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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED September 30, 2003

COMMISSION FILE NO. 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  |  | 02109-1820                         
|                                                             
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      |  | (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 October 31, 2003, 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)



|                                                                                                                                                                |  | September 30, 2003 |         |   | December 31,2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | -
|ASSETS                                                                                                                                                          |  |                    |         |   |                  |  
|Cash and Cash Equivalents                                                                                                                                       |  | $                  | 6,314   |   |                  | $
|Restricted Cash                                                                                                                                                 |  |                    | 6,076   |   |                  |  
|Marketable Securities                                                                                                                                           |  |                    | 16,514  |   |                  |  
|Accounts Receivable                                                                                                                                             |  |                    | 1,156   |   |                  |  
|Note Receivable                                                                                                                                                 |  |                    | 4,700   |   |                  |  
|Other Current Assets                                                                                                                                            |  |                    | 2,716   |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Current Assets                                                                                                                                            |  |                    | 37,476  |   |                  |  
|                                                                                                                                                                |  |                   
|Long-Term Restricted Cash and Investments                                                                                                                       |  |                    |        |   |                  |  
|Polish Venture Capital Investment                                                                                                                               |  |                    | 676     |   |                  |  
|Marketable Securities                                                                                                                                           |  |                    | 36,487  |   |                  |  
|Long-term Investments                                                                                                                                           |  |                    | 1,889   |   |                  |  
|Building                                                                                                                                                        |  |                    | 22,202  |   |                  |  
|Other Long-term Assets                                                                                                                                          |  |                    | 1,117   |   |                  |  
|Note Receivable                                                                                                                                                 |  |                    |        |   |                  |  
|Goodwill                                                                                                                                                        |  |                    | 1,253   |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Assets                                                                                                                                                    |  | $                  | 101,100 |   |                  | $
|                                                                                                                                                                |  |                    |         |   |                  |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                    |         |   |                  |  
|Accounts Payable                                                                                                                                                |  | $                  | 987     |   |                  | $
|Dividend Payable                                                                                                                                                |  |                    | 6,076   |   |                  |  
|Accrued Expenses                                                                                                                                                |  |                    | 2,101   |   |                  |  
|Accrued Fees Payable to Calypso Management                                                                                                                      |  |                    | 548     |   |                  |  
|Foreign Taxes Payable                                                                                                                                           |  |                    | 438     |   |                  |  
|Deferred Taxes                                                                                                                                                  |  |                    | 363     |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Current Liabilities                                                                                                                                       |  |                    | 10,513  |   |                  |  
|                                                                                                                                                                |  |                   
|Deferred Taxes                                                                                                                                                  |  |                    | 4,045   |   |                  |  
|Note Payable                                                                                                                                                    |  |                    |        |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Liabilities                                                                                                                                               |  |                    | 14,558  |   |                  |  
|                                                                                                                                                                |  |                   
|Minority Interest                                                                                                                                               |  |                    | 32,236  |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|STOCKHOLDERS EQUITY                                                                                                                                            |  |                    |         |   |                  |  
|                                                                                                                                                                |  |                   
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,655,311 shares issued and outstanding as of September
30, 2003 and December 31, 2002 |  |                    | 14      |   |                  |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                            |  |                    |        |   |                  |  
|Paid-in Capital                                                                                                                                                 |  |                    | 51,975  |   |                  |  
|Accumulated Deficit                                                                                                                                             |  |                    | (4,408  | ) |                  |  
|Other Comprehensive Income                                                                                                                                      |  |                    |         |   |                  |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                                |  |                    | 6,725   |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Stockholders Equity                                                                                                                                      |  |                    | 54,306  |   |                  |  
|                                                                                                                                                                |  |                    |         |   |                  |  
|Total Liabilities and Stockholders Equity                                                                                                                      |  | $                  | 101,100 |   |                  | $
|                                                                                                                                                                |  |                    |         |   |                  |  



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 MonthsEnded September 30, |        |   | Nine Months Ended September 30, |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                                            |  | 2003                            |        |   | 2002                            |  
|Revenues:                                                                                                                   |  |                                 |        |   |                                 |  
|Real Estate Revenue                                                                                                         |  | $                               | 1,802  |   |                                 | $
|Other Income                                                                                                                |  |                                 | 822    |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Total Revenues                                                                                                              |  |                                 | 2,624  |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Operating Expenses:                                                                                                         |  |                                 |        |   |                                 |  
|Salary and Benefit Expenses                                                                                                 |  |                                 | (1,124 | ) |                                 |  
|Facility Expenses                                                                                                           |  |                                 | (381   | ) |                                 |  
|Building and Property Management Expenses                                                                                   |  |                                 | (538   | ) |                                 |  
|Management Fee Expense                                                                                                      |  |                                 | (516   | ) |                                 |  
|Other Expenses                                                                                                              |  |                                 | (1,434 | ) |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Total Operating Expenses                                                                                                    |  |                                 | (3,993 | ) |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Operating Loss                                                                                                              |  |                                 | (1,369 | ) |                                 |  
|                                                                                                                            |  |                                 |        |  
|Other Income (Expense):                                                                                                     |  |                                 |        |   |                                 |  
|Net Unrealized and Realized Gains on Securities                                                                             |  |                                 | 854    |   |                                 |  
|Extinguishment of Note Payable                                                                                              |  |                                 |       |   |                                 |  
|Early Settlement of Note Receivable                                                                                         |  |                                 |       |   |                                 |  
|Gain on Sale of Gold Option                                                                                                 |  |                                 |       |   |                                 |  
|Interest Income                                                                                                             |  |                                 | 575    |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Total Other Income, Net                                                                                                     |  |                                 | 1,429  |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Income from Continuing Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) on
Investment |  |                                 | 60     |   |                                 |  
|                                                                                                                            |  |                                 |        |  
|Provision for Income Taxes                                                                                                  |  |                                 | (293   | ) |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|(Loss) Income from Continuing Operations before Minority Interest and Equity Gain (Loss) on Investment                      |  |                                 | (233   | ) |                                 |  
|                                                                                                                            |  |                                 |        |  
|Minority Interest                                                                                                           |  |                                 | (389   | ) |                                 |  
|Equity Gain (Loss) on Venture Capital Investment                                                                            |  |                                 | 62     |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Net (Loss) Income from Continuing Operations before Discontinued Operations                                                 |  |                                 | (560   | ) |                                 |  
|                                                                                                                            |  |                                 |        |  
|Discontinued Operations:                                                                                                    |  |                                 |        |   |                                 |  
|                                                                                                                            |  |                                 |        |  
|(Loss) Gain on Disposal                                                                                                     |  |                                 |       |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Net (Loss) Income                                                                                                           |  | $                               | (560   | ) |                                 | $
|                                                                                                                            |  |                                 |        |   |                                 |  
|(Loss) Earnings Per Share  Basic and Diluted:                                                                              |  |                                 |        |   |                                 |  
|Continuing Operations                                                                                                       |  | $                               | (0.10  | ) |                                 | $
|Discontinued Operations                                                                                                     |  |                                 |       |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  
|Basic and Diluted (Loss) Earnings Per share                                                                                 |  | $                               | (0.10  | ) |                                 | $
|                                                                                                                            |  |                                 |        |   |                                 |  
|Weighted Average Basic and Diluted Shares Outstanding                                                                       |  |                                 | 5,655  |   |                                 |  
|                                                                                                                            |  |                                 |        |   |                                 |  

