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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE THREE MONTHS ENDED MARCH 31, 2003



Commission File No. 0-30889



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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 4th Floor Boston,
Massachusetts   |  | 02109-1820                          
|(Address of principal executive offices)                       |  | (Zip Code)                          



(617)
878-1600

(Registrants telephone number, including area code)



NO CHANGES

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



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



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



As of April 30, 2003, the Registrant had 5,655,311 common
shares, par value $.0025 per share, issued and outstanding.



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PART
IFINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)



|                                                                                                                                                            |  | March 31, 2003 |        |   | December 31, 2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|                                                                                                                                                            |  | (Unaudited)    |        |   |                   |  
|ASSETS                                                                                                                                                      |  |                |        |   |                   |  
|Cash and Cash Equivalents                                                                                                                                   |  | $              | 10,718 |   |                   | $
|Restricted Cash                                                                                                                                             |  |                | 3,904  |   |                   |  
|Marketable Securities                                                                                                                                       |  |                | 18,691 |   |                   |  
|Accounts Receivable                                                                                                                                         |  |                | 1,080  |   |                   |  
|Notes Receivable                                                                                                                                            |  |                | 6,700  |   |                   |  
|Other Current Assets                                                                                                                                        |  |                | 1,397  |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Current Assets                                                                                                                                        |  |                | 42,490 |   |                   |  
|Long-Term Restricted Cash and Investments                                                                                                                   |  |                |       |   |                   |  
|Polish Venture Capital Investment                                                                                                                           |  |                | 624    |   |                   |  
|Marketable Securities                                                                                                                                       |  |                | 21,532 |   |                   |  
|Long-term Investments                                                                                                                                       |  |                | 5,909  |   |                   |  
|Building                                                                                                                                                    |  |                | 22,535 |   |                   |  
|Other Long-term Assets                                                                                                                                      |  |                | 894    |   |                   |  
|Note Receivable                                                                                                                                             |  |                |       |   |                   |  
|Goodwill                                                                                                                                                    |  |                | 1,253  |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Assets                                                                                                                                                |  | $              | 95,237 |   |                   | $
|                                                                                                                                                            |  |                |        |   |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  |                |        |   |                   |  
|Accounts Payable                                                                                                                                            |  | $              | 1,136  |   |                   | $
|Dividend Payable                                                                                                                                            |  |                | 3,904  |   |                   |  
|Accrued Expenses                                                                                                                                            |  |                | 1,859  |   |                   |  
|Accrued Fees Payable to Calypso Management                                                                                                                  |  |                | 528    |   |                   |  
|Foreign Taxes Payable                                                                                                                                       |  |                | 1,017  |   |                   |  
|Deferred Taxes                                                                                                                                              |  |                | 499    |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Current Liabilities                                                                                                                                   |  |                | 8,943  |   |                   |  
|Deferred Taxes                                                                                                                                              |  |                | 2,023  |   |                   |  
|Note Payable                                                                                                                                                |  |                |       |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Liabilities                                                                                                                                           |  |                | 10,966 |   |                   |  
|Minority Interest                                                                                                                                           |  |                | 27,666 |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|STOCKHOLDERS EQUITY                                                                                                                                        |  |                |        |   |                   |  
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,655,311
shares issued and outstanding as of March 31, 2003 and December 31, 2002 |  |                | 14     |   |                   |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none
issued                                                                        |  |                |       |   |                   |  
|Paid-in Capital                                                                                                                                             |  |                | 59,582 |   |                   |  
|Accumulated Deficit                                                                                                                                         |  |                | (6,575 | ) |                   |  
|Other Comprehensive Income                                                                                                                                  |  |                |        |   |                   |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                            |  |                | 3,584  |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Stockholders Equity                                                                                                                                  |  |                | 56,605 |   |                   |  
|                                                                                                                                                            |  |                |        |   |                   |  
|Total Liabilities and Stockholders Equity                                                                                                                  |  | $              | 95,237 |   |                   | $
|                                                                                                                                                            |  |                |        |   |                   |  



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



2



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HARBOR GLOBAL
COMPANY LTD.



CONSOLIDATED STATEMENTS OF EARNINGS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                     |  | Three Months Ended March 31, |       
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                                                     |  | 2003                         |       
|Revenues:                                                                                                            |  |                              |       
|Real Estate Rental Revenue                                                                                           |  | $                            | 1,878 
|Interest Income                                                                                                      |  |                              | 748   
|Other Income                                                                                                         |  |                              | 632   
|                                                                                                                     |  |                              |       
|Total Revenues                                                                                                       |  |                              | 3,258 
|                                                                                                                     |  |                              |       
|Operating Expenses:                                                                                                  |  |                              |       
|Salary and Benefit Expenses                                                                                          |  |                              | (995  
|Facility Expenses                                                                                                    |  |                              | (324  
|Building and Property Management Expenses                                                                            |  |                              | (522  
|Management Fee Expense                                                                                               |  |                              | (1,097
|Other Expenses                                                                                                       |  |                              | (817  
|                                                                                                                     |  |                              |       
|Total Operating Expenses                                                                                             |  |                              | (3,755
|                                                                                                                     |  |                              |       
|Operating Loss                                                                                                       |  |                              | (497  
|Other Income (Expense):                                                                                              |  |                              |       
|Net Unrealized and Realized Gains on Securities                                                                      |  |                              | 4,022 
|Extinguishment of Note Payable                                                                                       |  |                              | 1,250 
|Early Settlement of Note Receivable                                                                                  |  |                              | (191  
|                                                                                                                     |  |                              |       
|Total Other Income (Expense)                                                                                         |  |                              | 5,081 
|                                                                                                                     |  |                              |       
|Income from Continuing Operations before Provision for Income Taxes, Minority Interest
and Equity Loss on Investment |  |                              | 4,584 
|Provision for Income Taxes                                                                                           |  |                              | (1,001
|                                                                                                                     |  |                              |       
|Income from Continuing Operations before Minority Interest and Equity Loss on
Investment                             |  |                              | 3,583 
|Minority Interest                                                                                                    |  |                              | (1,592
|Equity Loss on Venture Capital Investments                                                                           |  |                              | (196  
|                                                                                                                     |  |                              |       
|Net Income from Continuing Operations before Discontinued Operations                                                 |  |                              | 1,795 
|Discontinued Operations:                                                                                             |  |                              |       
|Change in Estimated Loss on Disposal                                                                                 |  |                              |      
|                                                                                                                     |  |                              |       
|Net Income                                                                                                           |  | $                            | 1,795 
|                                                                                                                     |  |                              |       
|Earnings Per Share:                                                                                                  |  |                              |       
|Continuing OperationsBasic and Diluted Earnings Per Share                                                           |  | $                            | 0.32  
|Discontinued OperationsBasic and Diluted Earnings Per Share                                                         |  |                              |      
|                                                                                                                     |  |                              |       
|Basic and Diluted Earnings Per Share                                                                                 |  | $                            | 0.32  
|Weighted Average Basic and Diluted Shares Outstanding                                                                |  |                              | 5,655 



