##### Table of Contents

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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 March 31, 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



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Harbor Global Company Ltd.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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 May 1, 2006, the registrant had 5,673,311 common shares, par value $.0025 per share, issued and outstanding.



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##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2006

INDEX



|              |  |                                                                                       |  |   
|------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I.       |  | FINANCIAL INFORMATION                                                                 |  | 3 
|              |  |                                                                                      
|Item 1.       |  | Financial Statements (Unaudited)                                                      |  | 3 
|              |  |                                                                                      
|              |  | Consolidated Balance Sheets  March 31, 2006 and December 31, 2005                    |  | 3 
|              |  |                                                                                      
|              |  | Consolidated Statements of Operations  three months ended March 31, 2006 and 2005    |  | 4 
|              |  |                                                                                      
|              |  | Consolidated Statements of Cash Flows  three months ended March 31, 2006 and 2005    |  | 5 
|              |  |                                                                                      
|              |  | Notes to Consolidated Financial Statements                                            |  | 6 
|              |  |                                                                                      
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13
|              |  |                                                                                      
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 16
|              |  |                                                                                      
|Item 4.       |  | Controls and Procedures                                                               |  | 18
|              |  |                                                                                      
|PART II.      |  | OTHER INFORMATION                                                                     |  | 18
|              |  |                                                                                      
|Item 1A.      |  | Risk Factors                                                                          |  | 18
|              |  |                                                                                      
|Item 6.       |  | Exhibits                                                                              |  | 21
|              | 
|SIGNATURE     |  | 22                                                                                   
|              | 
|EXHIBIT INDEX |  | 23                                                                                   



2



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##### 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)



|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------ | -
|                                                                                                                                                            |  | March 31,2006 |         |   | December 31,2005 |  
|                                                                                                                                                            |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                      |  |               |         |   |                  |   |        |  
|Cash and Cash Equivalents                                                                                                                                   |  | $             | 20,564  |   |                  | $ | 17,064 |  
|Restricted Cash                                                                                                                                             |  |               | 13,623  |   |                  |   | 13,145 |  
|Marketable Securities                                                                                                                                       |  |               | 6,473   |   |                  |   | 10,185 |  
|Accounts Receivable                                                                                                                                         |  |               | 1,655   |   |                  |   | 1,460  |  
|Prepaid Expenses                                                                                                                                            |  |               | 2,343   |   |                  |   | 1,987  |  
|Other Current Assets                                                                                                                                        |  |               | 7       |   |                  |   | 7      |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Current Assets                                                                                                                                        |  |               | 44,665  |   |                  |   | 43,848 |  
|                                                                                                                                                            |  |              
|Polish Venture Capital Investment                                                                                                                           |  |               | 225     |   |                  |   | 208    |  
|Marketable Securities                                                                                                                                       |  |               | 31,830  |   |                  |   | 28,145 |  
|Long-term Investments                                                                                                                                       |  |               | 774     |   |                  |   | 826    |  
|Building, Net of Accumulated Depreciation                                                                                                                   |  |               | 21,507  |   |                  |   | 21,548 |  
|Other Long-term Assets                                                                                                                                      |  |               | 1,366   |   |                  |   | 1,477  |  
|Goodwill                                                                                                                                                    |  |               | 1,253   |   |                  |   | 1,253  |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Assets                                                                                                                                                |  | $             | 101,620 |   |                  | $ | 97,305 |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  |               |         |   |                  |   |        |  
|Accounts Payable                                                                                                                                            |  | $             | 1,504   |   |                  | $ | 1,053  |  
|Dividend Payable                                                                                                                                            |  |               | 13,623  |   |                  |   | 13,145 |  
|Accrued Expenses                                                                                                                                            |  |               | 525     |   |                  |   | 543    |  
|Accrued Fees Payable to Calypso Management                                                                                                                  |  |               | 182     |   |                  |   | 714    |  
|Deferred Income                                                                                                                                             |  |               | 933     |   |                  |   | 810    |  
|Foreign Taxes Payable                                                                                                                                       |  |               | 197     |   |                  |   | 76     |  
|Deferred Taxes                                                                                                                                              |  |               | 242     |   |                  |   | 217    |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Current Liabilities                                                                                                                                   |  |               | 17,206  |   |                  |   | 16,558 |  
|                                                                                                                                                            |  |              
|Deferred Taxes                                                                                                                                              |  |               | 3,933   |   |                  |   | 3,286  |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Liabilities                                                                                                                                           |  |               | 21,139  |   |                  |   | 19,844 |  
|                                                                                                                                                            |  |              
|Minority Interest                                                                                                                                           |  |               | 32,331  |   |                  |   | 30,484 |  
|                                                                                                                                                            |  |              
|STOCKHOLDERS EQUITY                                                                                                                                        |  |               |         |   |                  |   |        |  
|                                                                                                                                                            |  |              
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,673,311 shares issued and outstanding as of March 31, 2006 and
December 31, 2005 |  |               | 14      |   |                  |   | 14     |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                        |  |               |        |   |                  |   |       |  
|Paid-in Capital                                                                                                                                             |  |               | 47,512  |   |                  |   | 47,512 |  
|Accumulated Deficit                                                                                                                                         |  |               | (5,913  | ) |                  |   | (5,993 | )
|Other Comprehensive Income                                                                                                                                  |  |               |         |   |                  |   |        |  
|Net Unrealized Gains on Available-for-Sale Marketable Securities                                                                                            |  |               | 6,537   |   |                  |   | 5,444  |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Stockholders Equity                                                                                                                                  |  |               | 48,150  |   |                  |   | 46,977 |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  
|Total Liabilities and Stockholders Equity                                                                                                                  |  | $             | 101,620 |   |                  | $ | 97,305 |  
|                                                                                                                                                            |  |               |         |   |                  |   |        |  

