UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2006

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number 0-30889

Harbor Global Company Ltd.

(Exact name of registrant as specified in its charter)

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

ONE FANEUIL HALL MARKETPLACE

4^TH FLOOR

BOSTON, MASSACHUSETTS

(Address of principal executive offices)

02109

(Zip Code)

(617) 878-1600

(Registrant’s telephone number, including area code)

NO CHANGES

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

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

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

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

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

As of July 24, 2006, the registrant had 5,673,311 common shares, par value $.0025 per share, issued and outstanding.

HARBOR GLOBAL COMPANY LTD.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2006

INDEX

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets – June 30, 2006 and December 31, 2005	3
	Consolidated Statements of Operations – three months ended June 30, 2006 and 2005 and six months ended June 30, 2006 and 2005	4
	Consolidated Statements of Cash Flows – six months ended June 30, 2006 and 2005	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	19
PART II.	OTHER INFORMATION	20
Item 1A.	Risk Factors	20
Item 6.	Exhibits	23
SIGNATURE		24
EXHIBIT INDEX		25

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	17,170		$	17,064
Restricted Cash		16,332			13,145
Marketable Securities		3,874			10,185
Accounts Receivable		1,210			1,460
Prepaid Expenses		2,085			1,987
Other Current Assets		8			7
Total Current Assets		40,679			43,848
Polish Venture Capital Investment		292			208
Marketable Securities		34,331			28,145
Long-term Investments		774			826
Building, Net of Accumulated Depreciation		21,288			21,548
Other Long-term Assets		1,495			1,477
Goodwill		1,253			1,253
Total Assets	$	100,112		$	97,305
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts Payable	$	554		$	1,053
Dividend Payable		16,332			13,145
Accrued Expenses		565			543
Accrued Fees Payable to Calypso Management		364			714
Deferred Income		1,072			810
Foreign Taxes Payable		601			76
Deferred Taxes		69			217
Total Current Liabilities		19,557			16,558
Deferred Taxes		3,802			3,286
Total Liabilities		23,359			19,844
Minority Interest		30,109			30,484
SHAREHOLDERS’ EQUITY
Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,673,311 shares issued and outstanding as of June 30, 2006 and December 31, 2005		14			14
Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued		—			—
Paid-in Capital		47,512			47,512
Accumulated Deficit		(7,181	)		(5,993	)
Other Comprehensive Income
Net Unrealized Gains on Available-for-Sale Marketable Securities		6,299			5,444
Total Shareholders’ Equity		46,644			46,977
Total Liabilities and Shareholders’ Equity	$	100,112		$	97,305

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

3

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues:
Real Estate Revenue	$	2,077		$	2,130		$	4,251		$	4,223
Management Fee Income		579			500			1,274			983
Other Income		431			520			720			818
Total Revenues		3,087			3,150			6,245			6,024
Operating Expenses:
Salary and Benefit Expenses		(1,299	)		(1,146	)		(2,622	)		(2,427	)
Facility Expenses		(378	)		(374	)		(750	)		(732	)
Building and Property Management Expenses		(539	)		(585	)		(1,113	)		(1,219	)
Management Fee Expense		(537	)		(580	)		(1,370	)		(1,375	)
Operating Taxes		(725	)		(449	)		(1,059	)		(736	)
Advertising Expense		(495	)		(337	)		(846	)		(512	)
Translation Gain (Loss)		394			(428	)		952			(453	)
Other Expenses, Net		(1,365	)		(877	)		(2,169	)		(1,770	)
Total Operating Expenses		(4,944	)		(4,776	)		(8,977	)		(9,224	)
Operating Loss		(1,857	)		(1,626	)		(2,732	)		(3,200	)
Other Income (Expense):
Unrealized Gains and Losses on Equity and Fixed Income Securities		(43	)		(125	)		(21	)		(87	)
Realized Gains and Losses on Equity and Fixed Income Securities		626			2,641			2,386			4,845
Interest Income		526			431			1,006			914
Total Other Income, Net		1,109			2,947			3,371			5,672
(Loss) Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) On Investment		(748	)		1,321			639			2,472
Provision for Income Taxes		(227	)		(553	)		(716	)		(1,433	)
(Loss) Income from Operations before Minority Interest and Equity (Loss) Gain on Investment		(975	)		768			(77	)		1,039
Minority Interest Expense		(359	)		(744	)		(1,195	)		(1,501	)
Equity Gain (Loss) on Venture Capital Investment		67			(6	)		84			(20	)
Net (Loss) Income	$	(1,267	)	$	18		$	(1,188	)	$	(482	)
(Loss) Earnings Per Share:
Basic and Diluted (Loss) Earnings Per Share	$	(0.22	)	$	0.00		$	(0.21	)	$	(0.09	)
Weighted Average Basic and Diluted Shares Outstanding		5,673			5,667			5,673			5,667