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



3



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HARBOR GLOBAL
COMPANY LTD.



CONSOLIDATED STATEMENTS OF CASH
FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

|                                                                                                        |  | Three Months Ended March 31, |       
|------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                                        |  | 2003                         |       
|Cash Flows from Operating Activities:                                                                   |  |                              |       
|Net Income                                                                                              |  | $                            | 1,795 
|Net Income from Discontinued Operations                                                                 |  |                              |      
|                                                                                                        |  |                              |       
|Net Income from Continuing Operations                                                                   |  |                              | 1,795 
|Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities
                            |  |                              |       
|Non-cash Interest Income on Note Receivable                                                             |  |                              | (203  
|Interest Earned on Restricted Cash                                                                      |  |                              |      
|Depreciation and Amortization                                                                           |  |                              | 201   
|Unrealized and Realized Gains on Venture Capital, Marketable Securities, and Long-term
Investments, Net |  |                              | (3,463
|Extinguishment of Note Payable                                                                          |  |                              | (1,250
|Early Settlement of Note Receivable                                                                     |  |                              | 191   
|Minority Interest                                                                                       |  |                              | 1,592 
|Equity Loss on Venture Capital Investment                                                               |  |                              | 196   
|Changes in Operating Assets and Liabilities                                                            |  |                              |       
|Other Current Assets                                                                                    |  |                              | (3,969
|Accrued Expenses and Accounts Payable                                                                   |  |                              | (846  
|                                                                                                        |  |                              |       
|Total Adjustments and Changes in Operating Assets and Liabilities                                       |  |                              | (7,551
|                                                                                                        |  |                              |       
|Net Cash Used in Continuing Operating Activities                                                        |  |                              | (5,756
|                                                                                                        |  |                              |       
|Net Cash Provided By Discontinued Operations                                                            |  |                              |      
|                                                                                                        |  |                              |       
|Cash Flows from Investing Activities:                                                                   |  |                              |       
|Purchase of Long-term Investments and Marketable Securities                                             |  |                              | (5,516
|Other Long-term Assets                                                                                  |  |                              | (44   
|Proceeds from Sale of Long-term Investments and Marketable Securities                                   |  |                              | 5,452 
|Proceeds from Payment on Note Receivable                                                                |  |                              | 3,000 
|                                                                                                        |  |                              |       
|Net Cash Provided by Investing Activities                                                               |  |                              | 2,892 
|                                                                                                        |  |                              |       
|Cash Flows from Financing Activities:                                                                   |  |                              |       
|Dividends Paid                                                                                          |  |                              | (4    
|Reclassification of Restricted Cash                                                                     |  |                              | 4,955 
|Payment on Note Payable                                                                                 |  |                              | (3,750
|                                                                                                        |  |                              |       
|Net Cash Provided by Financing Activities                                                               |  |                              | 1,201 
|                                                                                                        |  |                              |       
|Net (Decrease) Increase in Cash and Cash Equivalents                                                    |  |                              | (1,663
|                                                                                                        |  |                              |       
|Cash and Cash Equivalents, Beginning of Period                                                          |  |                              | 12,381
|                                                                                                        |  |                              |       
|Cash and Cash Equivalents, End of Period                                                                |  | $                            | 10,718
|                                                                                                        |  |                              |       



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



4



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HARBOR GLOBAL
COMPANY LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(UNAUDITED)

March 31, 2003



(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 Asset 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. (the Distribution Agreement), Pioneer agreed to transfer certain of its assets to Harbor Global and to distribute all of the outstanding Harbor Global common
shares to its stockholders. Pioneer transferred to Harbor Global all of the assets required to be transferred pursuant to the merger agreement and the Distribution Agreement, and on October 24, 2000, Pioneer distributed all of the outstanding common
shares of Harbor Global to its stockholders (the Spin-off). Pioneer stockholders received one Harbor Global common share for every five shares of Pioneer common stock held on that date.



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



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



| |  |  | Real estate management operations
| | - |  | ---------------------------------



| |  |  | Other:
| | - |  | ------

| |  |  | approximately $13.4 million in cash, cash equivalents and marketable securities held directly by Harbor Global
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | a non-interest-bearing promissory note with a face value of $12.7 million, of which $4.7 million remained outstanding at March 31, 2003, payable to Pioglobal
Goldfields II Limited (Goldfields II), an indirect wholly owned subsidiary of the Company (See Note 4 regarding the renegotiation of the promissory note)
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $2.0 million non-interest-bearing promissory note, all of which remained outstanding at March 31, 2003, payable to Pioneer Forest, Inc. (Pioneer
Forest), a wholly owned subsidiary of the Company
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 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. If Harbor Global has not liquidated all of its assets before October 24, 2005, the Harbor Global board of directors (Board of
Directors), in its discretion, may authorize Harbor Global to continue to operate its assets for up to three additional one year periods.



