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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended September 30, 2004



OR



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



For the transition period from  to



Commission file number 0-30889



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HARBOR GLOBAL COMPANY LTD.

(Exact name of registrant as specified in its charter)



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



ONE FANEUIL HALL
MARKETPLACE

4TH FLOOR

BOSTON, MASSACHUSETTS

(Address of principal executive offices)



02109-1820

(Zip Code)



(617) 878-1600

(Registrants telephone number, including area code)



NO CHANGES

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



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



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



As of October 29, 2004, the registrant had 5,667,311 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, 2004 |        |   | December 31, 2003 |  
|ASSETS                                                                                                                                                          |  |                    |        |   |                   |   |         |  
|Cash and Cash Equivalents                                                                                                                                       |  | $                  | 7,460  |   |                   | $ | 23,957  |  
|Restricted Cash                                                                                                                                                 |  |                    | 12,448 |   |                   |   | 6,291   |  
|Marketable Securities                                                                                                                                           |  |                    | 20,264 |   |                   |   | 16,217  |  
|Accounts Receivable                                                                                                                                             |  |                    | 977    |   |                   |   | 1,233   |  
|Note Receivable                                                                                                                                                 |  |                    |       |   |                   |   | 4,700   |  
|Prepaid Expenses                                                                                                                                                |  |                    | 1,801  |   |                   |   | 1,569   |  
|Other Current Assets                                                                                                                                            |  |                    | 6      |   |                   |   | 8       |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Current Assets                                                                                                                                            |  |                    | 42,956 |   |                   |   | 53,975  |  
|                                                                                                                                                                |  |                   
|Polish Venture Capital Investment                                                                                                                               |  |                    | 370    |   |                   |   | 666     |  
|Marketable Securities                                                                                                                                           |  |                    | 21,703 |   |                   |   | 19,197  |  
|Long-term Investments                                                                                                                                           |  |                    | 9,425  |   |                   |   | 2,375   |  
|Building                                                                                                                                                        |  |                    | 21,534 |   |                   |   | 22,035  |  
|Other Long-term Assets                                                                                                                                          |  |                    | 1,032  |   |                   |   | 1,060   |  
|Goodwill                                                                                                                                                        |  |                    | 1,253  |   |                   |   | 1,253   |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Assets                                                                                                                                                    |  | $                  | 98,273 |   |                   | $ | 100,561 |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                    |        |   |                   |   |         |  
|Accounts Payable                                                                                                                                                |  | $                  | 609    |   |                   | $ | 1,262   |  
|Dividend Payable                                                                                                                                                |  |                    | 12,448 |   |                   |   | 6,291   |  
|Accrued Expenses                                                                                                                                                |  |                    | 3,406  |   |                   |   | 1,727   |  
|Accrued Fees Payable to Calypso Management                                                                                                                      |  |                    | 869    |   |                   |   | 708     |  
|Foreign Taxes Payable                                                                                                                                           |  |                    | 299    |   |                   |   | 1,407   |  
|Deferred Taxes                                                                                                                                                  |  |                    | 217    |   |                   |   | 376     |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Current Liabilities                                                                                                                                       |  |                    | 17,848 |   |                   |   | 11,771  |  
|                                                                                                                                                                |  |                   
|Deferred Taxes                                                                                                                                                  |  |                    | 2,101  |   |                   |   | 1,613   |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Liabilities                                                                                                                                               |  |                    | 19,949 |   |                   |   | 13,384  |  
|                                                                                                                                                                |  |                   
|Minority Interest                                                                                                                                               |  |                    | 27,532 |   |                   |   | 32,453  |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                            |  |                    |        |   |                   |   |         |  
|                                                                                                                                                                |  |                   
|Common shares, par value $.0025 per share; authorized 48,000,000 shares; 5,661,311 shares issued and outstanding as of September 30, 2004 and
December 31, 2003 |  |                    | 14     |   |                   |   | 14      |  
|Preferred shares, par value $.01 per share; authorized 1,000,000 shares; none issued                                                                            |  |                    |       |   |                   |   |        |  
|Paid-in Capital                                                                                                                                                 |  |                    | 52,142 |   |                   |   | 52,282  |  
|Accumulated Deficit                                                                                                                                             |  |                    | (5,156 | ) |                   |   | (533    | )
|Accumulated Other Comprehensive Income                                                                                                                          |  |                    |        |   |                   |   |         |  
|Net Unrealized Gains on Available for Sale Marketable Securities                                                                                                |  |                    | 3,792  |   |                   |   | 2,961   |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Stockholders Equity                                                                                                                                      |  |                    | 50,792 |   |                   |   | 54,724  |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  
|Total Liabilities and Stockholders Equity                                                                                                                      |  | $                  | 98,273 |   |                   | $ | 100,561 |  
|                                                                                                                                                                |  |                    |        |   |                   |   |         |  