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

4

HARBOR GLOBAL COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

	SIX MONTHS ENDED JUNE 30,
	2006			2005
Cash Flows from Operating Activities:
Net Loss	$	(1,188	)	$	(482	)
Adjustments to Reconcile Net Loss to Net Cash Provided By (Used in) Operating Activities —
Depreciation and Amortization		645			704
Unrealized and Realized Gains on Marketable Securities, and Long-term Investments, Net		(2,365	)		(4,758	)
Purchase of Trading Securities		(5,126	)		(2,298	)
Proceeds from Sale of Trading Securities		5,636			2,651
Translation Loss		599			44
Minority Interest		1,195			1,501
Equity (Gain) Loss on Venture Capital Investment		(84	)		20
Changes in Operating Assets and Liabilities —
Accounts Receivable		250			(434	)
Other Assets		(99	)		(345	)
Accounts Payable		(499	)		(587	)
Dividend Payable		828			(436	)
Accrued Expenses		(328	)		(291	)
Deferred Income		262			—
Foreign Taxes Payable and Deferred Taxes		373			253
Other Current Liabilities		—			2,698
Total Adjustments and Changes in Operating Assets and Liabilities		1,287			(1,278	)
Net Cash Provided By (Used in) Operating Activities		99			(1,760	)
Cash Flows from Investing Activities:
Building Improvements		(41	)		(158	)
Purchase of Long-term Investments and Marketable Securities		(44,572	)		(20,139	)
Purchase of Other Long-term Assets		(178	)		(46	)
Proceeds from Sale of Long-term Investments and Marketable Securities		48,725			27,078
Restricted Cash for Minority Dividends		(3,187	)		(175	)
Net Cash Provided by Investing Activities		747			6,560
Cash Flows from Financing Activities:
Dividends Paid to Minority Interest		(11	)		(31	)
Net Cash Used In Financing Activities		(11	)		(31	)
Net Increase (Decrease) in Cash and Cash Equivalents		835			4,769
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(729	)		197
Cash and Cash Equivalents, Beginning of Period		17,064			7,754
Cash and Cash Equivalents, End of Period	$	17,170		$	12,720

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

5

HARBOR GLOBAL COMPANY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

June 30, 2006

(1) BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND

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

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

• Russian Real Estate Management and Investment Management Operations: investment advisory and management services

• Real Estate Management Operations: real estate management services, including property management and advisory services

• Other:

• approximately $3.6 million in cash and cash equivalents, and marketable securities held directly by Harbor Global

• an approximately 8% limited partnership interest in the Prospect Poland Fund

Harbor Global seeks to liquidate its assets in a timely fashion on economically advantageous terms and continues to operate its assets as going concern businesses until they are liquidated. Harbor Global’s memorandum of association dated May 22, 2000 provides that the liquidation of its assets must be completed upon the earlier of October 24, 2005, the fifth anniversary of the date of the Spin-off, or the distribution by Harbor Global of all its assets to its shareholders. On October 18, 2004, pursuant to the Company’s memorandum of association, the Harbor Global board of directors (“Board of Directors”) unanimously authorized the Company to continue to operate its assets for an additional one year period, unless and until the Company has distributed all of its assets to its shareholders to the extent permitted by the Bermuda Companies Act of 1981. If Harbor Global has not liquidated all of its assets before October 24, 2006, the Board of Directors, in its discretion, may authorize Harbor Global to continue to operate its assets for up to two additional one-year periods.