BASIS OF PRESENTATION



In the opinion of management, the accompanying financial statements contain all adjustments necessary to present fairly the financial
position as of March 31, 2003 and the results of operations and cash flows for the three months ended March 31, 2003 and 2002. Results for interim periods may not be necessarily indicative of the results to be expected for the year. These interim
financial statements should be read in conjunction with the Companys 2002 Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.



5



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The
consolidated financial statements included herein have been prepared using the historical cost basis of the assets and liabilities and historical results of operations related to the Companys businesses (Consolidated Financial
Statements).



Since Harbor Global is a
Bermuda limited duration company, the Company expects that for United States federal income tax purposes it will be taxed as a partnership, and as a result, virtually all United States federal income tax expenses have been and will be borne by its
shareholders. The income tax provisions and deferred taxes included in the accompanying Consolidated Financial Statements primarily relate to the Companys corporate subsidiaries that are located primarily in the Russian Federation
(Russia).



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



CONSOLIDATION



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.



POLISH VENTURE CAPITAL INVESTMENT



The Company reports its approximately 8% limited partnership interest in the Prospect Poland Fund on the
equity basis of accounting. No market quotes are available for the venture capital investments. Most of these investments are valued at fair value, as determined by Prospect Poland Funds management. For the three months ended March 31, 2003,
the Company wrote-down its investment by approximately $196,000, which included its 8% proportional share of a write-down of an investment of approximately $172,000 and approximately $24,000 of operating expenses. For the three months ended March
31, 2002, the Company wrote-down its investment by approximately $28,000, representing its 8% share of the Prospect Poland Funds operating expenses.



RUSSIAN INVESTMENTS



Russian investments consist of Russian equity and fixed income securities, consisting of Russian government bonds and Russian corporate
bonds, held in the portfolio of the PIOGLOBAL Investment Fund, an approximately 51% owned subsidiary of the Company. Such equity securities are either classified as available-for-sale and recorded at fair value pursuant to Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities or as long-term investments. Russian government bonds are characterized as trading securities and Russian corporate bonds
are characterized as available-for-sale, both of which are recorded at fair value pursuant to SFAS No. 115.



Management has determined that for certain of these equity securities there is sufficient liquidity in the Russian market to account for
them as long-term marketable securities based on quoted prices on the Russian Trading System. Unrealized gains and losses are recorded directly in stockholders equity as other comprehensive income. The cost of securities sold is based on the
specific identification method. Realized gains or losses and any other-than-temporary declines in value are reported in other income and expense. The Company classifies Russian equity investments that do not meet its liquidity threshold as long-term
investments and carries such investments at cost with adjustments made for other-than-temporary impairment. Of PIOGLOBAL Investment Funds equity portfolio, approximately $16,700,000 of $26,000,000 and approximately $19,000,000 of $24,300,000
were carried at quoted market prices at March 31, 2003 and December 31, 2002, respectively.



As of March 31, 2003 and December 31, 2002, the gross unrealized gains of approximately $8,138,000 and approximately $9,430,000, respectively and gross unrealized



6



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losses of approximately $0 and
approximately $0, respectively of equity securities are recorded net of deferred taxes and minority interest in other comprehensive income. Additionally, gross unrealized gains of approximately $244,000 and approximately $3,000 and gross unrealized
losses of approximately $0 and approximately $4,000 of Russian corporate bonds as of March 31, 2003 and December 31 2002, respectively are recorded net of deferred taxes and minority interest in other comprehensive income. Unrealized gains on
Russian government bonds recorded as of March 31, 2003 and 2002 were approximately $1,138,000 and approximately $515,000 and are recorded in net unrealized and realized gains in the Consolidated Statement of Earnings.



CONCENTRATION OF RISK



The Companys operations are generally concentrated in
Russia. The Company performs ongoing evaluations of its subsidiaries and investments and endeavors to mitigate its exposure in foreign countries. The Company does not maintain political risk insurance for any of its businesses.



(3) EARNINGS PER SHARE



Basic and diluted earnings per share (EPS) are
computed by dividing reported earnings by weighted average shares outstanding not including contingently issuable shares. There are currently no potentially dilutive securities.



(4) NOTE RECEIVABLE



In May 2000, Goldfields II sold its gold mining operations in Ghana to Ashanti Goldfields Teberebie Limited (Ashanti) for an
$18,800,000 base purchase price plus additional payments of up to $5,000,000, contingent upon the market price of gold and productivity of the Ghanaian gold mine. On June 19, 2000, $5,000,000 of the base purchase price was paid to Goldfields II in
cash and $13,800,000 of the base purchase price was paid in the form of a non-interest bearing promissory note. As of March 31, 2003, the Company had received $8,000,000 of the $13,800,000 promissory note from Ashanti.



Effective March 19, 2003, Goldfields II and Ashanti Goldfields
Teberebie Limited (Ashanti) executed an amendment to the Purchase Agreement by which Ashanti purchased Goldfields IIs gold mining operations in Ghana (the Purchase Agreement). Pursuant to the amendment, Ashanti agreed
to release Goldfields II from its obligation to indemnify Ashanti for breach of representations and warranties relating to tax and environmental matters contained in the Purchase Agreement in exchange for a $1,100,000 reduction in the amount
remaining due from Ashanti to Goldfields II under the Purchase Agreement and related promissory note. Accordingly, under the amended Purchase Agreement and related promissory note, Ashanti is obligated to make a final payment to the Company in the
amount of $4,700,000 on March 31, 2004. The Company adjusted the carrying value of the note receivable by approximately $191,000 as a result of the amendment. The Company recorded the adjustment in other income (expense) in the Consolidated
Statement of Earnings.



In connection with the
release of Goldfields II from its indemnification obligations to Ashanti, Pioneer and the Company entered into an amendment to the Distribution Agreement. Under the Distribution Agreement, the Company was obligated to return to Pioneer, in 2005, the
lesser of $5,000,000 or the actual proceeds received by Goldfields II from Ashanti under the Purchase Agreement less any indemnification claims paid under the Purchase Agreement. Pursuant to the amendment, Pioneer agreed to accept $3,750,000 in
satisfaction of the foregoing obligation, if this amount is paid on or before March 31, 2003. The Company paid $3,750,000 to Pioneer on March 20, 2003. As a result of the foregoing reduction in, and satisfaction of, the note payable to Pioneer, the
Company recorded a gain of $1,250,000, which is reflected in the Consolidated Statement of Earnings as a component of other income (expense).



