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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)

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



For the quarterly period ended September 30, 2005



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)



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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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  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 November 1, 2005, 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 SEPTEMBER 30, 2005



INDEX



|              |  |                                                                                                                                          |  |     
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                                                          |  | Page
|PART I.       |  | FINANCIAL INFORMATION                                                                                                                    |  | 3   
|              |  |                                                                                                                                         
|Item 1.       |  | Financial Statements (Unaudited)                                                                                                         |  | 3   
|              |  |                                                                                                                                         
|              |  | Consolidated Balance Sheets  September 30, 2005 and December 31, 2004                                                                   |  | 3   
|              |  |                                                                                                                                         
|              |  | Consolidated Statements of Operations  three months ended September 30, 2005 and 2004 and nine months ended September 30, 2005 and 2004 |  | 4   
|              |  |                                                                                                                                         
|              |  | Consolidated Statements of Cash Flows  nine months ended September 30, 2005 and 2004                                                    |  | 5   
|              |  |                                                                                                                                         
|              |  | Notes to Consolidated Financial Statements                                                                                               |  | 6   
|              |  |                                                                                                                                         
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                    |  | 15  
|              |  |                                                                                                                                         
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                               |  | 21  
|              |  |                                                                                                                                         
|Item 4.       |  | Controls and Procedures                                                                                                                  |  | 23  
|              |  |                                                                                                                                         
|PART II.      |  | OTHER INFORMATION                                                                                                                        |  | 24  
|              |  |                                                                                                                                         
|Item 6.       |  | Exhibits                                                                                                                                 |  | 24  
|              | 
|SIGNATURE     |  | 25                                                                                                                                      
|              | 
|EXHIBIT INDEX |  |                                                                                                                                         



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)

(UNAUDITED)



|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                |  | September 30,2005 |        |   | December 31,2004 |  
|ASSETS                                                                                                                                                          |  |                   |        |   |                  |   |        |  
|Cash and Cash Equivalents                                                                                                                                       |  | $                 | 18,016 |   |                  | $ | 7,754  |  
|Restricted Cash                                                                                                                                                 |  |                   | 13,281 |   |                  |   | 13,035 |  
|Marketable Securities                                                                                                                                           |  |                   | 11,994 |   |                  |   | 17,456 |  
|Accounts Receivable                                                                                                                                             |  |                   | 1,320  |   |                  |   | 986    |  
|Prepaid Expenses                                                                                                                                                |  |                   | 2,396  |   |                  |   | 1,880  |  
|Other Current Assets                                                                                                                                            |  |                   | 10     |   |                  |   | 7      |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Current Assets                                                                                                                                            |  |                   | 47,017 |   |                  |   | 41,118 |  
|                                                                                                                                                                |  |                  
|Polish Venture Capital Investment                                                                                                                               |  |                   | 248    |   |                  |   | 273    |  
|Marketable Securities                                                                                                                                           |  |                   | 24,175 |   |                  |   | 19,998 |  
|Long-term Investments                                                                                                                                           |  |                   | 1,103  |   |                  |   | 8,715  |  
|Building                                                                                                                                                        |  |                   | 21,466 |   |                  |   | 21,726 |  
|Other Long-term Assets                                                                                                                                          |  |                   | 1,113  |   |                  |   | 1,190  |  
|Goodwill                                                                                                                                                        |  |                   | 1,253  |   |                  |   | 1,253  |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Assets                                                                                                                                                    |  | $                 | 96,375 |   |                  | $ | 94,273 |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                   |        |   |                  |   |        |  
|Accounts Payable                                                                                                                                                |  | $                 | 632    |   |                  | $ | 1,140  |  
|Dividend Payable                                                                                                                                                |  |                   | 13,281 |   |                  |   | 13,035 |  
|Accrued Expenses and Deferred Rental Income                                                                                                                     |  |                   | 2,003  |   |                  |   | 2,206  |  
|Accrued Fees Payable to Calypso Management                                                                                                                      |  |                   | 559    |   |                  |   | 739    |  
|Foreign Taxes Payable                                                                                                                                           |  |                   | 649    |   |                  |   | 196    |  
|Deferred Taxes                                                                                                                                                  |  |                   | 220    |   |                  |   | 241    |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Current Liabilities                                                                                                                                       |  |                   | 17,344 |   |                  |   | 17,557 |  
|                                                                                                                                                                |  |                  
|Deferred Taxes                                                                                                                                                  |  |                   | 2,545  |   |                  |   | 2,039  |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Liabilities                                                                                                                                               |  |                   | 19,889 |   |                  |   | 19,596 |  
|                                                                                                                                                                |  |                  
|Minority Interest                                                                                                                                               |  |                   | 29,124 |   |                  |   | 27,109 |  
|                                                                                                                                                                |  |                  
|STOCKHOLDERS EQUITY                                                                                                                                            |  |                   |        |   |                  |   |        |  
|                                                                                                                                                                |  |                  
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,667,311 shares issued and outstanding as of September 30, 2005
and December 31, 2004 |  |                   | 14     |   |                  |   | 14     |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                            |  |                   |       |   |                  |   |       |  
|Paid-in Capital                                                                                                                                                 |  |                   | 48,259 |   |                  |   | 48,284 |  
|Accumulated Deficit                                                                                                                                             |  |                   | (5,406 | ) |                  |   | (4,541 | )
|Other Comprehensive Income                                                                                                                                      |  |                   |        |   |                  |   |        |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                                |  |                   | 4,495  |   |                  |   | 3,811  |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Stockholders Equity                                                                                                                                      |  |                   | 47,362 |   |                  |   | 47,568 |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  
|Total Liabilities and Stockholders Equity                                                                                                                      |  | $                 | 96,375 |   |                  | $ | 94,273 |  
|                                                                                                                                                                |  |                   |        |   |                  |   |        |  



