHOLDERS WILL BE ABLE
TO SELL THEIR HARBOR GLOBAL COMMON SHARES.

Harbor Global common shares are not listed on any securities exchange or on
The Nasdaq Stock Market(R).

Furthermore, Harbor Global does not intend to:



| |  |  | engage the services of any market maker;
| | - |  | ----------------------------------------



| |  |  | facilitate the development of an active public trading market in Harbor Global common shares, or encourage others to do so;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | place any advertisements in the media promoting an investment in Harbor Global; or
| | - |  | ----------------------------------------------------------------------------------



| |  |  | except as required by the Securities Exchange Act of 1934, collect or publish information about prices at which Harbor Global common shares may be traded.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Harbor Global cannot provide assurances as to the prices at which Harbor Global common shares may trade or provide assurances that shareholders will be able to sell
their Harbor Global common shares. Moreover, the announcement of the Amalgamation and events that may develop with respect to or which may impact the Amalgamation may impact the trading prices of the Harbor Global common shares.

AS A RESULT OF HOLDING HARBOR GLOBAL COMMON SHARES, HARBOR GLOBALS SHAREHOLDERS MAY RECOGNIZE TAXABLE INCOME AND BE REQUIRED TO PAY TAX WITHOUT A CORRESPONDING
DISTRIBUTION OF CASH FROM HARBOR GLOBAL TO ITS SHAREHOLDERS.

For United States federal income tax purposes, Harbor Global is treated as a partnership. For
United States federal income tax purposes, Harbor Globals shareholders will be treated as partners in a Bermuda partnership and their Harbor Global common shares will represent partnership interests. Because of its classification as a
partnership for United States federal income tax purposes, Harbor Global is not itself subject to United States federal income tax. Instead, items of income, gain, loss, deduction and expense will flow through to Harbor Globals shareholders,
and they will be required to include their allocable share of



26



---

##### Table of Contents

these items in computing their own United States federal income tax for each taxable year of Harbor Global. Cash
distributions made by Harbor Global to its shareholders generally will not be taxable, except to the extent that those distributions exceed a shareholders adjusted tax basis in the Harbor Global common shares.

Harbor Global believes that one or more of its foreign subsidiaries may be classified as a foreign personal holding company or passive foreign investment company for
United States federal income tax purposes. If any such subsidiary is classified as a foreign personal holding company or passive foreign investment company, Harbor Globals shareholders may be required to recognize taxable income and pay tax
with respect to a portion of the subsidiarys income, even in the absence of the receipt of any payment of cash or other property from the subsidiary. The tax rules regarding foreign partnerships, foreign personal holding companies and passive
foreign investment companies are complicated. Harbor Globals shareholders should consult their tax advisors to determine the tax consequences to them of holding Harbor Global common shares.

HARBOR GLOBAL WILL BE SUBJECT TO SIGNIFICANT RESTRICTIONS IF IT BECOMES AN INVESTMENT COMPANY.

Harbor Global intends to conduct its businesses and operations so as to avoid being required to register as an investment company. If, nevertheless, Harbor Global were to be required to register as an investment
company, because Harbor Global is a foreign company, the Investment Company Act of 1940 would prohibit Harbor Global and any person deemed to be an underwriter of Harbor Globals securities from offering for sale, selling or delivering after
sale, in connection with a public offering, any security issued by Harbor Global in the United States.

ITEM 5. OTHER INFORMATION

On November 10, 2006, the Company entered into an Amendment No. 2 (the Amendment
No. 2) to Amended and Restated Administration and Liquidation Agreement with Calypso Management LLC (Calypso). As previously reported by the Company, the Company previously entered into the Agreement and Plan of Amalgamation
(the Transaction Agreement), dated as of August 18, 2006, with Isvias Trading Limited, a company incorporated under the laws of the Republic of Cyprus (Buyer), and Namredips Ltd., a Bermuda company and a wholly owned
subsidiary of Buyer (Newco), and an Amalgamation Agreement (the Amalgamation Agreement), dated as of August 18, 2006, with Newco, pursuant to which agreements the Company will amalgamate with Newco, and as a result of
the amalgamation, the Company and Newco will continue as one company incorporated under the laws of Bermuda as a wholly owned subsidiary of Buyer (the Amalgamation). In accordance with the Amended and Restated Administration and
Liquidation Agreement, as amended prior to the Amendment No. 2 (the Administration and Liquidation Agreement), Calypso is generally entitled to receive consideration in connection with a business combination transaction involving
the sale of the Company (including by means of an amalgamation). Accordingly, if the Amalgamation is effected, Calypso will be entitled to receive a cash payment of $5,380,783 (the Calypso Payment), which amount is determined pursuant to
the compensation schedule included in the Administration and Liquidation Agreement. The Amendment No. 2 expressly reflects the amount of the Calypso Payment that would be payable to Calypso if the Amalgamation is effected, provides for certain
procedures with respect to the payment of the Calypso Payment and addresses certain other matters.

Pursuant to the Administration and Liquidation
Agreement, Calypso manages the Companys liquidation and operates the Companys assets pending their liquidation, and in consideration therefor, the Company compensates Calypso, and Calypso is entitled to compensation, in accordance with
the terms of the Administration and Liquidation Agreement. Mr. Stephen G. Kasnet, the Companys President and Chief Executive Officer, is the President and Chief Executive Officer of Calypso, and Donald H. Hunter, the Companys
Chief Operating Officer and Chief Financial Officer, is the Chief Operating Officer and Chief Financial Officer of Calypso.

