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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)



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



For the quarterly period ended June 30, 2004



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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)



ONE FANEUIL HALL
MARKETPLACE

4TH FLOOR

BOSTON, MASSACHUSETTS

(Address of principal executive offices)



02109-1820

(Zip Code)



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(617) 878-1600

(Registrants telephone number, including area code)



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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 July 31, 2004, the registrant had 5,661,311 common shares, par value
$.0025 per share, issued and outstanding.



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------



HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---------------- | - | ------- | -
|                                                                                                                                                           |  | June 30,2004 |        |   | December 31,2003 |  
|ASSETS                                                                                                                                                     |  |              |        |   |                  |   |         |  
|Cash and Cash Equivalents                                                                                                                                  |  | $            | 13,322 |   |                  | $ | 23,957  |  
|Restricted Cash                                                                                                                                            |  |              | 12,683 |   |                  |   | 6,291   |  
|Marketable Securities                                                                                                                                      |  |              | 17,744 |   |                  |   | 16,217  |  
|Accounts Receivable                                                                                                                                        |  |              | 1,169  |   |                  |   | 1,233   |  
|Note Receivable                                                                                                                                            |  |              |       |   |                  |   | 4,700   |  
|Prepaid Expenses                                                                                                                                           |  |              | 1,202  |   |                  |   | 1,569   |  
|Other Current Assets                                                                                                                                       |  |              | 460    |   |                  |   | 8       |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Current Assets                                                                                                                                       |  |              | 46,580 |   |                  |   | 53,975  |  
|Polish Venture Capital Investment                                                                                                                          |  |              | 477    |   |                  |   | 666     |  
|Marketable Securities                                                                                                                                      |  |              | 22,435 |   |                  |   | 19,197  |  
|Long-term Investments                                                                                                                                      |  |              | 6,048  |   |                  |   | 2,375   |  
|Building                                                                                                                                                   |  |              | 21,701 |   |                  |   | 22,035  |  
|Other Long-term Assets                                                                                                                                     |  |              | 1,079  |   |                  |   | 1,060   |  
|Goodwill                                                                                                                                                   |  |              | 1,253  |   |                  |   | 1,253   |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Assets                                                                                                                                               |  | $            | 99,573 |   |                  | $ | 100,561 |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                       |  |              |        |   |                  |   |         |  
|Accounts Payable                                                                                                                                           |  | $            | 861    |   |                  | $ | 1,262   |  
|Dividend Payable                                                                                                                                           |  |              | 12,683 |   |                  |   | 6,291   |  
|Accrued Expenses                                                                                                                                           |  |              | 3,375  |   |                  |   | 1,727   |  
|Accrued Fees Payable to Calypso Management                                                                                                                 |  |              | 687    |   |                  |   | 708     |  
|Foreign Taxes Payable                                                                                                                                      |  |              | 1,354  |   |                  |   | 1,407   |  
|Deferred Taxes                                                                                                                                             |  |              | 218    |   |                  |   | 376     |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Current Liabilities                                                                                                                                  |  |              | 19,178 |   |                  |   | 11,771  |  
|Deferred Taxes                                                                                                                                             |  |              | 1,776  |   |                  |   | 1,613   |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Liabilities                                                                                                                                          |  |              | 20,954 |   |                  |   | 13,384  |  
|Minority Interest                                                                                                                                          |  |              | 27,146 |   |                  |   | 32,453  |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                       |  |              |        |   |                  |   |         |  
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,661,311 shares issued and outstanding as of June 30, 2004 and
December 31, 2003 |  |              | 14     |   |                  |   | 14      |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                       |  |              |       |   |                  |   |        |  
|Paid-in Capital                                                                                                                                            |  |              | 52,142 |   |                  |   | 52,282  |  
|Accumulated Deficit                                                                                                                                        |  |              | (3,923 | ) |                  |   | (533    | )
|Accumulated Other Comprehensive Income                                                                                                                     |  |              |        |   |                  |   |         |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                           |  |              | 3,240  |   |                  |   | 2,961   |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Stockholders Equity                                                                                                                                 |  |              | 51,473 |   |                  |   | 54,724  |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  
|Total Liabilities and Stockholders Equity                                                                                                                 |  | $            | 99,573 |   |                  | $ | 100,561 |  
|                                                                                                                                                           |  |              |        |   |                  |   |         |  



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



2



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | -- | ------ | - |  | - | ------ | -
|                                                                                                                        |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                                                                        |  | 2004                       |        |   | 2003                     |   |        | 2004 |  |    | 2003   |  
|Revenues:                                                                                                               |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Real Estate Revenue                                                                                                     |  | $                          | 1,975  |   |                          | $ | 1,953  |      |  | $  | 3,900  |   |  | $ | 3,831  |  
|Other Income                                                                                                            |  |                            | 863    |   |                          |   | 438    |      |  |    | 2,232  |   |  |   | 1,070  |  
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Total Revenues                                                                                                          |  |                            | 2,838  |   |                          |   | 2,391  |      |  |    | 6,132  |   |  |   | 4,901  |  
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Operating Expenses:                                                                                                     |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Salary and Benefit Expenses                                                                                             |  |                            | (1,154 | ) |                          |   | (896   | )    |  |    | (2,375 | ) |  |   | (1,891 | )
|Facility Expenses                                                                                                       |  |                            | (378   | ) |                          |   | (376   | )    |  |    | (756   | ) |  |   | (700   | )
|Building and Property Management Expenses                                                                               |  |                            | (493   | ) |                          |   | (504   | )    |  |    | (1,182 | ) |  |   | (1,025 | )
|Management Fee Expense                                                                                                  |  |                            | (726   | ) |                          |   | (942   | )    |  |    | (1,707 | ) |  |   | (2,039 | )
|Other Expenses                                                                                                          |  |                            | (2,795 | ) |                          |   | (1,412 | )    |  |    | (3,428 | ) |  |   | (2,230 | )
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Total Operating Expenses                                                                                                |  |                            | (5,546 | ) |                          |   | (4,130 | )    |  |    | (9,448 | ) |  |   | (7,885 | )
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Operating Loss                                                                                                          |  |                            | (2,708 | ) |                          |   | (1,739 | )    |  |    | (3,316 | ) |  |   | (2,984 | )
|Other Income (Expense):                                                                                                 |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Net Unrealized and Realized Gains on Securities                                                                         |  |                            | 466    |   |                          |   | 8,763  |      |  |    | 1,028  |   |  |   | 12,785 |  
|Extinguishment of Note Payable                                                                                          |  |                            |       |   |                          |   |       |      |  |    |       |   |  |   | 1,250  |  
|Early Settlement of Note Receivable                                                                                     |  |                            |       |   |                          |   |       |      |  |    |       |   |  |   | (191   | )
|Gain on Sale of Gold Option                                                                                             |  |                            |       |   |                          |   | 875    |      |  |    |       |   |  |   | 875    |  
|Interest Income                                                                                                         |  |                            | 497    |   |                          |   | 537    |      |  |    | 1,006  |   |  |   | 1,285  |  
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Total Other Income, Net                                                                                                 |  |                            | 963    |   |                          |   | 10,175 |      |  |    | 2,034  |   |  |   | 16,004 |  
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|(Loss) Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) on Investment |  |                            | (1,745 | ) |                          |   | 8,436  |      |  |    | (1,282 | ) |  |   | 13,020 |  
|Provision for Income Taxes                                                                                              |  |                            | (1,286 | ) |                          |   | (2,449 | )    |  |    | (1,535 | ) |  |   | (3,450 | )
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|(Loss) Income from Operations before Minority Interest and Equity Gain (Loss) on Investment                             |  |                            | (3,031 | ) |                          |   | 5,987  |      |  |    | (2,817 | ) |  |   | 9,570  |  
|Minority Interest Income (Expense)                                                                                      |  |                            | 41     |   |                          |   | (3,249 | )    |  |    | (771   | ) |  |   | (4,841 | )
|Equity Gain (Loss) on Venture Capital Investment                                                                        |  |                            | 208    |   |                          |   | (10    | )    |  |    | 198    |   |  |   | (206   | )
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Net (Loss) Income                                                                                                       |  | ($                         | 2,782  | ) |                          | $ | 2,728  |      |  | ($ | 3,390  | ) |  | $ | 4,523  |  
|                                                                                                                        |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|(Loss) Earnings Per Share:                                                                                              |  |                            |        |   |                          |   |        |      |  |    |        |   |  |   |        |  
|Basic and Diluted (Loss) Earnings Per Share                                                                             |  | ($                         | 0.49   | ) |                          | $ | 0.48   |      |  | ($ | 0.60   | ) |  | $ | 0.80   |  
|Weighted Average Basic and Diluted Shares Outstanding                                                                   |  |                            | 5,661  |   |                          |   | 5,655  |      |  |    | 5,661  |   |  |   | 5,655  |  