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 MonthsEndedSeptember 30, |        |   | Nine MonthsEndedSeptember 30, |  
|                                                                                                                        |  | 2005                           |        |   | 2004                          |   |        | 2005 |  |   | 2004    |  
|Revenues:                                                                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Real Estate Revenue                                                                                                     |  | $                              | 2,127  |   |                               | $ | 1,960  |      |  | $ | 6,349   |   |  | $ | 5,861   |  
|Management Fee Income                                                                                                   |  |                                | 687    |   |                               |   | 452    |      |  |   | 1,670   |   |  |   | 1,449   |  
|Other Income                                                                                                            |  |                                | 383    |   |                               |   | 344    |      |  |   | 1,201   |   |  |   | 1,721   |  
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Total Revenues                                                                                                          |  |                                | 3,197  |   |                               |   | 2,756  |      |  |   | 9,220   |   |  |   | 9,031   |  
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Operating Expenses:                                                                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Salary and Benefit Expenses                                                                                             |  |                                | (1,174 | ) |                               |   | (1,082 | )    |  |   | (3,601  | ) |  |   | (3,588  | )
|Facility Expenses                                                                                                       |  |                                | (374   | ) |                               |   | (376   | )    |  |   | (1,106  | ) |  |   | (1,132  | )
|Building and Property Management Expenses                                                                               |  |                                | (568   | ) |                               |   | (802   | )    |  |   | (1,787  | ) |  |   | (1,983  | )
|Management Fee Expense                                                                                                  |  |                                | (586   | ) |                               |   | (605   | )    |  |   | (1,962  | ) |  |   | (2,312  | )
|Operating Taxes                                                                                                         |  |                                | (311   | ) |                               |   | (281   | )    |  |   | (1,047  | ) |  |   | (2,023  | )
|Advertising Expense                                                                                                     |  |                                | (234   | ) |                               |   | (371   | )    |  |   | (746    | ) |  |   | (908    | )
|Other Expenses                                                                                                          |  |                                | (920   | ) |                               |   | (901   | )    |  |   | (3,142  | ) |  |   | (2,063  | )
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                                |  |                                | (4,167 | ) |                               |   | (4,418 | )    |  |   | (13,391 | ) |  |   | (14,009 | )
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Operating Loss                                                                                                          |  |                                | (970   | ) |                               |   | (1,662 | )    |  |   | (4,171  | ) |  |   | (4,978  | )
|                                                                                                                        |  |                                |        |  
|Other Income:                                                                                                           |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Net Unrealized and Realized Gains on Securities                                                                         |  |                                | 930    |   |                               |   | 112    |      |  |   | 5,688   |   |  |   | 1,140   |  
|Interest Income                                                                                                         |  |                                | 409    |   |                               |   | 537    |      |  |   | 1,323   |   |  |   | 1,542   |  
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Total Other Income, Net                                                                                                 |  |                                | 1,339  |   |                               |   | 649    |      |  |   | 7,011   |   |  |   | 2,682   |  
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Income (Loss) from Operations before Provision for Income Taxes, Minority Interest and Equity (Loss) Gain on Investment |  |                                | 369    |   |                               |   | (1,013 | )    |  |   | 2,840   |   |  |   | (2,296  | )
|                                                                                                                        |  |                                |        |  
|Provision for Income Taxes                                                                                              |  |                                | (522   | ) |                               |   | (202   | )    |  |   | (1,955  | ) |  |   | (1,737  | )
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Income (Loss) from Operations before Minority Interest and Equity (Loss) Gain on Investment                             |  |                                | (153   | ) |                               |   | (1,215 | )    |  |   | 885     |   |  |   | (4,033  | )
|                                                                                                                        |  |                                |        |  
|Minority Interest (Expense) Income                                                                                      |  |                                | (224   | ) |                               |   | 89     |      |  |   | (1,725  | ) |  |   | (682    | )
|Equity (Loss) Gain on Venture Capital Investment                                                                        |  |                                | (5     | ) |                               |   | (107   | )    |  |   | (25     | ) |  |   | 91      |  
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Net Income (Loss)                                                                                                       |  | $                              | (382   | ) |                               | $ | (1,233 | )    |  | $ | (865    | ) |  | $ | (4,624  | )
|                                                                                                                        |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Earnings (Loss) Per Share:                                                                                              |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Basic and Diluted Earnings (Loss) Per Share                                                                             |  | $                              | (0.07  | ) |                               | $ | (0.22  | )    |  | $ | (0.15   | ) |  | $ | (0.82   | )
|                                                                                                                        |  |                                |        |  
|Weighted Average Basic and Diluted Shares Outstanding                                                                   |  |                                | 5,667  |   |                               |   | 5,661  |      |  |   | 5,667   |   |  |   | 5,661   |  



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



4



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                        |  |                               |         |   |          |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | -------- | - | ------- | -
|                                                                                                        |  | NINE MONTHSENDEDSEPTEMBER 30, |        
|                                                                                                        |  | 2005                          |         |   | 2004     |  
|                                                                                                        |  |                               |         |   | Restated |  
|Cash Flows from Operating Activities:                                                                   |  |                               |         |   |          |   |         |  
|Net Loss                                                                                                |  | $                             | (865    | ) |          | $ | (4,624  | )
|Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities                             |  |                               |         |   |          |   |         |  
|Depreciation and Amortization                                                                           |  |                               | 1,003   |   |          |   | 761     |  
|Restricted Unit Awards                                                                                  |  |                               |        |   |          |   | 169     |  
|Unrealized and Realized Gains on Venture Capital, Marketable Securities, and Long-term Investments, Net |  |                               | (5,688  | ) |          |   | (1,140  | )
|Purchase of Trading Securities                                                                          |  |                               | (8,591  | ) |          |   | (4,042  | )
|Proceeds from Sale of Trading Securities                                                                |  |                               | 11,864  |   |          |   | 6,335   |  
|Translation Loss (Gain)                                                                                 |  |                               | 137     |   |          |   | 98      |  
|Minority Interest                                                                                       |  |                               | 1,725   |   |          |   | 682     |  
|Equity Loss (Gain) on Venture Capital Investment                                                        |  |                               | 25      |   |          |   | (91     | )
|Changes in Operating Assets and Liabilities                                                            |  |                               |         |   |          |   |         |  
|Accounts Receivable                                                                                     |  |                               | (334    | ) |          |   | 255     |  
|Other Current Assets                                                                                    |  |                               | (519    | ) |          |   | (1,008  | )
|Accounts Payable                                                                                        |  |                               | (533    | ) |          |   | (652    | )
|Dividend Payable                                                                                        |  |                               | (357    | ) |          |   | (7      | )
|Accrued Expenses                                                                                        |  |                               | (381    | ) |          |   | 1,839   |  
|Foreign Taxes Payable and Deferred Taxes                                                                |  |                               | 431     |   |          |   | (1,267  | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Total Adjustments and Changes in Operating Assets and Liabilities                                       |  |                               | (1,218  | ) |          |   | 1,932   |  
|                                                                                                        |  |                               |         |   |          |   |         |  
|Net Cash Used in Operating Activities                                                                   |  |                               | (2,083  | ) |          |   | (2,692  | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Cash Flows from Investing Activities:                                                                   |  |                               |         |   |          |   |         |  
|Building Improvements                                                                                   |  |                               | (276    | ) |          |   |        |  
|Purchase of Long-term Investments and Marketable Securities                                             |  |                               | (34,372 | ) |          |   | (33,392 | )
|Other Long-term Assets                                                                                  |  |                               | (75     | ) |          |   | (112    | )
|Proceeds from Sale of Long-term Investments and Marketable Securities                                   |  |                               | 47,354  |   |          |   | 21,230  |  
|Proceeds from Payment on Note Receivable                                                                |  |                               |        |   |          |   | 4,700   |  
|Proceeds from Prospect Poland Fund                                                                      |  |                               |        |   |          |   | 388     |  
|Restricted Cash for Minority Dividends                                                                  |  |                               | (246    | ) |          |   | (6,157  | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Net Cash Provided by (Used In) Investing Activities                                                     |  |                               | 12,385  |   |          |   | (13,343 | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Cash Flows from Financing Activities:                                                                   |  |                               |         |   |          |   |         |  
|Dividends Paid to Minority Interest                                                                     |  |                               | (39     | ) |          |   | (154    | )
|Purchase of Restricted Stock                                                                            |  |                               |        |   |          |   | (308    | )
|Subsidiary Level Treasury Stock Repurchase                                                              |  |                               | (1      | ) |          |   |        |  
|                                                                                                        |  |                               |         |   |          |   |         |  
|Net Cash Used In Financing Activities                                                                   |  |                               | (40     | ) |          |   | (462    | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents                                                    |  |                               | 10,262  |   |          |   | (16,497 | )
|                                                                                                        |  |                               |         |   |          |   |         |  
|Cash and Cash Equivalents, Beginning of Period                                                          |  |                               | 7,754   |   |          |   | 23,957  |  
|                                                                                                        |  |                               |         |   |          |   |         |  
|Cash and Cash Equivalents, End of Period                                                                |  | $                             | 18,016  |   |          | $ | 7,460   |  
|                                                                                                        |  |                               |         |   |          |   |         |  