BASIS OF PRESENTATION

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

6

Since Harbor Global is a Bermuda limited duration company, the Company expects that for United States federal income tax purposes it will be taxed as a partnership, and as a result, virtually all United States federal income tax expenses have been and will be borne by its shareholders. The provision for income taxes includes United States federal income tax expense of approximately $34,000 and approximately $1,000 for the three months ended June 30, 2006 and June 30, 2005, respectively. For the six months ended June 30 2006 and 2005, the provision for income taxes includes United States federal income tax expense of approximately $7,000 and $62,000, respectively.

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

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

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

CURRENT MARKETABLE SECURITIES

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

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

7

Balances of Current Marketable Securities

	June 30, 2006		December 31, 2005
	(In Thousands)
Russia (trading)	$	2,902	$	3,424
Russia (available-for-sale)		786		3,126
United States (held-to-maturity)		186		3,635
Total Marketable Securities	$	3,874	$	10,185

Net Unrealized Losses on Russian Federal and Municipal Government Securities

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	(In Thousands)
Gross Unrealized Gains	$	8		$	60		$	50		$	188
Gross Unrealized Losses		(51	)		(185	)		(71	)		(275	)
Net Unrealized Losses	$	(43	)	$	(125	)	$	(21	)	$	(87	)

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

	June 30, 2006			December 31, 2005
	(In Thousands)
Gross Unrealized Gains	$	20		$	53
Gross Unrealized Losses		(1	)		(29	)
Net Unrealized Gains	$	19		$	24

LONG-TERM MARKETABLE SECURITIES

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

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

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

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

	June 30, 2006		December 31, 2005
	(In Thousands)
Equity Securities	$	21,449	$	17,103
Corporate Bonds		12,882		11,042
Total Marketable Securities	$	34,331	$	28,145

8

Cumulative Unrealized Gains and Losses Recorded in Other Comprehensive Income

	June 30, 2006			December 31, 2005
	(In Thousands)
Equity Securities
Gross Unrealized Gains	$	15,910		$	13,874
Gross Unrealized Losses		(80	)		—
Net Unrealized Gains	$	15,830		$	13,874
Corporate Bonds
Gross Unrealized Gains	$	136		$	—
Gross Unrealized Losses		(117	)		(207	)
Net Unrealized Gains (Losses)	$	19		$	(207	)

BUILDING

The building represents an office building in Moscow, Russia, the Meridian Commercial Tower. The Meridian Commercial Tower is carried at cost and is being depreciated on a straight-line basis over 40 years. Building improvements are depreciated on a straight-line basis over either five or ten years. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of Meridian Commercial Tower. Meridian Commercial Tower lease revenues accounted for approximately 75% of the total revenue generated by Harbor Global’s Russian real estate management and investment management operations during the six months ended June 30, 2006, and approximately 68% of Harbor Global’s total revenue during the same period.

CONCENTRATION OF RISK

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

RECLASSIFICATIONS

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

(3) EARNINGS PER SHARE

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

(4) CHANGES IN SHAREHOLDERS’ EQUITY

For the three and six months ended June 30, 2006 and 2005, the Company reported changes in shareholders’ equity as follows:

	THREE MONTHS ENDED JUNE 30,
	2006					2005
	(In Thousands)
Net (Loss) Income			$	(1,267	)			$	18
Other Comprehensive Income
Holding Gain	382					1,515
Reclassification Adjustment	(621	)				(2,517	)
Net Unrealized Losses on Marketable Securities
(Net of deferred taxes of ($145,000) and ($496,000) and minority interest of ($212,000) and ($563,000) for the three months ended June 30, 2006 and 2005, respectively)				(239	)				(1,002	)
Total Comprehensive Loss			$	(1,506	)			$	(984	)
Additional Paid In Capital				—					(25	)
Change in Shareholder’s Equity			$	(1,506	)			$	(1,009	)

9

	SIX MONTHS ENDED JUNE 30,
	2006					2005
	(In Thousands)
Net Loss			$	(1,188	)			$	(482	)
Other Comprehensive Income
Holding Gain (Loss)	2,427					2,785
Reclassification Adjustment	(1,572	)				(3,598	)
Net Unrealized Gains (Losses) on Marketable Securities
(Net of deferred taxes of $520,000 and ($402,000) and minority interest of $801,000 and $445,000 for the six months ended June 30, 2006 and 2005, respectively)				855					(813	)
Total Comprehensive Loss			$	(333	)			$	(1,295	)
Additional Paid In Capital				—					(25	)
Change in Shareholder’s Equity			$	(333	)			$	(1,320	)

