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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended March 31, 2005



OR



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



For the transition period from              to



Commission file number 0-30889



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HARBOR GLOBAL COMPANY LTD.

(Exact name of registrant as specified in its charter)



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



ONE FANEUIL HALL
MARKETPLACE

4TH FLOOR

BOSTON, MASSACHUSETTS

(Address of principal executive offices)



02109-1820

(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 15, 2005, the registrant had 5,667,311 common shares, par value $.0025 per share, issued and outstanding.



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##### Table of Contents

HARBOR GLOBAL COMPANY LTD.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2005



INDEX



|              |  |                                                                                       |  |   
|------------- |  | ------------------------------------------------------------------------------------- |  | --
|              |  |                                                                                       |  |   
|PART I.       |  | FINANCIAL INFORMATION                                                                 |  | 3 
|              |  |                                                                                      
|Item 1.       |  | Financial Statements (Unaudited)                                                      |  | 3 
|              |  |                                                                                      
|              |  | Consolidated Balance Sheets December 31, 2004 and March 31, 2005                     |  | 3 
|              |  |                                                                                      
|              |  | Consolidated Statements of Operations three ended March 31, 2004 and 2005            |  | 4 
|              |  |                                                                                      
|              |  | Consolidated Statements of Cash Flows three months ended March 31, 2004 and 2005     |  | 5 
|              |  |                                                                                      
|              |  | Notes to Consolidated Financial Statements                                            |  | 6 
|              |  |                                                                                      
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13
|              |  |                                                                                      
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 19
|              |  |                                                                                      
|Item 4.       |  | Controls and Procedures                                                               |  | 21
|              |  |                                                                                      
|PART II.      |  | OTHER INFORMATION                                                                     |  | 21
|              |  |                                                                                      
|Item 6.       |  | Exhibits                                                                              |  | 21
|              | 
|SIGNATURE     |  | 22                                                                                   
|              | 
|EXHIBIT INDEX |  |                                                                                      





2



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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 31,2005 |        |   | December 31,2004 |  
|                                                                                                                                                            |  | (Unaudited)   |        |   |                  |  
|ASSETS                                                                                                                                                      |  |               |        |   |                  |   |        |  
|Cash and Cash Equivalents                                                                                                                                   |  | $             | 6,615  |   |                  | $ | 7,754  |  
|Restricted Cash                                                                                                                                             |  |               | 12,983 |   |                  |   | 13,035 |  
|Marketable Securities                                                                                                                                       |  |               | 17,051 |   |                  |   | 17,456 |  
|Accounts Receivable                                                                                                                                         |  |               | 1,034  |   |                  |   | 986    |  
|Prepaid Expenses                                                                                                                                            |  |               | 2,190  |   |                  |   | 1,880  |  
|Other Current Assets                                                                                                                                        |  |               | 7      |   |                  |   | 7      |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Current Assets                                                                                                                                        |  |               | 39,880 |   |                  |   | 41,118 |  
|                                                                                                                                                            |  |              
|Polish Venture Capital Investment                                                                                                                           |  |               | 259    |   |                  |   | 273    |  
|Marketable Securities                                                                                                                                       |  |               | 23,329 |   |                  |   | 19,998 |  
|Long-term Investments                                                                                                                                       |  |               | 6,414  |   |                  |   | 8,715  |  
|Building                                                                                                                                                    |  |               | 21,553 |   |                  |   | 21,726 |  
|Other Long-term Assets                                                                                                                                      |  |               | 1,274  |   |                  |   | 1,190  |  
|Goodwill                                                                                                                                                    |  |               | 1,253  |   |                  |   | 1,253  |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Assets                                                                                                                                                |  | $             | 93,962 |   |                  | $ | 94,273 |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  |               |        |   |                  |   |        |  
|Accounts Payable                                                                                                                                            |  | $             | 614    |   |                  | $ | 1,140  |  
|Dividend Payable                                                                                                                                            |  |               | 12,983 |   |                  |   | 13,035 |  
|Accrued Expenses                                                                                                                                            |  |               | 1,859  |   |                  |   | 2,206  |  
|Accrued Fees Payable to Calypso Management                                                                                                                  |  |               | 186    |   |                  |   | 739    |  
|Foreign Taxes Payable                                                                                                                                       |  |               | 695    |   |                  |   | 196    |  
|Deferred Taxes                                                                                                                                              |  |               | 252    |   |                  |   | 241    |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Current Liabilities                                                                                                                                   |  |               | 16,589 |   |                  |   | 17,557 |  
|                                                                                                                                                            |  |              
|Deferred Taxes                                                                                                                                              |  |               | 2,133  |   |                  |   | 2,039  |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Liabilities                                                                                                                                           |  |               | 18,722 |   |                  |   | 19,596 |  
|                                                                                                                                                            |  |              
|Minority Interest                                                                                                                                           |  |               | 27,983 |   |                  |   | 27,109 |  
|                                                                                                                                                            |  |              
|STOCKHOLDERS EQUITY                                                                                                                                        |  |               |        |   |                  |   |        |  
|                                                                                                                                                            |  |              
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,667,311 shares issued and outstanding as of March 31, 2005 and
December 31, 2004 |  |               | 14     |   |                  |   | 14     |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                        |  |               |       |   |                  |   |       |  
|Paid-in Capital                                                                                                                                             |  |               | 48,284 |   |                  |   | 48,284 |  
|Accumulated Deficit                                                                                                                                         |  |               | (5,041 | ) |                  |   | (4,541 | )
|Other Comprehensive Income                                                                                                                                  |  |               |        |   |                  |   |        |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                            |  |               | 4,000  |   |                  |   | 3,811  |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Stockholders Equity                                                                                                                                  |  |               | 47,257 |   |                  |   | 47,568 |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  
|Total Liabilities and Stockholders Equity                                                                                                                  |  | $             | 93,962 |   |                  | $ | 94,273 |  
|                                                                                                                                                            |  |               |        |   |                  |   |        |  



