UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON,
DC. 20549




FORM
20-F




(Mark
One)




o
            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g)OF
      THE SECURITIES EXCHANGE ACT OF 1934


OR





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year
      ended
            
            December 31,
    2009







OR





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


OR





o
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934  Date of event requiring this
      shell company report _______________________________
              For the transition period from
      _________________ to
_________________








Commission
      file number
            001-16601





Frontline
      Ltd.(Exact
      name of Registrant as specified in its charter)(Translation
      of Registrant's name into English)Bermuda(Jurisdiction
      of incorporation or organization)Par-la-Ville
      Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda(Address
      of principal executive offices)





Georgina
      Sousa, Telephone: (1) 441 295 6935, Facsimile: (1) 441 295
      3494,
              Par-la-Ville
      Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda(Name,
      Telephone, E-mail and/or Facsimile number and Address of Company Contact
      Person)






1





Securities
registered or to be registered pursuant to Section 12(b) of the Act





Title
      of each class
            
            Name
      of each exchange on which registeredOrdinary
      Shares, $2.50 Par Value
            
            New
      York Stock Exchange


Securities
registered or to be registered pursuant to Section 12(g) of the
Act.


None(Title
      of Class)


Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.





Ordinary
      Shares, $2.50 Par Value(Title
      of Class)


Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report.





77,858,502
Ordinary Shares, $2.50 Par Value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.





Yes x                                            No
o





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.





Yes o                                            No
x





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
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).





Yes o                                            No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer  x
            Accelerated
      filer  o
            Non-accelerated
      filer  o








2





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





U.S.
      GAAP x
            International
      Financial Reporting Standards as issued by the
              International
      Accounting Standards Board o
            Other
      o





If
"Other" has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:





Item
17 o                                           Item
18 o








If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).





Yes o                                            No
x





3





INDEX
TO REPORT ON FORM 20-F





PAGE





PART
      IItem
      1.
            Identity
      of Directors, Senior Management and Advisers
            6Item
      2.
            Offer
      Statistics and Expected Timetable
            6Item
      3.
            Key
      Information
            6Item
      4.
            Information
      on the Company
            25Item
      4A.
            Unresolved
      Staff Comments
            44Item
      5.
            Operating
      and Financial Review and Prospects
            44Item
      6.
            Directors,
      Senior Management and Employees
            69Item
      7.
            Major
      Shareholders and Related Party Transactions
            72Item
      8.
            Financial
      Information
            74Item
      9.
            The
      Offer and Listing
            75Item
      10.
            Additional
      Information
            76Item
      11.
            Quantitative
      and Qualitative Disclosures about Market Risk
            87Item
      12.
            Description
      of Securities other than Equity Securities
            87PART
      IIItem
      13.
            Defaults,
      Dividend Arrearages and Delinquencies
            88Item
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            88Item
      15.
            Controls
      and Procedures
            88Item
      16.
            Reserved
            89Item
      16A.
            Audit
      Committee Financial Expert
            89Item
      16B.
            Code
      of Ethics
            89Item
      16C.
            Principal
      Accountant Fees and Services
            89Item
      16D.
            Exemptions
      from the Listing Standards for Audit Committees
            90Item
      16E.
            Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
            90Item
      16F.
            Change
      in Registrant's Certifying Accountant
            90Item
      16G.
            Corporate
      Governance
            90PART
      IIIItem
      17.
            Financial
      Statements
            92Item
      18.
            Financial
      Statements
            92Item
      19.
            Exhibits
            93





4





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




Matters
discussed in this report may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other
than statements of historical facts.




Frontline
Ltd., or the Company, desires to take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and is including this
cautionary statement in connection with this safe harbor legislation. This
report and any other written or oral statements made by us or on our behalf may
include forward-looking statements, which reflect our current views with respect
to future events and financial performance. When used in this report, the words
"believe," "anticipate," "intend," "estimate," "forecast," "project," "plan,"
"potential," "will," "may," "should," "expect" and similar expressions identify
forward-looking statements.




The
forward-looking statements in this report are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, management's examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.




In
addition to these important factors and matters discussed elsewhere herein and
in the documents incorporated by reference herein, important factors that, in
our view, could cause actual results to differ materially from those discussed
in the forward-looking statements include the strength of world economies,
fluctuations in currencies and interest rates, general market conditions,
including fluctuations in charterhire rates and vessel values, changes in demand
in the tanker market, changes in world wide oil production and consumption and
storage, changes in the Company's operating expenses, including bunker prices,
drydocking and insurance costs, changes in governmental rules and regulations or
actions taken by regulatory authorities, potential liability from pending or
future litigation, general domestic and international political conditions,
potential disruption of shipping routes due to accidents, political events or
acts by terrorists, and other important factors described from time to time in
the reports filed by the Company with the Securities and Exchange Commission or
Commission.




5


PART
I




ITEM
      1.
            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS





Not
applicable.





ITEM
      2.
            OFFER
      STATISTICS AND EXPECTED TIMETABLE





Not
applicable.





ITEM
      3.
            KEY
      INFORMATION







Throughout
this report, the "Company," "we," "us" and "our" all refer to Frontline Ltd. and
its subsidiaries. We use the term deadweight ton, or dwt, in describing the size
of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000
kilograms, refers to the maximum weight of cargo and supplies that a vessel can
carry. The Company operates tankers of two sizes: very large crude carriers, or
VLCCs, which are between 200,000 and 320,000 deadweight tons, or dwt, and
Suezmaxes, which are vessels between 120,000 and 170,000 dwt. We also operate
oil/bulk/ore or OBO carriers, which are currently classified to carry dry cargo.
Unless otherwise indicated, all references to "USD,""US$" and "$" in this report
are U.S. dollars.




A.
SELECTED FINANCIAL DATA




The
selected statement of operations data of the Company with respect to the fiscal
years ended December 31, 2009, 2008 and 2007 and the selected balance sheet data
of the Company with respect to the fiscal years ended December 31, 2009 and
2008, respectively, have been derived from the Company's consolidated financial
statements included herein and should be read in conjunction with such
statements and the notes thereto. The selected statement of operations data with
respect to the fiscal years ended December 31, 2006 and 2005 and the selected
balance sheet data with respect to the fiscal years ended December 31, 2007,
2006 and 2005 have been derived from consolidated financial statements of the
Company not included herein. The following table should also be read in
conjunction with Item 5. "Operating and Financial Review and Prospects" and the
Company's consolidated financial statements and notes thereto included herein.
The Company's accounts are maintained in U.S. dollars.