(5) LEASING ARRANGEMENTS

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

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

Year Ending December 31,
2006		2,896,779
2007		4,557,616
2008		3,484,291
2009		1,386,115
2010		652,860
Beyond		—
Total minimum future rental income	$	12,977,661

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 six months ended June 30, 2006 was approximately $50,000, and $95,000, respectively. Contingent rental income for the three and six months ended June 30, 2005 was approximately $46,000, and $90,000, respectively.

10

(6) RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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

In addition, if an individual, entity or group acquires at least 80% of the Company’s outstanding common shares or Harbor Global is a party to a merger, reorganization or similar business combination and the shareholders immediately prior to such transaction cease to own at least 50% of the outstanding common shares 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 $537,000, and $580,000 for the three months ended June 30, 2006, and 2005, respectively, related

11

to the reimbursement of expenses. For the six months ended June 30, 2006 and 2005, the Company incurred management fee expenses of approximately $1,370,000 and $1,375,000, respectively related to the reimbursement of expenses incurred by Calypso Management. Of this management fee, approximately $364,000 and $373,000 were outstanding at June 30, 2006 and 2005, respectively.

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

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

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

(7) INDEMNIFICATION CONTRACTS

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

(8) FINANCIAL INFORMATION BY BUSINESS SEGMENT

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

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

• Russian Real Estate Management and Investment Management Operations: investment advisory and management services

• Real Estate Management Operations: real estate management services, including property management and advisory services

• Other

SEGMENT DISCLOSURES

	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			Other		Total
As of and for the three months ended June 30, 2006
Gross Revenues	$	2,771		$	354		$	—	$	3,125
Elimination of Intersegment Revenues		—			(38	)		—		(38	)
Net Revenues	$	2,771		$	316		$	—	$	3,087
(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment		(493	)		(298	)		43		(748	)
Provision for Income Taxes		(193	)		(34	)		—		(227	)
Minority Interest Expense		(359	)		—			—		(359	)
Equity Gain on Venture Capital Investment		—			—			67		67
Net Income (Loss)	$	(1,045	)	$	(332	)	$	110	$	(1,267	)
Depreciation and Amortization	$	319		$	8		$	—	$	327

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	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			Other			Total
As of and for the three months ended June 30, 2005
Gross Revenues and Sales	$	2,853		$	297		$	155		$	3,305
Elimination of Intersegment Revenues		—			—			(155	)		(155	)
Net Revenues and Sales	$	2,853		$	297		$	—		$	3,150
Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment		966			253			102			1,321
Provision for Income Taxes		(449	)		(103	)		(1	)		(553	)
Minority Interest Expense		(744	)		—			—			(744	)
Equity Loss on Venture Capital Investment		—			—			(6	)		(6	)
Net (Loss) Income	$	(227	)	$	150		$	95		$	18
Depreciation and Amortization	$	243		$	198		$	—		$	441

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	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			Other		Total
As of and for the six months ended June 30, 2006
Gross Revenues	$	5,658		$	663		$	—	$	6,321
Elimination of Intersegment Revenues		—			(76	)		—		(76	)
Net Revenues	$	5,658		$	587		$	—	$	6,245
Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment		1,043			(492	)		88		639
Provision for Income Taxes		(709	)		(7	)		—		(716	)
Minority Interest Expense		(1,195	)		—			—		(1,195	)
Equity Gain on Venture Capital Investment		—			—			84		84
Net (Loss) Income	$	(861	)	$	(499	)	$	172	$	(1,188	)
Depreciation and Amortization	$	632		$	13		$	—	$	645
Total Assets	$	95,596		$	329		$	4,187	$	100,112