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



2



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                        |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|                                                                                                                        |  | 2004                             |        |   | 2003                            |   |        | 2004 |  |   | 2003    |  
|Revenues:                                                                                                               |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Real Estate Revenue                                                                                                     |  | $                                | 1,960  |   |                                 | $ | 1,802  |      |  | $ | 5,861   |   |  | $ | 5,634   |  
|Other Income                                                                                                            |  |                                  | 693    |   |                                 |   | 822    |      |  |   | 2,924   |   |  |   | 1,892   |  
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Total Revenues                                                                                                          |  |                                  | 2,653  |   |                                 |   | 2,624  |      |  |   | 8,785   |   |  |   | 7,526   |  
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Operating Expenses:                                                                                                     |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Salary and Benefit Expenses                                                                                             |  |                                  | (1,033 | ) |                                 |   | (1,124 | )    |  |   | (3,408  | ) |  |   | (3,015  | )
|Facility Expenses                                                                                                       |  |                                  | (376   | ) |                                 |   | (381   | )    |  |   | (1,132  | ) |  |   | (1,081  | )
|Building and Property Management Expenses                                                                               |  |                                  | (802   | ) |                                 |   | (538   | )    |  |   | (1,983  | ) |  |   | (1,563  | )
|Management Fee Expense                                                                                                  |  |                                  | (605   | ) |                                 |   | (516   | )    |  |   | (2,312  | ) |  |   | (2,555  | )
|Other Expenses                                                                                                          |  |                                  | (1,499 | ) |                                 |   | (1,434 | )    |  |   | (4,928  | ) |  |   | (3,664  | )
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Total Operating Expenses                                                                                                |  |                                  | (4,315 | ) |                                 |   | (3,993 | )    |  |   | (13,763 | ) |  |   | (11,878 | )
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Operating Loss                                                                                                          |  |                                  | (1,662 | ) |                                 |   | (1,369 | )    |  |   | (4,978  | ) |  |   | (4,352  | )
|                                                                                                                        |  |                                  |        |  
|Other Income (Expense):                                                                                                 |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Net Unrealized and Realized Gains on Securities                                                                         |  |                                  | 112    |   |                                 |   | 854    |      |  |   | 1,140   |   |  |   | 13,639  |  
|Extinguishment of Note Payable                                                                                          |  |                                  |       |   |                                 |   |       |      |  |   |        |   |  |   | 1,250   |  
|Early Settlement of Note Receivable                                                                                     |  |                                  |       |   |                                 |   |       |      |  |   |        |   |  |   | (191    | )
|Gain on Sale of Gold Option                                                                                             |  |                                  |       |   |                                 |   |       |      |  |   |        |   |  |   | 875     |  
|Interest Income                                                                                                         |  |                                  | 537    |   |                                 |   | 575    |      |  |   | 1,542   |   |  |   | 1,859   |  
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Total Other Income, Net                                                                                                 |  |                                  | 649    |   |                                 |   | 1,429  |      |  |   | 2,682   |   |  |   | 17,432  |  
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|(Loss) Income from Operations before Provision for Income Taxes, Minority Interest and Equity Gain (Loss) on Investment |  |                                  | (1,013 | ) |                                 |   | 60     |      |  |   | (2,296  | ) |  |   | 13,080  |  
|                                                                                                                        |  |                                  |        |  
|Provision for Income Taxes                                                                                              |  |                                  | (202   | ) |                                 |   | (293   | )    |  |   | (1,737  | ) |  |   | (3,743  | )
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|(Loss) Income from Operations before Minority Interest and Equity (Loss) Gain on Investment                             |  |                                  | (1,215 | ) |                                 |   | (233   | )    |  |   | (4,033  | ) |  |   | 9,337   |  
|                                                                                                                        |  |                                  |        |  
|Minority Interest Income (Expense)                                                                                      |  |                                  | 89     |   |                                 |   | (389   | )    |  |   | (682    | ) |  |   | (5,231  | )
|Equity (Loss) Gain on Venture Capital Investment                                                                        |  |                                  | (107   | ) |                                 |   | 62     |      |  |   | 91      |   |  |   | (144    | )
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Net (Loss) Income                                                                                                       |  | $                                | (1,233 | ) |                                 | $ | (560   | )    |  | $ | (4,624  | ) |  | $ | 3,962   |  
|                                                                                                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|(Loss) Earnings Per Share:                                                                                              |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Basic and Diluted (Loss) Earnings Per Share                                                                             |  | $                                | (0.22  | ) |                                 | $ | (0.10  | )    |  | $ | (0.82   | ) |  | $ | 0.70    |  
|                                                                                                                        |  |                                  |        |  
|Weighted Average Basic and Diluted Shares Outstanding                                                                   |  |                                  | 5,661  |   |                                 |   | 5,655  |      |  |   | 5,661   |   |  |   | 5,655   |  



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



3



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HARBOR GLOBAL COMPANY LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                        |  |                                 |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                        |  | NINE MONTHS ENDED SEPTEMBER 30, |        
|                                                                                                        |  | 2004                            |         |   | 2003 |  
|Cash Flows from Operating Activities:                                                                   |  |                                 |         |   |      |   |         |  
|Net (Loss) Income                                                                                       |  | $                               | (4,624  | ) |      | $ | 3,962   |  
|                                                                                                        |  |                                
|Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities                           |  |                                 |         |   |      |   |         |  
|Non-cash Interest Income on Note Receivable                                                             |  |                                 |        |   |      |   | (203    | )
|Restricted Unit Awards                                                                                  |  |                                 | 169     |   |      |   | 293     |  
|Depreciation and Amortization                                                                           |  |                                 | 761     |   |      |   | 657     |  
|Unrealized and Realized Gains on Venture Capital, Marketable Securities, and Long-term Investments, Net |  |                                 | (1,140  | ) |      |   | (13,100 | )
|Extinguishment of Note Payable                                                                          |  |                                 |        |   |      |   | (1,250  | )
|Early Settlement of Note Receivable                                                                     |  |                                 |        |   |      |   | 191     |  
|Gain on Sale of Gold Option                                                                             |  |                                 |        |   |      |   | (875    | )
|Minority Interest                                                                                       |  |                                 | 682     |   |      |   | 5,231   |  
|Equity (Gain) Loss on Venture Capital Investment                                                        |  |                                 | (91     | ) |      |   | 144     |  
|Changes in Operating Assets and Liabilities                                                            |  |                                 |         |   |      |   |         |  
|Other Current Assets                                                                                    |  |                                 | (6,358  | ) |      |   | (4,129  | )
|Accrued Expenses and Accounts Payable                                                                   |  |                                 | (87     | ) |      |   | (1,182  | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Total Adjustments and Changes in Operating Assets and Liabilities                                       |  |                                 | (6,064  | ) |      |   | (14,223 | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Net Cash Used in Operating Activities                                                                   |  |                                 | (10,688 | ) |      |   | (10,261 | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                                                   |  |                                 |         |   |      |   |         |  
|Net Proceeds from Sale of Russian Timber Operations                                                     |  |                                 |        |   |      |   | 2,000   |  
|Purchase of Long-term Investments and Marketable Securities                                             |  |                                 | (23,179 | ) |      |   | (19,190 | )
|Other Long-term Assets                                                                                  |  |                                 | (112    | ) |      |   | (342    | )
|Proceeds from Sale of Long-term Investments and Marketable Securities                                   |  |                                 | 19,013  |   |      |   | 26,746  |  
|Proceeds from Payment on Notes Receivable                                                               |  |                                 | 4,700   |   |      |   | 3,000   |  
|Proceeds from Sale of Gold Option                                                                       |  |                                 |        |   |      |   | 875     |  
|Proceeds from Prospect Poland Fund                                                                      |  |                                 | 388     |   |      |   |        |  
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Net Cash Provided by Investing Activities                                                               |  |                                 | 810     |   |      |   | 13,089  |  
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                                                   |  |                                 |         |   |      |   |         |  
|Distributions Paid                                                                                      |  |                                 |        |   |      |   | (7,900  | )
|Dividends Paid                                                                                          |  |                                 | (154    | ) |      |   | (28     | )
|Purchase of Restricted Stock                                                                            |  |                                 | (308    | ) |      |   |        |  
|Reclassification of Restricted Cash                                                                     |  |                                 | (6,157  | ) |      |   | 2,783   |  
|Payment on Note Payable                                                                                 |  |                                 |        |   |      |   | (3,750  | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Net Cash Used In Financing Activities                                                                   |  |                                 | (6,619  | ) |      |   | (8,895  | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Net Decrease in Cash and Cash Equivalents                                                               |  |                                 | (16,497 | ) |      |   | (6,067  | )
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Cash and Cash Equivalents, Beginning of Period                                                          |  |                                 | 23,957  |   |      |   | 12,381  |  
|                                                                                                        |  |                                 |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                                                |  | $                               | 7,460   |   |      | $ | 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, 2004