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



3



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                         |  | NINE MONTHS ENDED SEPTEMBER 30, |        
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                                         |  | 2003                            |        
|Cash Flows from Operating Activities:                                                                    |  |                                 |        
|Net Income                                                                                               |  | $                               | 3,962  
|Net Income from Discontinued Operations                                                                  |  |                                 |       
|                                                                                                         |  |                                 |        
|Net Income from Continuing Operations                                                                    |  |                                 | 3,962  
|Adjustments to Reconcile Net Income from Continuing Operations to Net Cash Used in Operating Activities: |  |                                 |        
|Non-cash Interest Income on Note Receivable                                                              |  |                                 | (203   
|Interest Earned on Restricted Cash                                                                       |  |                                 |       
|Restricted Stock Awards                                                                                  |  |                                 | 293    
|Depreciation and Amortization                                                                            |  |                                 | 657    
|Unrealized and Realized Gains on Venture Capital,                                                        |  |                                 |        
|Marketable Securities, and Long-term Investments, Net                                                    |  |                                 | (13,100
|Extinguishment of Note Payable                                                                           |  |                                 | (1,250 
|Early Settlement of Note Receivable                                                                      |  |                                 | 191    
|Gain on Sale of Gold Option                                                                              |  |                                 | (875   
|Minority Interest                                                                                        |  |                                 | 5,231  
|Equity Loss on Venture Capital Investment                                                                |  |                                 | 144    
|Changes in Operating Assets and Liabilities:                                                             |  |                                 |        
|Other Current Assets                                                                                     |  |                                 | (4,129 
|Accrued Expenses and Accounts Payable                                                                    |  |                                 | (1,182 
|                                                                                                         |  |                                 |        
|Total Adjustments and Changes in Operating Assets and Liabilities                                        |  |                                 | (14,223
|                                                                                                         |  |                                 |        
|Net Cash Used in Continuing Operating Activities                                                         |  |                                 | (10,261
|                                                                                                         |  |                                 |        
|Net Cash Used In Discontinued Operations                                                                 |  |                                 |       
|                                                                                                         |  |                                 |        
|Cash Flows from Investing Activities:                                                                    |  |                                 |        
|Net Proceeds from Sale of Russian Timber Operations                                                      |  |                                 | 2,000  
|Purchase of Long-term Investments and Marketable Securities                                              |  |                                 | (19,190
|Other Long-term Assets                                                                                   |  |                                 | (342   
|Proceeds from Sale of Long-term Investments and Marketable                                               |  |                                 |        
|Securities                                                                                               |  |                                 | 26,746 
|Proceeds from Payment on Notes Receivable                                                                |  |                                 | 3,000  
|Proceeds from Sale of Gold Option                                                                        |  |                                 | 875    
|                                                                                                         |  |                                 |        
|Net Cash Provided by Investing Activities                                                                |  |                                 | 13,089 
|                                                                                                         |  |                                 |        
|Cash Flows from Financing Activities:                                                                    |  |                                 |        
|Distributions Paid                                                                                       |  |                                 | (7,900 
|Dividends Paid                                                                                           |  |                                 | (28    
|Reclassification of Restricted Cash                                                                      |  |                                 | 2,783  
|Payment on Note Payable                                                                                  |  |                                 | (3,750 
|                                                                                                         |  |                                 |        
|Net Cash Used In Financing Activities                                                                    |  |                                 | (8,895 
|                                                                                                         |  |                                 |        
|Net (Decrease) Increase in Cash and Cash Equivalents                                                     |  |                                 | (6,067 
|                                                                                                         |  |                                 |        
|Cash and Cash Equivalents, Beginning of Period                                                           |  |                                 | 12,381 
|                                                                                                         |  |                                 |        
|Cash and Cash Equivalents, End of Period                                                                 |  | $                               | 6,314  
|                                                                                                         |  |                                 |        



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)

September 30, 2003



(1) BACKGROUND AND BASIS OF PRESENTATION



BACKGROUND



Harbor Global Company Ltd., a Bermuda limited duration company (Harbor Global or the Company), was formed in May 2000 as a wholly
owned subsidiary of Pioneer 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
| | - | -------------------------------------------------------------------



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



| |  | Other:
| | - | ------



| |  |  | approximately $8.7 million in cash, cash equivalents and marketable securities held directly by Harbor Global
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | a non-interest-bearing promissory note with a face value of $12.7 million, of which $4.7 million remained outstanding at September 30, 2003, payable to Pioglobal Goldfields II
Limited (Goldfields II), an indirect wholly owned subsidiary of the Company
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Harbor Global seeks to liquidate its assets in a timely fashion on economically advantageous terms and continues to operate its assets as going concern
businesses until they are liquidated. Harbor Globals memorandum of association provides that the liquidation of its assets must be completed upon the earlier of October 24, 2005, the fifth anniversary of the date of the Spin-off, or the
distribution by Harbor Global of all its assets to its shareholders. If Harbor Global has not liquidated all of its assets before October 24, 2005, the Harbor Global board of directors (Board of Directors), in its discretion, may
authorize Harbor Global to continue to operate its assets for up to three additional one-year periods.