The Purchase Agreement entered into with Ashanti also provides for quarterly supplemental payments to the Company, totaling up to a
maximum of $5,000,000. Ashanti is



7



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required to pay $250,000 for
each calendar quarter commencing on April 1, 2001 and ending March 31, 2006 during which:



| |  |  | the average price of gold (which shall be the London pm fix spot price on each day in the relevant calendar quarter on which such spot price is quoted on the Reuters
Screen NMRB), based on the London p.m. fix spot price per troy ounce of loco London good delivery bullion of not less than 0.995 fineness, is at least $325 per ounce; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | at least 35,000 troy ounces of gold are produced from the processing of ore located on property covered by mining leases between the Government of Ghana and the gold
mining operation sold by Goldfields II to Ashanti.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The conditions described above were not met during any calendar quarter ending on or before December 31, 2002; however, for the three months ended March 31, 2003, the above conditions were satisfied and the Company recorded a
receivable of $250,000 which is reflected in revenues as other income in the Consolidated Statement of Earnings. Assuming that the conditions described above are met during each calendar quarter after March 31, 2003 through March 31, 2006, the
maximum supplemental payment Goldfields II could receive from Ashanti is $3,000,000.



(5) COMPREHENSIVE INCOME



For the three months ended March 31, 2003 and 2002, the Company reported changes in stockholders equity and other comprehensive income as follows:



|                                                                                                                                                                                                                                          |  | 2003           |       |   | 2002
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | ----
|                                                                                                                                                                                                                                          |  | (In Thousands)
|Net Income                                                                                                                                                                                                                                |  | $              | 1,795 |   |     
|Net Unrealized (Losses) Gains on Long term Marketable Securities (Net of deferred taxes
of ($232,000) and $1,044,000 and minority interest of ($386,000) and $1,914,000 for the three months ended March 31, 2003 and 2002, respectively) |  |                | (349  | ) |     
|                                                                                                                                                                                                                                          |  |                |       |   |     
|Total Comprehensive Income                                                                                                                                                                                                                |  | $              | 1,446 |   |     
|                                                                                                                                                                                                                                          |  |                |       |   |     



(6) RELATED PARTY
TRANSACTIONS



The Company entered into an
administration and liquidation agreement with Calypso Management LLC (Calypso Management), under which Calypso Management manages the liquidation of the Company and operates the Companys assets as going concern businesses until
they are liquidated. The principal executive officers of the Company also serve as the principal executive officers of Calypso Management. Calypso Management is owned and operated by the Companys President and Chief Executive Officer as well
as the Companys Chief Operating Officer and Chief Financial Officer.



Under the administration and liquidation agreement, the Company pays expenses of Calypso Management incurred in connection with its provision of services and a percentage of the net proceeds realized
from the liquidation of its assets that are ultimately distributed to the Companys shareholders, generally according to the following schedule:



| |  |  | with respect to the first $36 million in net proceeds available for distribution, Calypso Management shall receive a payment equal to 10% of such net proceeds;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | with respect to the next $72 million in net proceeds available for distribution, Calypso Management shall receive a payment equal to 7.5% of such net proceeds; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------





8



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| |  |  | with respect to any additional net proceeds, 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, pursuant to Amendment 2 dated as of February 1, 2001 to the administration and liquidation agreement, Calypso Management is now entitled to share
in distributions of approximately $5,400,000 of the unexpended cash contributed by Pioneer. 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
schedule. Instead, Calypso Management will receive only 5% of the Ashanti proceeds that are distributed, if any. 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.



For the three months ended March 31, 2003 and 2002, the Company incurred management fee expenses of approximately $750,000 and $730,000, respectively related to the reimbursement of expenses. Of this
management fee, approximately $183,000 and $185,000 was outstanding at March 31, 2003 and 2002, respectively.



In the first quarter of 2003, the Company also accrued management fee expense and a corresponding payable to Calypso Management of
approximately $345,000 based on a portion of the proceeds received from Ashanti and the reduction in the note payable to Pioneer, which is expected to be included in a future distribution. As of March 31, 2002, the Company had an outstanding payable
to Calypso Management of $1,450,000, which had been recorded in 2001, reflecting the amount owed to Calypso Management and paid on October 24, 2002 in connection with the distribution paid to shareholders on November 15, 2001.



(7) LEGAL PROCEEDINGS



On March 28, 2003 the Company agreed to settle the complaint
filed by a former employee of an affiliate of Pioneer and the Company, against PIOGlobal Corporation, Pioneer and Pioneer Investment Management USA, Inc. for an immaterial cash amount upon execution of mutual releases.



(8) DISCONTINUED OPERATIONS



On February 5, 2002, the Companys Board of Directors
approved the disposition of the Russian timber operation. Accordingly, the Russian timber business was separated from the results of continuing operations and was reported as a discontinued operation commencing in 2001. Pursuant to Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, the Company recorded the disposal
effective December 31, 2001. Prior to 2001, the Company reported its Russian timber operations as a separate segment.



On April 22, 2002, Harbor Globals wholly owned subsidiary, Pioneer Forest, Inc. (Pioneer Forest), entered into an
agreement for the sale of its Russian timber business conducted through Closed Joint-Stock Company Forest-Starma (Forest-Starma). On May 28, 2002, Pioneer Forest sold its entire interest in Pioglobal Forest, L.L.C.
(Pioglobal Forest), the sole shareholder of Forest-Starma, to a British Virgin Islands company for an aggregate purchase price of $7.55 million, of which $5.5 million was payable in cash at the closing and $2.0 million is payable by a
twelve month promissory note which is recorded in current assets as a note receivable in the accompanying Consolidated Balance Sheets.