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



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED
STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                          |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                          |  | Three Months EndedMarch 31, |       
|                                                                                                          |  | 2005                        |        |   | 2004 |  
|Revenues:                                                                                                 |  |                             |        |   |      |   |        |  
|Real Estate Rental Revenue                                                                                |  | $                           | 2,093  |   |      | $ | 1,926  |  
|Other Income                                                                                              |  |                             | 781    |   |      |   | 1,462  |  
|                                                                                                          |  |                             |        |   |      |   |        |  
|Total Revenues                                                                                            |  |                             | 2,874  |   |      |   | 3,388  |  
|                                                                                                          |  |                             |        |   |      |   |        |  
|Operating Expenses:                                                                                       |  |                             |        |   |      |   |        |  
|Salary and Benefit Expenses                                                                               |  |                             | (1,281 | ) |      |   | (1,313 | )
|Facility Expenses                                                                                         |  |                             | (358   | ) |      |   | (379   | )
|Building and Property Management Expenses                                                                 |  |                             | (635   | ) |      |   | (689   | )
|Management Fee Expense                                                                                    |  |                             | (795   | ) |      |   | (980   | )
|Other Expenses                                                                                            |  |                             | (1,380 | ) |      |   | (635   | )
|                                                                                                          |  |                             |        |   |      |   |        |  
|Total Operating Expenses                                                                                  |  |                             | (4,449 | ) |      |   | (3,996 | )
|                                                                                                          |  |                             |        |   |      |   |        |  
|Operating Loss                                                                                            |  |                             | (1,575 | ) |      |   | (608   | )
|                                                                                                          |  |                            
|Other Income:                                                                                             |  |                             |        |   |      |   |        |  
|Net Unrealized and Realized Gains on Securities                                                           |  |                             | 2,242  |   |      |   | 562    |  
|Interest Income                                                                                           |  |                             | 483    |   |      |   | 508    |  
|                                                                                                          |  |                             |        |   |      |   |        |  
|Total Other Income                                                                                        |  |                             | 2,725  |   |      |   | 1,070  |  
|                                                                                                          |  |                             |        |   |      |   |        |  
|Income from Operations before Provision for Income Taxes, Minority Interest and Equity Loss on Investment |  |                             | 1,150  |   |      |   | 462    |  
|                                                                                                          |  |                            
|Provision for Income Taxes                                                                                |  |                             | (879   | ) |      |   | (249   | )
|                                                                                                          |  |                             |        |   |      |   |        |  
|Income from Operations before Minority Interest and Equity Loss on Investment                             |  |                             | 271    |   |      |   | 213    |  
|                                                                                                          |  |                            
|Minority Interest                                                                                         |  |                             | (757   | ) |      |   | (812   | )
|Equity Loss on Venture Capital Investments                                                                |  |                             | (14    | ) |      |   | (10    | )
|                                                                                                          |  |                             |        |   |      |   |        |  
|Net Loss                                                                                                  |  | $                           | (500   | ) |      | $ | (609   | )
|                                                                                                          |  |                             |        |   |      |   |        |  
|Loss Per Share:                                                                                           |  |                             |        |   |      |   |        |  
|Basic and Diluted Loss Per Share                                                                          |  | $                           | (0.09  | ) |      | $ | (0.11  | )
|                                                                                                          |  |                            
|Weighted Average Basic and Diluted Shares Outstanding                                                     |  |                             | 5,667  |   |      |   | 5,661  |  