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



3



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##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                 |  |                              |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                 |  | Three Months Ended March 31, |       
|                                                                                                                 |  | 2006                         |        |   | 2005 |  
|Revenues:                                                                                                        |  |                              |        |   |      |   |        |  
|Real Estate Rental Revenue                                                                                       |  | $                            | 2,175  |   |      | $ | 2,093  |  
|Management Fee Income                                                                                            |  |                              | 695    |   |      |   | 483    |  
|Other Income                                                                                                     |  |                              | 289    |   |      |   | 298    |  
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Total Revenues                                                                                                   |  |                              | 3,159  |   |      |   | 2,874  |  
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Operating Expenses:                                                                                              |  |                              |        |   |      |   |        |  
|Salary and Benefit Expenses                                                                                      |  |                              | (1,323 | ) |      |   | (1,281 | )
|Facility Expenses                                                                                                |  |                              | (372   | ) |      |   | (358   | )
|Building and Property Management Expenses                                                                        |  |                              | (573   | ) |      |   | (635   | )
|Management Fee Expense                                                                                           |  |                              | (833   | ) |      |   | (795   | )
|Operating Taxes                                                                                                  |  |                              | (335   | ) |      |   | (287   | )
|Advertising Expense                                                                                              |  |                              | (352   | ) |      |   | (175   | )
|Other Expenses, Net                                                                                              |  |                              | (245   | ) |      |   | (918   | )
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Total Operating Expenses                                                                                         |  |                              | (4,033 | ) |      |   | (4,449 | )
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Operating Loss                                                                                                   |  |                              | (874   | ) |      |   | (1,575 | )
|Other Income:                                                                                                    |  |                              |        |   |      |   |        |  
|Unrealized Gains on Equity and Fixed Income Securities                                                           |  |                              | 22     |   |      |   | 38     |  
|Realized Gains on Equity and Fixed Income Securities                                                             |  |                              | 1,760  |   |      |   | 2,204  |  
|Interest Income                                                                                                  |  |                              | 480    |   |      |   | 483    |  
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Total Other Income                                                                                               |  |                              | 2,262  |   |      |   | 2,725  |  
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) on Investment |  |                              | 1,388  |   |      |   | 1,150  |  
|                                                                                                                 |  |                             
|Provision for Income Taxes                                                                                       |  |                              | (490   | ) |      |   | (879   | )
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Income from Operations before Minority Interest and Equity Gain (Loss) on Investment                             |  |                              | 898    |   |      |   | 271    |  
|                                                                                                                 |  |                             
|Minority Interest                                                                                                |  |                              | (835   | ) |      |   | (757   | )
|Equity Gain (Loss) on Venture Capital Investments                                                                |  |                              | 17     |   |      |   | (14    | )
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Net Income (Loss)                                                                                                |  | $                            | 80     |   |      | $ | (500   | )
|                                                                                                                 |  |                              |        |   |      |   |        |  
|Earnings (Loss) Per Share:                                                                                       |  |                              |        |   |      |   |        |  
|Basic and Diluted Earnings (Loss) Per Share                                                                      |  | $                            | 0.01   |   |      | $ | (0.09  | )
|                                                                                                                 |  |                             
|Weighted Average Basic and Diluted Shares Outstanding                                                            |  |                              | 5,673  |   |      |   | 5,667  |  