Pioneer Forest has agreed to indemnify the purchaser for breach of any representations and warranties made by Pioneer Forest. This
indemnification obligation terminates on May 28, 2003, except with respect to any claim that is: (a) properly asserted in writing prior May 28, 2003 and identified as a claim for indemnification in accordance with the terms of the purchase
agreement, or (b) the result of fraud on the part of Pioneer



9



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Forest, which such claims, if
any, shall survive until they are resolved and satisfied in full. The maximum aggregate liability of Pioneer Forest under the indemnification provisions of the purchase agreement is $1.5 million, except that claims relating to the business and
activities of Pioglobal Forest and Forest-Starma following the closing are not subject to any cap on liability.



There were no changes relative to either the Companys assessment of the recoverability of the note receivable or the indemnification
in the first quarter of 2003.



(9) SUBSEQUENT EVENTS



On April 4, 2003 and April 10, 2003, through two
purchase and sale agreements, PIOGLOBAL Investment Fund agreed to sell its approximately 25% interest in the Cosmos Hotel for approximately $4.9 million in the aggregate to Open Joint-Stock Company Alpha Bank (Alpha). Pursuant to the
April 4, 2003 agreement, Alpha purchased 25,437,244 shares of Cosmos Hotel on April 15, 2003 for approximately $2.9 million. Pursuant to the April 10, 2003 agreement, Alpha has until May 16, 2003 to purchase the remaining 16,768,500 shares of Cosmos
Hotel. Otherwise, PIOGLOBAL Investment Fund and Alpha each have the right to terminate this agreement. The Company estimates that the combined transactions would result in an aggregate gain of approximately $1.3 million after taxes and minority
interest.



In connection with the May 2000 sale
by Goldfields II of its gold mining operations in Ghana to Ashanti, in addition to the $18.8 million base purchase price, Ashanti agreed to pay Goldfields II additional supplemental payments of $250,000 per calendar quarter from April 1, 2001
through March 31, 2006 contingent on the market price of gold and productivity of the Ghanaian gold mine. For the quarter ending March 31, 2003, the Company earned its first supplemental payment of $250,000. On April 25, 2003, the Company and
Goldfields II agreed to sell their right to receive the remaining 12 additional supplemental payments to HSBC Bank USA in exchange for one cash payment of $875,000. The transaction was consummated on April 30, 2003 and, as a result, the Company will
report a gain of $875,000 in the second quarter of 2003.



(10)
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.



Previously the Company reported its Russian
timber operations as a separate segment. Due to the sale of the Russian timber operations segment, these results have been segregated from continuing operations. The segment disclosures previously reported have been reformatted to reflect the
Companys continuing segments.



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



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



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



| |  |  | Other: management services
| | - |  | --------------------------



10



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SEGMENT
DISCLOSURES



|                                                                                                                             |  | Russian Real Estate Management And Investment Management Operations |        |   | Real Estate Mangement Operations |   |      | Other |  |   | Total  |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------ | - | -------------------------------- | - | ---- | ----- |  | - | ------ | -
|As of and for the three months ended March 31, 2003                                                                          |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  
|Net Revenues and Sales                                                                                                       |  | $                                                                   | 2,506  |   |                                  | $ | 239  |       |  | $ | 513    |  
|                                                                                                                             |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority
Interest, and Equity Loss on Investment |  |                                                                     | 3,548  |   |                                  |   | (200 | )     |  |   | 1,236  |  
|Provision for Income Taxes                                                                                                   |  |                                                                     | (939   | ) |                                  |   | (62  | )     |  |   |       |  
|Minority Interest Expense                                                                                                    |  |                                                                     | (1,592 | ) |                                  |   |     |       |  |   |       |  
|Equity Loss on Venture Capital Investment                                                                                    |  |                                                                     |       |   |                                  |   |     |       |  |   | (196   | )
|                                                                                                                             |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  
|Net Income (Loss) from Continuing Operations                                                                                 |  | $                                                                   | 1,017  |   |                                  | $ | (262 | )     |  | $ | 1,040  |  
|                                                                                                                             |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  
|Depreciation                                                                                                                 |  | $                                                                   | 194    |   |                                  | $ | 7    |       |  | $ |       |  
|                                                                                                                             |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  
|Total Assets                                                                                                                 |  | $                                                                   | 76,618 |   |                                  | $ | 852  |       |  | $ | 17,767 |  
|                                                                                                                             |  |                                                                     |        |   |                                  |   |      |       |  |   |        |  





|                                                                                                                             |  | Russian Real Estate Management And Investment Management Operations |        |   | Real Estate Management Operations |   |      | Other |  |   | Total  |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------ | - | --------------------------------- | - | ---- | ----- |  | - | ------ | -
|As of and for the three months ended March 31, 2002                                                                          |  |                                                                     |        |   |                                   |   |      |       |  |   |        |  
|Net Revenues and Sales                                                                                                       |  | $                                                                   | 2,326  |   |                                   | $ | 195  |       |  | $ | 429    |  
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority
Interest, and Equity Loss on Investment |  |                                                                     | 2,890  |   |                                   |   | (275 | )     |  |   | 476    |  
|Provision for Income Taxes                                                                                                   |  |                                                                     | (1,261 | ) |                                   |   |     |       |  |   |       |  
|Minority Interest Expense                                                                                                    |  |                                                                     | (1,247 | ) |                                   |   |     |       |  |   |       |  
|Equity Loss on Venture Capital Investment                                                                                    |  |                                                                     |       |   |                                   |   |     |       |  |   | (28    | )
|                                                                                                                             |  |                                                                     |        |   |                                   |   |      |       |  |   |        |  
|Net (Loss) Income from Continuing Operations                                                                                 |  | $                                                                   | 382    |   |                                   | $ | (275 | )     |  | $ | 448    |  
|                                                                                                                             |  |                                                                     |        |   |                                   |   |      |       |  |   |        |  
|Depreciation and Amortization                                                                                                |  | $                                                                   | 189    |   |                                   | $ | 7    |       |  | $ |       |  
|                                                                                                                             |  |                                                                     |        |   |                                   |   |      |       |  |   |        |  
|Total Assets                                                                                                                 |  | $                                                                   | 76,531 |   |                                   | $ | 490  |       |  | $ | 33,531 |  
|                                                                                                                             |  |                                                                     |        |   |                                   |   |      |       |  |   |        |  



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.



