Form 10-Q

(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):

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.

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

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

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

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

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

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

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

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

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

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

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.

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

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 September 30, 2006:

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

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

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:

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.

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

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

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

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

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

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

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

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

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

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:

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

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

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

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

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

Long-term marketable securities consist primarily of Russian equity and fixed income securities, including Russian corporate bonds, held in the portfolio of the 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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.

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)


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets – September 30, 2006 and December 31, 2005	3

	Consolidated Statements of Operations – three months ended September 30, 2006 and 2005 and nine months ended September 30, 2006 and 2005	4

	Consolidated Statements of Cash Flows – nine months ended September 30, 2006 and 2005	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	23

Item 5.	Other Information	27

Item 6.	Exhibits	28

SIGNATURE		29

EXHIBIT INDEX		30


	September 30, 2006			December 31, 2005
ASSETS
Cash and Cash Equivalents	$	11,209		$	17,064
Restricted Cash		16,494			13,145
Marketable Securities		3,051			10,185
Accounts Receivable		1,395			1,460
Prepaid Expenses		1,765			1,987
Other Current Assets		7			7

Total Current Assets		33,921			43,848

Polish Venture Capital Investment		221			208
Marketable Securities		43,128			28,145
Long-term Investments		223			826
Building, Net of Accumulated Depreciation		21,397			21,548
Other Long-term Assets		1,247			1,477
Goodwill		1,253			1,253

Total Assets	$	101,390		$	97,305

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts Payable	$	1,136		$	1,053
Dividend Payable		16,494			13,145
Accrued Expenses		772			543
Accrued Fees Payable to Calypso Management		546			714
Deferred Income		1,394			810
Foreign Taxes Payable		292			76
Deferred Taxes		73			217

Total Current Liabilities		20,707			16,558

Deferred Taxes		4,078			3,286

Total Liabilities		24,785			19,844

Minority Interest		30,644			30,484

SHAREHOLDERS’ EQUITY

Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,673,311 shares issued and outstanding as of September 30, 2006 and December 31, 2005		14			14
Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued		—			—
Paid-in Capital		47,481			47,512
Accumulated Deficit		(8,259	)		(5,993	)
Other Comprehensive Income
Net Unrealized Gains on Available-for-Sale Marketable Securities		6,725			5,444

Total Shareholders’ Equity		45,961			46,977

Total Liabilities and Shareholders’ Equity	$	101,390		$	97,305


	Three Months Ended September 30,						Nine months Ended September 30,
	2006			2005			2006			2005
Revenues:
Real Estate Revenue	$	2,139		$	2,127		$	6,391		$	6,349
Management Fee Income		641			687			1,914			1,670
Other Income		497			383			1,217			1,201

Total Revenues		3,277			3,197			9,522			9,220

Operating Expenses:
Salary and Benefit Expenses		(1,128	)		(1,174	)		(3,751	)		(3,601	)
Facility Expenses		(376	)		(374	)		(1,125	)		(1,106	)
Building and Property Management Expenses		(554	)		(568	)		(1,667	)		(1,787	)
Management Fee Expense		(582	)		(586	)		(1,952	)		(1,962	)
Operating Taxes		(327	)		(311	)		(1,386	)		(1,047	)
Advertising Expense		(166	)		(234	)		(1,012	)		(746	)
Translation Gain (Loss)		171			228			1,123			(225	)
Legal Expenses		(615	)		(415	)		(1,180	)		(537	)
Other Expenses, Net		(906	)		(733	)		(2,510	)		(2,380	)

Total Operating Expenses		(4,483	)		(4,167	)		(13,460	)		(13,391	)

Operating Loss		(1,206	)		(970	)		(3,938	)		(4,171	)

Other Income (Expense):
Unrealized Gains (Losses) on Equity and Fixed Income Securities		21			(3	)		—			(90	)
Realized (Losses) Gains on Equity and Fixed Income Securities		(128	)		933			2,258			5,778
Interest Income		655			409			1,661			1,323

Total Other Income, Net		548			1,339			3,919			7,011

(Loss) Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) On Investment		(658	)		369			(19	)		2,840
Provision for Income Taxes		(228	)		(522	)		(945	)		(1,955	)

(Loss) Income from Operations before Minority Interest and Equity (Loss) Gain on Investment		(886	)		(153	)		(964	)		885
Minority Interest Expense		(121	)		(224	)		(1,316	)		(1,725	)
Equity (Loss) Gain on Venture Capital Investment		(70	)		(5	)		14			(25	)

Net Loss	$	(1,077	)	$	(382	)	$	(2,266	)	$	(865	)

Loss Per Share:
Basic and Diluted Loss Per Share	$	(0.19	)	$	(0.07	)	$	(0.40	)	$	(0.15	)

Weighted Average Basic and Diluted Shares Outstanding		5,673			5,667			5,673			5,667


	NINE MONTHS ENDED SEPTEMBER 30,
	2006			2005
Cash Flows from Operating Activities:
Net Loss	$	(2,266	)	$	(865	)
Adjustments to Reconcile Net Loss to Net Cash Provided By (Used in) Operating Activities —
Depreciation and Amortization		931			1,003
Unrealized and Realized Gains on Marketable Securities, and Long-term Investments, Net		(2,258	)		(5,688	)
Translation Loss (Gain)		1,644			(317	)
Minority Interest		1,316			1,725
Equity (Gain) Loss on Venture Capital Investment		(14	)		25
Purchase of Trading Securities		(11,481	)		(8,591	)
Proceeds from Sale of Trading Securities		14,778			11,864
Changes in Operating Assets and Liabilities —
Accounts Receivable		66			(334	)
Other Assets		368			(519	)
Accounts Payable		108			(533	)
Accrued Expenses		61			(217	)
Deferred Income		584			(164	)
Foreign Taxes Payable and Deferred Taxes		72			431