(1) BACKGROUND AND BASIS OF PRESENTATION



BACKGROUND



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



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



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



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



| |  | Other: administration and liquidation of operations, including
| | - | --------------------------------------------------------------



| |  | approximately $14.8 million in cash, cash equivalents and marketable securities held directly by Harbor Global
| | - | --------------------------------------------------------------------------------------------------------------



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



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



BASIS OF PRESENTATION



In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary, consisting of normal and recurring adjustments, to present fairly the financial position as of September 30, 2004 and the results of operations and cash flows for the three and nine months ended
September 30, 2004 and 2003. Results for interim periods may not be necessarily indicative of the results to be expected for the year. These interim consolidated financial statements should be read in conjunction with the Companys 2003 Annual
Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.



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. However, on April 12, 2004, Pioglobal First Russia, Inc., an
indirect subsidiary of the Company, through which a portion of the Companys Russian real estate management and investment management operations are conducted, converted from a Delaware corporation into a Delaware limited liability company,
Pioglobal First Russia, LLC (Pioglobal First Russia). As a result, the Company anticipates that it will indirectly (through Pioglobal First Russia) incur a United States federal income tax liability of approximately $1,100,000, which is
reported in provision for income taxes in the Consolidated Statement of Operations.



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



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



PRINCIPLE OF CONSOLIDATION



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



USE OF ESTIMATES



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



POLISH VENTURE CAPITAL INVESTMENT



The Company reports its approximately 8% limited partnership interest in the
Prospect Poland Fund on the equity basis of accounting. No market quotes are available for the venture capital investments. These investments are valued at fair value, as determined by Prospect Poland Funds management. For the three months
ended September 30, 2004, the Company wrote-down its investment by approximately $107,000 and for the nine months ended September 30, 2004, the Company recorded a gain on its investment of approximately $91,000. For the three months ended September
30, 2003, the Company recorded a gain on its investment of approximately $62,000 and for the nine months ended September 30, 2003, the Company wrote-down its investment by approximately $144,000.



6



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



|                                                             |  |                |       |   |      |   |        |  
|------------------------------------------------------------ |  | -------------- | ----- | - | ---- | - | ------ | -
|                                                             |  | 2004           |       |   | 2003 |  
|                                                             |  | (In Thousands) |      
|Balance Sheet Data, at September 30,                         |  |                |       |   |      |   |        |  
|Current Assets                                               |  | $              | 722   |   |      | $ | 1,133  |  
|Non-Current Assets                                           |  |                | 4,080 |   |      |   | 7,308  |  
|Current Liabilities                                          |  |                | (211  | ) |      |   | (85    | )
|                                                             |  |                |       |   |      |   |        |  
|Partners Capital, at September 30                           |  | $              | 4,591 |   |      | $ | 8,356  |  
|                                                             |  |                |       |   |      |   |        |  
|                                                             |  |               
|                                                             |  | 2004           |       |   | 2003 |  
|                                                             |  | (In Thousands) |      
|Operating Data, for the nine months ended September 30       |  |                |       |   |      |   |        |  
|Net Operating Loss                                           |  | $              | (517  | ) |      | $ | (445   | )
|Net Realized and Unrealized Gain (Loss) from Investments     |  |                | 1,684 |   |      |   | (1,789 | )
|                                                             |  |                |       |   |      |   |        |  
|Net Increase (Decrease) in Partners Capital from Operations |  | $              | 1,167 |   |      | $ | (2,234 | )
|                                                             |  |                |       |   |      |   |        |  



Current Marketable Securities



United States Treasury securities are classified as
held-to-maturity and are recorded at amortized cost. Russian government and municipal securities are classified as trading securities and are marked-to-market, with unrealized gains or losses reported in the Consolidated Statements of Operations
pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Russian federal and municipal government securities are held primarily in the Open
Joint-Stock Company PIOGLOBAL Real Estate Investment Fund (PIOGLOBAL Real Estate Investment Fund), an approximately 52% owned subsidiary of the Company. Security transactions are recorded on the settlement date. Investments
are valued at the weighted average daily price if they are traded on the valuation date; otherwise, the bid price is used. Set forth on the following tables are the balances of marketable securities, segregated between United States Treasury
obligations and Russian obligations at September 30, 2004 and December 31, 2003 and unrealized gains and losses recorded on Russian government securities for the three and nine months ended September 30, 2004 and 2003.



Balances of Current Marketable Securities



|                                 |  |                    |        |                   |   |       
|-------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                 |  | September 30, 2004 |        | December 31, 2003
|                                 |  | (In Thousands)    
|Russia (trading)                 |  | $                  | 8,504  |                   | $ | 10,160
|United States (held to maturity) |  |                    | 11,760 |                   |   | 6,057 
|                                 |  |                    |        |                   |   |       
|Total Marketable Securities      |  | $                  | 20,264 |                   | $ | 16,217
|                                 |  |                    |        |                   |   |       