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



3



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                               |  |                          |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                               |  | SIX MONTHS ENDEDJUNE 30, |        
|                                                                               |  | 2004                     |         |   | 2003 |  
|Cash Flows from Operating Activities:                                          |  |                          |         |   |      |   |         |  
|Net (Loss) Income                                                              |  | ($                       | 3,390   | ) |      | $ | 4,523   |  
|Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities  |  |                          |         |   |      |   |         |  
|Non-cash Interest Income on Note Receivable                                    |  |                          |        |   |      |   | (203    | )
|Restricted Unit Awards                                                         |  |                          | 169     |   |      |   |        |  
|Depreciation and Amortization                                                  |  |                          | 498     |   |      |   | 420     |  
|Unrealized and Realized Gains on Venture Capital,                              |  |                          |         |   |      |   |         |  
|Marketable Securities, and Long-term Investments, Net                          |  |                          | (1,028  | ) |      |   | (11,889 | )
|Extinguishment of Note Payable                                                 |  |                          |        |   |      |   | (1,250  | )
|Early Settlement of Note Receivable                                            |  |                          |        |   |      |   | 191     |  
|Gain on Sale of Gold Option                                                    |  |                          |        |   |      |   | (875    | )
|Minority Interest                                                              |  |                          | 771     |   |      |   | 4,841   |  
|Equity (Gain) Loss on Venture Capital Investment                               |  |                          | (198    | ) |      |   | 206     |  
|Changes in Operating Assets and Liabilities                                   |  |                          |         |   |      |   |         |  
|Other Current Assets                                                           |  |                          | (3,672  | ) |      |   | (152    | )
|Accrued Expenses and Accounts Payable                                          |  |                          | 1,099   |   |      |   | 130     |  
|                                                                               |  |                          |         |   |      |   |         |  
|Total Adjustments and Changes in Operating Assets and Liabilities              |  |                          | (2,361  | ) |      |   | (8,581  | )
|                                                                               |  |                          |         |   |      |   |         |  
|Net Cash Used in Operating Activities                                          |  |                          | (5,751  | ) |      |   | (4,058  | )
|                                                                               |  |                          |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                          |  |                          |         |   |      |   |         |  
|Net Proceeds from Sale of Russian Timber Operations                            |  |                          |        |   |      |   | 2,000   |  
|Purchase of Long-term Investments and Marketable Securities                    |  |                          | (15,772 | ) |      |   | (14,969 | )
|Other Long-term Assets                                                         |  |                          | (112    | ) |      |   | (222    | )
|Proceeds from Sale of Long-term Investments and Marketable Securities          |  |                          | 12,622  |   |      |   | 22,196  |  
|Proceeds from Payment on Notes Receivable                                      |  |                          | 4,700   |   |      |   | 3,000   |  
|Proceeds from Sale of Gold Option                                              |  |                          |        |   |      |   | 875     |  
|Proceeds from Prospect Poland Fund                                             |  |                          | 388     |   |      |   |        |  
|                                                                               |  |                          |         |   |      |   |         |  
|Net Cash Provided by Investing Activities                                      |  |                          | 1,826   |   |      |   | 12,880  |  
|                                                                               |  |                          |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                          |  |                          |         |   |      |   |         |  
|Distributions Paid                                                             |  |                          |        |   |      |   | (7,900  | )
|Dividends Paid                                                                 |  |                          | (10     | ) |      |   | (7      | )
|Purchase of Restricted Stock                                                   |  |                          | (308    | ) |      |   |        |  
|Reclassification of Restricted Cash                                            |  |                          | (6,392  | ) |      |   | 2,756   |  
|Payment on Note Payable                                                        |  |                          |        |   |      |   | (3,750  | )
|                                                                               |  |                          |         |   |      |   |         |  
|Net Cash Used In Financing Activities                                          |  |                          | (6,710  | ) |      |   | (8,901  | )
|                                                                               |  |                          |         |   |      |   |         |  
|Net Decrease in Cash and Cash Equivalents                                      |  |                          | (10,635 | ) |      |   | (79     | )
|                                                                               |  |                          |         |   |      |   |         |  
|Cash and Cash Equivalents, Beginning of Period                                 |  |                          | 23,957  |   |      |   | 12,381  |  
|                                                                               |  |                          |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                       |  | $                        | 13,322  |   |      | $ | 12,302  |  
|                                                                               |  |                          |         |   |      |   |         |  



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



4



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HARBOR GLOBAL COMPANY LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

June 30, 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: administration and liquidation of operations, including
| | - | --------------------------------------------------------------



| |  | approximately $10.1 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 provides that the liquidation of its assets must be completed upon the earlier of October 24, 2005, the fifth anniversary of the date of the Spin-off, or the
distribution by Harbor Global of all its assets to its shareholders. If Harbor Global has not liquidated all of its assets before October 24, 2005, the Harbor Global board of directors (Board of Directors), in its discretion, may
authorize Harbor Global to continue to operate its assets for up to three additional one-year periods.