11



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The
preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and income. On an on-going basis, the Company evaluates its estimates. The Company
bases its estimates 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, and
income 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 the fair value of Russian investments classified as
available-for-sale pursuant to SFAS No. 115, valuations of its Polish venture capital investment, accrued management fees and deferred taxes.



Russian investments consist of equity and fixed income securities held in the portfolio of the PIOGLOBAL Investment Fund. Equity
securities are classified as either available-for-sale and recorded at fair value pursuant to SFAS No. 115 or as long-term investments. Fixed income securities are characterized as either available-for-sale and recorded at fair value pursuant to
SFAS No. 115 or as trading securities. 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. Unrealized gains and losses are recorded in stockholders equity
as other comprehensive income. Realized gains or losses and any other than temporary declines in value are reported in other income (expense). For Russian investments that do not meet these criteria, the Company continues to classify these equity
securities as long-term investments and carry such investments at cost with adjustments made for other than temporary impairment.



The Company retains an approximately 8% limited partnership interest in the Prospect Poland Fund. Polish venture capital investments
within the Prospect Poland Fund are recorded at fair value as determined by the management of the Prospect Poland Fund. Unrealized and realized gains or losses are recorded in the Consolidated Statement of Earnings. The Company analyzes the
assumptions supporting changes in the fair value of these investments for appropriateness on a quarterly basis.



On August 7, 2000, Harbor Global entered into an administration and liquidation agreement with Calypso Management pursuant to which
Calypso Management manages the liquidation of Harbor Global and operates Harbor Globals assets pending their liquidation. As compensation for its provision of services to Harbor Global, Calypso Management receives a portion of the net proceeds
distributed from the liquidation of Harbor Globals assets, based upon a predetermined schedule, which varies depending upon the source of the distribution and the cumulative amount of distributions since the Spin-off. Harbor Global accrues
such 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.



The Company recognizes deferred tax assets and liabilities
based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and



12



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establishes a valuation allowance based on historical taxable income, projected future taxable income, and
the expected timing of the reversals of existing temporary differences.



OVERVIEW



The
Consolidated Financial Statements of Harbor Globals principal operations include its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and
Analysis of Financial Condition and Results of Operations are presented in three sections: Results of Operations for the three months ended March 31, 2003 and 2002, Liquidity and Capital Resources, and Future Operating Results.



Previously the Company reported its Russian timber operations
as a separate segment. Due to the sale of the Russian timber operations segment, the results from the Russian timber operations have been segregated from continuing operations. The segment disclosures previously reported have been reformatted to
reflect the Companys continuing segments.



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002



Consolidated Operations.



Harbor Global reported net income of approximately $1.8 million ($0.32 per share) on revenues of approximately $3.3 million in the first quarter of 2003 compared with net income of approximately $1.0 million ($0.18 per share) on
revenues of approximately $2.9 million for the first quarter of 2002. Income from continuing operations was approximately $1.8 million in the first quarter of 2003 compared to approximately $0.6 million in the first quarter of 2002. The
approximately $1.2 million increase in income from continuing operations was attributable principally to an approximate $1.3 million gain from the early settlement of the Companys $5 million note payable to Pioneer for $3.75 million.



In addition, the Company earned a payment of
approximately $0.3 million from Ashanti as a supplemental purchase price payment linked to the price of gold and production levels pursuant to the Purchase Agreement with Ashanti and higher income on Russian corporate bonds of approximately $0.3
million. These were offset by accrued management fees of approximately $0.4 million recorded based on a portion of the gain from settlement of the note payable to Pioneer and a portion of the proceeds received from Ashanti through March 2003 which
are expected to be included in a future shareholder distribution, an approximately $0.3 million increase in salary and related expenses in the Russian real estate and investment management operations, and an approximately $0.2 million write-down of
the Companys Polish venture capital investment. Income from discontinued timber operations was approximately $0.4 million in the first quarter of 2002.



Set forth on the following table are the details of revenues and net income (loss) by business segment for the three months ended March
31, 2003 and 2002:



13



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REVENUES AND
NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  | Net Income                   |    
|------------------------------------------------------------------- |  | ---------------------------- | ---
|                                                                    |  | Revenues                     |    
|                                                                    |  | Three Months Ended March 31, |    
|BUSINESS SEGMENT                                                    |  | 2003                         |    
|Russian Real Estate Management and Investment Management Operations |  | $                            | 2.5
|Real Estate Management Operations                                   |  |                              | 0.2
|Other                                                               |  |                              | 0.6
|                                                                    |  |                              |    
|Total from continuing operations                                    |  | $                            | 3.3
|                                                                    |  |                              |    
|Income from discontinued operations                                 |  |                              |   
|                                                                    |  |                              |    
|Totals                                                              |  | $                            | 3.3
|                                                                    |  |                              |    



Russian Real Estate
Management and Investment Management Operations.



The Russian real estate management and investment management operations reported net income of approximately $1.0 million for the first quarter of 2003, an increase of approximately $0.6 million compared with the first quarter of
2002. The increase was attributable to a approximately $0.3 million increase in gains on corporate bonds, an approximately $0.2 million increase in interest income, an approximately $0.1 million increase in management fee income, an approximately
$0.1 million reduction in advertising expenses and an approximately $0.1 million reduction in corporate overhead allocations compared with the first quarter of 2002. These increases were offset partially by higher salary and employee related
expenses of approximately $0.3 million in the first quarter of 2003.



Real Estate Management Operations.



The real estate management operations recorded a net loss of approximately $0.3 million in both the first quarter of 2003 and the first quarter of 2002 due primarily to approximately $0.2 million of corporate overhead allocations in
each comparative quarter.



Other.