Unrealized Gain and Loss on Russian
Federal and Municipal Government Securities



|                           |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  
|-------------------------- |  | -------------------------------- | --- | - | ------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                           |  | Three Months Ended September 30, |     |   | Nine Months Ended September 30, |  
|                           |  | 2004                             |     |   | 2003                            |   |      | 2004 |  |   | 2003 |  
|                           |  | (In Thousands)                   |    
|Gross Unrealized Gain      |  | $                                | 48  |   |                                 | $ | 57   |      |  | $ | 368  |   |  | $ | 951  |  
|Gross Unrealized Loss      |  |                                  | (56 | ) |                                 |   | (435 | )    |  |   | (592 | ) |  |   | (805 | )
|                           |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  
|Net Unrealized (Loss) Gain |  | $                                | (8  | ) |                                 | $ | (378 | )    |  | $ | (224 | ) |  | $ | 146  |  
|                           |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  



7



---

LONG-TERM MARKETABLE SECURITIES



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



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



Set forth in the following tables are the balances of
long-term marketable securities at September 30, 2004 and December 31, 2003, as well as cumulative unrealized gains and losses, before deferred taxes and minority interest, recorded in other comprehensive income at September 30, 2004 and December
31, 2003:



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



|                                                                           |  |                    |        |   |                   |   |        |  
|-------------------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                                                           |  | September 30, 2004 |        |   | December 31, 2003 |  
|                                                                           |  | (In Thousands)     |       
|Equity Securities                                                          |  | $                  | 14,676 |   |                   | $ | 10,206 |  
|Corporate Bonds                                                            |  |                    | 5,475  |   |                   |   | 7,599  |  
|Unit Funds                                                                 |  |                    | 1,552  |   |                   |   | 1,392  |  
|                                                                           |  |                    |        |   |                   |   |        |  
|Total Marketable Securities                                                |  | $                  | 21,703 |   |                   | $ | 19,197 |  
|                                                                           |  |                    |        |   |                   |   |        |  
|                                                                          
|Cumulative Unrealized Gain and Loss Recorded in Other Comprehensive Income | 
|                                                                           |  | September 30, 2004 |        |   | December 31, 2003 |  
|                                                                           |  | (In Thousands)     |       
|Equity Securities                                                          |  |                    |        |   |                   |   |        |  
|Gross Unrealized Gain                                                      |  | $                  | 7,724  |   |                   | $ | 5,543  |  
|Gross Unrealized Loss                                                      |  |                    | (52    | ) |                   |   | (9     | )
|                                                                           |  |                    |        |   |                   |   |        |  
|Net Unrealized Gain                                                        |  | $                  | 7,672  |   |                   | $ | 5,534  |  
|                                                                           |  |                   
|Corporate Bonds                                                            |  |                    |        |   |                   |   |        |  
|Gross Unrealized Gain                                                      |  | $                  | 183    |   |                   | $ | 394    |  
|Gross Unrealized Loss                                                      |  |                    | (40    | ) |                   |   |       |  
|                                                                           |  |                    |        |   |                   |   |        |  
|Net Unrealized Gain                                                        |  | $                  | 143    |   |                   | $ | 394    |  
|                                                                           |  |                   
|Unit Funds                                                                 |  |                    |        |   |                   |   |        |  
|Gross Unrealized Gain                                                      |  | $                  | 939    |   |                   | $ | 789    |  
|Gross Unrealized Loss                                                      |  |                    |       |   |                   |   |       |  
|                                                                           |  |                    |        |   |                   |   |        |  
|Net Unrealized Gain                                                        |  | $                  | 939    |   |                   | $ | 789    |  



BUILDING



The building represents an office building in Moscow, Russia, the Meridian
Commercial Tower. The Meridian Commercial Tower is carried at cost and is being depreciated on a straight-line basis over 40 years. A significant portion of the assets of PIOGLOBAL Real Estate Investment Fund consists of its ownership of the
Meridian Commercial Tower. Meridian Commercial Tower lease revenues accounted for approximately 88% of the revenues of PIOGLOBAL Real Estate Investment Fund and



8



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approximately 73% of the total revenue generated by Harbor Globals Russian real estate management and investment
management operations for the nine months ended September 30, 2004.



CONCENTRATION OF RISK



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



(3) EARNINGS PER SHARE



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



(4) NOTE RECEIVABLE



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



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



(5)
CHANGES IN STOCKHOLDERS EQUITY



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



|                                                                                                                                                                                                                               |  |                                  |        |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | - | ---- | - | ----- | -
|                                                                                                                                                                                                                               |  | THREE MONTHS ENDED SEPTEMBER 30, |       
|                                                                                                                                                                                                                               |  | 2004                             |        |   | 2003 |  
|                                                                                                                                                                                                                               |  | (In Thousands)                   |       
|Net (Loss) Income                                                                                                                                                                                                              |  | $                                | (1,233 | ) |      | $ | (560  | )
|Net Unrealized Gains on Long term Marketable Securities (Net of deferred taxes of $324,000 and $943,000 and minority interest of $475,000 and
$1,485,000 for the three months ended September 30, 2004 and 2003, respectively) |  |                                  | 553    |   |      |   | 1,502 |  
|                                                                                                                                                                                                                               |  |                                  |        |   |      |   |       |  
|Total Comprehensive (Loss) Income                                                                                                                                                                                              |  | $                                | (680   | ) |      | $ | 942   |  
|Additional Paid In Capital                                                                                                                                                                                                     |  |                                  |       |   |      |   | 293   |  
|                                                                                                                                                                                                                               |  |                                  |        |   |      |   |       |  
|Change in Stockholders Equity                                                                                                                                                                                                 |  | $                                | (680   | ) |      | $ | 1,235 |  
|                                                                                                                                                                                                                               |  |                                  |        |   |      |   |       |  



9



---

|                                                                                                                                                                                                                                |  |                                 |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                                                                                |  | NINE MONTHS ENDED SEPTEMBER 30, |       
|                                                                                                                                                                                                                                |  | 2004                            |        |   | 2003 |  
|                                                                                                                                                                                                                                |  | (In Thousands)                  |       
|Net (Loss) Income                                                                                                                                                                                                               |  | $                               | (4,624 | ) |      | $ | 3,962  |  
|Net Unrealized Gains on Long term Marketable Securities (Net of deferred taxes of $488,000 and $1,695,000 and minority interest of $716,000
and $2,573,000 for the nine months ended September 30, 2004 and 2003, respectively) |  |                                 | 831    |   |      |   | 2,792  |  
|                                                                                                                                                                                                                                |  |                                 |        |   |      |   |        |  
|Total Comprehensive (Loss) Income                                                                                                                                                                                               |  | $                               | (3,793 | ) |      | $ | 6,754  |  
|Distribution to Stockholders                                                                                                                                                                                                    |  |                                 |       |   |      |   | (7,900 | )
|Additional Paid In Capital                                                                                                                                                                                                      |  |                                 | (140   | ) |      |   | 293    |  
|                                                                                                                                                                                                                                |  |                                 |        |   |      |   |        |  
|Change in Stockholders Equity                                                                                                                                                                                                  |  | $                               | (3,932 | ) |      | $ | (853   | )
|                                                                                                                                                                                                                                |  |                                 |        |   |      |   |        |  