BASIS OF PRESENTATION



In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary, consisting of normal and recurring adjustments, to present fairly the financial position as of June 30, 2004 and the results
of operations and cash flows for the three and six months ended June 30, 2004 and 2003. 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 2003 Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.



Since Harbor Global is a Bermuda limited duration company, the Company expects that for United States federal income tax
purposes it will be taxed as a partnership, and as a result, virtually all United States federal income tax expenses have been and will be borne by its shareholders. However, on April 12, 2004, Pioglobal First Russia, Inc., an indirect subsidiary of
the Company, through



5



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which a portion of the Companys Russian real estate management and investment management operations are conducted, converted from a Delaware
corporation into a Delaware limited liability company, Pioglobal First Russia, LLC (Pioglobal First Russia). As a result, the Company anticipates that it will indirectly (through Pioglobal First Russia) incur a United States federal
income tax liability of approximately $1,100,000, which is reported in provision for income taxes in the Consolidated Statement of Operations.



Other than the Pioglobal First Russia United States federal income tax liability, the income tax provisions and deferred taxes included in the
accompanying consolidated financial statements principally relate to the Companys subsidiaries that are located primarily in the Russian Federation (Russia).



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



PRINCIPAL OF CONSOLIDATION



The accompanying 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 gains and losses from this investment are
included in equity gain (loss) on venture capital investments on the accompanying Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.



USE OF ESTIMATES



The preparation of the accompanying 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 accompanying consolidated financial statements. Actual results could differ from those estimates.



POLISH VENTURE CAPITAL INVESTMENT



The Company reports its approximately 8% limited partnership interest in the Prospect Poland Fund on the equity basis of accounting. No market quotes are
available for the venture capital investments. These investments are valued at fair value, as determined by Prospect Poland Funds management. For the three and six months ended June 30, 2004, the Company recorded a gain on its investment of
approximately $208,000 and $198,000, respectively. Additionally, during the second quarter of 2004, the Company received a cash distribution of approximately $388,000 from the Prospect Poland Fund representing its proportionate share of proceeds
from the sale of one of its portfolio investments. For the three and six months ended June 30, 2003, the Company wrote-down its investment by approximately $10,000 and $206,000, respectively.



Summarized financial information for the Prospect Poland Fund is as follows:



|                                |  |                |       |   |      |   |       |  
|------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                |  | 2004           |       |   | 2003 |  
|                                |  | (In Thousands) |      
|Balance Sheet Data, at June 30, |  |                |       |   |      |   |       |  
|Current Assets                  |  | $              | 929   |   |      | $ | 438   |  
|Non-Current Assets              |  |                | 5,080 |   |      |   | 7,245 |  
|Current Liabilities             |  |                | (87   | ) |      |   | (96   | )
|                                |  |                |       |   |      |   |       |  
|Partners Capital, at June 30   |  | $              | 5,922 |   |      | $ | 7,587 |  
|                                |  |                |       |   |      |   |       |  



6



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|                                                             |  |                |       |   |      |   |        |  
|------------------------------------------------------------ |  | -------------- | ----- | - | ---- | - | ------ | -
|                                                             |  | 2004           |       |   | 2003 |  
|                                                             |  | (In Thousands) |      
|Operating Data, for the six months ended June 30             |  |                |       |   |      |   |        |  
|Net Operating Loss                                           |  | $              | (228  | ) |      | $ | (414   | )
|Net Realized and Unrealized Gain (Loss) from Investments     |  |                | 2,684 |   |      |   | (2,143 | )
|                                                             |  |                |       |   |      |   |        |  
|Net Increase (Decrease) in Partners Capital from Operations |  | $              | 2,456 |   |      | $ | (2,557 | )
|                                                             |  |                |       |   |      |   |        |  



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 Open
Joint-Stock Company PIOGLOBAL Real Estate Investment Fund (PIOGLOBAL Real Estate Investment Fund), an approximately 52% owned subsidiary of the Company. Security transactions are 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 June 30, 2004 and December 31, 2003. Unrealized gains and losses recorded on Russian government securities are presented for the three and six months ended June 30, 2004 and 2003.



Balances of Current Marketable Securities



|                                 |  |                |        |                  |   |       
|-------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                 |  | June 30,2004   |        | December 31,2003
|                                 |  | (In Thousands)
|Russia (trading)                 |  | $              | 8,556  |                  | $ | 10,160
|United States (held to maturity) |  |                | 9,188  |                  |   | 6,057 
|                                 |  |                |        |                  |   |       
|Total Marketable Securities      |  | $              | 17,744 |                  | $ | 16,217
|                                 |  |                |        |                  |   |       



Unrealized Gain and Loss on Russian
Federal and Municipal Government Securities



|                           |  |                             |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|-------------------------- |  | --------------------------- | ---- | - | ------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                           |  | Three Months Ended June 30, |      |   | Six Months Ended June 30, |  
|                           |  | 2004                        |      |   | 2003                      |   |      | 2004 |  |   | 2003 |  
|                           |  | (In Thousands)              |     
|Gross Unrealized Gain      |  | $                           | 26   |   |                           | $ | 353  |      |  | $ | 320  |   |  | $ | 894  |  
|Gross Unrealized Loss      |  |                             | (466 | ) |                           |   | (150 | )    |  |   | (535 | ) |  |   | (371 | )
|                           |  |                             |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|Net Unrealized (Loss) Gain |  | $                           | (440 | ) |                           | $ | 203  |      |  | $ | (215 | ) |  | $ | 523  |  
|                           |  |                             |      |   |                           |   |      |      |  |   |      |   |  |   |      |  



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. In addition, certain subsidiaries of the Company maintain investments in unit funds and trust
management accounts managed by Closed Joint-Stock Company PIOGLOBAL Asset Management (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. The cost of securities sold is based on the



7



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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 June 30, 2004 and December 31,
2003, as well as cumulative unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at June 30, 2004 and December 31, 2003:



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



|                            |  |                |        |                  |   |       
|--------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                            |  | June 30,2004   |        | December 31,2003
|                            |  | (In Thousands)
|Equity Securities           |  | $              | 11,786 |                  | $ | 10,206
|Corporate Bonds             |  |                | 9,195  |                  |   | 7,599 
|Unit Funds                  |  |                | 1,454  |                  |   | 1,392 
|                            |  |                |        |                  |   |       
|Total Marketable Securities |  | $              | 22,435 |                  | $ | 19,197
|                            |  |                |        |                  |   |       