	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			Other			Total
As of and for the six months ended June 30, 2005
Gross Revenues and Sales	$	5,474		$	551		$	309		$	6,334
Elimination of Intersegment Revenues		(1	)		—			(309	)		(310	)
Net Revenues and Sales	$	5,473		$	551		$	—		$	6,024
Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment		2,314			(31	)		189			2,472
Provision for Income Taxes		(1,267	)		(104	)		(62	)		(1,433	)
Minority Interest Expense		(1,501	)		—			—			(1,501	)
Equity Loss on Venture Capital Investment		—			—			(20	)		(20	)
Net Loss	$	(454	)	$	(135	)	$	107		$	(482	)
Depreciation and Amortization	$	494		$	210		$	—		$	704
Total Assets	$	86,259		$	925		$	8,052		$	95,236

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

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circumstances, the results of which form the basis for making judgments about the Company’s assets, liabilities, income and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

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

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

OVERVIEW

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

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

Consolidated Operations.

Harbor Global reported a net loss of $1.3 million ($0.22 per share) on revenues of $3.1 million for the second quarter of 2006 compared to breaking even on revenues of $3.2 million in the second quarter of 2005. The $1.3 million decrease in net income during the second quarter of 2006 compared to the second quarter of 2005 was attributable primarily to a $1.0 million decrease in realized portfolio gains and a $0.2 million increase in dividend withholding taxes.

For the six months ended June 30, 2006, the Company reported a net loss of $1.2 million ($0.21 per share) on revenues of $6.2 million compared to a net loss of $0.5 million ($0.09 per share) on revenues of $6.0 million for the six months ended June 30, 2005. The $0.7 million increase in net losses was attributable primarily to a $1.0 million decrease in realized portfolio gains offset by a $0.3 million increase in management fee revenue.

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

REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)

	REVENUES				NET INCOME (LOSS)						REVENUES				NET INCOME (LOSS)
	THREE MONTHS ENDED JUNE 30,				THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
BUSINESS SEGMENT	2006		2005		2006			2005			2006		2005		2006			2005
Russian Real Estate Management and Investment Management Operations	$	2.8	$	2.9	$	(1.1	)	$	(0.2	)	$	5.7	$	5.4	$	(0.9	)	$	(0.5	)
Real Estate Management Operations		0.3		0.3		(0.3	)		0.1			0.5		0.6		(0.5	)		(0.1	)
Other		—		—		0.1			0.1			—		—		0.2			0.1
Totals	$	3.1	$	3.2		(1.3	)		—		$	6.2	$	6.0	$	(1.2	)	$	(0.5	)

Russian Real Estate Management and Investment Management Operations.

The Russian real estate management and investment management operations reported a net loss of $1.1 million for the second quarter of 2006 compared to a net loss of $0.2 million for the second quarter of 2005. The $0.9 million increase in net losses during the second quarter of 2006 compared to the second quarter of 2005 was attributable principally to a $0.6 million decrease in realized portfolio gains, a $0.2 million increase in advertising expense and a $0.2 million increase in dividend withholding taxes offset by a $0.1 million increase in management fee revenue.

During the six months ended June 30, 2006, the Russian real estate management and investment management business reported a net loss of $0.9 million compared to a net loss of $0.5 million for the comparable period in 2005. The $0.4 million increase in net losses was attributable principally to a $0.6 million decrease in realized portfolio gains and a $0.2 million increase in dividend withholding taxes offset partially by a $0.3 million increase in management fee revenue.

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 June 30, 2006 and 2005 are set forth on the following table:

	June 30,
	2006		2005
	(IN MILLIONS)
Open-end Unit Funds	$	78.0	$	63.6
Interval Funds		6.3		3.8
Trust Management		83.4		55.8
Assets under management	$	167.7	$	123.2

Real Estate Management Operations.

The real estate management operations recorded a net loss of $0.3 million for the second quarter of 2006 compared to net income of $0.1 million in the second quarter of 2005. For the six months ended June 30, 2006 the real estate management operations reported a net loss of $0.5 million compared to a net loss of $0.1

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million for the six months ended June 30, 2005. For both the three and six months ended June 30, 2005, the real estate management operations recorded a realized portfolio gain of $0.4 million on the sale of marketable securities.

Other.