(6) RELATED PARTY TRANSACTIONS



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



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



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



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



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



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



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



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



10



---

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



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



For the three months ended September 30, 2004 and 2003, the
Company incurred management fee expenses of approximately $602,000 and $516,000, respectively related to the reimbursement of expenses incurred by Calypso Management. For the nine months ended September 30, 2004 and 2003, the Company incurred
management fee expenses of approximately $1,978,000 and $1,972,000, respectively related to the reimbursement of expenses incurred by Calypso Management. Of this management fee, approximately $535,000 and $548,000 was outstanding at September 30,
2004 and 2003, respectively.



For the nine months ended
September 30, 2004, the Company had also accrued management fee expense and a corresponding payable to Calypso Management of $334,000. This represents the management fee expense that will be paid to Calypso Management pursuant to the amended and
restated administration and liquidation agreement in connection with the November 15, 2004 distribution to shareholders. 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.



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



PREA L.L.C., the subsidiary through which the Companys real estate management operations are conducted (PREA), leases the Meridian Commercial Tower from PIOGLOBAL Real Estate Investment Fund under a master lease agreement
and in turn, subleases the premises to tenants. PREA pays PIOGLOBAL Real Estate Investment Fund an amount equal to gross revenues less building operating expenses, the PREA property management fee and any value added taxes or similar taxes. A new
master lease agreement between PIOGLOBAL Real Estate Investment Fund and PREA was signed on May 5, 2004 and expires in 2043.



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



11



---

(7) INDEMNIFICATION CONTRACTS



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



(8) SUBSEQUENT EVENTS



On October 18, 2004, pursuant to the Companys memorandum of association, the Harbor Global Board of Directors unanimously authorized the Company to
continue operating its assets for an additional one year period or through October 24, 2006, unless and until the Company has distributed all of its assets to its shareholders to the extent permitted by the Companies Act. If Harbor Global has not
liquidated all of its assets before October 24, 2006, the Board of Directors, in its discretion, may authorize Harbor Global to continue to operate its assets for up to two additional one-year periods.



On October 18, 2004, the Companys shareholders approved the Amended and
Restated Non-Employee Director Share Plan, which amends and restates the Non-Employee Director Share Plan to both increase the number of Common Shares authorized for issuance under the plan from 25,000 Common Shares to an aggregate of 48,000 Common
Shares and extends the term of the plan to be coterminous with any extension of the time period permitted for the operation and liquidation of the Companys assets, as may be determined by the Board of Directors from time to time in accordance
with the Companys Memorandum of Association. The Amended and Restated Non-Employee Director Share Plan was approved by the Companys Board of Directors on June 4, 2004. Prior to the approval of the Amended and Restated Non-Employee
Director Share Plan, the plan was set to terminate on October 24, 2005 pursuant to its terms. Except as described above, the Amended and Restated Non-Employee Director Share Plan does not amend, alter or change any other terms of the plan.



(9) RESTRICTED UNIT AWARDS



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



(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.



12



---

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



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



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



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



SEGMENT DISCLOSURES



|                                                                                                  |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------ | - | -------------------------------- | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                  |  | Russian Real Estate Management And Investment Management Operations |        |   | Real Estate ManagementOperations |   |      | Other |  |   | Total |  
|For the three months ended September 30, 2004                                                     |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  
|Net Revenues and Sales                                                                            |  | $                                                                   | 2,407  |   |                                  | $ | 246  |       |  | $ |      |   |  | $ | 2,653  |  
|                                                                                                  |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                                     | (914   | ) |                                  |   | (185 | )     |  |   | 86    |   |  |   | (1,013 | )
|Provision for Income Taxes                                                                        |  |                                                                     | (176   | ) |                                  |   | (26  | )     |  |   |      |   |  |   | (202   | )
|Minority Interest Income                                                                          |  |                                                                     | 89     |   |                                  |   |     |       |  |   |      |   |  |   | 89     |  
|Equity Loss on Venture Capital Investment                                                         |  |                                                                     |       |   |                                  |   |     |       |  |   | (107  | ) |  |   | (107   | )
|                                                                                                  |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  
|Net Loss                                                                                          |  | $                                                                   | (1,001 | ) |                                  | $ | (211 | )     |  | $ | (21   | ) |  | $ | (1,233 | )
|                                                                                                  |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  
|Depreciation and Amortization                                                                     |  | $                                                                   | 257    |   |                                  | $ | 6    |       |  | $ |      |   |  | $ | 263    |  
|                                                                                                  |  |                                                                     |        |   |                                  |   |      |       |  |   |       |   |  |   |        |  