Cumulative Unrealized
Gain and Loss Recorded in Other Comprehensive Income



|                      |  |                |       |   |                  |   |       |  
|--------------------- |  | -------------- | ----- | - | ---------------- | - | ----- | -
|                      |  | June 30,2004   |       |   | December 31,2003 |  
|                      |  | (In Thousands) |      
|Equity Securities     |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 6,406 |   |                  | $ | 5,543 |  
|Gross Unrealized Loss |  |                | (123  | ) |                  |   | (9    | )
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 6,283 |   |                  | $ | 5,534 |  
|Corporate Bonds       |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 313   |   |                  | $ | 394   |  
|Gross Unrealized Loss |  |                | (35   | ) |                  |   |      |  
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 278   |   |                  | $ | 394   |  
|Unit Funds            |  |                |       |   |                  |   |       |  
|Gross Unrealized Gain |  | $              | 841   |   |                  | $ | 789   |  
|Gross Unrealized Loss |  |                |      |   |                  |   |      |  
|                      |  |                |       |   |                  |   |       |  
|Net Unrealized Gain   |  | $              | 841   |   |                  | $ | 789   |  



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. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of the
Meridian Commercial Tower. Meridian Commercial Tower lease revenues accounted for approximately 70% of the total revenue generated by Harbor Globals Russian real estate management and investment management operations for the six months ended
June 30, 2004.



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.



|(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.



8



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|(4) | NOTE RECEIVABLE
|--- | ---------------



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



Effective March 19, 2003, Goldfields II and Ashanti executed an amendment to
the purchase agreement. Pursuant to the amendment, Ashanti agreed to release Goldfields II from its obligation to indemnify Ashanti for breach of representations and warranties relating to tax and environmental matters contained in the purchase
agreement in exchange for a $1,100,000 reduction in the amount remaining due from Ashanti to Goldfields II under the purchase agreement and related promissory note. The Company received the final payment of $4,700,000 from Ashanti during the first
quarter of 2004.



|(5) | CHANGES IN STOCKHOLDERS EQUITY
|--- | -------------------------------



For the three and six months ended June 30, 2004 and 2003, the Company reported changes in stockholders equity as follows:



|                                                                                                                                                                                                                                         |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                                                                                         |  | THREE MONTHS ENDED JUNE 30, |       
|                                                                                                                                                                                                                                         |  | 2004                        |        |   | 2003 |  
|                                                                                                                                                                                                                                         |  | (In Thousands)              |       
|Net (Loss) Income                                                                                                                                                                                                                        |  | ($                          | 2,782  | ) |      | $ | 2,728  |  
|Net Unrealized (Losses) Gains on Long term Marketable Securities (Net of deferred taxes of ($751,000) and $983,000 and minority interest of
($1,046,000) and $1,473,000 for the three months ended June 30, 2004 and 2003, respectively) |  |                             | (1,336 | ) |      |   | 1,639  |  
|                                                                                                                                                                                                                                         |  |                             |        |   |      |   |        |  
|Total Comprehensive (Loss) Income                                                                                                                                                                                                        |  | ($                          | 4,118  | ) |      | $ | 4,367  |  
|Distribution to Stockholders                                                                                                                                                                                                             |  |                             |       |   |      |   | (7,900 | )
|Additional Paid In Capital                                                                                                                                                                                                               |  |                             | (216   | ) |      |   |       |  
|                                                                                                                                                                                                                                         |  |                             |        |   |      |   |        |  
|Change in Stockholders Equity                                                                                                                                                                                                           |  | ($                          | 4,334  | ) |      | $ | (3,533 | )
|                                                                                                                                                                                                                                         |  |                             |        |   |      |   |        |  



|                                                                                                                                                                                                                        |  |                          |       |   |      |    |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | -- | ------ | -
|                                                                                                                                                                                                                        |  | SIX MONTHS ENDEDJUNE 30, |      
|                                                                                                                                                                                                                        |  | 2004                     |       |   | 2003 |   
|                                                                                                                                                                                                                        |  | (In Thousands)           |      
|Net (Loss) Income                                                                                                                                                                                                       |  | ($                       | 3,390 | ) |      | $  | 4,523  |  
|Net Unrealized Gains on Long term Marketable Securities (Net of deferred taxes of $164,000 and $751,000 and minority interest of $241,000 and
$1,087,000 for the six months ended June 30, 2004 and 2003, respectively) |  |                          | 279   |   |      |    | 1,290  |  
|                                                                                                                                                                                                                        |  |                          |       |   |      |    |        |  
|Total Comprehensive (Loss) Income                                                                                                                                                                                       |  | ($                       | 3,111 | ) |      | $  | 5,813  |  
|Distribution to Stockholders                                                                                                                                                                                            |  |                          |      |   |      |    | (7,900 | )
|Additional Paid In Capital                                                                                                                                                                                              |  |                          | (140  | ) |      |    |       |  
|                                                                                                                                                                                                                        |  |                          |       |   |      |    |        |  
|Change in Stockholders Equity                                                                                                                                                                                          |  | ($                       | 3,251 | ) |      | ($ | 2,087  | )
|                                                                                                                                                                                                                        |  |                          |       |   |      |    |        |  



|(6) | RELATED PARTY TRANSACTIONS
|--- | --------------------------



On July 10, 2003, the Company entered into an amended and restated administration and liquidation agreement with Calypso Management LLC (Calypso
Management), pursuant to which Calypso Management manages the liquidation of the Company and operates the Companys assets pending their liquidation. Calypso



9



---

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 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.



For the three months ended June 30, 2004 and 2003, the Company incurred management fee expenses of approximately $631,000 and $707,000, respectively
related to the reimbursement of expenses incurred by Calypso Management. For the six months ended June 30, 2004 and 2003, the Company incurred management fee expenses of



10



---

approximately $1,377,000 and $1,456,000, respectively related to the reimbursement of expenses incurred by Calypso Management. Of this management fee,
approximately $357,000 and $365,000 was outstanding at June 30, 2004 and 2003, respectively.



For the three and six months ended June 30, 2004, the Company had also accrued management fee expense and a corresponding payable to Calypso Management of $95,000 and $330,000, respectively. This represents an
anticipated distribution to shareholders in connection with the final payment received from Ashanti, the dividend from the PIOGLOBAL Real Estate Investment Fund, and the distribution from the Prospect Poland Fund. Pursuant to the administration and
liquidation agreement, for the three and six months ended June 30, 2003, the Company also incurred management fee expenses of approximately $235,000 and $583,000, respectively in connection with the distribution to shareholders on June 27, 2003.