Harbor Global’s other operations reported net income of $0.1 million for both the three months ended June 30, 2006 and June 30, 2005, representing interest income for both periods. For the six months ended June 30, 2006, Harbor Global’s other operations reported net income of $0.2 million compared to net income of $0.1 million for the six months ended June 30, 2005. The $0.1 million increase in income was due to an unrealized gain of $0.1 million recorded on the Company’s remaining investment in the Prospect Poland Fund.

LIQUIDITY AND CAPITAL RESOURCES

Liquid assets held directly by Harbor Global consisting of cash and cash equivalents, and marketable securities maintained for general corporate purposes were $3.6 million as of June 30, 2006. This amount represents an approximately $2.3 million decrease from the 2005 fiscal year end. The decrease in cash and cash equivalents, and marketable securities is attributable principally to the funding of operations and the settlement of year end accruals. Management believes that the cash available for general corporate purposes, after considering future dividends from subsidiaries, is sufficient to fund operations over the next two years.

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

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

FORWARD LOOKING STATEMENTS AND FUTURE OPERATING RESULTS

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

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

• economic, political and regulatory stability in Russia;

• increased competition in the Russian commercial real estate market;

• increased competition in the Russian investment management market;

• the loss of one or more key officers; and

• the effects of political or economic conditions in international markets.

Some of the above-mentioned factors are described in further detail in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q. Forward-looking statements are based on currently available information and management’s expectations of future results but involve certain assumptions. Management cautions readers that assumptions involve substantial risks and uncertainties. Consequently,

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any forward-looking statement could turn out to be wrong. Many factors could cause actual results to differ materially from expectations. Except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise to reflect actual results or changes in factors or assumptions affecting such forward-looking statement.

RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

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 invested in foreign government bonds and United States treasury bills. These short-term investments are reported either as cash and cash equivalents or marketable securities. The balance of cash and cash equivalents at June 30, 2006 and December 31, 2005 was approximately $3.3 million and $1.2 million, respectively, and the balance of marketable securities at June 30, 2006 and December 31, 2005 was approximately $0.2 million and $7.1 million, respectively. Earnings from excess cash invested were approximately $0.1 million for the six months ended June 30, 2006. Based on excess cash invested at June 30, 2006, a one percent increase or decrease in current market interest rates would have the effect of causing an approximately $0.1 million additional pre-tax credit or charge to the Consolidated Statements of Operations.

Harbor Global is exposed to certain changes in foreign currency exchange rates, primarily as a result of its operations in Russia. The United States dollar (the Company’s reporting currency) has been designated as the Company’s functional currency. Translation gains and losses that result from remeasuring into the United States dollar are included in the Consolidated Statement of Operations. To mitigate against currency translation risk, the Company primarily contracts for most of its costs and revenues in United States dollars. This acts as a natural hedge to protect against currency fluctuations from the Company’s operations. For the three months ended June 30, 2006 the Company reported net currency exchange gains of approximately $394,000 compared to net currency exchange losses of approximately $428,000 for the three months ended June 30, 2005. For the six months ended June 30, 2006, the Company reported net currency exchange gains of approximately $952,000 compared to net currency exchange losses of $453,000 for the six months ended June 30, 2005.

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

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

	(IN THOUSANDS)
	June 30, 2006		December 31, 2005
Monetary Assets
Cash and Cash Equivalents	$	12,986	$	11,825
Restricted Cash		16,332		13,145
Securities Held for Sale		38,236		33,935
Other		2,886		3,211
	$	70,440	$	62,116
Monetary Liabilities
Dividend Payable	$	16,332	$	13,145
Taxes Payable		602		76
Deferred Taxes		3,789		3,439
Other		2,712		571
	$	23,435	$	17,231
Net Position	$	47,005	$	44,885

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The Company indirectly invests in equity instruments of privately-held companies through its approximately 52% interest in the PIOGLOBAL Investment Fund and its approximately 8% interest in the Prospect Poland Fund. Investments in privately held companies by the PIOGLOBAL Investment Fund are recorded at cost in long-term investments. With respect to the Company’s limited partnership interest in the Prospect Poland Fund, such interests are recorded under Polish Venture Capital Investment using the equity method of accounting. The Company is exposed to market risk as it relates to the market value of its indirect investments in privately held companies. The carrying value of the Company’s interest in the Prospect Poland Fund was written down by approximately $8,000 and $20,000 in the first half of 2006 and 2005, respectively, reflecting the Company’s proportional share of operating expenses. Additionally, during the first half of 2006, the Company recorded an unrealized gain of approximately $92,000 on its remaining investment.