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



5



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HARBOR GLOBAL COMPANY LTD.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

September 30, 2005



(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., 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). Pioneer stockholders received one Harbor Global common share for every five shares of Pioneer common
stock held on that date.



The Companys primary assets by
segment consist of the following:



| |  |  | Russian real estate management and investment management operations: investment advisory and management operations
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Real estate management operations: real estate management services, including property management and advisory services
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Other:
| | - |  | ------



| |  |  | approximately $7.5 million in cash, 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 September 30, 2005 and the results of operations of the Company for the three and nine month periods ended September 30, 2005 and 2004 and cash flows of the Company for the nine months ended September 30, 2005 and 2004.
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 2004 Annual Report on Form 10-K for the year ended December 31, 2004 (the Form 10-K) filed with the Securities and Exchange Commission on March 23, 2005 and Amendment No. 1 on Form 10-K/A filed with the
Securities and Exchange Commission on August 18, 2005. However, investors are cautioned not to rely on the Consolidated Financial Statements included as part of the Form 10-K as the Company has restated such



6



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##### Table of Contents

financial statements in Amendment No. 1 on Form 10-K/A to include additional lease and lease revenue disclosures in Note 3 to the Notes to the
Consolidated Financial Statements and restate the Consolidated Statements of Cash Flows included therein to properly reflect securities held to maturity in Cash Flows from Investing Activities, trading securities in Cash Flows from Operating
Activities and restricted cash in Cash Flows from Investing Activities, as indicated in Note 2 to such Consolidated Financial Statements.



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. However, on April 12, 2004, Pioglobal First Russia, Inc., an indirect subsidiary of the Company, through
which a portion of the Companys Russian real estate management and investment management operations are conducted, converted from a Delaware corporation into a Delaware limited liability company, Pioglobal First Russia, LLC (Pioglobal
First Russia). As a result of the conversion, the Company expected to indirectly (through Pioglobal First Russia) incur a United States federal income tax liability of approximately $1,061,000, which is reported in provision for income taxes
in the 2004 Consolidated Statement of Operations. Based on the final federal tax return filed during the third quarter of 2005, the actual federal income tax due was $733,550. Accordingly, the Company recorded a credit of approximately $327,000 in
its provision for income taxes in the third quarter of 2005. The provision also includes United States federal income tax expense of approximately $34,000 and $96,000 for the three and nine months ended September 30, 2005, respectively and
approximately $26,000 and $45,000 for the three and nine months ended September 30, 2004, respectively.



Other than the foregoing United States federal income tax liability, 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).



RECLASSIFICATIONS



Certain reclassifications have been made to the 2004 amounts to conform to the 2005 presentation.



(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 the Prospect Poland Fund, a limited partnership. Because it is a limited partner investor, the Company accounts for this investment using the equity method of
accounting. Equity losses and gains from this investment are included in equity loss (gain) on venture capital investments on the accompanying Consolidated Statements 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, liabilities, revenues and expenses and disclosure of contingent assets
and liabilities at the date of the Consolidated Financial Statements. Actual results could differ from those estimates.



Current Marketable Securities



United States Treasury securities are classified as held-to-maturity and are recorded at amortized cost. Russian Government and Municipal securities are
classified as trading securities and are marked-to-market, with unrealized gains or losses reported in the Consolidated Statements of Operations pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Russian federal and municipal government securities are held primarily in the Open Joint-Stock Company PIOGLOBAL Real Estate Investment Fund (PIOGLOBAL
Real Estate Investment Fund), an approximately 52% owned subsidiary of the Company. Security transactions are



7



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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. Set forth in the following tables are the balances of marketable securities, segregated between United States Treasury obligations and
Russian obligations at September 30, 2005 and December 31, 2004. Unrealized gains and losses recorded on Russian government securities are presented for the three and nine months ended September 30, 2005 and 2004.



Balances of Current Marketable Securities



|                                 |  |                   |        |                  |   |       
|-------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                                 |  | September 30,2005 |        | December 31,2004
|                                 |  | (In Thousands)   
|Russia (trading)                 |  | $                 | 6,426  |                  | $ | 9,883 
|United States (held to maturity) |  |                   | 5,568  |                  |   | 7,573 
|                                 |  |                   |        |                  |   |       
|Total Marketable Securities      |  | $                 | 11,994 |                  | $ | 17,456
|                                 |  |                   |        |                  |   |       



Net Unrealized Loss on Russian Federal
and Municipal Government Securities



|                      |  |                                 |      |   |                                |   |     |      |  |   |      |   |  |   |      |  
|--------------------- |  | ------------------------------- | ---- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                      |  | Three Months EndedSeptember 30, |      |   | Nine Months EndedSeptember 30, |  
|                      |  | 2005                            |      |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|                      |  | (In Thousands)                  |     
|Gross Unrealized Gain |  | $                               | 104  |   |                                | $ | 48  |      |  | $ | 292  |   |  | $ | 368  |  
|Gross Unrealized Loss |  |                                 | (107 | ) |                                |   | (56 | )    |  |   | (382 | ) |  |   | (592 | )
|                      |  |                                 |      |   |                                |   |     |      |  |   |      |   |  |   |      |  
|Net Unrealized Loss   |  | $                               | (3   | ) |                                | $ | (8  | )    |  | $ | (90  | ) |  | $ | (224 | )
|                      |  |                                 |      |   |                                |   |     |      |  |   |      |   |  |   |      |  



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 and Closed Joint-Stock Company PIOGLOBAL Asset Management (PIOGLOBAL Asset
Management). In addition, certain subsidiaries of the Company maintain investments in unit funds managed by PIOGLOBAL Asset Management.