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. A new master lease agreement between PIOGLOBAL Real Estate Investment Fund and PREA was signed on May 5, 2004 and 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 assets net of any value added taxes or similar taxes.



|(7) | INDEMNIFICATION CONTRACTS
|--- | -------------------------



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



|(8) | RESTRICTED UNIT AWARDS
|--- | ----------------------



Pursuant to Unit Agreements dated May 19, 2004, Pioglobal First Russia granted restricted units in Pioglobal First Russia to three officers of PIOGLOBAL
Asset Management. Under the unit agreements, Pioglobal First Russia awarded, at no cost to the officers, an aggregate number of units equivalent to approximately 4% of the issued and outstanding units of Pioglobal First Russia, on a fully diluted
basis. Upon the full vesting of these awards, the Company will continue to own approximately 91% of the outstanding units in Pioglobal First Russia. Such units are required to be issued over a period of three years beginning on May 19, 2004 and
ending on December 31, 2006, according to the schedules set forth in the respective unit agreements, if the respective officer continues to be employed by PIOGLOBAL Asset Management as a full-time employee. At each award date, each officer is
considered fully vested with respect to the award. The fair value of the units issued during the quarterly period ended June 30, 2004 was calculated using the valuation services of an independent third party as of March 31, 2004. For the period
ended June 30, 2004, Pioglobal First Russia recorded compensation expense of approximately $93,000 in connection with the granting of the restricted unit awards. This amounts in included in salary and benefit expense in the Consolidated Statement of
Operations.



|(9) | 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



11



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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: administration and liquidation of operations
| | - | ---------------------------------------------------



SEGMENT DISCLOSURES



|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |       |     |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | - | ------------------------------ | - | ---- | ----- |  | ----- | --- |  | - | ------ | -
|As of and for the three months ended June 30, 2004                                                |  | RussianReal EstateManagementAndInvestmentManagementOperations |        |   | RealEstateManagementOperations |   |      | Other |  | Total |    
|Net Revenues and Sales                                                                            |  | $                                                             | 2,591  |   |                                | $ | 247  |       |  | $     |    |  | $ | 2,838  |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |       |     |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                               | (1,699 | ) |                                |   | (248 | )     |  |       | 202 |  |   | (1,745 | )
|Provision for Income Taxes                                                                        |  |                                                               | (1,286 | ) |                                |   |     |       |  |       |    |  |   | (1,286 | )
|Minority Interest Income                                                                          |  |                                                               | 41     |   |                                |   |     |       |  |       |    |  |   | 41     |  
|Equity Gain on Venture Capital Investment                                                         |  |                                                               |       |   |                                |   |     |       |  |       | 208 |  |   | 208    |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |       |     |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                             | (2,944 | ) |                                | $ | (248 | )     |  | $     | 410 |  | $ | (2,782 | )
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |       |     |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                             | 262    |   |                                | $ | 5    |       |  | $     |    |  | $ | 267    |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |       |     |  |   |        |  



|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | - | ------------------------------ | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|As of and for the three months ended June 30, 2003                                                |  | RussianReal EstateManagementAndInvestmentManagementOperations |        |   | RealEstateManagementOperations |   |      | Other |  |   | Total |  
|Net Revenues and Sales                                                                            |  | $                                                             | 2,147  |   |                                | $ | 244  |       |  | $ |      |   |  | $ | 2,391  |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                               | 7,816  |   |                                |   | (235 | )     |  |   | 855   |   |  |   | 8,436  |  
|Provision for Income Taxes                                                                        |  |                                                               | (2,449 | ) |                                |   |     |       |  |   |      |   |  |   | (2,449 | )
|Minority Interest Expense                                                                         |  |                                                               | (3,249 | ) |                                |   |     |       |  |   |      |   |  |   | (3,249 | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                               |       |   |                                |   |     |       |  |   | (10   | ) |  |   | (10    | )
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Net Income (Loss)                                                                                 |  | $                                                             | 2,118  |   |                                | $ | (235 | )     |  | $ | 845   |   |  | $ | 2,728  |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                             | 212    |   |                                | $ | 7    |       |  | $ |      |   |  | $ | 219    |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  



12



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|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | - | ------------------------------ | - | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|As of and for the six months ended June 30, 2004                                                  |  | RussianReal EstateManagementAndInvestmentManagementOperations |        |   | RealEstateManagementOperations |   |       | Other |  |   | Total |  
|Net Revenues and Sales                                                                            |  | $                                                             | 5,641  |   |                                | $ | 491   |       |  | $ |      |   |  | $ | 6,132  |  
|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                               | (801   | ) |                                |   | (503  | )     |  |   | 22    |   |  |   | (1,282 | )
|Provision for Income Taxes                                                                        |  |                                                               | (1,515 | ) |                                |   | (10   | )     |  |   | (10   | ) |  |   | (1,535 | )
|Minority Interest Expense                                                                         |  |                                                               | (771   | ) |                                |   |      |       |  |   |      |   |  |   | (771   | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                               |       |   |                                |   |      |       |  |   | 198   |   |  |   | 198    |  
|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  
|Net (Loss) Income                                                                                 |  | $                                                             | (3,087 | ) |                                | $ | (513  | )     |  | $ | 210   |   |  | $ | (3,390 | )
|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                             | 486    |   |                                | $ | 12    |       |  | $ |      |   |  | $ | 498    |  
|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  
|Total Assets                                                                                      |  | $                                                             | 92,924 |   |                                | $ | 1,441 |       |  | $ | 5,208 |   |  | $ | 99,573 |  
|                                                                                                  |  |                                                               |        |   |                                |   |       |       |  |   |       |   |  |   |        |  



|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | - | ------------------------------ | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|As of and for the six months ended June 30, 2003                                                  |  | RussianReal EstateManagementAndInvestmentManagementOperations |        |   | RealEstateManagementOperations |   |      | Other |  |   | Total |  
|Net Revenues and Sales                                                                            |  | $                                                             | 4,168  |   |                                | $ | 483  |       |  | $ | 250   |   |  | $ | 4,901  |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                               | 11,364 |   |                                |   | (435 | )     |  |   | 2,091 |   |  |   | 13,020 |  
|Provision for Income Taxes                                                                        |  |                                                               | (3,388 | ) |                                |   | (62  | )     |  |   |      |   |  |   | (3,450 | )
|Minority Interest Expense                                                                         |  |                                                               | (4,841 | ) |                                |   |     |       |  |   |      |   |  |   | (4,841 | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                               |       |   |                                |   |     |       |  |   | (206  | ) |  |   | (206   | )
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Net Income (Loss)                                                                                 |  | $                                                             | 3,135  |   |                                | $ | (497 | )     |  | $ | 1,885 |   |  | $ | 4,523  |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                             | 406    |   |                                | $ | 14   |       |  | $ |      |   |  | $ | 420    |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  
|Total Assets                                                                                      |  | $                                                             | 88,308 |   |                                | $ | 875  |       |  | $ | 9,197 |   |  | $ | 98,380 |  
|                                                                                                  |  |                                                               |        |   |                                |   |      |       |  |   |       |   |  |   |        |  



|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 accompanying consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.