BASIS OF PRESENTATION



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



In the opinion of management, the accompanying Consolidated Financial Statements contain all adjustments necessary, consisting of normal and recurring
adjustments, necessary to present fairly the financial position as of September 30, 2003 and the results of operations and cash flows for the three and nine months ended September 30, 2003 and 2002. 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 2002 Annual Report on Form 10-K for the year ended December 31, 2002 filed with the
Securities and Exchange Commission.



5



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



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



CONSOLIDATION



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



POLISH VENTURE CAPITAL INVESTMENT



The Company reports its approximately 8% limited partnership interest in the Prospect Poland Fund on the equity basis of accounting. No market quotes are available for the venture capital investments. These
investments are valued at fair value, as determined by Prospect Poland Funds management. For the three months ended September 30, 2003, the Company wrote up its investment by approximately $62,000 and for the nine months ended September 30,
2003, the Company wrote-down its investment by approximately $144,000. For the three and nine months ended September 30, 2002, the Company wrote-down its investment by approximately $14,000 and $398,000, respectively. Summarized financial
information for the Prospect Poland Fund is as follows:



|                                                       |  | 2003           |        |   | 2002 |  
|------------------------------------------------------ |  | -------------- | ------ | - | ---- | -
|                                                       |  | (In Thousands) |       
|Balance Sheet Data                                     |  |                |        |   |      |  
|Assets, at September 30,                               |  | $              | 8,441  |   |      | $
|Liabilities, at September 30,                          |  |                | 85     |   |      |  
|                                                       |  |                |        |   |      |  
|Partners Capital, at September 30                     |  | $              | 8,356  |   |      | $
|                                                       |  |                |        |   |      |  
|Operating Data, for the nine months ended September 30 |  |                |        |   |      |  
|Net Operating Loss                                     |  | $              | (445   | ) |      | $
|Net Realized and Unrealized Loss from Investments      |  |                | (1,789 | ) |      |  
|                                                       |  |                |        |   |      |  
|Net Decrease in Partners Capital from Operations      |  | $              | (2,234 | ) |      | $
|                                                       |  |                |        |   |      |  



Marketable Securities



United States Treasury securities are classified as
held-to-maturity and are recorded at cost. Russian Government and Municipal securities are classified as trading securities and are marked-to-market, with unrealized gains or losses reported in the Consolidated Statement of Operations pursuant to
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Russian government securities are held primarily in the PIOGLOBAL Real Estate Investment Fund, an
approximately 52% owned subsidiary of the Company. Security transactions are recorded on settlement date. Investments are valued at the weighted average daily price if they are traded on 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 September 30, 2003 and December 31, 2002. Unrealized gains and losses recorded on Russian government
securities are presented for the three and nine months ended September 30, 2003:



Balances of Marketable Securities



|                            |  | September 30,2003 |        | December 31,2002
|--------------------------- |  | ----------------- | ------ | ----------------
|                            |  | (In Thousands)   
|Russia                      |  | $                 | 11,081 |                 
|United States               |  |                   | 5,433  |                 
|                            |  |                   |        |                 
|Total Marketable Securities |  | $                 | 16,514 |                 
|                            |  |                   |        |                 



6



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Unrealized (Loss) Gain on Russian Government Securities



|                           |  | Three Months Ended September 30, |      |   | Nine Months Ended September 30, |  
|-------------------------- |  | -------------------------------- | ---- | - | ------------------------------- | -
|                           |  | 2003                             |      |   | 2002                            |  
|                           |  | (In Thousands)                   |     
|Gross Unrealized Gain      |  | $                                |     |   |                                 | $
|Gross Unrealized Loss      |  |                                  | (331 | ) |                                 |  
|                           |  |                                  |      |   |                                 |  
|Net Unrealized (Loss) Gain |  | $                                | (331 | ) |                                 | $
|                           |  |                                  |      |   |                                 |  



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 the unit funds managed by
Closed Joint-Stock Company PIOGLOBAL Asset Management (PIOGLOBAL Asset Management).



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



Set forth in the following tables are the balances of long-term marketable securities at
September 30, 2003 and December 31, 2002 as well as cumulative unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at September 30, 2003 and December 31, 2002:



Balance of Long-term Marketable Securities



|                            |  | September 30, 2003 |        | December 31, 2002
|--------------------------- |  | ------------------ | ------ | -----------------
|                            |  | (In Thousands)    
|Equity Securities           |  | $                  | 28,151 |                  
|Corporate Bonds             |  |                    | 7,300  |                  
|Unit Funds                  |  |                    | 1,036  |                  
|                            |  |                    |        |                  
|Total Marketable Securities |  | $                  | 36,487 |                  
|                            |  |                    |        |                  



7



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Cumulative Unrealized Gain and Loss Recorded in Other Comprehensive Income



|                           |  | September 30, 2003 |        |   | December 31, 2002 |  
|-------------------------- |  | ------------------ | ------ | - | ----------------- | -
|                           |  | (In Thousands)     |       
|Equity Securities          |  |                    |        |   |                   |  
|Gross Unrealized Gain      |  | $                  | 16,360 |   |                   | $
|Gross Unrealized Loss      |  |                    |       |   |                   |  
|                           |  |                    |        |   |                   |  
|Net Unrealized Gain        |  | $                  | 16,360 |   |                   | $
|                           |  |                   
|Corporate Bonds            |  |                    |        |   |                   |  
|Gross Unrealized Gain      |  | $                  | 121    |   |                   | $
|Gross Unrealized Loss      |  |                    | (119   | ) |                   |  
|                           |  |                    |        |   |                   |  
|Net Unrealized Gain (Loss) |  | $                  | 2      |   |                   | $
|                           |  |                   
|Unit Funds                 |  |                    |        |   |                   |  
|Gross Unrealized Gain      |  | $                  | 491    |   |                   | $
|Gross Unrealized Loss      |  |                    |       |   |                   |  
|                           |  |                    |        |   |                   |  
|Net Unrealized Gain        |  | $                  | 491    |   |                   | $



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.