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



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HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                       |  |                              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                       |  | THREE MONTHS ENDED MARCH 31, |        
|                                                                                       |  | 2006                         |         |   | 2005 |  
|Cash Flows from Operating Activities:                                                  |  |                              |         |   |      |   |         |  
|Net Income (Loss)                                                                      |  | $                            | 80      |   |      | $ | (500    | )
|Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities            |  |                              |         |   |      |   |         |  
|Depreciation and Amortization                                                          |  |                              | 318     |   |      |   | 263     |  
|Unrealized and Realized Gains on Marketable Securities, and Long-term Investments, Net |  |                              | (1,782  | ) |      |   | (2,242  | )
|Purchase of Trading Securities                                                         |  |                              | (2,724  | ) |      |   | (1,181  | )
|Proceeds from Sale of Trading Securities                                               |  |                              | 3,630   |   |      |   | 1,051   |  
|Translation Loss                                                                       |  |                              | 334     |   |      |   | 15      |  
|Minority Interest                                                                      |  |                              | 835     |   |      |   | 757     |  
|Equity (Gain) Loss on Venture Capital Investment                                       |  |                              | (17     | ) |      |   | 14      |  
|Changes in Operating Assets and Liabilities                                           |  |                              |         |   |      |   |         |  
|Accounts Receivable                                                                    |  |                              | (195    | ) |      |   | (48     | )
|Other Assets                                                                           |  |                              | (356    | ) |      |   | (310    | )
|Accounts Payable                                                                       |  |                              | 451     |   |      |   | (526    | )
|Dividend Payable                                                                       |  |                              | 483     |   |      |   | (38     | )
|Accrued Expenses                                                                       |  |                              | (550    | ) |      |   | (586    | )
|Deferred Income                                                                        |  |                              | 123     |   |      |   | (317    | )
|Foreign Taxes Payable and Deferred Taxes                                               |  |                              | 128     |   |      |   | 510     |  
|                                                                                       |  |                              |         |   |      |   |         |  
|Total Adjustments and Changes in Operating Assets and Liabilities                      |  |                              | 678     |   |      |   | (2,638  | )
|                                                                                       |  |                              |         |   |      |   |         |  
|Net Cash Provided By (Used in) Operating Activities                                    |  |                              | 758     |   |      |   | (3,138  | )
|                                                                                       |  |                              |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                                  |  |                              |         |   |      |   |         |  
|Building Improvements                                                                  |  |                              | (66     | ) |      |   |        |  
|Purchase of Long-term Investments and Marketable Securities                            |  |                              | (17,778 | ) |      |   | (10,709 | )
|Purchase of Other Long-term Assets                                                     |  |                              | (12     | ) |      |   | (133    | )
|Proceeds from Sale of Long-term Investments and Marketable Securities                  |  |                              | 21,499  |   |      |   | 12,798  |  
|Restricted Cash for Minority Dividends                                                 |  |                              | (478    | ) |      |   | 53      |  
|                                                                                       |  |                              |         |   |      |   |         |  
|Net Cash Provided by Investing Activities                                              |  |                              | 3,165   |   |      |   | 2,009   |  
|                                                                                       |  |                              |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                                  |  |                              |         |   |      |   |         |  
|Dividends Paid to Minority Interest                                                    |  |                              | (5      | ) |      |   | (15     | )
|                                                                                       |  |                              |         |   |      |   |         |  
|Net Cash Used In Financing Activities                                                  |  |                              | (5      | ) |      |   | (15     | )
|                                                                                       |  |                              |         |   |      |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents                                   |  |                              | 3,918   |   |      |   | (1,144  | )
|                                                                                       |  |                              |         |   |      |   |         |  
|Effect of Exchange Rate Changes on Cash and Cash Equivalents                           |  |                              | (418    | ) |      |   | 5       |  
|                                                                                       |  |                              |         |   |      |   |         |  
|Cash and Cash Equivalents, Beginning of Period                                         |  |                              | 17,064  |   |      |   | 7,754   |  
|                                                                                       |  |                              |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                               |  | $                            | 20,564  |   |      | $ | 6,615   |  
|                                                                                       |  |                              |         |   |      |   |         |  