On November 13, 2006, the
Company held a special general meeting of shareholders at which its shareholders approved and adopted the Transaction Agreement, the Amalgamation Agreement and the Amalgamation.

The closing of the Amalgamation remains subject to the satisfaction or waiver of certain conditions. The Amalgamation Agreement provides for a two-step closing structure. The first closing (the Initial
Closing) remains subject to (i) the receipt of Russian antimonopoly regulatory approvals and (ii) other customary closing conditions.

Following the Initial Closing, shares of certain of the Companys majority-owned indirect Russian subsidiaries (Closed Joint-Stock Company PIOGLOBAL Real Estate Investment Fund and Closed Joint-Stock Company PIOGLOBAL
Asset Management) indirectly owned by the Company (the Pledged Shares) will be held in a custodian account with ING Bank (Eurasia) ZAO (the Custodian) and pledged for the benefit of Newco. As a condition to effecting
that pledge, Buyer would deposit with an escrow agent (Citibank, N.A.) cash in an amount sufficient to fund (the Escrow Fund) the consideration payable in connection with the Amalgamation to the holders of the Companys common
shares with respect to their Company common shares and the Calypso Payment. Upon receipt of evidence from the Custodian that the Pledged Shares have been blocked in pledge for Newcos benefit, the



27



---

##### Table of Contents

closing of the Amalgamation (the Closing) would occur, subject to the applicable conditions to the Closing having been satisfied or waived. The
purpose of the pledge is to enable Buyer to confirm prior to the Closing that the Pledged Shares continue to be owned by the applicable Company subsidiaries as of the Closing. The Closing is subject to (i) the Initial Closing having occurred,
(ii) the completion in all material respects of certain actions in connection with the pledge and escrow actions referred to above, including effecting the blocking in pledge with the Custodian of the Pledged Shares and depositing the Escrow
Fund with the escrow agent, (iii) the Pledged Shares being blocked in pledge with the Custodian as of Closing and (iv) other customary conditions, which are more limited in scope than the other customary conditions applicable to the
Initial Closing. The pledge of the Pledged Shares would terminate and the Pledged Shares would be unblocked and released from pledge with the Custodian upon the occurrence of certain events, and in any event, by not later than approximately two
weeks following the date of the Initial Closing. The Company continues to expect the Amalgamation to close in the fourth quarter of 2006.

ITEM 6. EXHIBITS

(a) Exhibits: The Exhibit Index immediately precedes the Exhibits filed herein and is incorporated by
reference.



28



---

##### Table of Contents

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 thereunto duly authorized.

Dated: November 14, 2006



HARBOR GLOBAL COMPANY LTD./s/ Donald H. HunterDonald H. HunterChief Operating OfficerChief Financial Officer(Duly authorized officer and principal financial and accounting officer)




29



---

##### Table of Contents

|              |  |                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                        
|3.1+          |  | Memorandum of Association of Harbor Global Company Ltd.                                                                                            
|              | 
|3.2+          |  | Bye-Laws of Harbor Global Company Ltd.                                                                                                             
|              | 
|4.1*          |  | Specimen Common Share Certificate                                                                                                                  
|              | 
|10.1**        |  | Amendment #01/06 to the Master Lease Agreement of July 1, 1996 between OJSC Real Estate Investment Fund PIOGLOBAL and PREA, L.L.C.               
|              | 
|10.2a1        |  | Agreement and Plan of Amalgamation, dated as of August 18, 2006, by and among Harbor Global Company Ltd., Isvias Trading Limited and Namredips Ltd.
|              | 
|10.3a         |  | Amalgamation Agreement, dated as of August 18, 2006, between Harbor Global Company Ltd. and Namredips Ltd.                                         
|              | 
|10.4a         |  | Guarantee Agreement, dated as of August 18, 2006, by and between Harbor Global Company Ltd. and CIT Finance Investment bank.                       
|              | 
|10.5a         |  | Letter agreement dated August 18, 2006 between Harbor Global Company Ltd. and Calypso Management.                                                  
|              | 
|31.1**++      |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|              | 
|31.2**++      |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|              | 
|32.1**++      |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      
|              | 
|32.2**++      |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      

---

|** | Filed herewith.
|-- | ---------------

|a | Incorporated by reference to Harbor Global Company Ltd.s Report on Form 8-K (file number 0-30889) filed on August 18, 2006.
|- | ----------------------------------------------------------------------------------------------------------------------------

|* | Incorporated by reference to Harbor Global Company Ltd.s Quarterly Report on Form 10-Q (file number 0-30889) filed on November 13, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------------------------

|+ | Incorporated by reference to Harbor Global Company Ltd.s Registration Statement on Form 10 (file number 0-30889) filed on June 26, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------------------------

|1 | Schedules and exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally copies of any of the omitted
schedules and exhibits to the SEC upon request.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|++ | The certifications attached as Exhibits 31.1, 31.2, 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange
Commission and are not to be incorporated by reference into any filing of Harbor Global Company Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this
Form 10-Q, irrespective of any general incorporation language contained in such filing.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30