The preparation of the accompanying 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.



13



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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 Moscow Interbank Currency Exchange. 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
quotes are available for the Polish venture capital investments. These investments are valued at fair value, as determined by Prospect Poland Funds management. Unrealized and realized gains or losses are recorded in the Consolidated Statements
of Operations. The Company analyzes the assumptions supporting changes in the fair value of these investments 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



14



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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 accompanying consolidated financial statements of Harbor Globals
principal operations include its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and Analysis of Financial Condition and Results of Operations
are presented in three sections: Results of Operations for the three and six months ended June 30, 2004 and 2003, Liquidity and Capital Resources, and Future Operating Results.



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003



Consolidated Operations.



Harbor Global reported a net loss of $2.8 million ($0.49 per share) on
revenues of $2.8 million in the second quarter of 2004 compared with net income of $2.7 million ($0.48 per share) on revenues of $2.4 million for the second quarter of 2003. The $5.5 million decrease in income was attributable principally to $2.8
million of lower realized portfolio gains from the Russian real estate management and investment management operations, a $1.1 million federal income tax liability associated with the conversion of Pioglobal First Russia, Inc. into a Delaware
limited liability company, Pioglobal First Russia, LLC, a non-recurring gain of $0.9 million recorded in 2003 on the sale to HSBC Bank USA (HSBC) of the Companys right to receive supplemental payments from Ashanti, and a $0.7
million increase in Russian withholding taxes payable on the Companys approximate 52% share of the $13.1 million dividend declared by PIOGLOBAL Real Estate Investment Fund in the second quarter of 2004.



For the six months ended June 30, 2004, the Company reported a net loss of
$3.4 million ($0.60 per share) compared with net income of $4.5 million ($0.80 per share) for the first half of 2003. The $7.9 million decrease was attributable primarily to $3.9 million of lower realized portfolio gains from the Russian real estate
management and investment management operations, a non-recurring 2003 gain of approximately $1.3 million from the early settlement of the Companys $5 million note payable to Pioneer, the $1.1 million federal income tax liability from the
Pioglobal First Russia conversion, a $0.9 million non-recurring 2003 gain recorded in connection with the sale to HSBC of the Companys right to receive supplemental payments from Ashanti and a $0.7 million increase in withholding taxes due to
the PIOGLOBAL Real Estate Investment Fund dividend.



15



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Set forth on the following table are the details of revenues and net income (loss) by business segment
for the three and six months ended June 30, 2004 and 2003:



REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  |                           |     |                            |   |      |                          |       |                           |  |   |      |   |      |   |      |  |   |      |  |       |   |  |   |      |  
|------------------------------------------------------------------- |  | ------------------------- | --- | -------------------------- | - | ---- | ------------------------ | ----- | ------------------------- |  | - | ---- | - | ---- | - | ---- |  | - | ---- |  | ----- | - |  | - | ---- | -
|                                                                    |  | REVENUES                  |     | NET INCOME (LOSS)          |   |      | REVENUES                 |       | NET INCOME(LOSS)          | 
|                                                                    |  | THREE MONTHSENDEDJUNE 30, |     | THREE MONTHSENDED JUNE 30, |   |      | SIX MONTHSENDED JUNE 30, |       | SIX MONTHS ENDED JUNE 30, | 
|BUSINESS SEGMENT                                                    |  | 2004                      |     | 2003                       |   | 2004 |                          |       | 2003                      |  |   | 2004 |   | 2003 |   | 2004 |  |   | 2003 | 
|                                                                    |  |                           |     |                            |   |      |                          |       |                           |  |   |      |   |      |   |      |  |   |      |  |       |   |  |   |      |  
|Russian Real Estate Management and Investment Management Operations |  | $                         | 2.6 |                            | $ | 2.2  |                          | ($3.0 | )                         |  | $ | 2.1  |   |      | $ | 5.6  |  | $ | 4.2  |  | ($3.1 | ) |  | $ | 3.1  |  
|Real Estate Management Operations                                   |  |                           | 0.2 |                            |   | 0.2  |                          | (0.2  | )                         |  |   | (0.2 | ) |      |   | 0.5  |  |   | 0.5  |  | (0.5  | ) |  |   | (0.5 | )
|Other                                                               |  |                           |    |                            |   |     |                          | 0.4   |                           |  |   | 0.8  |   |      |   |     |  |   | 0.2  |  | 0.2   |   |  |   | 1.9  |  
|                                                                    |  |                           |     |                            |   |      |                          |       |                           |  |   |      |   |      |   |      |  |   |      |  |       |   |  |   |      |  
|Totals                                                              |  | $                         | 2.8 |                            | $ | 2.4  |                          | ($2.8 | )                         |  | $ | 2.7  |   |      | $ | 6.1  |  | $ | 4.9  |  | ($3.4 | ) |  | $ | 4.5  |  
|                                                                    |  |                           |     |                            |   |      |                          |       |                           |  |   |      |   |      |   |      |  |   |      |  |       |   |  |   |      |  



Russian Real Estate Management
and Investment Management Operations.



The Russian
real estate management and investment management operations reported a net loss of $3.0 million for the second quarter 2004, a decrease of $5.1 million compared with net income of $2.1 million reported in the second quarter of 2003. The decrease was
attributable principally to $2.8 million of lower realized portfolio gains, the $1.1 million federal income tax liability from the Pioglobal First Russia conversion, a $0.7 million increase in withholding taxes due to the PIOGLOBAL Real Estate
Investment Fund dividend, $0.4 million lower translation gains, $0.3 million lower gains on Russian municipal securities and a $0.2 million salary expense increase. The lower gains and expense increases were offset partially by a $0.4 million
increase in management fee income.



During the six months ended
June 30, 2004, the Russian real estate management and investment management business reported a net loss of $3.1 million, a decrease of $6.2 million compared with the corresponding period in 2003. The decrease in income was attributable to $3.9
million of lower realized portfolio gains, the $1.1 million federal income tax liability from the Pioglobal First Russia conversion, a $0.7 million increase in withholding taxes due to the PIOGLOBAL Real Estate Investment Fund dividend, $0.5 million
lower gains on Russian municipal securities, a $0.4 million increase in salary expense, $0.2 million of additional corporate overhead expense and a $0.1 million increase in advertising expense. The lower gains and increase in expenses were offset
partially by $0.7 million of additional management fee income.