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



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                        |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                        |  | THREE MONTHS ENDEDMARCH 31, |       
|                                                                                                        |  | 2005                        |        |   | 2004 |  
|Cash Flows from Operating Activities:                                                                   |  |                             |        |   |      |   |        |  
|Net Loss                                                                                                |  | $                           | (500   | ) |      | $ | (609   | )
|Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities                             |  |                             |        |   |      |   |        |  
|Depreciation and Amortization                                                                           |  |                             | 263    |   |      |   | 231    |  
|Restricted Unit Awards                                                                                  |  |                             |       |   |      |   | 76     |  
|Unrealized and Realized Gains on Venture Capital, Marketable Securities, and Long-term Investments, Net |  |                             | (2,242 | ) |      |   | (562   | )
|Minority Interest                                                                                       |  |                             | 757    |   |      |   | 812    |  
|Equity Loss on Venture Capital Investment                                                               |  |                             | 14     |   |      |   | 10     |  
|Changes in Operating Assets and Liabilities                                                            |  |                             |        |   |      |   |        |  
|Other Current Assets                                                                                    |  |                             | 219    |   |      |   | (3,876 | )
|Accrued Expenses and Accounts Payable                                                                   |  |                             | (957   | ) |      |   | (1,178 | )
|                                                                                                        |  |                             |        |   |      |   |        |  
|Total Adjustments and Changes in Operating Assets and Liabilities                                       |  |                             | (1,946 | ) |      |   | (4,487 | )
|                                                                                                        |  |                             |        |   |      |   |        |  
|Net Cash Used in Operating Activities                                                                   |  |                             | (2,446 | ) |      |   | (5,096 | )
|                                                                                                        |  |                             |        |   |      |   |        |  
|Cash Flows from Investing Activities:                                                                   |  |                             |        |   |      |   |        |  
|Purchase of Long-term Investments and Marketable Securities                                             |  |                             | (8,340 | ) |      |   | (4,745 | )
|Other Long-term Assets                                                                                  |  |                             | (133   | ) |      |   | 6      |  
|Proceeds from Sale of Long-term Investments and Marketable Securities                                   |  |                             | 9,742  |   |      |   | 6,038  |  
|Proceeds from Payment on Note Receivable                                                                |  |                             |       |   |      |   | 4,700  |  
|                                                                                                        |  |                             |        |   |      |   |        |  
|Net Cash Provided by Investing Activities                                                               |  |                             | 1,269  |   |      |   | 5,999  |  
|                                                                                                        |  |                             |        |   |      |   |        |  
|Cash Flows from Financing Activities:                                                                   |  |                             |        |   |      |   |        |  
|Dividends Paid                                                                                          |  |                             | (15    | ) |      |   | (5     | )
|Reclassification of Restricted Cash                                                                     |  |                             | 53     |   |      |   | (207   | )
|                                                                                                        |  |                             |        |   |      |   |        |  
|Net Cash Provided By (Used In) Financing Activities                                                     |  |                             | 38     |   |      |   | (212   | )
|                                                                                                        |  |                             |        |   |      |   |        |  
|Net (Decrease) Increase in Cash and Cash Equivalents                                                    |  |                             | (1,139 | ) |      |   | 691    |  
|                                                                                                        |  |                             |        |   |      |   |        |  
|Cash and Cash Equivalents, Beginning of Period                                                          |  |                             | 7,754  |   |      |   | 23,957 |  
|                                                                                                        |  |                             |        |   |      |   |        |  
|Cash and Cash Equivalents, End of Period                                                                |  | $                           | 6,615  |   |      | $ | 24,648 |  
|                                                                                                        |  |                             |        |   |      |   |        |  



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



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HARBOR GLOBAL COMPANY LTD.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

March 31, 2004



(1) BACKGROUND AND BASIS OF
PRESENTATION



BACKGROUND



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



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



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



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



| |  |  | Other:
| | - |  | ------



| |  |  | approximately $7.5 million in cash, cash equivalents and marketable securities held directly by Harbor Global
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | an approximately 8% limited partnership interest in the Prospect Poland Fund
| | - |  | ----------------------------------------------------------------------------



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



BASIS OF PRESENTATION



The interim financial data as of March 31, 2005 and for the three months ended March 31, 2005 is unaudited; however, in the
opinion of management, the accompanying Consolidated Financial Statements contain all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial position of the Company as of March 31, 2005 and the
results of operations and cash flows of the Company for the three month periods ended March 31, 2005 and 2004. Results for interim periods may not be necessarily indicative of the results to be expected for the year. These interim consolidated
financial statements should be read in conjunction with the Companys 2004 Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission.



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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 principally 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



PRINCIPLES OF CONSOLIDATION



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



USE OF ESTIMATES



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



Current Marketable Securities



United States
Treasury securities are classified as held-to-maturity and are recorded at amortized cost. Russian Government and Municipal securities are classified as trading securities and are marked-to-market, with unrealized gains or losses reported in the
Consolidated Statements of Operations pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Russian federal and municipal government
securities are held primarily in the PIOGLOBAL Real Estate Investment Fund, an approximately 52% owned subsidiary of the Company. Security transactions are recorded on the settlement date. Investments are valued at the weighted average daily price
if they are traded on the valuation date; otherwise, the bid price is used. Set forth in the following tables are the balances of marketable securities, segregated between United States Treasury obligations and Russian obligations at March 31, 2005
and December 31, 2004. Unrealized gains and losses recorded on Russian government securities are presented for the three months ended March 31, 2005 and 2004.