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



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HARBOR GLOBAL COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

March 31, 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 March 31, 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 $4.3 million in cash and cash equivalents, and marketable securities 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. On October 18, 2004, pursuant to the Companys memorandum of association, 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, unless and until the Company has distributed all of its assets to its shareholders to the extent permitted by the Bermuda Companies Act of 1981. If Harbor Global has not liquidated all of its assets before
October 24, 2006, the Board of Directors, in its discretion, may authorize Harbor Global to continue to operate its assets for up to two additional one-year periods.

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 March 31, 2006 and the results of operations of the Company for the three months ended March 31, 2006 and 2005 and cash flows of the Company for the
three months ended March 31, 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.



6



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##### Table of Contents

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 a United States federal
income tax credit of approximately $27,000 for the three months ended March 31, 2006 and a United Stated federal income tax expense of approximately $61,000 for the three months ended March 31, 2005.

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).

(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 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 federal and 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. In this regard, 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 March 31, 2006 and December 31, 2005. Unrealized gains and losses recorded on Russian government securities are presented for the three months ended March 31, 2006 and 2005. Cumulative unrealized gains and losses on
Russian corporate bonds, before deferred taxes and minority interest, are recorded in other comprehensive income at March 31, 2006 and December 31, 2005 and are presented in the table below.



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Balances of Current Marketable Securities



|                                 |  |                |       |                  |   |       
|-------------------------------- |  | -------------- | ----- | ---------------- | - | ------
|                                 |  | March 31,2006  |       | December 31,2005
|                                 |  | (In Thousands)
|Russia (trading)                 |  | $              | 2,522 |                  | $ | 3,424 
|Russia (available-for-sale)      |  |                | 2,174 |                  |   | 3,126 
|United States (held-to-maturity) |  |                | 1,777 |                  |   | 3,635 
|                                 |  |                |       |                  |   |       
|Total Marketable Securities      |  | $              | 6,473 |                  | $ | 10,185
|                                 |  |                |       |                  |   |       

Net Unrealized Gains on Russian Federal and Municipal Government Securities



|                        |  |                              |     |   |      |   |     |  
|----------------------- |  | ---------------------------- | --- | - | ---- | - | --- | -
|                        |  | Three months ended March 31, |    
|                        |  | 2006                         |     |   | 2005 |  
|                        |  | (In Thousands)               |    
|Gross Unrealized Gains  |  | $                            | 42  |   |      | $ | 128 |  
|Gross Unrealized Losses |  |                              | (20 | ) |      |   | (90 | )
|                        |  |                              |     |   |      |   |     |  
|Net Unrealized Gains    |  | $                            | 22  |   |      | $ | 38  |  
|                        |  |                              |     |   |      |   |     |  

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



|                        |  |                |    |                  |   |     |  
|----------------------- |  | -------------- | -- | ---------------- | - | --- | -
|                        |  | March 31,2006  |    | December 31,2005 |  
|                        |  | (In Thousands) |   
|Gross Unrealized Gains  |  | $              | 75 |                  | $ | 53  |  
|Gross Unrealized Losses |  |                |   |                  |   | (29 | )
|                        |  |                |    |                  |   |     |  
|Net Unrealized Gains    |  | $              | 75 |                  | $ | 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, corporate bonds and investments in unit funds and trust management 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, corporate bonds and the unit fund investments 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 March 31, 2006 and December 31, 2005:

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



|                            |  |                |        |                  |   |       
|--------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                            |  | March 31,2006  |        | December 31,2005
|                            |  | (In Thousands)
|Equity Securities           |  | $              | 20,079 |                  | $ | 17,103
|Corporate Bonds             |  |                | 11,751 |                  |   | 11,042
|                            |  |                |        |                  |   |       
|Total Marketable Securities |  | $              | 31,830 |                  | $ | 28,145
|                            |  |                |        |                  |   |       