The PIOGLOBAL Real Estate Investment Fund is also invested in equity instruments of public companies, which are classified as available-for-sale pursuant to SFAS No. 115. Those publicly traded equity investments that have evinced a sufficient breadth and scope of market activity are valued based on the quoted price for such securities according to the Russian Trading System and are recorded in long-term marketable securities. Investments that do not have a readily determinable fair value are recorded in long term investments at cost with adjustments for other than temporary impairment. These available-for-sale equity investments, primarily in oil and gas companies, energy companies and the telecommunications industry, are subject to significant fluctuations in fair value due to the volatility of the stock market and the industries in which these companies participate. As of June 30, 2006 and December 31, 2005, the fair value of equity investments contained in long-term marketable securities aggregated approximately $21.3 million and $17.1 million, respectively. PIOGLOBAL Real Estate Investment Fund recorded unrealized gains after deferred taxes and after minority interest of approximately $6.1 million and $5.5 million at June 30, 2006 and December 31, 2005, respectively, as a separate component of shareholder’s equity. Although the breadth of industries represented on the Russian Trading System is severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of stock market declines to the Company’s earnings and cash flow by increased diversification of the portfolio.

ITEM 4. CONTROLS AND PROCEDURES.

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

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

Limitations on the Effectiveness of Controls. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls over

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financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

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

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

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

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

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

PIOGLOBAL Real Estate Investment Fund is Harbor Global’s principal asset. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of the Meridian Commercial Tower, an office building located in Moscow, Russia. During the second quarter of 2006, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 68% of Harbor Global’s total revenue. Furthermore, Meridian Commercial Tower lease revenues accounted for 98% of the revenues of PIOGLOBAL Real Estate Investment Fund and approximately 75% of the total revenue generated by Harbor Global’s Russian real estate management and investment management operations.

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

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

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

• unexpected changes in regulatory requirements and the legal system;

• tariffs and other trade barriers;

• difficulties in staffing and managing Russian operations;

• political and economic instability;

• fluctuations in currency exchange rates;

• restrictions on currency exchange and repatriation;

• restrictions on foreign investment in its businesses; and

• potentially adverse tax consequences.

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

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

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

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

Mr. Kasnet and Mr. Hunter both entered into employment agreements with Calypso Management. On December 8, 2004, the term of Mr. Kasnet’s employment agreement was extended until October 24, 2006 to coincide with the term of the amended and restated administration and liquidation agreement. Mr. Hunter’s employment agreement provides that Mr. Hunter’s employment with Calypso Management is at will, subject to termination by either Calypso Management or Mr. Hunter upon 60 days prior written notice. If either Mr. Kasnet’s or Mr. Hunter’s employment with Calypso Management is terminated, the individual whose agreement is terminated will cease to be an officer of Harbor Global. Harbor Global has obtained key officer life insurance policies on the lives of Mr. Kasnet and Mr. Hunter with benefits payable to Harbor Global.

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

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

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

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

Furthermore, Harbor Global does not intend to:

- engage the services of any market maker;

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

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

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

Harbor Global cannot provide assurances as to the prices at which Harbor Global common shares may trade or provide assurances that shareholders will be able to sell their Harbor Global common shares.

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.

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

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

ITEM 6. EXHIBITS

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

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SIGNATURES

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

Dated: July 31, 2006

HARBOR GLOBAL COMPANY LTD.

/s/ Donald H. Hunter

Donald H. Hunter

Chief Operating Officer

Chief Financial Officer

(Duly authorized officer and principal financial and accounting officer)

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EXHIBIT NUMBER	DESCRIPTION
3.1+	Memorandum of Association of Harbor Global Company Ltd.
3.2+	Bye-Laws of Harbor Global Company Ltd.
4.1*	Specimen Common Share Certificate
31.1**++	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**++	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**++	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**++	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

** Filed herewith.

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

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

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

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