Balances of Current Marketable Securities



|                                 |  |                |        |                  |   |       
|-------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                 |  | March 31,2005  |        | December 31,2004
|                                 |  | (In Thousands)
|Russia (trading)                 |  | $              | 10,034 |                  | $ | 9,883 
|United States (held to maturity) |  |                | 7,017  |                  |   | 7,573 
|                                 |  |                |        |                  |   |       
|Total Marketable Securities      |  | $              | 17,051 |                  | $ | 17,456
|                                 |  |                |        |                  |   |       





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Net Unrealized Gain on Russian Federal and Municipal Government Securities



|                      |  |                             |     |   |      |   |     |  
|--------------------- |  | --------------------------- | --- | - | ---- | - | --- | -
|                      |  | Three months endedMarch 31, |    
|                      |  | 2005                        |     |   | 2004 |  
|                      |  | (In Thousands)              |    
|Gross Unrealized Gain |  | $                           | 128 |   |      | $ | 294 |  
|Gross Unrealized Loss |  |                             | (90 | ) |      |   | (69 | )
|                      |  |                             |     |   |      |   |     |  
|Net Unrealized Gain   |  | $                           | 38  |   |      | $ | 225 |  
|                      |  |                             |     |   |      |   |     |  



LONG-TERM MARKETABLE SECURITIES



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



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



Set forth in the following tables are the balances of long-term marketable securities at March 31, 2005 and December 31, 2004, as well as cumulative
unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at March 31, 2005 and December 31, 2004:



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



|                            |  |                |        |                  |   |       
|--------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                            |  | March 31,2005  |        | December 31,2004
|                            |  | (In Thousands)
|Equity Securities           |  | $              | 16,136 |                  | $ | 13,333
|Corporate Bonds             |  |                | 5,482  |                  |   | 5,043 
|Unit Funds                  |  |                | 1,711  |                  |   | 1,622 
|                            |  |                |        |                  |   |       
|Total Marketable Securities |  | $              | 23,329 |                  | $ | 19,998
|                            |  |                |        |                  |   |       



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Cumulative Unrealized Gain and Loss Recorded in Other Comprehensive Income



|                      |  |                |       |   |                  |   |       |  
|--------------------- |  | -------------- | ----- | - | ---------------- | - | ----- | -
|                      |  | March 31,2005  |       |   | December 31,2004 |  
|                      |  | (In Thousands) |      
|Equity Securities     |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 7,826 |   |                  | $ | 7,276 |  
|Gross Unrealized Loss |  |                | (266  | ) |                  |   | (115  | )
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 7,560 |   |                  | $ | 7,161 |  
|                      |  |               
|Corporate Bonds       |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 288   |   |                  | $ | 329   |  
|Gross Unrealized Loss |  |                | (33   | ) |                  |   |      |  
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 255   |   |                  | $ | 329   |  
|                      |  |               
|Unit Funds            |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 1,067 |   |                  | $ | 992   |  
|Gross Unrealized Loss |  |                |      |   |                  |   |      |  
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 1,067 |   |                  | $ | 992   |  



BUILDING



The building represents an office building in Moscow, Russia, the Meridian
Commercial Tower. The Meridian Commercial Tower is carried at cost and is being depreciated on a straight-line basis over 40 years. Building improvements are depreciated on a straight-line basis over either five or ten years. A significant portion
of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of Meridian Commercial Tower. Meridian Commercial Tower lease revenues accounted for approximately 80% of the total revenue generated by Harbor Globals Russian
real estate management and investment management operations during the quarterly period ended March 31, 2005, and approximately 74% of Harbor Globals total revenue during the same period.



CONCENTRATION OF RISK



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



RECLASSIFICATIONS



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



(3) EARNINGS PER SHARE



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



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(4) CHANGES IN STOCKHOLDERS EQUITY



For the three months ended March 31, 2005 and 2004, the Company reported changes in stockholders equity as follows:



|                                                                                                                                                                                                                 |  |                             |      |   |      |   |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                                                                                                                                                 |  | THREE MONTHS ENDEDMARCH 31, |     
|                                                                                                                                                                                                                 |  | 2005                        |      |   | 2004 |  
|                                                                                                                                                                                                                 |  | (In Thousands)              |     
|Net Loss                                                                                                                                                                                                         |  | $                           | (500 | ) |      | $ | (609  | )
|Net Unrealized Gains on Marketable Securities (Net of deferred taxes of $94,000 and $914,000 and minority interest of $117,000 and $1,287,000)
for the three months ended March 31, 2005 and 2004, respectively) |  |                             | 189  |   |      |   | 1,615 |  
|                                                                                                                                                                                                                 |  |                             |      |   |      |   |       |  
|Total Comprehensive (Loss) Income                                                                                                                                                                                |  | $                           | (311 | ) |      | $ | 1,006 |  
|Additional Paid In Capital                                                                                                                                                                                       |  |                             |     |   |      |   | 76    |  
|                                                                                                                                                                                                                 |  |                             |      |   |      |   |       |  
|Change in Stockholders Equity                                                                                                                                                                                   |  | $                           | (311 | ) |      | $ | 1,082 |  
|                                                                                                                                                                                                                 |  |                             |      |   |      |   |       |  



(5) RELATED PARTY TRANSACTIONS



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



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



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



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



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



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



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



In addition, if an individual, entity or group acquires at least 80% of the Companys outstanding common shares or
Harbor Global is a party to a merger, reorganization or similar business combination and the shareholders immediately prior to such transaction cease to own at least 50% of the outstanding common shares



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and voting power entitled to vote generally in the election of directors of the resulting entity (a Deemed Sale), Calypso Management is entitled
to receive a portion of the consideration, in accordance with the compensation schedule described above, as would be received by all shareholders if all of the outstanding common shares were sold at the valuation of Harbor Global based on the per
share consideration received by each shareholder who sold, exchanged or otherwise disposed of shares in the transaction. Also, in the event of a change in control (as defined in the agreement) coupled with a material change in the engagement status
of Calypso Management or the employment status of its principal officers, Calypso Management will be paid a cash amount equal to a portion of the value of the underlying assets, in accordance with the compensation schedule described above, with such
value determined pursuant to a predetermined valuation schedule.