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Cumulative Unrealized Gains and Losses Recorded in Other Comprehensive Income



|                              |  |                |        |   |                  |   |        |  
|----------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                              |  | March 31,2006  |        |   | December 31,2005 |  
|                              |  | (In Thousands) |       
|Equity Securities             |  |                |        |   |                  |   |        |  
|Gross Unrealized Gains        |  | $              | 16,279 |   |                  | $ | 13,874 |  
|Gross Unrealized Losses       |  |                | (10    | ) |                  |   |       |  
|                              |  |                |        |   |                  |   |        |  
|Net Unrealized Gains          |  | $              | 16,269 |   |                  | $ | 13,874 |  
|                              |  |               
|Corporate Bonds               |  |                |        |   |                  |   |        |  
|Gross Unrealized Gains        |  | $              | 138    |   |                  | $ |       |  
|Gross Unrealized Losses       |  |                | (20    | ) |                  |   | (207   | )
|                              |  |                |        |   |                  |   |        |  
|Net Unrealized Gains (Losses) |  | $              | 118    |   |                  | $ | (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 75% of the total revenue generated by Harbor Globals Russian real estate management and investment management operations during the quarterly period ended March 31, 2006, and approximately 69% 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 STOCKHOLDERS EQUITY

For the three months ended March 31, 2006 and 2005, the Company reported changes in stockholders equity as follows:



|                                                                                                                                                                                                                |  |                              |   |      |   |       |  |        |   |  |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | - | ---- | - | ----- |  | ------ | - |  | - | ---- | -
|                                                                                                                                                                                                                |  | THREE MONTHS ENDED MARCH 31, |  
|                                                                                                                                                                                                                |  | 2006                         |   | 2005 |  
|                                                                                                                                                                                                                |  | (In Thousands)               |  
|Net Income (Loss)                                                                                                                                                                                               |  |                              |   |      | $ | 80    |  |        |   |  | $ | (500 | )
|Other Comprehensive Income                                                                                                                                                                                      |  |                              |   |      |   |       |  |        |   |  |   |      |  
|Holding Gain                                                                                                                                                                                                    |  | 2,045                        |   |      |   |       |  | 1,269  |   |  |   |      |  
|Reclassification Adjustment                                                                                                                                                                                     |  | (952                         | ) |      |   |       |  | (1,080 | ) |  |   |      |  
|                                                                                                                                                                                                                |  |                              |   |      |   |       |  |        |   |  |   |      |  
|Net Unrealized Gains on Marketable Securities (Net of deferred taxes of $665,000 and $94,000 and minority interest of $1,013,000 and $117,000
for the three months ended March 31, 2006 and 2005, respectively) |  |                              |   |      |   | 1,093 |  |        |   |  |   | 189  |  
|                                                                                                                                                                                                                |  |                              |   |      |   |       |  |        |   |  |   |      |  
|Total Comprehensive Income (Loss)                                                                                                                                                                               |  |                              |   |      | $ | 1,173 |  |        |   |  | $ | (311 | )
|                                                                                                                                                                                                                |  |                              |   |      |   |       |  |        |   |  |   |      |  
|Change in Stockholders Equity                                                                                                                                                                                  |  |                              |   |      | $ | 1,173 |  |        |   |  | $ | (311 | )
|                                                                                                                                                                                                                |  |                              |   |      |   |       |  |        |   |  |   |      |  



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(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.

The following is a schedule by
year of minimum future rental income on noncancellable operating subleases as of March 31, 2006:



|                                   |  |   |           
|---------------------------------- |  | - | ----------
|Year Ending December 31,           |  |  
|2006                               |  |   | 4,360,780 
|2007                               |  |   | 4,557,616 
|2008                               |  |   | 3,484,291 
|2009                               |  |   | 1,386,115 
|2010                               |  |   | 652,860   
|Beyond                             |  |   |          
|                                   |  |   |           
|Total minimum future rental income |  | $ | 14,441,662
|                                   |  |   |           

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 months ended March 31, 2006 and 2005 was
approximately $45,000, and $47,000, 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 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.

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 $833,000, and $795,000 for the three months ended March 31, 2006, and 2005, respectively, related to the reimbursement of expenses. Of this management
fee, approximately $182,000 and $186,000 were outstanding at March 31, 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.

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.



11



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(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. Additionally, under a tax separation agreement between Harbor Global and Pioneer, generally, Harbor Global agreed to indemnify Pioneer for tax liabilities relating to the Harbor Global
businesses. Currently, there are no suits pending under the indemnification or other provisions of the Distribution Agreement or tax separation agreement.