Fiscal
      year ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(in
      thousands of $, except ordinary shares, per share data and
      ratios)Statement of Operations Data(1):Total
      operating revenues
            
            
            1,133,286
            
            
            
            2,104,018
            
            
            
            1,299,927
            
            
            
            1,558,369
            
            
            
            1,495,975Total
      operating expenses
            
            
            896,237
            
            
            
            1,395,831
            
            
            
            898,904
            
            
            
            850,623
            
            
            
            713,919Net
      operating income
            
            
            240,110
            
            
            
            850,480
            
            
            
            519,191
            
            
            
            803,401
            
            
            
            858,137Net
      income from continuing operations before income taxes and
      noncontrolling  interest
            
            
            105,833
            
            
            
            701,264
            
            
            
            503,991
            
            
            
            661,330
            
            
            
            761,078Net
      income from continuing operations
            
            
            105,472
            
            
            
            700,954
            
            
            
            587,138
            
            
            
            661,168
            
            
            
            762,202Discontinued
      operations (2)
            
            
            -
            
            
            
            -
            
            
            
            5,442
            
            
            
            13,514
            
            
            
            14,096Net
      income attributable to Frontline Ltd.
            
            
            102,701
            
            
            
            698,770
            
            
            
            570,418
            
            
            
            516,000
            
            
            
            606,839Earnings
      from continuing operations per ordinary share-
      basic
            
            $
            1.32
            
            
            $
            9.15
            
            
            $
            7.55
            
            
            $
            6.72
            
            
            $
            7.92-
      diluted
            
            $
            1.32
            
            
            $
            9.14
            
            
            $
            7.55
            
            
            $
            6.72
            
            
            $
            7.92Net
      income per ordinary share-
      basic
            
            $
            1.32
            
            
            $
            9.15
            
            
            $
            7.62
            
            
            $
            6.90
            
            
            $
            8.11-
      diluted
            
            $
            1.32
            
            
            $
            9.14
            
            
            $
            7.62
            
            
            $
            6.90
            
            
            $
            8.11Cash
      dividends declared per share
            
            $
            0.90
            
            
            $
            8.25
            
            
            $
            8.30
            
            
            $
            7.00
            
            
            $
            10.10





6





Fiscal
      year ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(in
      thousands of $, except ordinary shares and ratios)Balance Sheet Data (at end of
      year)(1):Cash
      and cash equivalents
            
            
            82,575
            
            
            
            190,819
            
            
            
            168,432
            
            
            
            197,181
            
            
            
            92,782Newbuildings
            
            
            413,968
            
            
            
            454,227
            
            
            
            160,298
            
            
            
            166,851
            
            
            
            15,927Vessels
      and equipment, net
            
            
            678,694
            
            
            
            438,161
            
            
            
            208,516
            
            
            
            2,446,278
            
            
            
            2,584,847Vessels
      and equipment under capital lease, net
            
            
            1,740,666
            
            
            
            2,100,717
            
            
            
            2,324,789
            
            
            
            626,374
            
            
            
            672,608Investments
      in unconsolidated subsidiaries and associated companies
            
            
            3,923
            
            
            
            4,467
            
            
            
            5,633
            
            
            
            17,825
            
            
            
            15,783Total
      assets
            
            
            3,715,218
            
            
            
            4,027,728
            
            
            
            3,762,091
            
            
            
            4,589,937
            
            
            
            4,454,817Short-term
      debt and current portion of long-term debt
            
            
            123,884
            
            
            
            293,471
            
            
            
            96,811
            
            
            
            281,409
            
            
            
            228,135Current
      portion of obligations under capital lease
            
            
            285,753
            
            
            
            243,293
            
            
            
            179,604
            
            
            
            28,857
            
            
            
            25,142Long-term
      debt
            
            
            760,698
            
            
            
            614,676
            
            
            
            376,723
            
            
            
            2,181,885
            
            
            
            2,101,061Obligations
      under capital leases
            
            
            1,579,708
            
            
            
            1,969,919
            
            
            
            2,318,794
            
            
            
            723,073
            
            
            
            706,279Share
      capital
            
            
            194,646
            
            
            
            194,646
            
            
            
            187,063
            
            
            
            187,063
            
            
            
            187,063Total
      stockholders' equity
            
            
            741,340
            
            
            
            702,217
            
            
            
            445,969
            
            
            
            668,560
            
            
            
            715,166Ordinary
      shares outstanding
            
            
            77,858,502
            
            
            
            77,858,502
            
            
            
            74,825,169
            
            
            
            74,825,169
            
            
            
            74,825,169Weighted
      average ordinary shares outstanding
            
            
            77,858,502
            
            
            
            76,352,673
            
            
            
            74,825,169
            
            
            
            74,825,169
            
            
            
            74,825,169Other
      Financial Data:Equity
      to assets ratio (percentage) (3)
            
            
            20.0
            %
            
            
            17.4
            %
            
            
            11.8
            %
            
            
            14.6
            %
            
            
            16.1
            %Debt
      to equity ratio (4)
            
            
            3.7
            
            
            
            4.4
            
            
            
            6.7
            
            
            
            4.8
            
            
            
            4.3Price
      earnings ratio (5)
            
            
            20.7
            
            
            
            3.2
            
            
            
            6.3
            
            
            
            4.6
            
            
            
            4.7Time
      charter equivalent revenue (6)
            
            
            896,843
            
            
            
            1,493,912
            
            
            
            938,960
            
            
            
            1,154,029
            
            
            
            1,155,135





Notes:


1.
            The
      Company distributed the majority of its remaining shareholding in Ship
      Finance International Limited ("Ship Finance") in March 2007 and no longer
      consolidates Ship Finance as of March 31, 2007. A summary of the major
      changes to the financial statements is as
  follows;




a.
            Vessels
      leased from Ship Finance, which were previously reported as wholly owned
      are reported as vessels held under capital
  lease.


b.
            Capital
      lease obligations with Ship Finance, which were previously eliminated on
      consolidation are reported as liabilities with the related interest
      recorded in the income statement.