13



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|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------ | - | --------------------------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                  |  | Russian Real Estate Management And Investment Management Operations |        |   | Real Estate Management Operations |   |       | Other |  |   | Total |  
|For the three months ended September 30, 2003                                                     |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net Revenues and Sales                                                                            |  | $                                                                   | 2,385  |   |                                   | $ | 239   |       |  | $ |      |   |  | $ | 2,624   |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                     | 169    |   |                                   |   | (194  | )     |  |   | 85    |   |  |   | 60      |  
|Provision for Income Taxes                                                                        |  |                                                                     | (293   | ) |                                   |   |      |       |  |   |      |   |  |   | (293    | )
|Minority Interest Expense                                                                         |  |                                                                     | (389   | ) |                                   |   |      |       |  |   |      |   |  |   | (389    | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                                     |       |   |                                   |   |      |       |  |   | 62    |   |  |   | 62      |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net (Loss) Income                                                                                 |  | $                                                                   | (513   | ) |                                   | $ | (194  | )     |  | $ | 147   |   |  | $ | 560     |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                                   | 231    |   |                                   | $ | 6     |       |  | $ |      |   |  | $ | 237     |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|                                                                                                  |  |                                                                     |        |  
|                                                                                                  |  | Russian Real EstateManagementAndInvestmentManagementOperations      |        |   | Real EstateManagementOperations   |   |       | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2004                                            |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net Revenues and Sales                                                                            |  | $                                                                   | 8,048  |   |                                   | $ | 737   |       |  | $ |      |   |  | $ | 8,785   |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|(Loss) Income before Provision for Income Taxes, Minority Interest, and Equity Gain on Investment |  |                                                                     | (1,716 | ) |                                   |   | (688  | )     |  |   | 108   |   |  |   | (2,296  | )
|Provision for Income Taxes                                                                        |  |                                                                     | (1,692 | ) |                                   |   | (35   | )     |  |   | (10   | ) |  |   | (1,737  | )
|Minority Interest Expense                                                                         |  |                                                                     | (682   | ) |                                   |   |      |       |  |   |      |   |  |   | (682    | )
|Equity Gain on Venture Capital Investment                                                         |  |                                                                     |       |   |                                   |   |      |       |  |   | 91    |   |  |   | 91      |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net (Loss) Income                                                                                 |  | $                                                                   | (4,090 | ) |                                   | $ | (723  | )     |  | $ | 189   |   |  | $ | (4,624  | )
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                                   | 743    |   |                                   | $ | 18    |       |  | $ |      |   |  | $ | 761     |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Total Assets                                                                                      |  | $                                                                   | 92,669 |   |                                   | $ | 1,549 |       |  | $ | 4,055 |   |  | $ | 98,273  |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|                                                                                                  |  |                                                                     |        |  
|                                                                                                  |  | Russian Real Estate Management And Investment Management Operations |        |   | Real Estate Management Operations |   |       | Other |  |   | Total |  
|As of and for the nine months ended September 30, 2003                                            |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net Revenues and Sales                                                                            |  | $                                                                   | 6,561  |   |                                   | $ | 721   |       |  | $ | 244   |   |  | $ | 7,526   |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Income (Loss) before Provision for Income Taxes, Minority Interest, and Equity Loss on Investment |  |                                                                     | 11,533 |   |                                   |   | (629  | )     |  |   | 2,176 |   |  |   | 13,080  |  
|Provision for Income Taxes                                                                        |  |                                                                     | (3,681 | ) |                                   |   | (62   | )     |  |   |      |   |  |   | (3,743  | )
|Minority Interest Expense                                                                         |  |                                                                     | (5,231 | ) |                                   |   |      |       |  |   |      |   |  |   | (5,231  | )
|Equity Loss on Venture Capital Investment                                                         |  |                                                                     |       |   |                                   |   |      |       |  |   | (144  | ) |  |   | (144    | )
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Net Income (Loss)                                                                                 |  | $                                                                   | 2,621  |   |                                   | $ | (691  | )     |  | $ | 2,032 |   |  | $ | 3,962   |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Depreciation and Amortization                                                                     |  | $                                                                   | 637    |   |                                   | $ | 20    |       |  | $ |      |   |  | $ | 657     |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  
|Total Assets                                                                                      |  | $                                                                   | 91,592 |   |                                   | $ | 821   |       |  | $ | 8,687 |   |  | $ | 101,100 |  
|                                                                                                  |  |                                                                     |        |   |                                   |   |       |       |  |   |       |   |  |   |         |  



14



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



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



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



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



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



The Company reports its approximately 8% aggregate limited partnership interest in the Prospect Poland Fund on the equity basis of accounting. No market
quotes are available for the Polish venture capital investments. These investments are valued at fair value, as determined by Prospect Poland Funds management. Unrealized and realized gains or losses are recorded in the Consolidated Statements
of Operations. The Company analyzes the assumptions supporting changes in the fair value of these investments for appropriateness on a quarterly basis.



15



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



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



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



OVERVIEW



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



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



Consolidated Operations.



Harbor Global reported a net loss of $1.2 million ($0.22 per share) on revenues of $2.7 million in the third quarter of 2004 compared with a net loss of
$0.5 million ($0.10 per share) on revenues of $2.6 million for the third quarter of 2003. The $0.7 million decrease in income was attributable principally to $0.6 million of lower realized portfolio gains from the Russian real estate management and
investment management operations.



For the nine months ended
September 30, 2004, the Company reported a net loss of $4.6 million ($0.82 per share) compared with net income of $3.9 million ($0.70 per share) for the nine months ended September 30, 2003. The $8.5 million decrease was attributable primarily to
$4.8 million of lower realized portfolio gains from the Russian real estate management and investment management operations, a non-recurring 2003 gain of approximately $1.3 million from the early settlement of the



16



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Companys $5 million note payable to Pioneer, a $1.1 million federal income tax liability associated with the
conversion of Pioglobal First Russia, Inc. into a Delaware limited liability company, a $0.9 million non-recurring 2003 gain on the sale to HSBC Bank USA (HSBC) of the Companys right to receive supplemental payments from Ashanti
and a $0.8 million increase in withholding taxes associated with an increase in the PIOGLOBAL Real Estate Investment Fund dividend. The lower gains and expense increases were offset partially by a $1.0 million increase in management fee income.



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



REVENUES AND NET INCOME OR LOSS

(DOLLARS IN MILLIONS)



|                                                                    |  |                                 |     |                                 |   |      |                                |   |                                |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  
|------------------------------------------------------------------- |  | ------------------------------- | --- | ------------------------------- | - | ---- | ------------------------------ | - | ------------------------------ | - |  | ---- | ---- | ---- |  | ---- | --- |  | ---- | --- |  | - | ---- | - |  | - | ---- | -
|                                                                    |  | REVENUES                        |     | NET INCOME(LOSS)                |   |      | REVENUES                       |   | NET INCOME(LOSS)               |  
|                                                                    |  | THREE MONTHSENDED SEPTEMBER 30, |     | THREE MONTHSENDED SEPTEMBER 30, |   |      | NINE MONTHSENDED SEPTEMBER 30, |   | NINE MONTHSENDED SEPTEMBER 30, |  
|                                                                    |  | 2004                            |     | 2003                            |   | 2004 |                                |   | 2003                           |   |  | 2004 |      | 2003 |  | 2004 |     |  | 2003 |    
|BUSINESS SEGMENT                                                    |  |                                 |     |                                 |   |      |                                |   |                                |   |  |      |      |      |  |      |     |  |      |    
|Russian Real Estate Management and Investment Management Operations |  | $                               | 2.4 |                                 | $ | 2.4  |                                | $ | (1.0                           | ) |  | $    | (0.5 | )    |  | $    | 8.1 |  | $    | 6.6 |  | $ | (4.1 | ) |  | $ | 2.6  |  
|Real Estate Management Operations                                   |  |                                 | 0.3 |                                 |   | 0.2  |                                |   | (0.2                           | ) |  |      | (0.2 | )    |  |      | 0.7 |  |      | 0.7 |  |   | (0.7 | ) |  |   | (0.7 | )
|Other                                                               |  |                                 |    |                                 |   |     |                                |   |                               |   |  |      | 0.2  |      |  |      |    |  |      | 0.2 |  |   | 0.2  |   |  |   | 2.0  |  
|                                                                    |  |                                 |     |                                 |   |      |                                |   |                                |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  
|Totals                                                              |  | $                               | 2.7 |                                 | $ | 2.6  |                                | $ | (1.2                           | ) |  | $    | (0.5 | )    |  | $    | 8.8 |  | $    | 7.5 |  | $ | (4.6 | ) |  | $ | 3.9  |  
|                                                                    |  |                                 |     |                                 |   |      |                                |   |                                |   |  |      |      |      |  |      |     |  |      |     |  |   |      |   |  |   |      |  