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) (LOSS) EARNINGS PER SHARE



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



(4) NOTE RECEIVABLE AND NOTE PAYABLE



In May 2000, Goldfields II sold its gold mining operations in Ghana to Ashanti Goldfields Teberebie Limited
(Ashanti) for an $18,800,000 base purchase price plus additional payments of up to $5,000,000, contingent upon the market price of gold and productivity of the Ghanaian gold mine (the Purchase Agreement). On June 19, 2000,
$5,000,000 of the base purchase price was paid to Goldfields II in cash and $13,800,000 of the base purchase price was paid in the form of a non-interest bearing promissory note. As of September 30, 2003, the Company had received a total of
$8,000,000 due from Ashanti under the 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.
Accordingly, under the amended Purchase Agreement and related promissory note, Ashanti is obligated to make a final payment to the Company in the amount of $4,700,000 on March 31, 2004. The Company adjusted the carrying value of the note receivable
during the first quarter of 2003 by approximately $191,000 as a result of the amendment. The Company recorded the adjustment in other income (expense) in the Consolidated Statement of Earnings.



In connection with the release of Goldfields II from its indemnification
obligations to Ashanti, Pioneer and the Company entered into an amendment to the Distribution



8



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



Pursuant to the Purchase Agreement, Ashanti agreed to pay Goldfields II additional supplemental payments of $250,000 per calendar quarter from April 1,
2001 through March 31, 2006, contingent on the market price of gold and productivity of the Ghanaian gold mine. The Company earned its first supplemental payment of $250,000 for the quarter ending March 31, 2003. On April 25, 2003, Goldfields II
agreed to sell its right to receive the remaining twelve (12) additional supplemental payments from Ashanti to HSBC Bank USA (HSBC) in exchange for one cash payment of $875,000. The transaction was consummated on April 30, 2003 and, as a
result, the Company recorded a gain of $875,000 in the second quarter of 2003, which is reflected in the Consolidated Statement of Earnings as a component of other income (expense). In connection with the sale, Goldfields II has agreed to indemnify
HSBC with respect to Goldfields IIs representations and warranties contained in the purchase agreement with HSBC for a period of one year up to the amount of the purchase price, reduced by supplemental payments collected by HSBC from Ashanti.



(5) DIVIDEND PAYABLE



The dividend payable of approximately $6,076,000 and approximately
$3,859,000 at September 30, 2003 and December 31, 2002, respectively, represents a payable to minority shareholders of PIOGLOBAL Real Estate Investment Fund. Approximately $6,076,000 and approximately $3,859,000 has been set aside by PIOGLOBAL Real
Estate Investment Fund as of September 30, 2003 and December 31, 2002, respectively, to satisfy this liability and is classified as restricted cash.



(6) CHANGES IN STOCKHOLDERS EQUITY



For the three and nine months ended September 30, 2003 and 2002, the Company reported changes in stockholders equity as follows:



|                                                                                                                                                                                                                                                           |  | THREE MONTHS ENDEDSEPTEMBER30, |      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -----
|                                                                                                                                                                                                                                                           |  | 2003                           |      
|                                                                                                                                                                                                                                                           |  | (In Thousands)                 |      
|Net Loss                                                                                                                                                                                                                                                   |  | $                              | (560 
|Net Unrealized Gains (Losses) on Marketable Securities (Net of deferred tax expense of $943,000 and deferred tax credit of
$403,000 and minority interest of $1,485,000 and $625,000 for the three months ended September 30, 2003 and 2002, respectively) |  |                                | 1,502
|                                                                                                                                                                                                                                                           |  |                                |      
|Total Comprehensive Income (Loss)                                                                                                                                                                                                                          |  | $                              | 942  
|Restricted Stock Award                                                                                                                                                                                                                                     |  |                                | 293  
|                                                                                                                                                                                                                                                           |  |                                |      
|Change in Stockholders Equity                                                                                                                                                                                                                             |  | $                              | 1,235
|                                                                                                                                                                                                                                                           |  |                                |      



9



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|                                                                                                                                                                                                                                                     |  | NINE MONTHS ENDEDSEPTEMBER 30,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------
|                                                                                                                                                                                                                                                     |  | 2003                          
|                                                                                                                                                                                                                                                     |  | (In Thousands)                
|Net Income                                                                                                                                                                                                                                           |  | $                             
|Net Unrealized Gains on Marketable Securities (Net of of deferred tax expense of $1,695,000 and deferred tax credit of $21,000 and
minority interest of $2,573,000 and $285,000 for the nine months ended September 30, 2003 and 2002, respectively) |  |                               
|                                                                                                                                                                                                                                                     |  |                               
|Total Comprehensive Income                                                                                                                                                                                                                           |  | $                             
|Distribution to Stockholders                                                                                                                                                                                                                         |  |                               
|Restricted Stock Award                                                                                                                                                                                                                               |  |                               
|                                                                                                                                                                                                                                                     |  |                               
|Change in Stockholders Equity                                                                                                                                                                                                                       |  | ($                            
|                                                                                                                                                                                                                                                     |  |                               



(7)
RELATED PARTY TRANSACTIONS



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



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



As
compensation for its provision of services to the Company, Calypso Management receives a portion of the 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 Pioneer 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 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



10



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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 September 30, 2003 and 2002, the Company incurred management fee expenses of approximately $516,000 and $635,000, respectively
related to the reimbursement of expenses incurred by Calypso Management. For the nine months ended September 30, 2003 and 2002, the Company incurred management fee expenses of approximately $1,972,000 and $2,000,000, respectively related to the
reimbursement of expenses incurred by Calypso Management. Of this management fee, approximately $548,000 and $555,000 were outstanding at September 30, 2003 and 2002, respectively.



Pursuant to the administration and liquidation agreement, for the nine months ended September 30, 2003, the Company also
incurred management fee expenses of approximately $583,000 in connection with the distribution to shareholders on June 27, 2003. As of September 30, 2002, the Company had an outstanding payable to Calypso Management of $1,450,000, which had been
recorded in 2001, reflecting the amount owed to Calypso Management and paid on October 24, 2002 in connection with the distribution paid to shareholders on November 15, 2001.