7





c.
            Debt
      incurred by Ship Finance, which was previously reported as debt of the
      Company is no longer reported.


d.
            Derivative
      instruments held by Ship Finance are no longer
  reported.


e.
            Noncontrolling
      interest expense relating to Ship Finance is no longer
      reported.


f.
            Profit
      share expense relating to amounts due to Ship Finance is shown in the
      income statement.


g.
            Results
      from Ship Finance's container ships, jack-up rigs and Panamax vessels are
      no longer reported in the Company's consolidated
  results.





2.
            The
      Company disposed of the container vessel and rig operations of Ship
      Finance in the first quarter of 2007 as a result of the spin off of Ship
      Finance. These operations have been recorded as discontinued operations in
      2007 and 2006. The results from container vessels have also been recorded
      in discontinued operations in 2005. These operations have been recorded as
      discontinued operations for all applicable years presented, which are
      2007, 2006 and 2005. During the year ended December 31, 2005 the Company
      disposed of a portion of its dry-bulk operations, which have been recorded
      as discontinued operations in the year ended December 31,
      2005.





3.
            Equity
      to assets ratio is calculated as total stockholders' equity divided by
      total assets.





4.
            Debt
      to equity ratio is calculated as total interest bearing current and
      long-term liabilities, including obligations under capital leases, divided
      by stockholders' equity.





5.
            Price
      earnings ratio is calculated by dividing the closing year end share price
      by basic earnings per share.





6.
            A
      reconciliation of time charter equivalent revenues to total operating
      revenues as reflected in the consolidated statements of operations is as
      follows:








2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(in
      thousands of $)Total
      operating revenues
            
            
            1,133,286
            
            
            
            2,104,018
            
            
            
            1,299,927
            
            
            
            1,558,369
            
            
            
            1,495,975Less:Other
      income
            
            
            (17,068
            )
            
            
            (17,918
            )
            
            
            (8,516
            )
            
            
            (5,294
            )
            
            
            (3,877
            )Voyage
      expense
            
            
            (219,375
            )
            
            
            (592,188
            )
            
            
            (352,451
            )
            
            
            (399,046
            )
            
            
            (336,963
            )Time
      charter equivalent revenue
            
            
            896,843
            
            
            
            1,493,912
            
            
            
            938,960
            
            
            
            1,154,029
            
            
            
            1,155,135





Our
vessels are operated under time charters, bareboat charters, voyage charters,
pool arrangements and contracts of affreightment, or COAs. Under a time charter,
the charterer pays substantially all of the vessel voyage costs which are
primarily fuel and port charges. Under a bareboat charter the charterer pays
substantially all of the vessel voyage and operating costs. Under a voyage
charter, the vessel owner pays such costs. Under contracts of affreightment, the
owner carries an agreed upon quantity of cargo over a specified route and time
period. In order to compare vessels trading under different types of charters,
it is standard industry practice to measure the revenue performance of a vessel
in terms of time charter equivalent revenue, or TCE. Total TCE is the sum of
time charter, voyage charter and bareboat charter revenues, less voyage
expenses. Total TCE, which is not covered by U.S. generally accepted accounting
principles, or GAAP, provides more meaningful information to us than total
operating revenues, the most directly comparable GAAP measure. Average daily
TCEs are also widely used by investors and analysts in the shipping industry for
comparing financial performance between companies and to industry averages.
Other companies may calculate TCE using a different method.






8




B.
CAPITALIZATION AND INDEBTEDNESS




Not
applicable.




C.
REASONS FOR THE OFFER AND USE OF PROCEEDS




Not
applicable.




D. RISK
FACTORS




We are
engaged in the seaborne transportation of crude oil, oil products and dry bulk
cargoes. The following summarizes some of the risks that may materially affect
our business, financial condition or results of operations. As our OBOs are
currently fitted to carry dry bulk cargoes, we include risk factors related to
dry bulk vessels.




Risks
Related to Our Industry




Tankers




The
cyclical nature of the tanker industry may lead to volatile changes in charter
rates and vessel values which may adversely affect our earnings




Historically,
the tanker industry has been highly cyclical, with volatility in profitability
and asset values resulting from changes in the supply of, and demand for, tanker
capacity. When the tanker market is depressed our earnings and available cash
flow may decrease. Our ability to re-charter our vessels on the expiration or
termination of their current spot and time and bareboat charters and the charter
rates payable under any renewal or replacement charters will depend upon, among
other things, economic conditions in the tanker market. Fluctuations in charter
rates and vessel values result from changes in the supply and demand for tanker
capacity and changes in the supply and demand for oil and oil
products.




The
factors affecting the supply and demand for oil tankers are outside of our
control, and the nature, timing and degree of changes in industry conditions are
unpredictable. The factors that influence demand for tanker capacity
include:




·
            demand
      for oil and oil products;





·
            global
      and regional economic and political
conditions;





·
            changes
      in oil production and refining
capacity;





·
            environmental
      and other regulatory developments;





·
            the
      distance oil and oil products are to be moved by sea;
  and





·
            changes
      in seaborne and other transportation
patterns.





The
factors that influence the supply of tanker capacity include:





·
            the
      number of newbuilding deliveries;





·
            the
      scrapping rate of older vessels;





·
            port
      or canal congestion;





·
            vessel
      casualties;





·
            price
      of steel;





·
            potential
      conversion of vessels to alternative use;  ·
            the
      number of vessels that are out of service;
and





·
            changes
      in environmental and other regulations that may effectively cause
      reductions in the carrying capacity of vessels or early obsolescence of
      tonnage.





9


Historically,
the tanker markets have been volatile as a result of the many conditions and
factors that can affect the price, supply and demand for tanker capacity. The
current global economic crisis may reduce demand for transportation of oil over
longer distances and supply of tankers to carry that oil, which may materially
affect our revenues, profitability and cash flows.