Russian Real Estate Management and
Investment Management Operations.



The Russian real estate
management and investment management operations reported a net loss of $1.0 million for the third quarter 2004, compared with a net loss of $0.5 million reported in the third quarter of 2003. The $0.5 million increase in losses was attributable
principally to $0.6 million of lower realized portfolio gains and $0.2 million lower dividend income. These decreases were offset partially by a $0.3 million increase in management fee income.



For the nine months ended September 30, 2004, the Russian real estate
management and investment management business reported a net loss of $4.1 million, a $6.7 million income decrease compared with the corresponding period in 2003. The decrease in income was attributable to $4.8 million of lower realized portfolio
gains, the $1.1 million federal income tax liability from the Pioglobal First Russia conversion, a $0.8 million increase in withholding taxes paid by the Company due to an increase in the PIOGLOBAL Real Estate Investment Fund annual dividend, a $0.4
million increase in salary expense, $0.3 million of additional corporate overhead expense and a $0.2 million increase in advertising expense. The lower gains and increase in expenses were offset partially by $1.0 million of additional management fee
income attributable to an increase in assets under management.



PIOGLOBAL Asset Management provides management services to PIOGLOBAL Real Estate Investment Fund. PIOGLOBAL Asset Management also serves as an investment manager to three Russian open-end unit investment funds, two interval funds, and trust
management accounts for institutional and high net worth clients. Assets under management for these products at September 30, 2004 and 2003 are set forth on the following table:



|                        |  |               |         |      |   |       
|----------------------- |  | ------------- | ------- | ---- | - | ------
|                        |  | September 30,
|                        |  | 2004          |         | 2003
|                        |  | (IN MILLIONS)
|Open-end Unit Funds     |  | $             | 59,735  |      | $ | 22,345
|Interval Funds          |  |               | 4,663   |      |   | 2,151 
|Trust Management        |  |               | 51,462  |      |   | 15,801
|                        |  |               |         |      |   |       
|Assets under management |  | $             | 115,820 |      | $ | 40,297



17



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Real Estate Management Operations.



The real estate management operations reported losses of $0.2 million in the third quarter of 2004 compared with losses of
$0.2 million in the third quarter of 2003. For the nine months ended September 30, 2004 and September 30, 2003, the real estate management operations reported losses of $0.7 million. The losses for all periods represent corporate overhead
allocations.



Other.



Harbor Globals other operations broke even for the three months ended
September 30, 2004 compared to net income of $0.2 million for the corresponding period in 2003. The $0.2 million decrease in income is attributable to a $0.1 million write-down of the venture capital investment in 2004 compared to a $0.1 million
gain recorded on the venture capital investment in 2003.



For
the nine months ended September 30, 2004, Harbor Globals other operations reported income of $0.2 million compared to $2.0 million for the nine months ended September 30, 2003. The $1.8 million decrease in income was attributable principally
to the $1.3 million non-recurring gain recorded in 2003 from the early settlement of the Companys note payable to Pioneer and the $0.9 million non-recurring gain recorded in 2003 on the sale to HSBC of Goldfields II right to receive
supplemental payments from Ashanti. These gains were offset partially by lower Calypso management fees of $0.3 million.



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 $14.8 million as of September 30, 2004. This represents a $7.2 million increase from the 2003 fiscal year end and is attributable principally to the $5.7 million dividend received from PIOGLOBAL Real Estate Investment Fund and receipt of the
final installment payment of $4.7 million from Ashanti associated with the sale of Goldfield IIs gold mining operations in Ghana less the funding of operations and the settlement of year end accruals. Management believes that the cash
available for general corporate purposes is sufficient to fund operations over the next two years.



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



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



On September 15, 2004, the Board of Directors of the Company declared a
distribution of approximately $4.25 million or $0.75 per share on the Companys common shares. Pursuant to the amended and restated administration and liquidation agreement, Calypso Management will receive a payment equal to approximately 7.9%
of such distribution or approximately $0.06 per share. The balance of approximately $0.69 per will be paid on November 15, 2004 to shareholders of record as of November 5, 2004.



OFF-BALANCE SHEET ARRANGEMENTS



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



18



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FUTURE OPERATING RESULTS



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



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



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



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



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



PIOGLOBAL Real Estate Investment Fund is Harbor Globals principal asset. A significant portion of the assets of PIOGLOBAL Real Estate
Investment Fund consists of its ownership of the Meridian Commercial Tower. For the nine months ended September 30, 2004, revenues from the PIOGLOBAL Real Estate Investment Fund comprised approximately 76% of Harbor Globals total revenue.
Furthermore, Meridian Commercial Tower lease revenues accounted for approximately 88% of the revenues of PIOGLOBAL Real Estate Investment Fund and approximately 73% of the total revenue generated by Harbor Globals Russian real estate
management and investment management operations.