With respect to ongoing asset sales, Harbor Global accrues management fees at the earlier of (1) the formal declaration by the Board of Directors of a distribution and (2) the time when a distributable amount is estimable following the sale
or liquidation of an asset. Harbor Global will also accrue management fees when a distribution to Calypso Management is triggered following a Deemed Sale of the Company or a change in control as defined in the amended and restated administration and
liquidation agreement.



The Company incurred management fee
expenses of approximately $795,000, and $745,000 for the three months ended March 31, 2005, and 2004, respectively, related to the reimbursement of expenses. Of this management fee, approximately $186,000 and $178,000 were outstanding at March 31,
2005 and 2004, respectively.



During the first quarter of 2004
the Company also accrued management fee expense and a corresponding payable to Calypso Management of approximately $235,000 associated with proceeds which were ultimately included in the distribution paid to shareholders on November 15, 2004.



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



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



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



(6) INDEMNIFICATION CONTRACTS



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



(7) 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



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based on the way that management organizes the segments within a company for making operating decisions and assessing performance. The Companys
operating segments are organized around services and products provided, as well as geographic regions.



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



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



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



| |  |  | Other
| | - |  | -----



SEGMENT DISCLOSURES



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



|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- | ------ | - | ------------------------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations |        |   | Real EstateManagementOperations |   |       | Other |  |   | Total |  
|As of and for the three months ended March 31, 2004                                               |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|Net Revenues and Sales                                                                            |  | $                                                              | 3,144  |   |                                 | $ | 244   |       |  | $ |      |   |  | $ | 3,388   |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                | 898    |   |                                 |   | (256  | )     |  |   | (180  | ) |  |   | 462     |  
|                                                                                                  |  |                                                                |        |  
|Provision for Income Taxes                                                                        |  |                                                                | (230   | ) |                                 |   | (9    | )     |  |   | (10   | ) |  |   | (249    | )
|                                                                                                  |  |                                                                |        |  
|Minority Interest Expense                                                                         |  |                                                                | (812   | ) |                                 |   |      |       |  |   |      |   |  |   | (812    | )
|                                                                                                  |  |                                                                |        |  
|Equity Loss on Venture Capital Investment                                                         |  |                                                                |       |   |                                 |   |      |       |  |   | (10   | ) |  |   | (10     | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|Net Loss                                                                                          |  | $                                                              | (144   | ) |                                 | $ | (265  | )     |  | $ | (200  | ) |  | $ | (609    | )
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                              | 224    |   |                                 | $ | 7     |       |  | $ |      |   |  | $ | 231     |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  
|Total Assets                                                                                      |  | $                                                              | 95,803 |   |                                 | $ | 1,512 |       |  | $ | 6,158 |   |  | $ | 103,473 |  
|                                                                                                  |  |                                                                |        |   |                                 |   |       |       |  |   |       |   |  |   |         |  



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



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



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



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



The Company considers its
critical accounting policies to include those related to (i) current marketable securities, (ii) long-term marketable securities, (iii) the valuation of its Polish venture capital investment, (iv) accrued management fees and (v) deferred taxes.



Current marketable securities consist primarily of United
States Treasury securities and Russian Government and Municipal securities. United States Treasury securities are classified as held-to-maturity and recorded at amortized cost. Russian government and municipal securities are classified as trading
securities and are marked-to-market, with unrealized gains or losses reported in other income (expense) in the Consolidated Statements of Operations pursuant to SFAS No. 115. Russian government securities are held primarily in the PIOGLOBAL Real
Estate Investment Fund. Security transactions are recorded on the settlement date. Investments are valued at the weighted average daily price if they are traded on the valuation date; otherwise, the bid price is used.



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



The Company reports its approximately 8% aggregate limited partnership interest in the Prospect Poland Fund on the equity
basis of accounting. No market quote is available for the remaining Polish venture capital investment. This investment is valued at fair value, as determined by Prospect Poland Funds management. Unrealized and realized gains or losses are
recorded in the



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Consolidated Statements of Operations. The Company analyzes the assumptions supporting changes in the fair value of the investment for appropriateness on a
quarterly basis.