(8) 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
| | - |  | -----

SEGMENT DISCLOSURES



|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ------ | - | ------------------------------- | - | ---- | ----- |  | ----- | ----- |  | - | ------- | -
|                                                                                                  |  | Russian Real EstateManagement AndInvestmentManagementOperations |        |   | Real EstateManagementOperations |   |      | Other |  | Total |      
|As of and for the three months ended March 31, 2006                                               |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Gross Revenues                                                                                    |  | $                                                               | 2,887  |   |                                 | $ | 310  |       |  | $     |      |  | $ | 3,197   |  
|Elimination of Intersegment Revenues                                                              |  |                                                                 |       |   |                                 |   | (38  | )     |  |       |      |  |   | (38     | )
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Net Revenues                                                                                      |  | $                                                               | 2,887  |   |                                 | $ | 272  |       |  | $     |      |  | $ | 3,159   |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                 | 1,537  |   |                                 |   | (194 | )     |  |       | 45    |  |   | 1,388   |  
|Provision for Income Taxes                                                                        |  |                                                                 | (517   | ) |                                 |   | 27   |       |  |       |      |  |   | (490    | )
|Minority Interest Expense                                                                         |  |                                                                 | (835   | ) |                                 |   |     |       |  |       |      |  |   | (835    | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                                 |       |   |                                 |   |     |       |  |       | 17    |  |   | 17      |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Net Income (Loss)                                                                                 |  | $                                                               | 185    |   |                                 | $ | (167 | )     |  | $     | 62    |  | $ | 80      |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                               | 313    |   |                                 | $ | 5    |       |  | $     |      |  | $ | 318     |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  
|Total Assets                                                                                      |  | $                                                               | 95,887 |   |                                 | $ | 540  |       |  | $     | 5,193 |  | $ | 101,620 |  
|                                                                                                  |  |                                                                 |        |   |                                 |   |      |       |  |       |       |  |   |         |  



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|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- | ------ | - | ------------------------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations |        |   | Real EstateManagementOperations |   |       | Other |  |   | Total |  
|As of and for the three months ended March 31, 2005                                               |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Gross Revenues                                                                                    |  | $                                                              | 2,621  |   |                                 | $ | 254   |       |  | $ | 155   |   |  | $ | 3,030  |  
|Elimination of Intersegment Revenues                                                              |  |                                                                | (1     | ) |                                 |   |      |       |  |   | (155  | ) |  |   | (156   | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Net Revenues                                                                                      |  | $                                                              | 2,620  |   |                                 | $ | 254   |       |  | $ |      |   |  | $ | 2,874  |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                | 1,347  |   |                                 |   | (284  | )     |  |   | 87    |   |  |   | 1,150  |  
|                                                                                                  |  |                                                                |        |  
|Provision for Income Taxes                                                                        |  |                                                                | (817   | ) |                                 |   | (1    | )     |  |   | (61   | ) |  |   | (879   | )
|                                                                                                  |  |                                                                |        |  
|Minority Interest Expense                                                                         |  |                                                                | (757   | ) |                                 |   |      |       |  |   |      |   |  |   | (757   | )
|                                                                                                  |  |                                                                |        |  
|Equity Loss on Venture Capital Investment                                                         |  |                                                                |       |   |                                 |   |      |       |  |   | (14   | ) |  |   | (14    | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                              | (227   | ) |                                 | $ | (285  | )     |  | $ | 12    |   |  | $ | (500   | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                              | 257    |   |                                 | $ | 6     |       |  | $ |      |   |  | $ | 263    |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Total Assets                                                                                      |  | $                                                              | 84,353 |   |                                 | $ | 1,434 |       |  | $ | 8,175 |   |  | $ | 93,962 |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  

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.

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



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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 and Moscow Interbank Currency Exchange (MICEX). 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 stockholders 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 months ended
March 31, 2006 and 2005, Liquidity and Capital Resources, Off-Balance Sheet Arrangements, and Future Operating Results.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

Consolidated Operations.

Harbor Global reported net income of $0.1 million on revenues of $3.2 million ($0.01 per share) in the first quarter of 2006 compared with
a net loss of $0.5 million ($0.09 per share) on revenues of $2.9 million in the first quarter of 2005. The $0.6 million decrease in losses was attributable principally to a $0.3 million increase in net foreign exchange gains, a $0.2 million increase
in management fee income and a $0.1 million increase in real estate rental revenue.