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



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



Harbor Global conducts business in countries outside of the
United States, primarily in Russia. Harbor Global will continue to operate its international businesses until



19



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those businesses are liquidated and will continue to be subject to the risks of doing business internationally,
including:



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



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



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



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



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



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



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



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



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



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



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



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



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



20



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



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



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



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



Furthermore, Harbor Global does not intend to:



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



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



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



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



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



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



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



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



21



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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, 2004 and December 31, 2003 was approximately $2.9 million and $1.1 million, respectively, of cash and cash equivalents and $20.3 million
and $16.2 million, respectively, of marketable securities. Earnings from excess cash invested were approximately $0.1 million for the nine months ended September 30, 2004. Based on excess cash invested at September 30, 2004, a one percent increase
in current market interest rates would have the effect of causing an approximately $0.2 million additional pre-tax credit to the Consolidated Statement of Operations.



Harbor Global is exposed to certain changes in foreign currency exchange rates, primarily as a result of its operations in Russia. The
United States dollar (the Companys reporting currency) has been designated as the Companys functional currency. Translation gains and losses that result from remeasuring into the United States dollar are included in the Consolidated
Statement of Operations. To mitigate against currency translation risk, the Company primarily transacts in United States dollars by contracting for most of its costs and revenues in United States dollars. This acts as a natural hedge to protect
against currency fluctuations from the Companys operations. For the three months ended September 30, 2004 and 2003, the Company reported an exchange loss of approximately $132,000 and $162,000, respectively and for the nine months ended
September 30, 2004 and 2003, the Company reported exchange gains of approximately $271,000 and $287,000, respectively.



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



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



|                                    |  |                    |        |                   |   |       
|----------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                    |  | (IN THOUSANDS)    
|                                    |  | September 30, 2004 |        | December 31, 2003
|Monetary Assets                     |  |                    |        |                   |   |       
|Cash and Cash Equivalents           |  | $                  | 2,104  |                   | $ | 19,166
|Restricted Cash                     |  |                    | 12,448 |                   |   | 6,291 
|Marketable Securities Held for Sale |  |                    | 37,443 |                   |   | 28,770
|Other                               |  |                    | 2,633  |                   |   | 1,765 
|                                    |  |                    |        |                   |   |       
|                                    |  | $                  | 54,628 |                   | $ | 55,992
|                                    |  |                    |        |                   |   |       
|Monetary Liabilities                |  |                    |        |                   |   |       
|Dividend Payable                    |  | $                  | 12,448 |                   | $ | 6,291 
|Taxes Payable                       |  |                    | 299    |                   |   | 1,390 
|Deferred Taxes                      |  |                    | 2,179  |                   |   | 1,798 
|Other                               |  |                    | 561    |                   |   | 599   
|                                    |  |                    |        |                   |   |       
|                                    |  | $                  | 15,487 |                   | $ | 10,078
|                                    |  |                    |        |                   |   |       
|Net Position                        |  | $                  | 39,141 |                   | $ | 45,914
|                                    |  |                    |        |                   |   |       



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The Company indirectly invests in equity instruments of privately-held companies through its approximately 52% interest
in the PIOGLOBAL Real Estate Investment Fund and its approximately 8% interest in the Prospect Poland Fund. Investments in privately held companies by the PIOGLOBAL Real Estate Investment Fund are recorded at cost in long-term investments.
With respect to the Companys limited partnership interest in the Prospect Poland Fund, such interests are recorded in Polish Venture Capital Investment using the equity method of accounting. The Company is exposed to market risk as it relates
to the market value of its indirect investments in privately held companies. For the first nine months of 2004, the Company recorded a gain on its investment of approximately $91,000, reflecting the Companys proportionate share of realized
gains on the sale of two investments of $217,000 less its proportionate share of an investment write-down and operating expenses of $81,000 and $45,000, respectively. 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 proportionate share of an investment write-down of $173,000, operating expenses of $40,000 and a gain on the sale of investments of $69,000.



The PIOGLOBAL Real Estate Investment Fund is also invested in equity
instruments of public companies, which are classified as available-for-sale pursuant to SFAS No. 115. Those publicly traded equity investments that have evinced a sufficient breadth and scope of market activity are valued based on the quoted price
for such securities according to the Russian Trading System and Moscow Interbank Currency Exchange and are recorded in long-term marketable securities. Investments that do not have a readily determinable fair value are recorded in long term
investments at cost with adjustments for other than temporary impairment. These available-for-sale equity investments, primarily in oil and gas companies, energy companies and the telecommunications industry, are subject to significant fluctuations
in fair value due to the volatility of the stock market and the industries in which these companies participate. As of September 30, 2004 and December 31, 2003, the fair value of equity investments contained in long-term marketable securities
aggregated $14.7 million and $10.2 million, respectively. The Company recorded unrealized gains after deferred taxes and after minority interest of $3.0 million and $2.2 million at September 30, 2004 and December 31, 2003, respectively, as a
separate component of stockholders equity. Although the breadth of industries represented on the Russian Trading System and Moscow Interbank Currency Exchange is severely limited, the Company attempts to manage its exposure to stock market
fluctuations and minimize the impact of stock market declines to the Companys earnings and cash flow by increased diversification of the portfolio.



ITEM 4. CONTROLS AND PROCEDURES.



Disclosure Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2004 (the Evaluation Date). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission rules and forms.



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Internal Control Over Financial Reporting. There have not been any significant changes in the Companys
internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended September 30, 2004 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.



PART II  OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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



(b) Form 8-K: On August 11, 2004, the Company filed a Current Report on Form 8-K in connection with a press release announcing its financial results for
the quarter ended June 30, 2004.



On September 16, 2004, the
Company filed a Current Report on Form 8-K in connection with a press release announcing that the Board of Directors declared a dividend of approximately $4.25 million.



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SIGNATURES



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



Dated: November 8, 2004



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




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Exhibit Index



|               |  |                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                  
|2.1*           |  | Form of Distribution Agreement by and among The Pioneer Group, Inc., Harbor Global Company Ltd. and Harbor Global II Ltd.    
|               | 
|3.1+           |  | Memorandum of Association of Harbor Global Company Ltd.                                                                      
|               | 
|3.2+           |  | Bye-Laws of Harbor Global Company Ltd.                                                                                       
|               | 
|4.1**          |  | Specimen Common Share Certificate.                                                                                           
|               | 
|10.1***        |  | Harbor Global Company Ltd. Code of Ethics and Conduct as amended on August 11, 2004.                                         
|               | 
|31.1***        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|31.2***        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|32.1***        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|               | 
|32.2***        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

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

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

|* | Incorporated by reference to Amendment No. 1 to Harbor Global Company Ltd.s Registration Statement on Form 10/A (file number 0-30889) filed on August 8, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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