The
international tanker industry has experienced volatile charter rates and vessel
values and there can be no assurance that these charter rates and vessel values
will return to their previous high levels




Charter
rates in the tanker industry are volatile. We anticipate that future demand for
our vessels, and in turn our future charter rates, will be dependent upon
economic growth in the world's economy as well as seasonal and regional changes
in demand and changes in the capacity of the world's fleet. We believe that
these charter rates are the result of economic growth in the world economy that
exceeds growth in global vessel capacity. There can be no assurance that
economic growth will not stagnate or decline leading to a further decrease in
vessel values and charter rates. A further decline in vessel values and charter
rates could have an adverse effect on our business, financial condition, results
of operation and ability to pay dividends.




Any
decrease in shipments of crude oil may adversely affect our financial
performance




The
demand for our oil tankers derives primarily from demand for Arabian Gulf, West
African, North Sea and Carribean crude oil, which, in turn, primarily depends on
the economies of the world's industrial countries and competition from
alternative energy sources. A wide range of economic, social and other factors
can significantly affect the strength of the world's industrial economies and
their demand for crude oil from the mentioned geographical areas. One such
factor is the price of worldwide crude oil. The world's oil markets have
experienced high levels of volatility in the last 25 years. In July 2008, oil
prices rose to a high of approximately $143 per barrel before decreasing to
approximately $38 per barrel by the end of December 2008 and rising to
approximately $75 per barrel in mid-February 2010.




Any
decrease in shipments of crude oil from the above mentioned geographical areas
would have a material adverse effect on our financial performance. Among the
factors which could lead to such a decrease are:




·
            increased
      crude oil production from other
areas;





·
            increased
      refining capacity in the Arabian Gulf or West
  Africa;





·
            increased
      use of existing and future crude oil pipelines in the Arabian Gulf or West
      Africa;





·
            a
      decision by Arabian Gulf or West African oil-producing nations to increase
      their crude oil prices or to further decrease or limit their crude oil
      production;





·
            armed
      conflict in the Arabian Gulf and West Africa and political or other
      factors; and





·
            the
      development and the relative costs of nuclear power, natural gas, coal and
      other alternative sources of
energy.





An
over-supply of tanker capacity may lead to reductions in charter rates, vessel
values and profitability




Currently,
shipyards are booked to produce a large number of new tankers. If the capacity
of new vessels delivered exceeds the capacity of tankers being scrapped and
converted to non-trading tankers, tanker capacity will increase. If the supply
of tanker capacity increases and the demand for tanker capacity does not
increase correspondingly, charter rates could materially decline. A reduction in
charter rates and the value of our vessels may have a material adverse effect on
our results of operations, our ability to pay dividends and our compliance with
loan covenants.




10


Dry
Bulk




Charter
hire rates for dry bulk vessels may decrease in the future, which may adversely
affect our earnings




The dry
bulk shipping industry is cyclical with attendant volatility in charterhire
rates and profitability. The degree of charterhire rate volatility among
different types of dry bulk vessels has varied widely, and charterhire rates for
dry bulk vessels have declined significantly from historically high levels.
Fluctuations in charter rates result from changes in the supply and demand for
vessel capacity and changes in the supply and demand for the major commodities
carried by water internationally. Because the factors affecting the supply and
demand for vessels are outside of our control and are unpredictable, the nature,
timing, direction and degree of changes in industry conditions are also
unpredictable.




Factors
that influence demand for vessel capacity include:




·
              supply
      and demand for energy resources, commodities, semi-finished and finished
      consumer and industrial products;
  ·
                changes
      in the exploration or production of energy resources, commodities,
      semi-finished and finished consumer and industrial
    products;
  ·
                  the
      location of regional and global exploration, production and manufacturing
      facilities;




·
              the
      location of consuming regions for energy resources, commodities,
      semi-finished and finished consumer and industrial
    products;




·
              the
      globalization of production and
manufacturing;
  ·
                global
      and regional economic and political conditions, including armed conflicts
      and terrorist activities; embargoes and
strikes;
  ·
                  developments
      in international trade;
  ·
                    changes
      in seaborne and other transportation patterns, including the distance
      cargo is transported by sea;
  ·
                      environmental
      and other regulatory developments;
  ·
                        currency
      exchange rates; and
  ·
                          weather.




Factors
that influence the supply of vessel capacity include:




·
              number
      of newbuilding deliveries;
  ·
                scrapping of
      older vessels;
  ·
                  vessel
      casualties; and
  ·
                    number of vessels
      that are out of
service.




Demand
for our dry bulk vessels is dependent upon economic growth in the world's
economies, seasonal and regional changes in demand, changes in the capacity of
the global dry bulk fleet and the sources and supply of dry bulk cargo
transported by sea. Given the large number of new dry bulk carriers currently on
order with shipyards, the capacity of the global dry bulk carrier fleet seems
likely to increase and economic growth may not resume in areas that have
experienced a recession or continue in other areas. Adverse economic, political,
social or other developments could have a material adverse effect on our
business and operating results.




11


A
continued downturn in the dry bulk carrier charter market may have an adverse
effect on our earnings and our ability to comply with our loan
covenants




The
Baltic Exchange Capesize Index, or CS4TC, a daily equally weighted average of
the four main Capesize routes declined from a high of approximately $222,800 per
day in May 2008 to a low of approximately $2,400 per day in November 2008, which
represents a decline of 99%. From November 2008 it rose to approximately $30,860
per day in February 2010, which emphasizes the volatility of this market. The
general decline in the dry bulk carrier charter market has resulted in lower
charter rates for vessels exposed to the spot market and time charters linked to
the CS4TC.  Our ability to obtain renewal charters upon the expiration
of our current charters or charters for new vessels that we may acquire in the
future will be directly impacted by prevailing charter rates.




Dry bulk
carrier values have also declined both as a result of a slowdown in the
availability of global credit and the significant deterioration in charter
rates. Charter rates and vessel values have been affected in part by the lack of
availability of credit to finance both vessel purchases and purchases of
commodities carried by sea, resulting in a decline in cargo shipments, and the
excess supply of iron ore in China, which resulted in falling iron ore prices
and increased stockpiles in Chinese ports.   There can be no
assurance as to how long charter rates and vessel values will remain at their
currently low levels or whether the recent improvement will continue. Charter
rates may remain at low levels for some time which will adversely affect our
revenue and profitability and could affect compliance with the covenants in our
loan agreements.