PIOGLOBAL Asset Management provides management services to PIOGLOBAL Real Estate Investment Fund. PIOGLOBAL Asset Management also serves as an investment manager to three Russian open-end unit investment funds, an index interval fund and an
institutional interval fund, whose assets under management at June 30, 2004 and 2003 are set forth on the following table:



|                        |  |               |      |      |   |     
|----------------------- |  | ------------- | ---- | ---- | - | ----
|                        |  | June 30,     
|                        |  | 2004          |      | 2003
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 47.4 |      | $ | 18.9
|Interval Funds          |  |               | 4.2  |      |   | 1.0 
|Trust Management        |  |               | 40.9 |      |   | 6.6 
|                        |  |               |      |      |   |     
|Assets under management |  | $             | 92.5 |      | $ | 26.5



Real Estate Management
Operations.



The real estate management operations
reported losses of $0.2 million in the second quarter of 2004 compared with losses of $0.2 million in the second quarter of 2003. For the six months ended June 30, 2004 and June 30, 2003, the real estate



16



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management operations reported losses of $0.5 million. The losses for all periods represent corporate overhead allocations.



Other.



Harbor Globals other operations reported net income of $0.4 million for the three months ended June 30, 2004 compared
to net income of $0.8 million for the corresponding period in 2003. The $0.4 million decrease in income was attributable principally to the $0.9 million non-recurring gain recorded on the sale to HSBC of Goldfield IIs right to receive
supplemental payments from Ashanti in 2003; offset partially by lower Calypso management fees of $0.3 million and a $0.2 million gain recorded in the second quarter of 2004 from the sale of two Prospect Poland Fund investments.



For the six months ended June 30, 2004, Harbor Globals other operations
reported income of $0.2 million compared to $1.9 million for the six months ended June 30, 2003. The $1.7 million decrease in income was attributable principally to the $1.3 million non-recurring gain recorded in 2003 from the early settlement of
the Companys note payable to Pioneer, the $0.9 million non-recurring gain recorded in 2003 on the sale to HSBC of Goldfields II right to receive supplemental payments from Ashanti and a supplemental payment from Ashanti of approximately
$0.3 million earned by Goldfields II during the first quarter of 2003. These gains were offset partially by lower Calypso management fees of $0.4 million and a $0.2 million gain recorded in 2004 on the sale of two Prospect Poland Fund
investments compared to an investment write-down of $0.2 million during 2003.



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 $10.1 million as of June 30, 2004. This represents a $2.5 million increase from the 2003 fiscal year end
and is attributable principally to the receipt of $4.7 million from Ashanti pursuant to the promissory note payable to Goldfields II in connection with the sale of Goldfield IIs gold mining operations in Ghana less 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 Real Estate Investment Fund, consist of cash
and cash equivalents, equity securities (both liquid and illiquid), marketable securities and real estate holdings.



On May 20, 2004, the shareholders of PIOGLOBAL Real Estate Investment Fund approved a dividend of approximately $13.1 million. The dividend will be paid
over a period of one year beginning on July 5, 2004 to shareholders of record on April 2, 2004. Harbor Global expects to receive its proportionate share of such dividend in the amount of approximately $5.7 million after withholding taxes during the
second half of 2004.



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.



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



17



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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 they 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. 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.



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. For the six months ended June 30, 2004, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 76% of
Harbor Globals total revenue. Furthermore, Meridian Commercial Tower lease revenues accounted for approximately 84% of the revenues of PIOGLOBAL Real Estate Investment Fund and approximately 70% of the total revenue generated by Harbor
Globals Russian real estate management and investment management operations.



There is currently a shortage of Class A 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 (currently Class B rated), the Companys principal asset.



HARBOR GLOBALS BUSINESSES, PARTICULARLY THOSE CONDUCTED IN EMERGING MARKETS, ARE SUSCEPTIBLE TO NUMEROUS RISKS AND UNCERTAINTIES
ASSOCIATED WITH INTERNATIONAL OPERATIONS.



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



| |  | unexpected changes in regulatory requirements and underdeveloped legal systems in some countries;
| | - | -------------------------------------------------------------------------------------------------



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



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



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



18



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| |  | 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. Accordingly, Harbor Globals Russian real estate management and investment management
operations involve significant risks, such as those listed above, which are not typically associated with developed markets. The liquidation of these businesses, as well as the successful operation of these businesses pending their liquidation, will
depend on the stability of, and economic conditions in, these emerging markets.



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



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



Mr. Kasnet and Mr. Hunter both entered into employment agreements with Calypso Management. On July 10, 2003, Mr. Kasnets employment agreement was extended by the
mutual agreement of Mr. Kasnet and the Board of Directors of Harbor Global until October 24, 2005. Mr. Hunters employment agreement provides that Mr. Hunters employment with Calypso Management is at will, subject to termination by either
Calypso Management or Mr. Hunter upon 60 days prior written notice. If either Mr. Kasnets or Mr. Hunters employment with Calypso Management is terminated, he will cease to be an officer of Harbor Global. In addition, Harbor Global has
obtained key officer life insurance policies with benefits payable to Harbor Global for Mr. Kasnet and Mr. Hunter.



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



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



19



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including employment related claims, environmental claims and regulatory fees or fines associated with its international operations.



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



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



Furthermore, Harbor
Global does not intend to:



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



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



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



| |  | except as required by the Securities Exchange Act of 1934, as amended, 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 of Harbor Global may be
classified as a foreign personal holding company or passive foreign investment company for United States federal income tax purposes. If any such subsidiary is classified as a foreign personal holding company or passive foreign investment company,
Harbor Globals shareholders may be required to recognize taxable income and pay tax with respect to a portion of the subsidiarys income, even in the absence of the receipt of any payment of cash or other property from the subsidiary. The
tax rules regarding foreign partnerships, foreign personal holding companies and passive foreign investment companies are complicated. Harbor Globals shareholders should consult their tax advisors to determine the tax consequences to them of
holding Harbor Global common shares.



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



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



20



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RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD AFFECTING HARBOR GLOBAL



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 June 30, 2004 and December 31, 2003 was approximately $0.6 million and $1.1 million, respectively, of cash and cash equivalents and $9.2 million and $6.1 million, respectively, of marketable securities.
Earnings from excess cash invested were approximately $0.1 million for the six months ended June 30, 2004. Based on excess cash invested at June 30, 2004, a one percent increase in current market interest rates would have the effect of causing an
approximately $0.1 million additional pre-tax credit to the Consolidated Statement of Operations.