On July 10, 2003, Harbor Global entered into
an amended and restated administration and liquidation agreement with Calypso Management pursuant to which Calypso Management manages the liquidation of Harbor Global and operates Harbor Globals assets pending their liquidation. As
compensation for its provision of services to the Company, Calypso Management receives a portion of the net proceeds distributed to shareholders in connection with the liquidation of the Companys assets. In addition, in the event 80% of the
Companys common shares are sold or if the Companys shareholders immediately prior to a business combination or transaction cease to own at least 50% of the outstanding common shares and voting power entitled to vote generally in the
election of directors following such combination or transaction (referred to as a deemed sale), Calypso Management is entitled to receive a portion of the consideration as would be received by all shareholders if all of the outstanding
common shares were sold at the valuation of Harbor Global based on the per share consideration received by each shareholder who sold, exchanged or otherwise disposed of shares in the transaction. Also, in the event of a change in control (as defined
in the amended and restated administration and liquidation agreement) coupled with a material change in the engagement status of Calypso Management or the employment status of its principal officers, Calypso Management will be paid a cash amount
equal to a portion of the value of the underlying assets with such value determined pursuant to a predetermined valuation schedule. Compensation to Calypso Management represents a percentage of such distributions, deemed distributions or
distributions related to a change in control, which varies depending upon the source of the distribution and the cumulative amount of distributions since the Spin-off.



With respect to ongoing asset sales, Harbor Global accrues management fees at the earlier of (1) the formal declaration by
the Board of Directors of a distribution or (2) the time when a distributable amount is estimable following the sale or liquidation of an asset. Harbor Global will also accrue management fees when a distribution to Calypso Management is triggered
following a deemed sale of the Company or a change in control as defined in the amended and restated administration and liquidation agreement.



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



OVERVIEW



The Consolidated Financial Statements of Harbor Globals principal
operations include its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and Analysis of Financial Condition and Results of Operations are
presented in three sections: Results of Operations for the three months ended March 31, 2005 and 2004, Liquidity and Capital Resources, Off-Balance Sheet Arrangements, and Future Operating Results.



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004



Consolidated Operations.



Harbor Global reported a net loss of $0.5 million ($0.09 per share) on
revenues of $2.9 million in the first quarter of 2005 compared with a net loss of $0.6 million ($0.11 per share) on revenues of $3.4 million for the first quarter of 2004. The $0.1 million decrease in losses was attributable principally to a $0.7
million increase in realized portfolio gains from the Russian real estate management and investment management operations and a $0.2 million reduction in management fees payable to Calypso Management; offset partially by, a $0.5 million reduction in
foreign exchange gains and lower dividend income of $0.3 million.



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##### Table of Contents

Set forth on the following table are the details of revenues and net (loss) income by business segment
for the three months ended March 31, 2005 and 2004:



REVENUES
AND NET LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  |                              |     |                            |   |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------- |  | ---------------------------- | --- | -------------------------- | - | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                    |  | REVENUES                     |     | NET LOSS                   |  
|                                                                    |  | THREE MONTHS ENDED MARCH 31, |     | THREE MONTHSENDEDMARCH 31, |  
|BUSINESS SEGMENT                                                    |  | 2005                         |     | 2004                       |   | 2005 |  |   | 2004 |  
|Russian Real Estate Management and Investment Management Operations |  | $                            | 2.6 |                            | $ | 3.2  |  | $ | (0.2 | ) |  | $ | (0.1 | )
|Real Estate Management Operations                                   |  |                              | 0.3 |                            |   | 0.2  |  |   | (0.3 | ) |  |   | (0.3 | )
|Other                                                               |  |                              | 0.0 |                            |   | 0.0  |  |   | 0.0  |   |  |   | (0.2 | )
|                                                                    |  |                              |     |                            |   |      |  |   |      |   |  |   |      |  
|Totals                                                              |  | $                            | 2.9 |                            | $ | 3.4  |  | $ | (0.5 | ) |  | $ | (0.6 | )
|                                                                    |  |                              |     |                            |   |      |  |   |      |   |  |   |      |  



Russian Real Estate Management and
Investment Management Operations.



The Russian real estate
management and investment management operations reported a net loss of $0.2 million for the first quarter of 2005 compared to a net loss of $0.1 million for the first quarter of 2004. The additional $0.1 million loss was attributable principally to
a $0.5 million reduction in currency translation gains and $0.3 million in lower dividend income offset, in part, by a $0.7 million increase in realized portfolio gains.



PIOGLOBAL Asset Management provides management services to PIOGLOBAL Real Estate Investment Fund. PIOGLOBAL Asset Management
also serves as an investment manager to three Russian open-end unit investment funds, an index interval fund and an institutional interval fund, whose assets under management at March 31, 2005 and 2004 are set forth on the following table:



|                        |  |               |       |      |   |     
|----------------------- |  | ------------- | ----- | ---- | - | ----
|                        |  | March 31,    
|                        |  | 2005          |       | 2004
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 63.0  |      | $ | 43.3
|Interval Funds          |  |               | 4.7   |      |   | 6.0 
|Trust Management        |  |               | 58.1  |      |   | 38.5
|                        |  |               |       |      |   |     
|Assets under management |  | $             | 125.8 |      | $ | 87.8



Real Estate Management Operations.



The real estate management operations recorded a net loss
of $0.3 million in both the first quarter of 2005 and the first quarter of 2004 due primarily to corporate overhead allocations in each comparative quarter.