In
addition, because the market value of our vessels may fluctuate significantly,
we may incur losses when we sell vessels, which may adversely affect our
earnings.  If we sell vessels at a time when vessel prices have fallen
and before we have recorded an impairment adjustment to our financial
statements, the sale may be at less than the vessel's carrying amount in our
financial statements, resulting in a loss and a reduction in
earnings.




An
over-supply of dry bulk carrier capacity may prolong or further depress the
current low charter rates and, in turn, adversely affect our
profitability




The
market supply of dry bulk carriers has been increasing, and the number of dry
bulk carriers on order is near historic highs. Dry bulk newbuildings were
delivered in significant numbers starting at the beginning of 2006 and continue
to be delivered in significant numbers. At the end of February 2010, Capesize
newbuilding orders had been placed for an aggregate of more than 75% of the
current global Capesize fleet, with deliveries expected during the next 36
months.  According to market sources, approximately 60% is contracted
at established yards, while the other 40% is contracted at yards that are less
established and whose viability may be uncertain. Due to lack of financing many
analysts expect significant cancellations and/ or slippage of newbuilding
orders. While vessel supply will continue to be affected by the delivery of new
vessels and the removal of vessels from the global fleet, either through
scrapping or accidental losses, an over-supply of dry bulk carrier capacity,
particularly in conjunction with the currently low level of demand, could
exacerbate the recent decrease in charter rates or prolong the period during
which low charter rates prevail. If the current low charter rate environment
persists, or a further reduction occurs, during a period when the current
charters for our dry bulk carriers expire or are terminated, we may only be able
to recharter those vessels at reduced rates or we may not be able to charter our
vessels at all.




Shipping
Generally




Risks
involved with operating ocean-going vessels could affect our business and
reputation, which could have a material adverse effect on our results of
operations and financial condition




The
operation of an ocean-going vessel carries inherent risks.  These
risks include the possibility of:




·a
      marine disaster;·piracy;   12
  ·terrorism;·environmental
      accidents;·cargo
      and property losses or damage; and·business
      interruptions caused by mechanical failure, human error, war, terrorism,
      piracy, political action in various countries, labor strikes, or adverse
      weather conditions.


Any of
these circumstances or events could increase our costs or lower our revenues.
The involvement of our vessels in an oil spill or other environmental disaster
may harm our reputation as a safe and reliable tanker operator.




World
events could affect our results of operations and financial
condition




Terrorist
attacks in New York on September 11, 2001, in London on July 7, 2005 and in
Mumbai on November 26, 2008 and the continuing response of the United States and
others to these attacks, as well as the threat of future terrorist attacks in
the United States or elsewhere, continues to cause uncertainty in the world's
financial markets and may affect our business, operating results and financial
condition. The continuing presence of United States and other armed forces in
Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict
around the world, which may contribute to further economic instability in the
global financial markets. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us or at all. In
the past, political conflicts have also resulted in attacks on vessels, mining
of waterways and other efforts to disrupt international shipping, particularly
in the Arabian Gulf region. Acts of terrorism and piracy have also affected
vessels trading in regions such as the South China Sea and the Gulf of Aden off
the coast of Somalia. Any of these occurrences could have a material adverse
impact on our operating results, revenues and costs.




Terrorist
attacks on vessels, such as the October 2002 attack on the M.V. Limburg, a very large
crude carrier not related to us, may in the future also negatively affect our
operations and financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased volatility and
turmoil of the financial markets in the United States and globally. Any of these
occurrences could have a material adverse impact on our revenues and
costs.




Acts
of piracy on ocean-going vessels have recently increased in frequency, which
could adversely affect our business




Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008 and 2009, the frequency of piracy incidents against
commercial shipping vessels increased significantly, particularly in the Gulf of
Aden off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel
not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100 million. If these pirate attacks
result in regions in which our vessels are deployed being characterized as "war
risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008,
premiums payable for such coverage could increase significantly and such
insurance coverage may be more difficult to obtain. In addition, crew costs,
including due to employing onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In addition, any of
these events may result in loss of revenues, increased costs and decreased cash
flows to our customers, which could impair their ability to make payments to us
under our charters.




Safety,
environmental and other governmental requirements expose us to liability, and
compliance with current and future regulations could require significant
additional expenditures, which could have a material adverse affect on our
business and financial results






13




Our
operations are affected by extensive and changing international, national, state
and local laws, regulations, treaties, conventions and standards in force in
international waters, the jurisdictions in which our tankers and other vessels
operate and the country or countries in which such vessels are registered,
including those governing the management and disposal of hazardous substances
and wastes, the cleanup of oil spills and other contamination, air emissions,
and water discharges and ballast water management. These regulations include the
United States Oil Pollution Act of 1990, or OPA, the United States Clean Air Act
and United States Clean Water Act, the United States Marine Transportation
Security Act of 2002, the International Convention on Civil Liability for Oil
Pollution Damage of 1969, as amended, or CLC, the International Convention for
the Prevention of Pollution from Ships, of 1975, the International Convention
for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on
Load Lines of 1966 or LL Convention, and implementing regulations adopted by the
International Maritime Organization, or the IMO (the United Nations agency for
maritime safety and the prevention of pollution by vessels), the European Union,
or the EU, and other international, national and local regulatory
bodies.




In
addition, vessel classification societies also impose significant safety and
other requirements on our vessels. In complying with current and future
environmental requirements, vessel owners and operators such as ourselves may
also incur significant additional costs in meeting new maintenance and
inspection requirements, in developing contingency arrangements for potential
spills and in obtaining insurance coverage. Government regulation of vessels,
particularly in the areas of safety and environmental requirements, can be
expected to become stricter in the future and require us to incur significant
capital expenditures on our vessels to keep them in compliance, or even to scrap
or sell certain vessels altogether. For example, various jurisdictions,
including the United States, are considering or have enacted legislation
imposing more stringent requirements on air emissions and ballast water
discharges from vessels.