Equity securities, corporate bonds and investments in unit funds and trust management accounts 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 and Moscow Interbank Currency Exchange (MICEX). 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 losses for equity securities, corporate bonds and investments in unit fund and trust management
accounts 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 at September 30, 2005 and December 31, 2004, as well as
cumulative unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at September 30, 2005 and December 31, 2004:



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



|                            |  |                   |        |                  |   |       
|--------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                            |  | September 30,2005 |        | December 31,2004
|                            |  | (In Thousands)   
|Equity Securities           |  | $                 | 13,658 |                  | $ | 13,333
|Corporate Bonds             |  |                   | 9,742  |                  |   | 5,043 
|Unit Funds                  |  |                   | 775    |                  |   | 1,622 
|                            |  |                   |        |                  |   |       
|Total Marketable Securities |  | $                 | 24,175 |                  | $ | 19,998
|                            |  |                   |        |                  |   |       



8



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Cumulative Unrealized Gain and Loss Recorded in Other Comprehensive Income



|                           |  |                   |       |   |                  |   |       |  
|-------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                           |  | September 30,2005 |       |   | December 31,2004 |  
|                           |  | (In Thousands)    |      
|Equity Securities          |  |                   |       |   |                  |   |       |  
|Gross Unrealized Gain      |  | $                 | 9,889 |   |                  | $ | 7,276 |  
|Gross Unrealized Loss      |  |                   |      |   |                  |   | (115  | )
|                           |  |                   |       |   |                  |   |       |  
|Net Unrealized Gain        |  | $                 | 9,889 |   |                  | $ | 7,161 |  
|                           |  |                  
|Corporate Bonds            |  |                   |       |   |                  |   |       |  
|Gross Unrealized Gain      |  | $                 | 74    |   |                  | $ | 329   |  
|Gross Unrealized Loss      |  |                   | (94   | ) |                  |   |      |  
|                           |  |                   |       |   |                  |   |       |  
|Net Unrealized (Loss) Gain |  | $                 | (20   | ) |                  | $ | 329   |  
|                           |  |                  
|Unit Funds                 |  |                   |       |   |                  |   |       |  
|Gross Unrealized Gain      |  | $                 | 735   |   |                  | $ | 992   |  
|Gross Unrealized Loss      |  |                   |      |   |                  |   |      |  
|                           |  |                   |       |   |                  |   |       |  
|Net Unrealized Gain        |  | $                 | 735   |   |                  | $ | 992   |  



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 76% of the total revenue generated by Harbor Globals Russian
real estate management and investment management operations during the nine months ended September 30, 2005, 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. In addition, a significant portion of Harbor Globals revenues consist of rental income derived from Meridian Commercial Tower subleases. The loss of more than a few tenants of the Meridian Commercial Tower could
materially adversely affect the Companys revenues, the value of the Meridian Commercial Tower, and accordingly, the Companys financial position.



RESTATEMENTS



In the Companys Amendment No. 1 on Form 10-K/A filed August 18, 2005, the Company restated its Consolidated Statement of Cash Flows for
the year ended December 31, 2004. The accompanying Consolidated Statement of Cash Flows for September 30, 2004 has been restated herein to properly reflect held to maturity securities (cash decrease of $5,703,000) in Cash Flows from
Investing Activities rather than Cash Flows from Operating Activities and trading securities (cash increase of $2,293,000) in Cash Flows from Operating Activities rather than Cash Flows from Investing Activities pursuant to SFAS No. 115. In
addition, the classification of restricted cash has also been restated to properly reflect changes therein as Cash Flows from Investing Activities rather than Cash Flows from Financing Activities.



The net effect of the foregoing restatements on Cash Flows from Operating
Activities, Cash Flows from Investing Activities and Cash Flows from Financing Activities for the nine months ended September 30, 2004 from the results for such periods previously reported is set forth in the following table:



9



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|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|(In Thousands)                                     |  |   |        
|                                                   | 
|Cash Flow from Operating Activities as reported    |  | $ | (10,688 | )
|Cash Flow from Operating Activities as restated    |  |   | (2,692  | )
|                                                   |  |   |         |  
|Net Change in Cash Flows from Operating Activities |  | $ | 7,996   |  
|                                                   | 
|Cash Flow from Investing Activities as reported    |  | $ | 810     |  
|Cash Flow from Investing Activities as restated    |  |   | (13,343 | )
|                                                   |  |   |         |  
|Net Change in Cash Flows from Investing Activities |  | $ | (14,153 | )
|                                                   | 
|Cash Flow from Financing Activities as reported    |  | $ | (6,619  | )
|Cash Flow from Financing Activities as restated    |  |   | (462    | )
|                                                   |  |   |         |  
|Net Change in Cash Flows from Financing Activities |  | $ | 6,157   |  
|                                                   |  |   |         |  
|Net Change in Cash and Cash Equivalents            |  | $ |        |  
|                                                   |  |   |         |  



(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 and nine months ended September 30, 2005 and 2004, the Company reported changes in stockholders equity as follows:



|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ---- | ----- | - |  | ------ | - |  |  | ------- | -
|                                                                                                                                                                                                                      |  | THREE MONTHS ENDEDSEPTEMBER 30, |  
|                                                                                                                                                                                                                      |  | 2005                            |   |  | 2004 |      
|                                                                                                                                                                                                                      |  | (In Thousands)                  |  
|Net Loss                                                                                                                                                                                                              |  |                                 |   |  |      | $(382 | ) |  |        |   |  |  | $(1,233 | )
|Other Comprehensive Income                                                                                                                                                                                            |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Holding Gain                                                                                                                                                                                                          |  | 2,233                           |   |  |      |       |   |  | 599    |   |  |  |         |  
|Reclassification Adjustment                                                                                                                                                                                           |  | (736                            | ) |  |      |       |   |  | (46    | ) |  |  |         |  
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Net Unrealized Gains on Marketable Securities(Net of deferred taxes of $908,000 and $751,000 and minority interest of $1,376,000 and
$1,046,000 for the three months ended September 30, 2005 and 2004, respectively) |  |                                 |   |  |      | 1,497 |   |  |        |   |  |  | 553     |  
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Total Comprehensive Income (Loss)                                                                                                                                                                                     |  |                                 |   |  | $    | 1,115 |   |  |        |   |  |  | $(680   | )
|Additional Paid In Capital                                                                                                                                                                                            |  |                                 |   |  |      |      |   |  |        |   |  |  |        |  
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Change in Stockholders Equity                                                                                                                                                                                        |  |                                 |   |  | $    | 1,115 |   |  |        |   |  |  | $(680   | )
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|                                                                                                                                                                                                                      | 
|                                                                                                                                                                                                                      |  | NINE MONTHS ENDED SEPTEMBER 30, |  
|                                                                                                                                                                                                                      |  | 2005                            |   |  | 2004 |      
|                                                                                                                                                                                                                      |  | (In Thousands)                  |  
|Net Loss                                                                                                                                                                                                              |  |                                 |   |  |      | $(865 | ) |  |        |   |  |  | $(4,624 | )
|Other Comprehensive Income                                                                                                                                                                                            |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Holding Gain                                                                                                                                                                                                          |  | 5,018                           |   |  |      |       |   |  | 1,934  |   |  |  |         |  
|Reclassification Adjustment                                                                                                                                                                                           |  | (4,334                          | ) |  |      |       |   |  | (1,103 | ) |  |  |         |  
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Net Unrealized Gains on Marketable Securities(Net of deferred taxes of $506,000 and $164,000 and minority interest of $931,000 and
$241,000 for the nine months ended September 30, 2005 and 2004, respectively)      |  |                                 |   |  |      | 684   |   |  |        |   |  |  | 831     |  
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Total Comprehensive Loss                                                                                                                                                                                              |  |                                 |   |  |      | $(181 | ) |  |        |   |  |  | $(3,793 | )
|Additional Paid In Capital                                                                                                                                                                                            |  |                                 |   |  |      | (25   | ) |  |        |   |  |  | (139    | )
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  
|Change in Stockholders Equity                                                                                                                                                                                        |  |                                 |   |  |      | $(206 | ) |  |        |   |  |  | $(3,932 | )
|                                                                                                                                                                                                                      |  |                                 |   |  |      |       |   |  |        |   |  |  |         |  



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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 eight years ten 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 September 30, 2005:



|                                   |  |   |           
|---------------------------------- |  | - | ----------
|Year Ending December 31,           |  |  
|                                   | 
|2005                               |  | $ | 2,912,675 
|2006                               |  |   | 4,688,031 
|2007                               |  |   | 3,889,640 
|2008                               |  |   | 2,810,971 
|2009                               |  |   | 997,735   
|Beyond                             |  |   | 126,900   
|                                   |  |   |           
|Total minimum future rental income |  | $ | 15,425,952
|                                   |  |   |           



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



Contingent rental income for the three and nine months ended September 30, 2005 was approximately $47,000, and $138,000, respectively. Contingent rental income for
the three and nine months ended September 30, 2004 was approximately $35,000, and $114,000, 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 will receive 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 $586,000, and $605,000 for the three months ended September 30, 2005, and 2004,
respectively, related to the reimbursement of expenses. For the nine months ended September 30, 2005 and 2004, the Company incurred management fee expenses of approximately $1,962,000 and $1,978,000, respectively related to the reimbursement of
expenses incurred by Calypso Management. Of this management fee, approximately $559,000 and $535,000 were outstanding at September 30, 2005 and 2004, respectively.



For the nine months ended September 30, 2004, the Company also accrued management fee expense of $334,000, relating to
proceeds which were distributed to shareholders on November 15, 2004.



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, the subsidiary through which the
Companys real estate management operations are conducted, 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.



12



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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



|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------- | ----- | - | ------------------------------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                           |  | RussianReal EstateManagementAndInvestmentManagementOperations |       |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the three months ended September 30, 2005                                    |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|Gross Revenues and Sales                                                                   |  | $                                                             | 2,886 |   |                                 | $ | 311  |       |  | $ | 155   |   |  | $ | 3,352 |  
|Elimination of Intersegment Revenues                                                       |  |                                                               |      |   |                                 |   |     |       |  |   | (155  | ) |  |   | (155  | )
|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|Net Revenues and Sales                                                                     |  | $                                                             | 2,886 |   |                                 | $ | 311  |       |  | $ |      |   |  | $ | 3,197 |  
|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                               | 416   |   |                                 |   | (152 | )     |  |   | 105   |   |  |   | 369   |  
|Provision for Income Taxes                                                                 |  |                                                               | (497  | ) |                                 |   | 23   |       |  |   | (48   | ) |  |   | (522  | )
|Minority Interest Expense                                                                  |  |                                                               | (224  | ) |                                 |   |     |       |  |   |      |   |  |   | (224  | )
|Equity Loss on Venture Capital Investment                                                  |  |                                                               |      |   |                                 |   |     |       |  |   | (5    | ) |  |   | (5    | )
|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|Net (Loss) Income                                                                          |  | $                                                             | (305  | ) |                                 | $ | (129 | )     |  | $ | 52    |   |  | $ | (382  | )
|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  
|Depreciation and Amortization                                                              |  | $                                                             | 293   |   |                                 | $ | 6    |       |  | $ |      |   |  | $ | 299   |  
|                                                                                           |  |                                                               |       |   |                                 |   |      |       |  |   |       |   |  |   |       |  



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|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | - | ------------------------------- | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | RussianReal EstateManagementAndInvestmentManagementOperations |        |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the three months ended September 30, 2004                                           |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Gross Revenues and Sales                                                                          |  | $                                                             | 2,510  |   |                                 | $ | 246  |       |  | $ | 147   |   |  | $ | 2,903  |  
|Elimination of Intersegment Revenues                                                              |  |                                                               |       |   |                                 |   |     |       |  |   | (147  | ) |  |   | (147   | )
|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net Revenues and Sales                                                                            |  | $                                                             | 2,510  |   |                                 | $ | 246  |       |  | $ |      |   |  | $ | 2,756  |  
|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                               | (914   | ) |                                 |   | (185 | )     |  |   | 86    |   |  |   | (1,013 | )
|Provision for Income Taxes                                                                        |  |                                                               | (176   | ) |                                 |   | (26  | )     |  |   |      |   |  |   | (202   | )
|Minority Interest Income                                                                          |  |                                                               | 89     |   |                                 |   |     |       |  |   |      |   |  |   | 89     |  
|Equity Loss on Venture Capital Investment                                                         |  |                                                               |       |   |                                 |   |     |       |  |   | (107  | ) |  |   | (107   | )
|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                             | (1,001 | ) |                                 | $ | (211 | )     |  | $ | (21   | ) |  | $ | (1,233 | )
|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                             | 257    |   |                                 | $ | 6    |       |  | $ |      |   |  | $ | 263    |  
|                                                                                                  |  |                                                               |        |   |                                 |   |      |       |  |   |       |   |  |   |        |  