(8) RESTRICTED STOCK AWARD



Effective September 24, 2003, Pioglobal First Russia, Inc., a majority owned subsidiary of the Company, (Pioglobal
First Russia) granted restricted stock in Pioglobal First Russia to two of its officers. Under the stock agreement, Pioglobal First Russia awarded, at no cost, an aggregate number of shares of its common stock equivalent to ten percent of the
issued and outstanding shares of Pioglobal First Russia. At the award date, each officer is considered fully vested with respect to the award. The fair value of these shares was computed using the valuation services of an independent third party as
of January 1, 2003. The Company does not believe that the valuation of the shares would differ materially between the valuation date and the effective date. The shares will be revalued on January 1stof each year by the independent third party. For the period ended September 30, 2003, Pioglobal First Russia recorded compensation expense of $293,400 in
connection with the restricted stock awards. This amount is included in salary and benefit expense on the Consolidated Statement of Operations.



(9) DISCONTINUED OPERATIONS



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



On April 22, 2002, Harbor
Globals wholly owned subsidiary, Pioneer Forest, Inc. (Pioneer Forest), entered into an agreement for the sale of its Russian timber business conducted through Closed Joint-Stock Company Forest-Starma
(Forest-Starma). On May 28, 2002, Pioneer Forest sold its entire interest in Pioglobal Forest, L.L.C. (Pioglobal Forest), the sole shareholder of Forest-Starma, to a British Virgin Islands company for an



11



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aggregate purchase price of $7,550,000, of which $5,550,000 was paid in cash at the closing and $2,000,000 was paid in the form of a one-year promissory
note. The remaining $2,000,000 was received, and the promissory note paid in full, on June 3, 2003.



(10) FINANCIAL INFORMATION BY BUSINESS SEGMENT



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



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



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



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



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



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



SEGMENT DISCLOSURES



|                                                                                                                              |  | Russian Real EstateManagement And InvestmentManagement Operations |       |   | Real EstateManagementOperations |   |      | Other |  | Total |    
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------- | ----- | - | ------------------------------- | - | ---- | ----- |  | ----- | ---
|As of and for the three months ended September 30, 2003                                                                       |  |                                                                   |       |   |                                 |   |      |       |  |       |    
|Net Revenues and Sales                                                                                                        |  | $                                                                 | 2,385 |   |                                 | $ | 239  |       |  | $     |   
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority Interest, and Equity Loss on
Investment. |  |                                                                   | 169   |   |                                 |   | (194 | )     |  |       | 85 
|Provision for Income Taxes                                                                                                    |  |                                                                   | (293  | ) |                                 |   |     |       |  |       |   
|Minority Interest Expense                                                                                                     |  |                                                                   | (389  | ) |                                 |   |     |       |  |       |   
|Equity Gain on Venture Capital Investment                                                                                     |  |                                                                   |      |   |                                 |   |     |       |  |       | 62 
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |       |    
|Net (Loss) Income from Continuing Operations                                                                                  |  | $                                                                 | (513  | ) |                                 | $ | (194 | )     |  | $     | 147
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |       |    
|Depreciation                                                                                                                  |  | $                                                                 | 231   |   |                                 | $ | 6    |       |  | $     |   
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |       |    



12



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|                                                                                                                              |  | Russian Real EstateManagement And InvestmentManagement Operations |       |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------- | ----- | - | ------------------------------- | - | ---- | ----- |  | - | ----- | -
|As of and for the three months ended September 30, 2002                                                                       |  |                                                                   |       |   |                                 |   |      |       |  |   |       |  
|Net Revenues and Sales                                                                                                        |  | $                                                                 | 2,245 |   |                                 | $ | 333  |       |  | $ |      |  
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |   |       |  
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority Interest, and Equity Loss on
Investment. |  |                                                                   | 722   |   |                                 |   | (244 | )     |  |   | 552   |  
|Provision for Income Taxes                                                                                                    |  |                                                                   | (471  | ) |                                 |   |     |       |  |   |      |  
|Minority Interest Expense                                                                                                     |  |                                                                   | (522  | ) |                                 |   |     |       |  |   |      |  
|Equity Loss on Venture Capital Investment                                                                                     |  |                                                                   |      |   |                                 |   |     |       |  |   | (14   | )
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |   |       |  
|Net (Loss) Income from Continuing Operations                                                                                  |  | $                                                                 | (271  | ) |                                 | $ | (244 | )     |  | $ | 538   |  
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |   |       |  
|Depreciation                                                                                                                  |  | $                                                                 | 189   |   |                                 | $ | 9    |       |  | $ |      |  
|                                                                                                                              |  |                                                                   |       |   |                                 |   |      |       |  |   |       |  



|                                                                                                                              |  | Russian Real EstateManagement And InvestmentManagement Operations |        |   | Real EstateManagementOperations |   |      | Other |  |   | Total |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------- | ------ | - | ------------------------------- | - | ---- | ----- |  | - | ----- | -
|As of and for the nine months ended September 30, 2003                                                                        |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  
|Net Revenues and Sales                                                                                                        |  | $                                                                 | 6,561  |   |                                 | $ | 721  |       |  | $ | 244   |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority Interest, and Equity Loss on
Investment. |  |                                                                   | 11,533 |   |                                 |   | (629 | )     |  |   | 2,176 |  
|Provision for Income Taxes                                                                                                    |  |                                                                   | (3,681 | ) |                                 |   | (62  | )     |  |   |      |  
|Minority Interest Expense                                                                                                     |  |                                                                   | (5,231 | ) |                                 |   |     |       |  |   |      |  
|Equity Loss on Venture Capital Investment                                                                                     |  |                                                                   |       |   |                                 |   |     |       |  |   | (144  | )
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  
|Net Income (Loss) from Continuing Operations                                                                                  |  | $                                                                 | 2,621  |   |                                 | $ | (691 | )     |  | $ | 2,032 |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  
|Depreciation and Amortization                                                                                                 |  | $                                                                 | 637    |   |                                 | $ | 20   |       |  | $ |      |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  
|Total Assets                                                                                                                  |  | $                                                                 | 91,592 |   |                                 | $ | 821  |       |  | $ | 8,687 |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |       |  