Harbor Globals other operations reported net income of
approximately $1.1 million for the three months ended March 31, 2003 compared to approximately $0.5 million for the three months ended March 31, 2002. The approximately $0.6 million increase is attributable principally to an approximate $1.3 million
gain from the settlement of the Companys $5 million note payable to Pioneer and a supplemental payment of approximately $0.3 million earned by the Company during the first quarter of 2003 in accordance with the Purchase Agreement with Ashanti,
which was linked to the price of gold and production levels. These increases were offset partially by accrued management fees of approximately $0.4 million recorded based on an anticipated distribution from the reduction in the foregoing liability
and the proceeds received from Ashanti, lower interest income of approximately $0.2 million, an approximate $0.2 million charge to reflect the amendment to the Purchase Agreement with Ashanti calling for early settlement of the note receivable, and
an approximate $0.2 million write-down of the Companys Polish venture capital investment.



14



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Discontinued Operations.



On February 5, 2002, the Companys
Board of Directors approved the disposition of the Russian timber operations. Accordingly, the Russian timber operations segment is reflected as a discontinued operation. During the fourth quarter of 2001, management made its best estimate of the
loss on disposal based on an estimated selling price and a projection of costs and expenses to be incurred up to the anticipated date of disposal. On April 22, 2002, Pioneer Forest entered into a definitive agreement for the sale of its Russian
timber operations segment for an aggregate purchase price of $7.55 million. Based on this purchase price and estimated costs through the anticipated date of disposal, the Company recorded a credit of approximately $0.4 million in the first quarter
of 2002.



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 $13.4 million as of March 31, 2003. This represents a $2.8 million decrease from the 2002 fiscal year end and is attributable
principally to the $3.8 million payment to Pioneer, the funding of first quarter operations and settlement of year-end accruals, less the receipt of $3.0 million from Ashanti. Management believes that the cash available for general corporate
purposes is sufficient to fund operations over the next two years.



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



FUTURE OPERATING RESULTS



From
time to time, management may make forward-looking statements in this Quarterly Report on Form 10-Q, in other documents that the Company files with the Securities and Exchange Commission (including those documents incorporated by reference into the
Form 10-Q), in press releases or in other public discussions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for these statements. For this purpose, a forward-looking statement is any statement that is not a
statement of historical fact. Forward-looking statements include those about asset realization plans and strategies, anticipated expenses, liquidity and capital resources and expectations about market conditions. Forward-looking statements can be
identified by the words may, believes, anticipates, plans, expects, estimates and similar expressions. Forward-looking statements are based on currently available information
and managements expectations of future results but involve certain assumptions. Management cautions readers that assumptions involve substantial risks and uncertainties. Consequently, any forward-looking statement could turn out to be wrong.
Many factors could cause actual results to differ materially from expectations. Described below are some of the important factors that could affect revenues or results of operations.



HARBOR GLOBAL HAS A LIMITED OPERATING HISTORY AS AN INDEPENDENT COMPANY.



Harbor Global has operated as an independent public company since October 24,
2000 and therefore has a limited operating history as an independent company. The financial statements included in this Form 10-Q may not necessarily reflect the results of operations, financial condition and cash flows that would have been achieved
had Harbor Global and its subsidiaries operated as an independent company prior to the Spin-Off, particularly in light of Harbor Globals intent to liquidate its assets within a limited period of time.



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®.



15



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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.



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 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 Investment Fund are illiquid. There is also limited liquidity in some of the publicly traded securities of PIOGLOBAL Investment Fund. Consequently, Harbor Global may have difficulty selling some of its
investment in PIOGLOBAL Investment Fund or causing PIOGLOBAL Investment Fund to liquidate some of its underlying assets, and may only be able to do so at prices, which may not reflect the long-term value of its investments.



HARBOR GLOBALS BUSINESSES, PARTICULARLY THOSE CONDUCTED IN EMERGING
MARKETS,

ARE SUSCEPTIBLE TO NUMEROUS RISKS AND UNCERTAINTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS.



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



    unexpected changes in
regulatory requirements and underdeveloped legal systems in some countries;



    tariffs and other trade barriers;



    difficulties in staffing and managing foreign 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-



16



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developed business, legal and regulatory infrastructure that would generally exist in the United States or
in a more mature free market economy. Accordingly, 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. 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, these emerging markets.



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.



Stephen G. Kasnet is the President and Chief Executive Officer, and Donald H. 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, Harbor Global has entered into an administration and liquidation agreement with Calypso Management, an entity owned and operated by Mr. Kasnet and Mr. Hunter, under which Calypso Management manages the
liquidation of Harbor Global and operates its assets as going concern businesses until they are liquidated.



Because Harbor Globals assets are a diverse range of businesses and are generally located in countries in which 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. Mr. Kasnets employment agreement provides for a minimum term of two years and may be terminated by Mr.
Kasnet upon 120 days prior written notice after October 24, 2002. 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, he will cease to be an officer of Harbor Global. In addition, Harbor Global has obtained key officer life insurance
policies with benefits payable to Harbor Global for Mr. Kasnet and Mr. Hunter.



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 has 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.



17



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



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



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



RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD



None.



ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



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



The Companys interest rate risk involves the short-term investment of excess cash. This risk impacts fair values, earnings and cash flows. Excess
cash is primarily invested in foreign government bonds and United States treasury bills. These short-term investments are reported either as cash and cash equivalents or marketable securities. The balance of such securities at March 31, 2003 and
December 31, 2002 was approximately $3.8 million and $4.6 million, respectively, of cash and cash equivalents and $8.9 million and $10.1 million, respectively, of marketable securities. Earnings from excess cash invested were approximately $0.1
million and for the three months ended March 31, 2003. Based on excess cash invested at March 31, 2003, 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 Statement of Earnings.



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 Earnings. To mitigate against currency translation risk, the Company primarily
transacts in United States dollars by contracting for most of its costs



18



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and revenues in United States dollars. This acts as a natural hedge to protect against currency
fluctuations from the Companys operations.