Other.



Harbor Globals other operations broke even for the three months ended March 31, 2005 compared to a net loss of $0.2 million for the three months ended March 31, 2004. During the first quarter of 2004, the
Company accrued $0.2 million of management fee expense in anticipation of a distribution to shareholders.



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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 approximately $7.5 million as of March 31, 2005. This represents an approximately $1.9 million decrease from the 2004 fiscal year end and is attributable principally to the funding of operations and the settlement of year end accruals.
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 primarily of cash and cash equivalents, equity
securities (both liquid and illiquid), marketable securities, and real estate holdings.



OFF-BALANCE SHEET ARRANGEMENTS



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



DISCLOSURE OF CONTRACTUAL OBLIGATIONS



On March 31,
2005, the Company entered into an amendment to its lease for its principal executive offices, extending the term from October 25, 2005 through October 15, 2006 at an annual rent of approximately $161,000. Accordingly, the known contractual
obligations of Harbor Global between October 2005 and October 2006 have increased by approximately $161,000.



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.



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



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



A significant portion of Harbor Globals Russian real estate management and investment management operations consists of its approximately 52% interest in PIOGLOBAL Real Estate Investment Fund, a company that
invests in Russian real estate, and to a lesser extent, securities of Russian companies. Generally, the Russian real estate and securities markets are significantly smaller and less liquid than the markets in the United States, and as a result, a
portion of the assets held by PIOGLOBAL Real Estate Investment Fund are illiquid. There is also limited liquidity in some of the publicly traded securities of PIOGLOBAL Real Estate Investment Fund. Consequently, Harbor Global may have difficulty
selling some of its investment in PIOGLOBAL Real Estate Investment Fund or causing PIOGLOBAL Real Estate 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.



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



PIOGLOBAL Real Estate Investment Fund is Harbor Globals principal asset. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of the Meridian Commercial Tower. During the first quarter
of 2005, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 74% of Harbor Globals total revenue. Furthermore, Meridian Commercial Tower lease revenues accounted for approximately 98% of the revenues of PIOGLOBAL
Real Estate Investment Fund and approximately 80% of the total revenue generated by Harbor Globals Russian real estate management and investment management operations.



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



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



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



| |  |  | unexpected changes in regulatory requirements and the legal system;
| | - |  | -------------------------------------------------------------------



| |  |  | tariffs and other trade barriers;
| | - |  | ---------------------------------



| |  |  | difficulties in staffing and managing Russian operations;
| | - |  | ---------------------------------------------------------



| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | fluctuations in currency exchange rates;
| | - |  | ----------------------------------------



| |  |  | restrictions on currency exchange and repatriation;
| | - |  | ---------------------------------------------------



| |  |  | restrictions on foreign investment in its businesses; and
| | - |  | ---------------------------------------------------------



| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------



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



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



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



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



Mr. Kasnet and Mr. Hunter both entered into employment agreements with Calypso Management. On
December 8, 2004, the term of Mr. Kasnets employment agreement was extended until October 24, 2006 to coincide with the term of the amended and restated administration and liquidation agreement. Mr. Hunters employment agreement provides
that Mr. Hunters employment with Calypso Management is at will, subject to termination by either Calypso Management or Mr. Hunter upon 60 days prior written notice. If either Mr. Kasnets or Mr. Hunters employment with Calypso
Management is terminated, the individual whose agreement is terminated will cease to be an officer of Harbor Global. Harbor Global has obtained key officer life insurance policies 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
agreed to indemnify Pioneer for tax liabilities relating to the Harbor Global businesses. Currently, there are no suits pending that would require payment by Harbor Global to Pioneer under the indemnification provisions of the Distribution Agreement
or tax separation agreement. However, Harbor Global cannot provide assurances that no legal proceeding or other claim will occur that would require Harbor Global to indemnify Pioneer. Furthermore, Harbor Global and its subsidiaries may be subject to
legal proceedings or other claims arising in the ordinary course of business, including employment related claims, environmental claims and regulatory fees or fines associated with its international operations.



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



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



Furthermore, Harbor Global does not intend
to:



| |  |  | engage the services of any market maker;
| | - |  | ----------------------------------------



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



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



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



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



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



For United
States federal income tax purposes, Harbor Global is treated as a partnership. For United States federal income tax purposes, Harbor Globals shareholders will be treated as partners in a Bermuda partnership and their Harbor Global common
shares will represent partnership interests. Because of its classification as a partnership for United States federal income tax purposes, Harbor Global is not itself subject to United States federal income tax. Instead, items of income, gain, loss,
deduction and expense will flow through to Harbor Globals shareholders, and they will be required to include their allocable share of these items in computing their own United States federal income tax for each taxable year of Harbor Global.
Cash distributions made by Harbor Global to its shareholders generally will not be taxable, except to the extent that those distributions exceed a shareholders adjusted tax basis in the Harbor Global common shares.