|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- | ------ | - | ------------------------------ | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | RussianReal EstateManagement AndInvestmentManagementOperations |        |   | RealEstateManagementOperations |   |      | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2005                                            |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Gross Revenues and Sales                                                                          |  | $                                                              | 8,359  |   |                                | $ | 862  |       |  | $ | 464   |   |  | $ | 9,685  |  
|Elimination of Intersegment Revenues                                                              |  |                                                                | (1     | ) |                                |   |     |       |  |   | (464  | ) |  |   | (465   | )
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Net Revenues and Sales                                                                            |  | $                                                              | 8,358  |   |                                | $ | 862  |       |  | $ |      |   |  | $ | 9,220  |  
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                | 2,730  |   |                                |   | (184 | )     |  |   | 294   |   |  |   | 2,840  |  
|Provision for Income Taxes                                                                        |  |                                                                | (1,765 | ) |                                |   | (81  | )     |  |   | (109  | ) |  |   | (1,955 | )
|Minority Interest Expense                                                                         |  |                                                                | (1,725 | ) |                                |   |     |       |  |   |      |   |  |   | (1,725 | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                                |       |   |                                |   |     |       |  |   | (25   | ) |  |   | (25    | )
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Net Loss                                                                                          |  | $                                                              | (760   | ) |                                | $ | (265 | )     |  | $ | 160   |   |  | $ | (865   | )
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                              | 985    |   |                                | $ | 18   |       |  | $ |      |   |  | $ | 1,003  |  
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Total Assets                                                                                      |  | $                                                              | 87,984 |   |                                | $ | 575  |       |  | $ | 7,816 |   |  | $ | 96,375 |  
|                                                                                                  |  |                                                                |        |   |                                |   |      |       |  |   |       |   |  |   |        |  



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|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- | ------ | - | ------------------------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations |        |   | Real EstateManagementOperations |   |       | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2004                                            |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Gross Revenues and Sales                                                                          |  | $                                                              | 8,298  |   |                                 | $ | 737   |       |  | $ | 500   |   |  | $ | 9,535  |  
|Elimination of Intersegment Revenues                                                              |  |                                                                | (4     | ) |                                 |   |      |       |  |   | (500  | ) |  |   | (504   | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Net Revenues and Sales                                                                            |  | $                                                              | 8,294  |   |                                 | $ | 737   |       |  | $ |      |   |  | $ | 9,031  |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                                | (1,716 | ) |                                 |   | (688  | )     |  |   | 108   |   |  |   | (2,296 | )
|Provision for Income Taxes                                                                        |  |                                                                | (1,692 | ) |                                 |   | (35   | )     |  |   | (10   | ) |  |   | (1,737 | )
|Minority Interest Expense                                                                         |  |                                                                | (682   | ) |                                 |   |      |       |  |   |      |   |  |   | (682   | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                                |       |   |                                 |   |      |       |  |   | 91    |   |  |   | 91     |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                              | (4,090 | ) |                                 | $ | (723  | )     |  | $ | 189   |   |  | $ | (4,624 | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                              | 743    |   |                                 | $ | 18    |       |  | $ |      |   |  | $ | 761    |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  
|Total Assets                                                                                      |  | $                                                              | 92,669 |   |                                 | $ | 1,549 |       |  | $ | 4,055 |   |  | $ | 98,273 |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |        |  



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, (ii) long-term marketable securities, (iii) accrued management fees and (iv) deferred taxes.



Current marketable securities consist primarily of United States Treasury
securities and Russian government and municipal securities. 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 SFAS No. 115. Russian government securities are held primarily in the PIOGLOBAL Real Estate Investment
Fund. Security transactions are recorded on the settlement date. For all periods presented, the difference between trade date and settlement date is immaterial. Investments are valued at the weighted average daily price if they are traded on the
valuation date; otherwise, the bid price is used.



Long-term
marketable securities consist primarily of Russian equity and fixed income securities, including Russian corporate bonds, held in the portfolio of the PIOGLOBAL Real Estate Investment Fund. In addition, certain subsidiaries of the Company maintain
investments in unit funds and trust management accounts managed by PIOGLOBAL Asset Management. 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



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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 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 (expense) in the Consolidated Statements
of Operations.



On July 10, 2003, Harbor Global entered
into an amended and restated administration and liquidation agreement with Calypso Management pursuant to which Calypso Management manages the liquidation of Harbor Global and operates Harbor Globals assets pending their liquidation. As
compensation for its provision of services to the Company, Calypso Management receives a portion of the net proceeds distributed to shareholders in connection with the liquidation of the Companys assets. In addition, in the event 80% of the
Companys common shares are sold or if the Companys shareholders immediately prior to a business combination or transaction cease to own at least 50% of the outstanding common shares and voting power entitled to vote generally in the
election of directors following such combination or transaction (referred to as a deemed sale), Calypso Management is entitled to receive a portion of the consideration 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 amended and restated administration and liquidation 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 with such value determined pursuant to a predetermined valuation schedule. Compensation to Calypso Management represents a percentage of such distributions, deemed distributions or
distributions related to a change in control, which varies depending upon the source of the distribution and the cumulative amount of distributions since the Spin-off.



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 or (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 recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax basis of
assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of
existing temporary differences.



OVERVIEW



The Consolidated Financial Statements of Harbor Globals principal
operations include its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and Analysis of Financial Condition and Results of Operations are
presented in three sections: Results of Operations for the three and nine months ended September 30, 2005 and 2004, Liquidity and Capital Resources, and Risk Factors That May Affect Future Results.



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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004



Consolidated Operations.



Harbor Global reported a loss of $0.4 million ($0.07 per share) on revenues
of $3.2 million in the third quarter of 2005 compared with a net loss of $1.2 million ($0.22 per share) on revenues of $2.8 million for the third quarter of 2004. The $0.8 million decrease in losses during the third quarter of 2005 compared to the
third quarter of 2004 was primarily attributable to a $0.2 million increase in realized portfolio gains from the Russian real estate management and investment management operations, a $0.2 million increase in currency translation gains, a $0.2
million increase in management fee revenue and a $0.1 million decrease in advertising expense.