Total Adjustments and Changes in Operating Assets and Liabilities		6,175			(1,315	)

Net Cash Provided By (Used in) Operating Activities		3,909			(2,180	)

Cash Flows from Investing Activities:
Building Improvements		(342	)		(276	)
Purchase of Long-term Investments and Marketable Securities		(65,507	)		(34,372	)
Purchase of Other Long-term Assets		(92	)		(75	)
Proceeds from Sale of Long-term Investments and Marketable Securities		60,433			47,354
Restricted Cash for Minority Dividends		(3,348	)		(246	)

Net Cash (Used In) Provided by Investing Activities		(8,856	)		12,385

Cash Flows from Financing Activities:
Dividends Paid to Minority Interest		(30	)		(39	)
Purchase of Restricted Stock		(56	)		—
Subsidiary Level Treasury Stock Repurchase		—			(1	)

Net Cash Used In Financing Activities		(86	)		(40	)

Net (Decrease) Increase in Cash and Cash Equivalents		(5,033	)		10,165

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(822	)		97

Cash and Cash Equivalents, Beginning of Period		17,064			7,754

Cash and Cash Equivalents, End of Period	$	11,209		$	18,016


	September 30, 2006		December 31, 2005
	(In Thousands)
Russia (trading)	$	—	$	3,424
Russia (available-for-sale)		3,051		3,126
United States (held-to-maturity)		—		3,635

Total Marketable Securities	$	3,051	$	10,185

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


	THREE MONTHS ENDED SEPTEMBER 30,
	2006			2005
	(In Thousands)
Net Loss	$	(1,077	)	$	(382	)
Other Comprehensive Income
Holding Gain		470			2,233
Reclassification Adjustment		(44	)		(736	)

Net Unrealized Gains on Marketable Securities
(Net of deferred taxes of ($269,000) and ($496,000) and minority interest of ($414,000) and ($563,000) for the three months ended September 30, 2006 and 2005, respectively)		426			1,497

Total Comprehensive (Loss) Gain	$	(651	)	$	1,115
Additional Paid In Capital		(31	)		—

Change in Shareholder’s Equity	$	(682	)	$	1,115


	NINE MONTHS ENDED SEPTEMBER 30,
	2006			2005
	(In Thousands)
Net Loss	$	(2,266	)	$	(865	)
Other Comprehensive Income
Holding Gain		2,898			5,018
Reclassification Adjustment		(1,617	)		(4,334	)

Net Unrealized Gains on Marketable Securities
(Net of deferred taxes of $789,000 and ($402,000) and minority interest of $1,215,000 and $445,000 for the nine months ended September 30, 2006 and 2005, respectively)		1,281			684

Total Comprehensive Loss	$	(985	)	$	(181	)
Additional Paid In Capital		(31	)		(25	)

Change in Shareholder’s Equity	$	(1,016	)	$	(206	)


Year Ending December 31,

2006		1,566,555
2007		5,324,672
2008		3,552,756
2009		1,494,975
2010		807,660
Beyond		—

Total minimum future rental income	$	12,746,618


	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			Other			Total
As of and for the three months ended September 30, 2006
Gross Revenues	$	3,036		$	279		$	—		$	3,315
Elimination of Intersegment Revenues		—			(38	)		—			(38	)

Net Revenues	$	3,036		$	241		$	—		$	3,277

(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment		(444	)		(262	)		48			(658	)
Provision for Income Taxes		(228	)		—			—			(228	)
Minority Interest Expense		(121	)		—			—			(121	)
Equity Loss on Venture Capital Investment		—			—			(70	)		(70	)

Net Loss	$	(793	)	$	(262	)	$	(22	)	$	(1,077	)

Depreciation and Amortization	$	277		$	9		$	—		$	286


	Russian Real Estate Management And Investment Management Operations			Real Estate Management Operations			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


	REVENUES				NET INCOME (LOSS)						REVENUES				NET INCOME (LOSS)
	THREE MONTHS ENDED SEPTEMBER 30,				THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
BUSINESS SEGMENT	2006		2005		2006			2005			2006		2005		2006			2005
Russian Real Estate Management and Investment Management Operations	$	3.0	$	2.9	$	(0.8	)	$	(0.3	)	$	8.7	$	8.3	$	(1.7	)	$	(0.8	)
Real Estate Management Operations		0.3		0.3		(0.3	)		(0.1	)		0.8		0.9		(0.8	)		(0.3	)
Other		—		—		—			—			—		—		0.2			0.2

Totals	$	3.3	$	3.2		(1.1	)	$	(0.4	)	$	9.5	$	9.2	$	(2.3	)	$	(0.9	)


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

Assets under management	$	147.8	$	143.9


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

10.1**		Amendment #01/06 to the Master Lease Agreement of July 1, 1996 between OJSC “Real Estate Investment Fund PIOGLOBAL” and PREA, L.L.C.

10.2^a1		Agreement and Plan of Amalgamation, dated as of August 18, 2006, by and among Harbor Global Company Ltd., Isvias Trading Limited and Namredips Ltd.

10.3^a		Amalgamation Agreement, dated as of August 18, 2006, between Harbor Global Company Ltd. and Namredips Ltd.

10.4^a		Guarantee Agreement, dated as of August 18, 2006, by and between Harbor Global Company Ltd. and CIT Finance Investment bank.

10.5^a		Letter agreement dated August 18, 2006 between Harbor Global Company Ltd. and Calypso Management.

31.1**++		Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2**++		Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**++		Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**++		Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002