Harbor Global is exposed to certain changes in foreign currency exchange rates, primarily as a result of its operations in Russia. The United States dollar (the Companys reporting currency) has been designated
as the Companys functional currency. Translation gains and losses that result from remeasuring into the United States dollar are included in the Consolidated Statement of Operations. To mitigate against currency translation risk, the Company
primarily 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. For the three months
ended June 30, 2004, the Company reported an exchange loss of approximately $482,000 and for the six months ended June 30, 2004, the Company reported exchange gains of approximately $403,000, compared with exchange gains of approximately $311,000
and approximately $449,000, respectively, for the three and six months ended June 30, 2003.



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.



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The table below sets forth in the Companys reporting currency a summary of the monetary assets and liabilities held
in rubles at June 30, 2004 and December 31, 2003.



|                                    |  |                |        |                  |   |       
|----------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                    |  | June 30,2004   |        | December 31,2003
|                                    |  | (IN THOUSANDS)
|Monetary Assets                     |  |                |        |                  |   |       
|Cash and Cash Equivalents           |  | $              | 9,893  |                  | $ | 19,166
|Restricted Cash                     |  |                | 12,683 |                  |   | 6,291 
|Marketable Securities Held for Sale |  |                | 34,926 |                  |   | 28,770
|Other                               |  |                | 2,456  |                  |   | 1,765 
|                                    |  |                |        |                  |   |       
|                                    |  | $              | 59,958 |                  | $ | 55,992
|                                    |  |                |        |                  |   |       
|Monetary Liabilities                |  |                |        |                  |   |       
|Dividend Payable                    |  | $              | 12,683 |                  | $ | 6,291 
|Taxes Payable                       |  |                | 1,353  |                  |   | 1,390 
|Deferred Taxes                      |  |                | 1,793  |                  |   | 1,798 
|Other                               |  |                | 6,278  |                  |   | 599   
|                                    |  |                |        |                  |   |       
|                                    |  | $              | 22,107 |                  | $ | 10,078
|                                    |  |                |        |                  |   |       
|Net Position                        |  | $              | 37,851 |                  | $ | 45,914
|                                    |  |                |        |                  |   |       



The Company indirectly invests in
equity instruments of privately-held companies through its approximately 52% interest in the PIOGLOBAL Real Estate Investment Fund and its approximately 8% interest in the Prospect Poland Fund. Investments in privately held companies by the
PIOGLOBAL Real Estate Investment Fund are recorded at cost in long-term investments. With respect to the Companys limited partnership interest in the Prospect Poland Fund, such interests are recorded in Polish Venture Capital Investment using
the equity method of accounting. The Company is exposed to market risk as it relates to the market value of its indirect investments in privately held companies. For the first half of 2004, the Company recorded a gain on its investment of
approximately $198,000, reflecting the Companys proportional share of $217,000 from the realized gain on the sale two investments less $19,000 of operating expenses. The carrying value of the Companys interest in the Prospect Poland Fund
was written down by approximately $206,000 in the first half of 2003, reflecting the Companys proportional share of an investment write-down of approximately $173,000 and approximately $33,000 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. 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 Moscow Interbank Currency Exchange and are recorded in long-term marketable securities. Investments that do not have a readily determinable fair value are recorded in long term investments at cost with
adjustments for other than temporary impairment. These available-for-sale equity investments, primarily in oil and gas companies, energy companies and the telecommunications industry, are subject to significant fluctuations in fair value due to the
volatility of the stock market and the industries in which these companies participate. As of June 30, 2004 and December 31, 2003, the fair value of equity investments contained in long-term marketable securities aggregated $11.8 million and $10.2
million, respectively. The Company recorded unrealized gains after deferred taxes and after minority interest of $2.4 million and $2.2 million at June 30, 2004 and December 31, 2003, respectively, as a separate component of stockholders
equity. Although the breadth of industries represented on the Russian Trading System and Moscow Interbank Currency Exchange is severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of
stock market declines to the Companys earnings and cash flow by increased diversification of the portfolio.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------



Disclosure Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2004 (the Evaluation



22



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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 the reports that it files or submits under the Securities Exchange Act of 1934, as amended, 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 quarterly period ended June 30, 2004 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 AND REPORTS ON FORM 8-K
|------- | --------------------------------



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



(b) Form 8-K: On April 27, 2004, the Company filed a Current Report on Form
8-K in connection with a press release announcing its financial results for the quarter ended March 31, 2004.



23



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SIGNATURES



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



Dated: August 11, 2004



HARBOR GLOBAL COMPANY LTD./s/    DONALD H. HUNTERDonald H. Hunter Chief Operating Officer Chief Financial Officer (Duly authorized officer and principal financial and accounting officer)




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---

|              |  |                                                                                                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                                                                                   
|              | 
|2.1*          |  | Form of Distribution Agreement by and among The Pioneer Group, Inc., Harbor Global Company Ltd. and Harbor Global II Ltd.                                                                                     
|              | 
|3.1+          |  | Memorandum of Association of Harbor Global Company Ltd.                                                                                                                                                       
|              | 
|3.2+          |  | Bye-Laws of Harbor Global Company Ltd.                                                                                                                                                                        
|              | 
|4.1**         |  | Specimen Common Share Certificate                                                                                                                                                                             
|              | 
|10.1***       |  | Unit Agreement dated May 19, 2004 between PIOGLOBAL First Russia, LLC and Alexander Chernyshev.                                                                                                               
|              | 
|10.2***       |  | Joinder Agreement to Operating Agreement dated as of April 12, 2004 by and among Pioglobal First Russia, LLC, its Board of Directors and any unit holders entered into by Alexander Chernyshev
on May 19, 2004
|              | 
|10.3***       |  | Unit Agreement dated May 19, 2004 between PIOGLOBAL First Russia, LLC and Dmitry Larin.                                                                                                                       
|              | 
|10.4***       |  | Joinder Agreement to Operating Agreement dated as of April 12, 2004 by and among Pioglobal First Russia, LLC, its Board of Directors and any unit holders entered into by Dmitry Larin on May
19, 2004        
|              | 
|10.5***       |  | Unit Agreement dated May 19, 2004 between PIOGLOBAL First Russia, LLC and Alexey Oschepkov.                                                                                                                   
|              | 
|10.6***       |  | Joinder Agreement to Operating Agreement dated as of April 12, 2004 by and among Pioglobal First Russia, LLC, its Board of Directors and any unit holders entered into by Alexey Oschepkov on
May 19, 2004    
|              | 
|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 Amendment No. 1 to Harbor Global Company Ltd.s Registration Statement on Form 10/A (file number 0-30889) filed on August 8, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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