|                                                                                                                              |  | Russian Real EstateManagement And InvestmentManagement Operations |        |   | Real EstateManagementOperations |   |      | Other |  |   | Total  |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------- | ------ | - | ------------------------------- | - | ---- | ----- |  | - | ------ | -
|As of and for the nine months ended September 30, 2002                                                                        |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  
|Net Revenues and Sales                                                                                                        |  | $                                                                 | 6,336  |   |                                 | $ | 727  |       |  | $ |       |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  
|Income (Loss) from Continuing Operations before Provision for Income Taxes, Minority Interest, and Equity Loss on
Investment. |  |                                                                   | 8,235  |   |                                 |   | (781 | )     |  |   | 1,464  |  
|Provision for Income Taxes                                                                                                    |  |                                                                   | (3,154 | ) |                                 |   |     |       |  |   |       |  
|Minority Interest Expense                                                                                                     |  |                                                                   | (3,758 | ) |                                 |   |     |       |  |   |       |  
|Equity Loss on Venture Capital Investment                                                                                     |  |                                                                   |       |   |                                 |   |     |       |  |   | (398   | )
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  
|Net Income (Loss) from Continuing Operations                                                                                  |  | $                                                                 | 1,323  |   |                                 | $ | (781 | )     |  | $ | 1,066  |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  
|Depreciation                                                                                                                  |  | $                                                                 | 574    |   |                                 | $ | 23   |       |  | $ |       |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  
|Total Assets                                                                                                                  |  | $                                                                 | 72,950 |   |                                 | $ | 551  |       |  | $ | 32,905 |  
|                                                                                                                              |  |                                                                   |        |   |                                 |   |      |       |  |   |        |  



13



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



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



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



The preparation of the Consolidated Financial Statements requires management
to make estimates and judgments that affect the reported amounts of assets, liabilities, income, and expenses. On an on-going basis, the Company evaluates its estimates. 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, and income that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.



The Company considers its critical accounting policies to include those related to the fair value of Russian investments classified as available-for-sale pursuant to SFAS No. 115, valuations of its Polish venture
capital investment, accrued management fees and deferred taxes.



Long-term marketable securities consist of Russian equity and fixed income securities held primarily in the portfolio of the PIOGLOBAL Real Estate Investment Fund. Equity securities are classified as available-for-sale and recorded at fair
value pursuant to SFAS No. 115. In this regard, such securities are either recorded in long-term marketable securities based on quoted prices in the Russian Trading System or in long-term investments at cost. Russian corporate bonds are
characterized 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. Otherwise,
the security is recorded in long-term investments at cost. Unrealized gains and losses are recorded in stockholders equity as other comprehensive income. Realized gains or losses and any other than temporary declines in value are reported in other
income (expense).



The Company retains an approximately 8%
limited partnership interest in the Prospect Poland Fund. Polish venture capital investments within the Prospect Poland Fund are recorded at fair value as determined by the management of the Prospect Poland Fund. Unrealized and realized gains or
losses are recorded in the Consolidated Statement of 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 Harbor Global, Calypso Management receives a portion of the net proceeds distributed to shareholders from the liquidation of Harbor Globals assets and, in the event of a Deemed Sale, 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 participating in the Deemed Sale. In addition, 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 underlying assets pursuant to a predetermined valuation schedule. Compensation to Calypso Management represents a percentage of such distributions or deemed distributions, which varies depending
upon the source of the distribution and the cumulative amount of distributions since the Spin-off. With respect



14



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



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



OVERVIEW



The Consolidated Financial Statements of Harbor Globals principal
operations include its Russian real estate management and investment management operations, real estate management operations and other operations. Managements Discussion and Analysis of Financial Condition and Results of Operations are
presented in three sections: Results of Operations for the three and nine months ended September 30, 2003 and 2002, Liquidity and Capital Resources, and Future Operating Results.



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



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2003 AND 2002



Consolidated Operations.



Harbor Global reported a net loss of $0.5 million ($0.10 per share) on
revenues of $2.6 million in the third quarter of 2003 compared with breaking even on revenues of $2.6 million for the third quarter of 2002. The $0.5 million decrease in income was attributable principally to $0.3 million of compensation expense
recorded in conjunction with Pioglobal First Russias restricted stock awards and lower interest income of $0.3 million.



For the nine months ended September 30, 2003, the Company reported net income of $3.9 million ($0.70 per share) compared with net income of $2.0 million
($0.36 per share) for nine months ended September 30, 2002. Net income from continuing operations was $3.9 million ($0.70 per share), an increase of $2.3 million compared with net income from continuing operations of $1.6 million ($0.28 per share)
during the first nine months of 2002. The increase was attributable primarily to higher realized portfolio gains of $1.4 million from the Russian real estate management and investment management operations, a $1.3 million gain from the early
settlement of the Companys note payable to Pioneer, and gains aggregating $1.2 million associated with the receipt of a supplemental payment from Ashanti followed by the sale to HSBC of the Companys right to receive further supplemental
payments. These increases were offset by management fees paid to Calypso Management of $0.6 million associated with the second quarter 2003 distribution to shareholders, lower interest income of $0.6 million and $0.3 million of compensation expense
recorded in conjunction with Pioglobal First Russias restricted stock awards. Income from discontinued timber operations for the nine months ended September 30, 2002 was $0.4 million ($0.08 per share).



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 nine months ended September 30, 2003 and 2002:



REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                   |  | REVENUES                       |     | NET INCOME(LOSS)               |   |      | REVENUES                      |   | NET INCOME(LOSS)              |  
|------------------------------------------------------------------ |  | ------------------------------ | --- | ------------------------------ | - | ---- | ----------------------------- | - | ----------------------------- | -
|                                                                   |  | THREE MONTHSENDEDSEPTEMBER 30, |     | THREE MONTHSENDEDSEPTEMBER 30, |   |      | NINE MONTHSENDEDSEPTEMBER 30, |   | NINE MONTHSENDEDSEPTEMBER 30, |  
|                                                                   |  | 2003                           |     | 2002                           |   | 2003 |                               |   | 2002                          |  
|BUSINESS SEGMENT                                                   |  |                                |     |                                |   |      |                               |   |                               |  
|Russian Real Estate Managementand Investment Management Operations |  | $                              | 2.4 |                                | $ | 2.3  |                               | $ | (0.5                          | )
|Real Estate Management Operations                                  |  |                                | 0.2 |                                |   | 0.3  |                               |   | (0.2                          | )
|Other                                                              |  |                                |    |                                |   |     |                               |   | 0.2                           |  
|                                                                   |  |                                |     |                                |   |      |                               |   |                               |  
|Total from continuing operations                                   |  | $                              | 2.6 |                                | $ | 2.6  |                               | $ | (0.5                          | )
|                                                                   |  |                                |     |                                |   |      |                               |   |                               |  
|Income from discontinued operations                                |  |                                |    |                                |   |     |                               |   |                              |  
|                                                                   |  |                                |     |                                |   |      |                               |   |                               |  
|Totals                                                             |  | $                              | 2.6 |                                | $ | 2.6  |                               | $ | (0.5                          | )
|                                                                   |  |                                |     |                                |   |      |                               |   |                               |  



Russian Real Estate Management and
Investment Management Operations.