For the nine months ended September 30, 2005, the Company reported a net loss of $0.9 million ($0.15 per share) compared to a net loss of $4.6 million ($0.82 per share) for the nine months ended
September 30, 2004. The $3.7 million decrease in net losses was attributable primarily to a $1.8 million increase in realized portfolio gains during the nine months ended September 30, 2005, the $1.1 million federal income tax liability
incurred during the nine months ended September 30, 2004 in connection with the conversion of Pioglobal First Russia, Inc. into a Delaware limited liability company and lower dividend withholding taxes of $0.9 million in 2005 related to
dividends payable from the PIOGLOBAL Real Estate Investment Fund.



Set forth on the following table are the details of revenues and net (loss) income by business segment for the three and nine months ended September 30, 2005 and 2004:



REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  |                                |     |                                |   |      |                               |    |                               |   |  |      |      |      |  |      |     |  |      |     |  |    |      |   |  |    |      |  
|------------------------------------------------------------------- |  | ------------------------------ | --- | ------------------------------ | - | ---- | ----------------------------- | -- | ----------------------------- | - |  | ---- | ---- | ---- |  | ---- | --- |  | ---- | --- |  | -- | ---- | - |  | -- | ---- | -
|                                                                    |  | REVENUES                       |     | NET LOSS                       |   |      | REVENUES                      |    | NET INCOME(LOSS)              |  
|                                                                    |  | THREE MONTHSENDEDSEPTEMBER 30, |     | THREE MONTHSENDEDSEPTEMBER 30, |   |      | NINE MONTHSENDEDSEPTEMBER 30, |    | NINE MONTHSENDEDSEPTEMBER 30, |  
|BUSINESS SEGMENT                                                    |  | 2005                           |     | 2004                           |   | 2005 |                               |    | 2004                          |   |  | 2005 |      | 2004 |  | 2005 |     |  | 2004 |    
|Russian Real Estate Management and Investment Management Operations |  | $                              | 2.9 |                                | $ | 2.5  |                               | ($ | 0.3                           | ) |  | ($   | 1.0  | )    |  | $    | 8.3 |  | $    | 8.3 |  | ($ | 0.8  | ) |  | ($ | 4.1  | )
|Real Estate Management Operations                                   |  |                                | 0.3 |                                |   | 0.3  |                               |    | (0.1                          | ) |  |      | (0.2 | )    |  |      | 0.9 |  |      | 0.7 |  |    | (0.3 | ) |  |    | (0.7 | )
|Other                                                               |  |                                |    |                                |   |     |                               |    |                              |   |  |      |     |      |  |      |    |  |      |    |  |    | 0.2  |   |  |    | 0.2  |  
|                                                                    |  |                                |     |                                |   |      |                               |    |                               |   |  |      |      |      |  |      |     |  |      |     |  |    |      |   |  |    |      |  
|Totals                                                              |  | $                              | 3.2 |                                | $ | 2.8  |                               | ($ | 0.4                           | ) |  | ($   | 1.2  | )    |  | $    | 9.2 |  | $    | 9.0 |  | ($ | 0.9  | ) |  | ($ | 4.6  | )
|                                                                    |  |                                |     |                                |   |      |                               |    |                               |   |  |      |      |      |  |      |     |  |      |     |  |    |      |   |  |    |      |  



Russian Real Estate Management and
Investment Management Operations.



The Russian real estate
management and investment management operations reported a net loss of $0.3 million for the third quarter of 2005 compared to a net loss of $1.0 million for the third quarter of 2004. The $0.7 million decrease in net losses during the third quarter
of 2005 compared to the third quarter of 2004 was attributable principally to a $0.2 million increase in realized portfolio gains, a $0.2 million increase in currency translation gains, a $0.2 million increase in management fee revenue and a $0.1
million decrease in advertising expense.



During the nine
months ended September 30, 2005, the Russian real estate management and investment management business reported a net loss of $0.8 million compared to a net loss of $4.1 million for the comparable period in 2004. The $3.3 million decrease in
net losses was attributable principally to a $1.4 million increase in realized portfolio gains, the $1.1 million federal income tax liability from the Pioglobal First Russia conversion incurred during 2004 and lower dividend withholding taxes of
$0.9 million relating to dividends payable from the PIOGLOBAL Real Estate Investment Fund.



PIOGLOBAL Asset Management provides management services to PIOGLOBAL Real Estate Investment Fund. PIOGLOBAL Asset Management also serves as an investment manager to three Russian open-end unit investment funds, an
index interval fund and an institutional interval fund, whose assets under management at September 30, 2005 and 2004 are set forth on the following table:



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|                        |  |               |       |      |   |     
|----------------------- |  | ------------- | ----- | ---- | - | ----
|                        |  | September 30,
|                        |  | 2005          |       | 2004
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 77.0  |      | $ | 47.4
|Interval Funds          |  |               | 4.0   |      |   | 4.2 
|Trust Management        |  |               | 62.9  |      |   | 40.9
|                        |  |               |       |      |   |     
|Assets under management |  | $             | 143.9 |      | $ | 92.5



Real Estate Management Operations.



The real estate management operations recorded a net loss
of $0.1 million for the third quarter of 2005 compared to a net loss of $0.2 million in the third quarter of 2004. For the nine months ended September 30, 2005 the real estate management operations reported a net loss of $0.3 million compared
to a net loss of $0.7 million for the nine months ended September 30, 2004. The additional income for the nine months ended September 30, 2005 was attributable to a $0.4 million realized portfolio gain recorded on the sale of marketable
securities.



Other.



Harbor Globals other operations broke even for both the three months
ended September 30, 2005 and the three months ended September 30, 2004. For the nine months ended September 30, 2005 and September 30, 2004, Harbor Globals other operations reported income of $0.2 million.



LIQUIDITY AND CAPITAL RESOURCES



Liquid assets consisting of cash and cash equivalents and marketable
securities held directly by Harbor Global and maintained for general corporate purposes were approximately $7.5 million as of September 30, 2005. This represents an approximately $1.9 million decrease from the 2004 fiscal year end and is
attributable principally to the funding of operations and the settlement of year end accruals less the receipt of approximately $1.1 million from PREAs Moscow office and the $0.6 million dividend received from PIOGLOBAL Real Estate Investment
Fund. Management believes that the cash currently available for general corporate purposes is sufficient to fund operations over the next two years.



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



RISK FACTORS THAT MAY AFFECT FUTURE RESULTS



From time to time, management may make forward-looking statements in this Quarterly Report on Form 10-Q, in other documents that the Company files with
the Securities and Exchange Commission (including those documents incorporated by reference into the Form 10-Q), in press releases or in other public discussions. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for these statements. For this purpose, a forward-looking statement is any statement that is not a statement of historical fact. Forward-looking statements include those about asset realization plans and strategies, anticipated
expenses, liquidity and capital resources and expectations about market conditions. Forward-looking statements can be identified by the words may, believes, anticipates, plans, expects,
estimates and similar expressions. 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. Described below are some of the important factors
that could affect the Companys revenues, results of operations or ability to liquidate its assets on economically advantageous terms.