Set forth on the following table are the details of
revenues and net (loss) income by business segment for the three months ended March 31, 2006 and 2005:

REVENUES AND NET INCOME (LOSS)

(DOLLARS IN MILLIONS)



|                                                                    |  |                              |     |                              |   |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------- |  | ---------------------------- | --- | ---------------------------- | - | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                    |  | REVENUES                     |     | NET INCOME (LOSS)            |  
|                                                                    |  | THREE MONTHS ENDED MARCH 31, |     | THREE MONTHS ENDED MARCH 31, |  
|BUSINESS SEGMENT                                                    |  | 2006                         |     | 2005                         |   | 2006 |  |   | 2005 |  
|Russian Real Estate Management and Investment Management Operations |  | $                            | 2.9 |                              | $ | 2.6  |  | $ | 0.2  |   |  | $ | (0.2 | )
|Real Estate Management Operations                                   |  |                              | 0.3 |                              |   | 0.3  |  |   | (0.2 | ) |  |   | (0.3 | )
|Other                                                               |  |                              | 0.0 |                              |   | 0.0  |  |   | 0.1  |   |  |   | 0.0  |  
|                                                                    |  |                              |     |                              |   |      |  |   |      |   |  |   |      |  
|Totals                                                              |  | $                            | 3.2 |                              | $ | 2.9  |  | $ | 0.1  |   |  | $ | (0.5 | )
|                                                                    |  |                              |     |                              |   |      |  |   |      |   |  |   |      |  



14



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Russian Real Estate Management and Investment Management Operations.

The Russian real estate management and investment management operations reported net income of $0.2 million for the first quarter of 2006 compared to a
net loss of $0.2 million for the first quarter of 2005. The $0.4 million increase in income was attributable primarily to a $0.3 million increase in net foreign exchange gains, a $0.2 million increase in management fee income and a $0.1 million
increase in rental revenue from Meridian Commercial Tower; offset partially by a $0.2 million increase in advertising expense.

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, an institutional
interval fund, and trust management accounts whose assets under management at March 31, 2006 and 2005 are set forth on the following table:



|                        |  |               |       |      |   |      
|----------------------- |  | ------------- | ----- | ---- | - | -----
|                        |  | March 31,    
|                        |  | 2006          |       | 2005
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 82.2  |      | $ | 63.0 
|Interval Funds          |  |               | 5.4   |      |   | 4.7  
|Trust Management        |  |               | 79.5  |      |   | 58.1 
|                        |  |               |       |      |   |      
|Assets under management |  | $             | 167.1 |      | $ | 125.8

Real Estate Management Operations.

The real estate management operations recorded a net loss of $0.2 million in the first quarter of 2006 compared to a net loss of $0.3 million in the first
quarter of 2005 due primarily to corporate overhead allocations in each comparative quarter.

Other.

Harbor Globals other operations reported income of $0.1 million in the first quarter of 2006 compared to breaking even for the three months ended
March 31, 2005. During the first quarter of 2005, the Company recorded United States federal income tax expense of approximately $0.1 million.

LIQUIDITY AND CAPITAL RESOURCES

Liquid assets held directly by Harbor Global consisting of cash and cash
equivalents, and marketable securities maintained for general corporate purposes were $4.3 million as of March 31, 2006. This amount represents an approximately $1.6 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 and the settlement of year end accruals. 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.

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 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



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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:



| |  | 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; and
|- |  | -----------------------------------------



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

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 OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

During the first quarter of 2006, the Company adopted the
FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary and Its Application to Certain Investments, which nullified certain requirements of EITF 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments, but carried forward certain disclosure requirements of the pronouncement. The adoption of the FSP Nos. FAS 115-1 and FAS 124-1 did not have a material impact on the
results of operations and financial condition of the Company.

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 March 31, 2006 and December 31, 2005 was approximately $2.4 million and $1.2 million, respectively, and the balance of marketable securities at March 31, 2006 and
December 31, 2005 was approximately $3.6 million and $7.1 million, respectively. Earnings from excess cash invested were approximately $0.1 million for the three months ended March 31, 2006. Based on excess cash invested at March 31,
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.

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. During
the



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first quarter of 2006 the Company reported net exchange gains of approximately $558,000 and during the first quarter of
2005, the Company reported net exchange losses of approximately $25,000.