Many of
these requirements are designed to reduce the risk of oil spills and other
pollution, and our compliance with these requirements can be costly. These
requirements can also affect the resale value or useful lives of our vessels,
require a reduction in cargo-capacity, ship modifications or operational changes
or restrictions, lead to decreased availability of insurance coverage for
environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in, certain ports.




Under
local, national and foreign laws, as well as international treaties and
conventions, we could incur material liabilities, including cleanup obligations,
natural resource damages and third-party claims for personal injury or property
damages, in the event that there is a release of petroleum or other hazardous
substances from our vessels or otherwise in connection with our current or
historic operations. We could also incur substantial penalties, fines and other
civil or criminal sanctions, including in certain instances seizure or detention
of our vessels, as a result of violations of or liabilities under environmental
laws, regulations and other requirements. For example, OPA affects all vessel
owners shipping oil to, from or within the United States. OPA allows for
potentially unlimited liability without regard to fault for owners, operators
and bareboat charterers of vessels for oil pollution in United States waters.
Similarly, the CLC, which has been adopted by most countries outside of the
United States, imposes liability for oil pollution in international waters. OPA
expressly permits individual states to impose their own liability regimes with
regard to hazardous materials and oil pollution incidents occurring within their
boundaries. Coastal states in the United States have enacted pollution
prevention liability and response laws, many providing for unlimited
liability.




OPA also
provides for the scheduled phase-out of all non-double-hull tankers that carry
oil in bulk in United States waters. The IMO and the EU, have adopted separate
phase-out schedules applicable to single-hull tankers operating in international
and EU waters, respectively. These regulations could reduce the demand for
single-hull tankers, force the remaining single-hull vessels into less desirable
trading routes, increase the number of vessels trading in routes open to
single-hull vessels and could increase demands for further restrictions in the
remaining jurisdictions that permit the operation of these vessels. As a result,
single-hull vessels are likely to be chartered less frequently and at lower
rates.






14




In recent
years, the IMO and EU have both accelerated their existing non-double-hull
phase-out schedules in response to highly publicized oil spills and other
shipping incidents involving companies unrelated to us. Future accidents may be
expected in the industry, and such accidents or other events may be expected to
result in the adoption of even stricter laws and regulations, which could limit
our operations or our ability to do business and which could have a material
adverse effect on our business and financial results.




Maritime
claimants could arrest one or more of our vessels, which could interrupt our
cash flow




Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions a claimant may seek
to obtain security for its claim by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flow and require us to pay large sums of money to have the
arrest or attachment lifted. In addition, in some jurisdictions, such as South
Africa, under the "sister ship" theory of liability, a claimant may arrest both
the vessel which is subject to the claimant's maritime lien and any "associated"
vessel, which is any vessel owned or controlled by the same owner. Claimants
could attempt to assert "sister ship" liability against one vessel in our fleet
for claims relating to another of our vessels.




Governments
could requisition our vessels during a period of war or emergency resulting in a
loss of earnings




A
government could requisition for title or seize one of more of our vessels.
Requisition for title occurs when a government takes control of a vessel and
becomes her owner. Also, a government could requisition one or more of our
vessels for hire. Requisition for hire occurs when a government takes control of
a vessel and effectively becomes her charterer at dictated charter rates. This
amount could be materially less than the charterhire that would have been
payable otherwise. In addition, we would bear all risk of loss or damage to a
vessel under requisition for hire. Government requisition of one or more of our
vessels would negatively impact our revenues and therefore impact our ability to
service our debt.




Our
vessels may call on ports located in countries that are subject to restrictions
imposed by the United States government, which could adversely affect investor
perceptions




From time
to time, vessels in our fleet may call on ports located in countries subject to
sanctions and embargoes imposed by the United States government and countries
identified by the United States government as state sponsors of terrorism.
Although these sanctions and embargoes do not prevent our vessels from making
calls to ports in these countries, potential investors could view such port
calls negatively, which could adversely affect our reputation and the market for
our shares. Investor perception of the value of our shares may be adversely
affected by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.




Disruptions
in world financial markets and the resulting governmental action in the United
States and in other parts of the world could have a material adverse impact on
our results of operations, financial condition and cash flows, and could cause
the market price of our ordinary shares to decline




Over the
recent period, global financial markets have experienced extraordinary
disruption and volatility following adverse changes in the global credit
markets. The credit markets in the United States have experienced significant
contraction, deleveraging and reduced liquidity, and governments around the
world have taken highly significant measures in response to such events, and may
implement other significant responses in the future.






15




Securities
and futures markets and the credit markets are subject to comprehensive
statutes, regulations and other requirements. The Commission, other regulators,
self-regulatory organizations and exchanges have enacted temporary emergency
regulations and may take other extraordinary actions in the event of market
emergencies and may effect permanent changes in law or interpretations of
existing laws. Recently, a number of financial institutions have experienced
serious financial difficulties and, in some cases, have entered into bankruptcy
proceedings or are in regulatory enforcement actions. These difficulties have
resulted, in part, from declining markets for assets held by such institutions,
particularly the reduction in the value of their mortgage and asset-backed
securities portfolios. These difficulties have been compounded by a general
decline in the willingness by banks and other financial institutions to extend
credit. In addition, these difficulties may adversely affect the financial
institutions that provide our credit facilities and may impair their ability to
continue to perform under their financing obligations to us, which could have an
impact on our ability to fund current and future obligations, including our
ability to take delivery of our newbuildings.




We face
risks attendant to changes in economic environments, changes in interest rates
and instability in securities markets around the world, among other factors.
Major market disruptions and the current adverse changes in market conditions
and regulatory climate in the United States and worldwide may adversely affect
our business or impair our ability to borrow amounts under our credit facilities
or any future financial arrangements. We cannot predict how long the current
market conditions will last. However, these recent and developing economic and
governmental factors may have a material adverse effect on our results of
operations, financial condition or cash flows and could cause the price of our
ordinary shares to decline significantly or impair our ability to make
distributions to our shareholders.