The Russian real estate
management and investment management operations reported a net loss of $0.5 million for the third quarter 2003, an increase of $0.2 million compared with a net loss of $0.3 million reported in the third quarter of 2002. The increase in losses was
attributable to the $0.3 million expense recorded in conjunction with the restricted stock awards and higher rent expense due to the opening of new sales offices of $0.1 million offset partially by a $0.2 million increase in realized portfolio
gains.



During the nine months ended September 30, 2003, the
Russian real estate management and investment management business reported net income of $2.6 million, an increase of $1.3 million compared with the corresponding period in 2002. The increase in income was attributable to a $1.4 million increase in
realized portfolio gains, a $0.4 million increase in foreign exchange gains, a $0.3 million increase in gains on government bonds, and a $0.2 million increase in interest income. These increases were offset partially by higher salary and employee
related expenses of $0.7 million, an increase in corporate overhead allocations of $0.2 million and higher rent expense due to the opening of new sales offices of $0.1 million.



Real Estate Management Operations.



The real estate management operations reported losses of $0.2 million for both the third quarter of 2003 and the third quarter of 2002. For the nine
months ended September 30, 2003 the real estate management operations reported losses of $0.7 million compared to losses of $0.8 million for the nine months ended September 30, 2002. The losses for all periods represent corporate overhead
allocations.



Other.



Harbor Globals other operations reported net income of $0.2 million
for the three months ended September 30, 2003 compared to net income of $0.5 million for the corresponding period in 2002. The $0.3 million decrease in income was attributable principally to lower interest income earned in 2003.



For the nine months ended September 30, 2003, Harbor Globals other
operations reported income of $2.0 million compared to $1.1 million for the nine months ended September 30, 2002. The $0.9 million increase in income is attributable principally to a $1.3 million gain from the early settlement of the Companys
note payable to Pioneer, the $0.9 million gain recorded 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 increases



16



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were offset partially by lower interest income of $0.8 million, management fees of $0.5 million associated with the second quarter 2003 distribution to
shareholders, and a $0.2 million charge to operations reflecting the $1.1 million reduction in the deferred purchase price due from Ashanti to Goldfields II in connection with the sale of Goldfield IIs gold mining operations in Ghana.



Discontinued Operations.



On February 5, 2002, the Companys Board of Directors approved the
disposition of the Russian timber operations. Accordingly, the Russian timber operations segment is reflected as a discontinued operation. Pursuant to Accounting Principles Board Opinion No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, the Company recorded the disposal effective December 31, 2001. During the fourth
quarter of 2001, management made its best estimate of the loss on disposal based on an estimated selling price and a projection of costs and expenses to be incurred up to the anticipated date of disposal and recorded an estimated loss of $8.3
million. On April 22, 2002, Pioneer Forest entered into a definitive agreement for the sale of its Russian timber operations segment for an aggregate purchase price of $7.55 million. Based on this purchase price and estimated costs through the
anticipated date of disposal, the Company recorded a credit of approximately $0.4 million in the first quarter of 2002.



LIQUIDITY AND CAPITAL RESOURCES



Liquid assets held directly by Harbor Global consisting of cash and cash equivalents and marketable securities maintained for general corporate purposes
were $8.7 million as of September 30, 2003. This represents a $7.5 million decrease from the 2002 fiscal year end and is attributable principally to the $7.9 million distribution to shareholders (net of an approximately $0.6 million management fee
paid to Calypso Management pursuant to the amended and restated administration and liquidation agreement), the $3.8 million payment to Pioneer in early settlement of the $5 million note payable pursuant to the Distribution Agreement, and the funding
of operations and settlement of year-end accruals. These disbursements were offset partially by cash inflows of $3.0 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, $2.0 million paid to Pioneer Forest in satisfaction of the promissory note due to Pioneer Forest in connection with the sale of the Russian timber operations, the $1.9 million dividend received from PIOGLOBAL Real
Estate Investment Fund and $0.9 million received from HSBC for the sale to HSBC of Goldfields IIs right to receive supplemental payments from Ashanti. Management believes that the cash available for general corporate purposes is sufficient to
fund operations over the next two years.



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



On May 15, 2003, the shareholders of PIOGLOBAL Real Estate
Investment Fund approved a dividend of approximately $4.2 million. The dividend will be paid over a period of one year beginning on September 1, 2003 to shareholders of record on March 28, 2003. Harbor Global received its proportionate share of such
dividend in the amount of approximately $1.9 million after taxes during the third quarter of 2003.



On June 3, 2003, the Board of Directors of the Company declared a distribution of approximately $8.5 million or $1.50 per share on the Companys
common shares. Pursuant to the administration and liquidation agreement, Calypso Management received a payment equal to approximately 6.9% of such distribution or approximately $0.10 per share. The balance of approximately $1.40 per share was paid
on June 27, 2003 to shareholders of record as of June 17, 2003.



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,



17



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anticipated expenses, liquidity and capital resources and expectations about market conditions. Forward-looking statements can be identified by the words
may, believes, anticipates, plans, expects, estimates and similar expressions. Forward-looking statements are based on currently available information and managements
expectations of future results but 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.



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



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



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



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



Furthermore, Harbor Global does not intend
to:



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



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



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



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



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



THE POTENTIAL VALUES TO BE REALIZED UPON THE SALE OR LIQUIDATION OF MOST OF HARBOR GLOBALS RUSSIAN REAL ESTATE MANAGEMENT AND INVESTMENT MANAGEMENT BUSINESSES, IF
ANY, ARE SPECULATIVE.