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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.



AN INCREASE IN COMPETITION IN THE RUSSIAN COMMERCIAL REAL ESTATE MARKET MAY ADVERSELY AFFECT THE COMPANYS REVENUES AND THE VALUE OF
THE COMPANY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. For the nine months ended September 30, 2005, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 72% of Harbor Globals total revenue. Furthermore, for the nine months ended September 30, 2005,
Meridian Commercial Tower lease revenues accounted for approximately 95% of the revenues of PIOGLOBAL Real Estate Investment Fund, approximately 76% of the total revenue generated by Harbor Globals Russian real estate management and investment
management operations and approximately 69% of Harbor Globals total revenue.



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 the Companys ability to attract new, and retain existing, tenants. The loss of more than a few tenants could materially adversely affect the Companys revenues. In addition, an increase in supply
of commercial real estate in Russia may adversely affect the value of the Meridian Commercial Tower, the Companys interest in PIOGLOBAL Real Estate Investment Fund and the Company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



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ruble is not freely convertible in most countries outside of Russia and the country possesses restrictive currency controls and relatively high inflation. In
addition, the tax, currency and customs legislation within Russia is subject to varying interpretations and changes, which can occur frequently. Consequently, Harbor Globals Russian real estate management and investment management operations
involve significant risks, such as those listed above, which are not typically associated with developed markets. While there have been improvements in economic trends, the future economic direction of Russia is largely dependent upon the
effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory, and political developments. The liquidation of these businesses, as well as the successful operation of these businesses
pending their liquidation, will depend on the stability of, and economic conditions in, Russia.



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



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



Because Harbor Globals assets are a diverse range of businesses and are generally 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 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.



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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.



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



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



RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD



None.



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



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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 such securities at September 30, 2005 and December 31, 2004 was approximately $1.8 million and $0.7 million, respectively, of cash and cash equivalents and approximately $12.0 million and $17.5
million, respectively, of marketable securities. Earnings from excess cash invested were approximately $1.1 million for the nine months ended September 30, 2005. Based on excess cash invested at September 30, 2005, a one percent increase
or decrease in current market interest rates would have the effect of causing an approximately $0.2 million additional pre-tax credit or charge to the Consolidated Statements of Operations.



Harbor Global is exposed to 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 Statements of Operations. To mitigate against currency translation risk, the Company primarily transacts business in United States dollars by contracting for most of its costs and revenues in United States dollars. This
acts as a natural hedge to protect against currency fluctuations from the Companys operations. For the three months ended September 30, 2005, the Company reported net currency exchange gains of approximately $228,000 and for the three
months ended September 30, 2004, the Company reported net exchange losses of approximately $132,000, respectively. For the nine months ended September 30, 2005, the Company reported net currency exchange losses of approximately $225,000
compared to net currency exchange gains of $271,000 for the nine months ended September 30, 2004.



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



The table below sets forth in the Companys reporting currency a summary of the monetary assets and liabilities held in rubles at September 30, 2005 and
December 31, 2004.



|                          |  |                   |        |                  |   |       
|------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                          |  | September 30,2005 |        | December 31,2004
|                          |  | (IN THOUSANDS)   
|Monetary Assets           |  |                   |        |                  |   |       
|Cash and Cash Equivalents |  | $                 | 14,048 |                  | $ | 3,651 
|Restricted Cash           |  |                   | 13,281 |                  |   | 13,035
|Securities Held for Sale  |  |                   | 29,345 |                  |   | 36,713
|Other                     |  |                   | 2,878  |                  |   | 2,182 
|                          |  |                   |        |                  |   |       
|                          |  | $                 | 59,552 |                  | $ | 55,581
|                          |  |                   |        |                  |   |       
|Monetary Liabilities      |  |                   |        |                  |   |       
|Dividend Payable          |  | $                 | 13,281 |                  | $ | 13,035
|Taxes Payable             |  |                   | 648    |                  |   | 196   
|Deferred Taxes            |  |                   | 2,588  |                  |   | 2,132 
|Other                     |  |                   | 586    |                  |   | 959   
|                          |  |                   |        |                  |   |       
|                          |  | $                 | 17,103 |                  | $ | 16,322
|                          |  |                   |        |                  |   |       
|Net Position              |  | $                 | 42,449 |                  | $ | 39,259
|                          |  |                   |        |                  |   |       



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



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companies. The carrying value of the Companys interest in the Prospect Poland Fund was written down by approximately $25,000 for the nine months ended
September 30, 2005, reflecting the Companys proportional share of operating expenses. For the nine months ended September 30, 2004, the Company recorded a gain on its investment of approximately $91,000, reflecting the Companys
proportionate share of realized gains on the sale of two investments of $217,000 less its proportionate share of an investment write-down and operating expenses of $81,000 and $45,000, respectively.



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 MICEX 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 September 30, 2005 and December 31, 2004, the fair value of equity investments contained in long-term marketable securities aggregated $13.7 million and $13.3
million, respectively. The Company recorded unrealized gains after deferred taxes and after minority interest of $3.9 million and $2.8 million at September 30, 2005 and December 31, 2004, respectively, as a separate component of
stockholders equity. Although the breadth of industries represented on the Russian Trading System is severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of stock market declines to
the Companys earnings and cash flow by increased diversification of the portfolio.



ITEM 4. CONTROLS AND PROCEDURES.



Disclosure
Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of September 30, 2005 (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.During the second quarter of 2005, the Company identified material weaknesses in its controls over the (1) identification and determination of required lease-related disclosures in accordance with
accounting principles generally accepted in the United States and (2) determination and verification of the reporting of trading securities and securities held to maturity in the Companys statements of cash flows necessary to ensure such
disclosure is accurate and in conformity with accounting principles generally accepted in the United States. In response to these identified material weaknesses in internal control over financial reporting, during the third quarter of 2005, the
Company implemented additional training of the Companys accounting staff regarding lease accounting and disclosure and the proper classification of certain securities and modified certain disclosure and internal controls to improve the
Companys ability to process and report complete and correct financial information required by applicable rules and regulations. The Companys management believes that these additional efforts, together with pre-existing disclosure
controls and procedures and other internal controls, have remediated the identified material weaknesses.



Except as described above, 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 third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II  OTHER INFORMATION



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: November 2, 2005



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
|- | ----------------------------------------------------------------------------------------------------------------------------------------



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