Risks
Related to Our Business




A
drop in spot charter rates may provide an incentive for some charterers to
default on their charters




When we
enter into a time charter, charter rates under that charter are fixed for the
term of the charter.  If the spot charter rates or short-term time
charter rates in the tanker or dry bulk shipping industry, as applicable, become
significantly lower than the time charter equivalent rates that some of our
charterers are obligated to pay us under our existing charters, the charterers
may have incentive to default under that charter or attempt to renegotiate the
charter. If our charterers fail to pay their obligations, we would have to
attempt to re-charter our vessels at lower charter rates, which would affect our
ability to comply with our loan covenants and operate our vessels
profitably.  If we are not able to comply with our loan covenants and
our lenders choose to accelerate our indebtedness and foreclose their liens, we
could be required to sell vessels in our fleet and our ability to continue to
conduct our business would be impaired.




The
operation of dry bulk carriers and tankers each involve certain unique
operational risks




The
operation of dry bulk carriers has certain unique operational risks. With a dry
bulk carrier, the cargo itself and its interaction with the ship can be a risk
factor. By their nature, dry bulk cargoes are often heavy, dense, easily
shifted, and react badly to water exposure.  In addition, dry bulk
carriers are often subjected to battering treatment during unloading operations
with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small
bulldozers. This treatment may cause damage to the dry bulk carrier. Dry bulk
carriers damaged due to treatment during unloading procedures may be more
susceptible to a breach to the sea. Hull breaches in dry bulk carriers may lead
to the flooding of their holds. If a dry bulk carrier suffers flooding in its
forward holds, the bulk cargo may become so dense and waterlogged that its
pressure may buckle the dry bulk carrier's bulkheads leading to the loss of the
dry bulk carrier.




The
operation of tankers has unique operational risks associated with the
transportation of oil.  An oil spill may cause significant
environmental damage, and a catastrophic spill could exceed the insurance
coverage available. Compared to other types of vessels, tankers are exposed to a
higher risk of damage and loss by fire, whether ignited by a terrorist attack,
collision, or other cause, due to the high flammability and high volume of the
oil transported in tankers.




16




If we are
unable to adequately maintain or safeguard our vessels we may be unable to
prevent these events. Any of these circumstances or events could negatively
impact our business, financial condition, results of operations.  In
addition, the loss of any of our vessels could harm our reputation as a safe and
reliable vessel owner and operator.




Purchasing
and operating previously owned, or secondhand, vessels may result in increased
drydocking costs and vessels off-hire, which could adversely affect our
earnings




Even
following a physical inspection of secondhand vessels prior to purchase, we do
not have the same knowledge about their condition and cost of any required (or
anticipated) repairs that we would have had if these vessels had been built for
and operated exclusively by us.  Accordingly, we may not discover
defects or other problems with such vessels prior to purchase. Defects or
problems discovered after purchase may be expensive to repair, and if not
detected, may result in accidents or other incidents for which we may become
liable to third parties.  We may not receive the benefit of warranties
on secondhand vessels. Increased drydocking costs or vessels off-hire may
adversely affect our earnings.




The
volatility in both dry bulk and tanker charter rates, and vessel values, may
affect our ability to comply with various covenants in our loan
agreements.




Our loan
agreements for our borrowings, which are secured by liens on our vessels,
contain various financial covenants. Among those covenants are requirements that
relate to our financial position, operating performance and liquidity. For
example, there are financial covenants that require us to maintain (i) a minimum
value adjusted equity that is based, in part, upon the market value of the
vessels securing the loans, (ii) minimum levels of free cash, and (iii) a
positive working capital.  The market value of dry bulk and tanker
vessels is sensitive, among other things, to changes in the dry bulk and tanker
charter markets, respectively, with vessel values deteriorating in times when
dry bulk and tanker charter rates, as applicable, are falling and improving when
charter rates are anticipated to rise.  Such conditions may result in
our not being in compliance with these loan covenants.  In such a
situation, unless our lenders were willing to provide waivers of covenant
compliance or modifications to our covenants, or would be willing to refinance
our indebtedness, we may have to sell vessels in our fleet and/or seek to raise
additional capital in the equity markets in order to comply with our loan
covenants.  Furthermore, if the value of our vessels deteriorates
significantly, we may have to record an impairment adjustment in our financial
statements, which would adversely affect our financial results and further
hinder our ability to raise capital.




If we are
not in compliance with our covenants and are not able to obtain covenant waivers
or modifications, our lenders could require us to post additional collateral,
enhance our equity and liquidity, increase our interest payments or pay down our
indebtedness to a level where we are in compliance with our loan covenants, sell
vessels in our fleet, or they could accelerate our indebtedness, which would
impair our ability to continue to conduct our business.  In such an
event, our auditors may give either an unqualified opinion with an explanatory
paragraph relating to the disclosure in the notes to our financial statements as
to the substantial doubt of our ability to continue as a going concern, or a
qualified, adverse or disclaimer of opinion, which could lead to additional
defaults under our loan agreements. If our indebtedness is accelerated, we might
not be able to refinance our debt or obtain additional financing and could lose
our vessels if our lenders foreclose their liens.  In addition, if we
find it necessary to sell our vessels at a time when vessel prices are low, we
will recognize losses and a reduction in our earnings, which could affect our
ability to raise additional capital necessary for us to comply with our loan
agreements.






17




Our
ability to obtain additional debt financing may be dependent on the performance
of our then existing charters and the creditworthiness of our
charterers




The
actual or perceived credit quality of our charterers, and any defaults by them,
may materially affect our ability to obtain the additional capital resources
required to purchase additional vessels or may significantly increase our costs
of obtaining such capital. Our inability to obtain additional financing at
anticipated costs or at all may materially affect our results of operation and
our ability to implement our business strategy.