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



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



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



RECENT
PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD



None.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



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



The Companys interest rate risk involves the short-term investment of excess cash. This risk impacts fair values, earnings and cash
flows. Excess cash is primarily 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, 2005 and December 31, 2004 was approximately $0.2 million and $0.7 million, respectively, of cash and cash equivalents and $17.1 million and $17.5 million, respectively, of marketable securities. Earnings from excess cash invested were
approximately $0.4 million for



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the three months ended March 31, 2005. Based on excess cash invested at March 31, 2005, a one percent increase or decrease in current market interest rates
would have the effect of causing an approximately $0.2 million additional pre-tax credit or charge to the Consolidated Statements of Operations.



Harbor Global is exposed to 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 Statements of Operations. To
mitigate against currency translation risk, the Company primarily transacts in United States dollars by contracting for most of its costs and revenues in United States dollars. This acts as a natural hedge to protect against currency fluctuations
from the Companys operations. During the first quarter of 2005 and 2004, the Company reported net exchange losses of approximately $25,000 and net exchange gains of approximately $918,000, respectively.



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, 2005 and December 31, 2004 .



|                          |  |                |        |                  |   |       
|------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                          |  | (IN THOUSANDS)
|                          |  | March 31,2005  |        | December 31,2004
|Monetary Assets           |  |                |        |                  |   |       
|Cash and Cash Equivalents |  | $              | 5,075  |                  | $ | 3,651 
|Restricted Cash           |  |                | 12,983 |                  |   | 13,035
|Securities Held for Sale  |  |                | 37,517 |                  |   | 36,713
|Other                     |  |                | 2,671  |                  |   | 2,182 
|                          |  |                |        |                  |   |       
|                          |  | $              | 58,246 |                  | $ | 55,581
|                          |  |                |        |                  |   |       
|Monetary Liabilities      |  |                |        |                  |   |       
|Dividend Payable          |  | $              | 12,983 |                  | $ | 13,035
|Taxes Payable             |  |                | 695    |                  |   | 196   
|Deferred Taxes            |  |                | 2,230  |                  |   | 2,132 
|Other                     |  |                | 544    |                  |   | 959   
|                          |  |                |        |                  |   |       
|                          |  | $              | 16,452 |                  | $ | 16,322
|                          |  |                |        |                  |   |       
|Net Position              |  | $              | 41,794 |                  | $ | 39,259
|                          |  |                |        |                  |   |       



The Company indirectly invests in
equity instruments of privately-held companies through its approximately 52% interest in the PIOGLOBAL Investment Fund and its approximately 8% interest in the Prospect Poland Fund. Investments in privately held companies by the PIOGLOBAL Investment
Fund are recorded at cost in long-term investments. With respect to the Companys limited partnership interest in the Prospect Poland Fund, such interests are recorded under Polish Venture Capital Investment using the equity method of
accounting. The Company is exposed to market risk as it relates to the market value of its indirect investments in privately held companies. The carrying value of the Companys interest in the Prospect Poland Fund was written down by
approximately $14,000 and $10,000 in the first quarter of 2005 and 2004, respectively, reflecting the Companys proportional share of operating expenses.



The PIOGLOBAL Real Estate Investment Fund is also invested in equity instruments of public companies, which are classified as available-for-sale pursuant to SFAS No.



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115. Those publicly traded equity investments that have evinced a sufficient breadth and scope of market activity are valued based on the quoted price for
such securities according to the Russian Trading System and MICEX and are recorded in long-term marketable securities. Investments that do not have a readily determinable fair value are recorded in long term investments at cost with adjustments for
other than temporary impairment. These available-for-sale equity investments, primarily in oil and gas companies, energy companies and the telecommunications industry, are subject to significant fluctuations in fair value due to the volatility of
the stock market and the industries in which these companies participate. As of March 31, 2005 and December 31, 2004, the fair value of equity investments contained in long-term marketable securities aggregated $16.1 million and $13.3 million,
respectively. The Company recorded unrealized gains after deferred taxes and after minority interest of $3.0 million and $2.8 million at March 31, 2005 and December 31, 2004, respectively, as a separate component of stockholders equity.
Although the breadth of industries represented on the Russian Trading System is severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of stock market declines to the Companys
earnings and cash flow by increased diversification of the portfolio.



ITEM 4. CONTROLS AND PROCEDURES.



Disclosure
Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of March 31, 2005 (the Evaluation Date). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in applicable
Securities and Exchange Commission rules and forms.



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



PART II  OTHER INFORMATION



ITEM 6. EXHIBITS



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



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SIGNATURES



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



Dated: April 27, 2005



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






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EXHIBIT INDEX



|              |  |                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                  
|3.1+          |  | Memorandum of Association of Harbor Global Company Ltd.                                                                      
|              | 
|3.2+          |  | Bye-Laws of Harbor Global Company Ltd.                                                                                       
|              | 
|4.1*          |  | Specimen Common Share Certificate                                                                                            
|              | 
|10.1**        |  | Second Amendment to Lease dated March 28, 2005 by and between Faneuil Hall Marketplace, LLC, and Harbor Global Company Ltd.  
|              | 
|31.1**        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|31.2**        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|32.1**        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|              | 
|32.2**        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

|** | Filed herewith.
|-- | ---------------

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

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