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 March 31, 2006
and December 31, 2005.



|                          |  |                |        |                   |   |       
|------------------------- |  | -------------- | ------ | ----------------- | - | ------
|                          |  | (IN THOUSANDS)
|                          |  | March 31, 2006 |        | December 31, 2005
|Monetary Assets           |  |                |        |                   |   |       
|Cash and Cash Equivalents |  | $              | 16,588 |                   | $ | 11,825
|Restricted Cash           |  |                | 13,623 |                   |   | 13,145
|Securities Held for Sale  |  |                | 35,599 |                   |   | 33,935
|Other                     |  |                | 3,103  |                   |   | 3,211 
|                          |  |                |        |                   |   |       
|                          |  | $              | 68,913 |                   | $ | 62,116
|                          |  |                |        |                   |   |       
|Monetary Liabilities      |  |                |        |                   |   |       
|Dividend Payable          |  | $              | 13,623 |                   | $ | 13,145
|Taxes Payable             |  |                | 197    |                   |   | 76    
|Deferred Taxes            |  |                | 4,174  |                   |   | 3,439 
|Other                     |  |                | 612    |                   |   | 571   
|                          |  |                |        |                   |   |       
|                          |  | $              | 18,606 |                   | $ | 17,231
|                          |  |                |        |                   |   |       
|Net Position              |  | $              | 50,307 |                   | $ | 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 $4,000 and $14,000 in the first quarter of 2006 and 2005, respectively,
reflecting the Companys proportional share of operating expenses. Additionally, during the first quarter of 2006, the Company recorded an unrealized gain of approximately $21,000 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
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 March 31,
2006 and December 31, 2005, the fair value of equity investments contained in long-term marketable securities aggregated approximately $20.1 million and $17.1 million, respectively. PIOGLOBAL Real Estate Investment Fund recorded unrealized
gains after deferred taxes and after minority interest of approximately $6.4 million and $5.5 million at March 31, 2006 and December 31, 2005, respectively, as a separate component of stockholders equity. Although the breadth of
industries represented



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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 Exchange Act) as of March 31, 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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission rules and forms.

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 March 31, 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.

THE POTENTIAL VALUES TO BE REALIZED UPON THE SALE OR LIQUIDATION OF MOST OF HARBOR GLOBALS ASSETS, IF
ANY, ARE SPECULATIVE.

The potential values to be realized upon the sale of Harbor Globals Russian real estate management and investment management
operations, if any, are speculative.

A significant portion of Harbor Globals Russian real estate management and investment management operations
consists of its approximately 52% interest in PIOGLOBAL Real Estate Investment Fund, a company that invests in Russian real estate, and to a lesser extent, securities of Russian companies. Generally, the Russian real estate and securities markets
are significantly smaller and less liquid than the markets in the United States, and as a result, a portion of the assets held by PIOGLOBAL Real Estate Investment Fund are illiquid. There is also limited liquidity in some of the publicly traded
securities held by PIOGLOBAL Real Estate Investment Fund. Consequently, Harbor Global may have difficulty selling its investment in PIOGLOBAL Real Estate Investment Fund, and may only be able to do so at prices, which may not reflect the long-term
value of the investment.



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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 first quarter of 2006,
revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 69% of Harbor Globals total revenue. Furthermore, Meridian Commercial Tower lease revenues accounted for all of the revenues of PIOGLOBAL Real Estate Investment
Fund and approximately 75% 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 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



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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 until October 24, 2006 to coincide with the term of the amended and restated administration and
liquidation agreement. 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.

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. Additionally, under a tax separation agreement between Harbor Global and Pioneer, generally,
Harbor Global agreed to indemnify Pioneer for tax liabilities relating to the Harbor Global businesses. Currently, there are no suits pending that would require payment by Harbor Global to Pioneer under the indemnification provisions of the
Distribution Agreement or tax separation 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.



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AS A RESULT OF HOLDING HARBOR GLOBAL COMMON SHARES, HARBOR GLOBALS STOCKHOLDERS 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 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 6. EXHIBITS

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



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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: May 5, 2006



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




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|              |  |                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|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                                                                                            
|              | 
|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.
|-- | ---------------

|* | 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
|- | ----------------------------------------------------------------------------------------------------------------------------------------

|++ | 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.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23