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



The table below sets forth in the Companys reporting currency a summary of the monetary assets and liabilities held in rubles at March 31, 2003 and December 31, 2002.



|                                    |  | (IN THOUSANDS)
|----------------------------------- |  | --------------
|                                    |  | March 31, 2003
|Monetary Assets                     |  |               
|Cash and Cash Equivalents           |  | $             
|Restricted Cash                     |  |               
|Marketable Securities Held for Sale |  |               
|Other                               |  |               
|                                    |  |               
|                                    |  | $             
|                                    |  |               
|Monetary Liabilities                |  |               
|Dividend Payable                    |  | $             
|Taxes Payable                       |  |               
|Deferred Taxes                      |  |               
|Other                               |  |               
|                                    |  |               
|                                    |  | $             
|                                    |  |               
|Net Position                        |  | $             
|                                    |  |               



The Company indirectly
invests in equity instruments of privately-held companies through its approximately 52% interest in the PIOGLOBAL Investment Fund and its 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 in 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 $196,000 in the first quarter of 2003, reflecting the Companys proportional share of an investment write-down of approximately $172,000 and approximately $24,000 of operating expenses. For the first quarter of 2002, the
Company wrote down its investment by approximately $28,000, representing its 8% share of operating expenses.



The PIOGLOBAL 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. Otherwise, the investments are
recorded in long-term investments at a fair value equivalent to its original cost basis. These available-for-sale equity investments, primarily in oil and gas, energy companies and the telecommunications industry, are subject to significant
fluctuations in fair value due to the volatility of the stock market and the industries in which these companies participate. As of March 31, 2003 and December 31, 2002, the fair value of equity



19



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investments contained in long-term marketable securities aggregated $21.0 million and $19.0 million,
respectively. As a result, the Company recorded unrealized gains after deferred taxes and after minority interest of $3.6 million and $3.9 million at March 31, 2003 and December 31, 2002, respectively, as a separate component of stockholders
equity. Although the breadth of industries represented on the Russian Trading System is severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of stock market declines to the Companys
earnings and cash flow by increased diversification of the portfolio.



ITEM 4. CONTROLS AND PROCEDURES.



Evaluation
of 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 such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing date of this Form 10-Q (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 in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys
reports filed or submitted under the Securities Exchange Act of 1934.



Changes in Internal Controls. There have not been any significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.



PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



On March 28, 2003 the Company agreed to settle the complaint filed by a former
employee of an affiliate of Pioneer and the Company, against PIOGlobal Corporation, Pioneer and Pioneer Investment Management USA, Inc. for an immaterial cash amount upon execution of mutual releases.



ITEM 5. OTHER INFORMATION



On April 4, 2003 and April 10, 2003, through two purchase and sale agreements,
PIOGLOBAL Investment Fund agreed to sell its approximately 25% interest in the Cosmos Hotel for approximately $4.9 million in the aggregate to Open Joint-Stock Company Alpha Bank (Alpha). Pursuant to the April 4, 2003 agreement, Alpha
purchased 25,437,244 shares of Cosmos Hotel on April 15, 2003 for approximately $2.9 million. Pursuant to the April 10, 2003 agreement, Alpha has until May 16, 2003 to purchase the remaining 16,768,500 shares of Cosmos Hotel. Otherwise, PIOGLOBAL
Investment Fund and Alpha each have the right to terminate this agreement. The Company estimates that the combined transactions would result in an aggregate gain of approximately $1.3 million after taxes and minority interest.



In connection with the May 2000 sale by Goldfields II of its gold mining
operations in Ghana to Ashanti, in addition to the $18.8 million base purchase price, Ashanti agreed to pay Goldfields II additional supplemental payments of $250,000 per calendar quarter from April 1, 2001 through March 31, 2006 contingent on the
market price of gold and productivity of the Ghanaian gold mine. For the quarter ending March 31, 2003, the Company earned its first supplemental payment of $250,000. Accordingly, on April 25, 2003, the Company and Goldfields II agreed to sell their
right to receive the remaining 12 additional supplemental payments to HSBC Bank USA in exchange for one cash payment of $875,000. The transaction was consummated on April 30, 2003 and, as a result, the Company will report a gain of $875,000 in the
second quarter of 2003.



20



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ITEM 6. EXHIBITS AND REPORTS
ON FORM 8-K



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



(b) Form 8-K: None.



21



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SIGNATURES



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



Dated: May 6, 2003



HARBOR GLOBAL COMPANY
LTD./s/    DONALD H.
HUNTERDonald H. HunterChief Operating OfficerChief Financial Officer(Duly authorized officer and principal financialand accounting officer)




22



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CERTIFICATIONS



I, Stephen G. Kasnet, Chief Executive Officer of
the Company, certify that:



1. I have reviewed
this quarterly report on Form 10-Q of Harbor Global Company Ltd.;



2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarterly report;



3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;



5. The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls;
and



b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



Date: May 6, 2003



/s/    STEPHEN G.
KASNETStephen G. Kasnet Chief Executive Officer




23



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CERTIFICATIONS



I, Donald H. Hunter, Chief Financial Officer of
the Company, certify that:



1. I have reviewed
this quarterly report on Form 10-Q of Harbor Global Company Ltd.;



2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarterly report;



3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;



5. The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls;
and



b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



Date: May 6, 2003



/s/    DONALD H. HUNTERDonald H. Hunter Chief Financial Officer




24



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INDEX TO
EXHIBITS



|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1*           |  | Form of Distribution Agreement by and among The Pioneer Group, Inc., Harbor Global Company Ltd. and Harbor Global II
Ltd.                                             
|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***        |  | Agreement dated March 19, 2003 between Pioneer Goldfields II Limited, Pioneer Investment Management USA Inc. and Ashanti
Goldfields Company Limited.                  
|10.2***        |  | Amendment No. 1 to the Distribution Agreement between Pioneer Investment Management USA Inc., Harbor Global Company Ltd.
and Harbor Global II Ltd dated March 19, 2003
|99.1***        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                         
|99.2***        |  | 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 Amendment No. 1 to Harbor Global Company Ltd.s Registration Statement on Form 10/A (file number 0-30889) filed on August 8, 2000.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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



25