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



HARBOR GLOBALS BUSINESSES, PARTICULARLY THOSE CONDUCTED IN RUSSIA, 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;
| | - | -------------------------------------------------------------------------------------------------



18



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



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



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



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



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



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



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



For example, in recent years Russia has undergone substantial political, economic and social change. As is typical of an emerging market, Russia does not possess a
well-developed business, legal and regulatory infrastructure that would generally exist in the United States or in a more mature free market economy. Accordingly, Harbor Globals Russian real estate management and investment management
operations involve significant risks, such as those listed above, which are not typically associated with developed markets. The liquidation of these businesses, as well as the successful operation of these businesses pending their liquidation, will
depend on the stability of, and economic conditions in, these emerging markets.



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



Stephen G. Kasnet is the President and Chief Executive Officer, and Donald H. Hunter is the Chief Operating Officer and Chief Financial
Officer of Harbor Global. Mr. Kasnet previously served as the President, and Mr. Hunter previously served as the Chief Operating Officer and Senior Vice President of Pioneer Global Investments, a division of Pioneer. As executive officers of Pioneer
Global Investments, Mr. Kasnet and Mr. Hunter operated substantially all the businesses that Harbor Global now owns. In addition, Harbor Global has entered into an administration and liquidation agreement with Calypso Management, an entity owned and
operated by Mr. Kasnet and Mr. Hunter, under which Calypso Management manages the liquidation of Harbor Global and operates its assets as going concern businesses until they are liquidated.



Harbor Global believes that conduction business in Russia requires significant experience,
and accordingly, 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. 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.



19



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



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



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



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



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



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



RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD 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 September 30, 2003 and December 31, 2002 was approximately $3.9 million and $4.6 million, respectively, of cash and cash equivalents and $3.2 million and
$10.1 million, respectively, of marketable securities. Earnings from excess cash invested were approximately $0.1 million for the nine months ended September 30, 2003. Based on excess cash invested at September 30, 2003, 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.



20



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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.



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



The table below sets forth in the Companys reporting currency a summary of the monetary assets and liabilities held in rubles at September 30, 2003 and December 31, 2002.



|                                    |  | (IN THOUSANDS)    
|----------------------------------- |  | ------------------
|                                    |  | September 30, 2003
|Monetary Assets                     |  |                   
|Cash and Cash Equivalents           |  | $                 
|Restricted Cash                     |  |                   
|Marketable Securities Held for Sale |  |                   
|Other                               |  |                   
|                                    |  |                   
|                                    |  | $                 
|                                    |  |                   
|Monetary Liabilities                |  |                   
|Dividend Payable                    |  | $                 
|Taxes Payable                       |  |                   
|Deferred Taxes                      |  |                   
|Other                               |  |                   
|                                    |  |                   
|                                    |  | $                 
|                                    |  |                   
|Net Position                        |  | $                 
|                                    |  |                   



The Company indirectly invests in
equity instruments of privately-held companies through 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. The carrying value of the Companys interest in the Prospect Poland Fund was
written down by approximately $144,000 during the first nine months of 2003, and included the Companys proportional share of: an investment write-down of approximately $173,000, operating expenses of approximately $40,000 and a gain on the
sale of investments of approximately $69,000. For the first nine months of 2002, the Company wrote down its investment by approximately $398,000, reflecting the Companys proportional share of an investment write-down of approximately $325,000
and approximately $74,000 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 are recorded in long-term marketable securities. Otherwise, the



21



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investments are recorded in long-term investments at a fair value equivalent to its original cost basis. These available-for-sale equity investments,
primarily in oil and gas, energy companies and the telecommunications industry, are subject to significant fluctuations in fair value due to the volatility of the stock market and the industries in which these companies participate. As of September
30, 2003 and December 31, 2002, the fair value of equity investments contained in long-term marketable securities aggregated $28.2 million and $17.9 million, respectively. As a result, the Company recorded unrealized gains after deferred taxes and
after minority interest of $6.3 million and $3.7 million at September 30, 2003 and December 31, 2002, respectively, as a separate component of stockholders equity. Although the breadth of industries represented on the Russian Trading System is
severely limited, the Company attempts to manage its exposure to stock market fluctuations and minimize the impact of stock market declines to the Companys earnings and cash flow by increased diversification of the portfolio.



ITEM 4. CONTROLS AND PROCEDURES.



Evaluation of Disclosure Controls and Procedures. The Companys Chief Executive
Officer and Chief Financial Officer has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of September 30, 2003 (the Evaluation Date). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective in recording,
processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.



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 fiscal quarter to which this report relates 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 herein by reference.



(b) On July 11, 2003, the Company filed a Current Report on Form 8-K in connection with the Companys change of independent accountants.



On August 6, 2003, the Company filed a Current Report on Form 8-K in
connection with a press release announcing its financial results for the quarter ended June 30, 2003.



On November 5, 2003, the Company filed a Current Report on Form 8-K in connection with a press release announcing its financial results for the quarter
ended September 30, 2003.



22



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SIGNATURES



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



Dated: November 6, 2003



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




23



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INDEX TO EXHIBITS



|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          | *** |  | Stockholders Agreement dated September 24, 2003 between PIOGLOBAL First Russia, Inc., PIOGLOBAL Omega, LLC, Maria Churaeva and Andrei Uspensky.
|              |    
|10.2          | *** |  | Stock Agreement dated September 24, 2003 between PIOGLOBAL First Russia, Inc., PIOGLOBAL Omega LLC and Maria Churaeva.                         
|              |    
|10.3          | *** |  | Stock Agreement dated September 24, 2003 between PIOGLOBAL First Russia, Inc., PIOGLOBAL Omega LLC and Andrei Uspenski.                        
|              |    
|10.4          | ++  |  | Amended and restated administration and liquidation agreement between Calypso Management LLC and Harbor Global Ltd dated July 10, 2003.        
|              |    
|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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------

|++ | Incorporated by reference to Harbor Global Company Ltd.s Quarterly Report on Form 10-Q (file number 0-30889) filed on August 6, 2003.
|-- | --------------------------------------------------------------------------------------------------------------------------------------