Our
revenues experience seasonal variations that may affect our income




We
operate our tankers in markets that have historically exhibited seasonal
variations in demand and, therefore, charter rates. Historically, oil trade and
therefore charter rates increased in the winter months and eased in the summer
months as demand for oil in the Northern Hemisphere rose in colder weather and
fell in warmer weather. In addition, unpredictable weather patterns in the
winter months tend to disrupt vessel scheduling. The tanker industry in general
is less dependent on the seasonal transport of heating oil than a decade ago as
new uses for oil and oil products have developed, spreading consumption more
evenly over the year. Most apparent is a higher seasonal demand during the
summer months due to energy requirements for air conditioning and motor
vehicles. The oil price volatility resulting from these factors has historically
led to increased oil trading activities and demand for vessels. The change in
demand for vessels may affect the charter rates that we receive.




Because
the market value of our vessels may fluctuate significantly, we may incur losses
when we sell vessels which may adversely affect our earnings




The fair
market value of vessels may increase and decrease depending on but not limited
to the following factors:




·
            general
      economic and market conditions affecting the
      shipping  industry;





·
            competition
      from other shipping companies;





·
            types
      and sizes of vessels;





·
            other
      modes of transportation;





·
            cost
      of newbuildings;





·
            shipyard
      capacity;





·
            governmental
      or other regulations;





·
            age
      of vessels;





·
            prevailing
      level of charter rates; and





·
            technological
      advances.





If we
sell a vessel at a time when ship prices have fallen, the sale may be at less
than the vessel's carrying amount on our financial statements, with the result
that we could incur a loss and a reduction in earnings. In addition, if we
determine at any time that a vessel's future limited useful life and earnings
require us to impair its value on our financial statements, that could result in
a charge against our earnings and a reduction of our shareholders' equity. It is
possible that the market value of our vessels will decline in the future and
this will also have an adverse effect on some of the financial covenants in our
loan agreements.




We
may be unable to successfully compete with other vessel operators for charters,
which could adversely affect our results of operations and financial
position




The
operation of tankers and dry bulk vessels and transportation of crude and
petroleum products and dry bulk cargoes is extremely competitive. Through our
operating subsidiaries we compete with other vessel owners (including major oil
companies as well as independent companies), and, to a lesser extent, owners of
other size vessels. The tanker and dry bulk markets are highly fragmented. It is
possible that we could not obtain suitable employment for our vessels, which
could adversely affect our results of operations and financial
position.






18




Our
time and bareboat charters may limit our ability to benefit from any improvement
in charter rates, and at the same time, our revenues may be adversely affected
if we do not successfully employ our vessels on the expiration of our
charters




Currently,
some of our vessels are contractually committed to time and bareboat charters.
Although our time and bareboat charters generally provide reliable revenues,
they also limit the portion of our fleet available for spot market voyages
during an upswing in the tanker industry cycle, when spot market voyages might
be more profitable. By the same token, we cannot assure you that we will be able
to successfully employ our vessels in the future or renew our existing charters
at rates sufficient to allow us to operate our business profitably or meet our
obligations.  A decline in charter or spot rates or a failure to
successfully charter our vessels could have a material adverse effect on our
business, financial condition, results of operation and ability to pay
dividends.




Delays
or defaults by the shipyards in the construction of our newbuildings could
increase our expenses and diminish our net income and cash flows




We
currently have newbuilding contracts for the construction of a total of six VLCC
and two Suezmax vessels with three shipyards in China: Shanghai Waigaoqiao
Shipbuilding Company Ltd, or Waigaoqiao, Jiangsu Rongsheng Heavy Industries
Group Co. Ltd., or Rongsheng, and Zhoushan Jinhaiwan Shipyard Co. Ltd, or
Jinhaiwan. These projects are subject to the risk of delay or defaults by the
shipyards caused by, among other things, unforeseen quality or engineering
problems, work stoppages, weather interference, unanticipated cost increases,
delays in receipt of necessary equipment, and inability to obtain the requisite
permits or approvals. In accordance with industry practice, in the event the
shipyards are unable or unwilling to deliver the vessels, we may not have
substantial remedies. Failure to construct or deliver the ships by the shipyards
or any significant delays could increase our expenses and diminish our net
income and cash flows.




We
cannot assure you that we will be able to refinance indebtedness incurred under
our current credit facilities




We cannot
assure you that we will be able to refinance our indebtedness on terms that are
acceptable to us or at all. If we are not able to refinance our indebtedness, we
will have to dedicate a greater portion of our cash flow from operations to pay
the principal and interest of this indebtedness. We cannot assure you that we
will be able to generate cash flow in amounts that are sufficient for these
purposes. If we are not able to satisfy these obligations, we may have to
undertake alternative financing plans or sell our assets. In addition, debt
service payments under our credit facilities may limit funds otherwise available
for working capital, capital expenditures, payment of dividends and other
purposes. If we are unable to meet our debt obligations, or if we otherwise
default under our credit facilities, our lenders could declare the debt,
together with accrued interest and fees, to be immediately due and payable and
foreclose on our fleet, which could result in the acceleration of other
indebtedness that we may have at such time and the commencement of similar
foreclosure proceedings by other lenders.




As
we expand our fleet, we may not be able to recruit suitable employees and crew
for our vessels which may limit our growth and cause our financial performance
to suffer




As we
expand our fleet, we will need to recruit suitable crew, shoreside,
administrative and management personnel.  We may not be able to
continue to hire suitable employees as we expand our fleet of
vessels.  If we are unable to recruit suitable employees and crews, we
may not be able to provide our services to customers, our growth may be limited
and our financial performance may suffer.






19




We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or otherwise adversely affect our business




We have
entered into various contracts, including charterparties with our customers,
newbuilding contracts with shipyards and our credit facilities. These agreements
subject us to counterparty risks. The ability of each of our counterparties to
perform its obligations under a contract with us will depend on a number of
factors that are beyond our control and may include, among other things, general
economic conditions, the condition of the maritime and offshore industries, the
overall financial condition of the counterparty, charter rates received for
specific types of vessels, and various expenses. Should a counterparty fail to
honor its obligations under agreements with us, we could sustain significant
losses which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.




Declines
in charter rates and other market deterioration could cause us to incur
impairment charges




The
carrying values of our vessels are reviewed whenever events or changes in
circumstances indicate that the carrying amount of the vessel may no longer be
recoverable. We assess recoverability of the carrying value by estimating the
future net cash flows expected to result from the vessel, including eventual
disposal. If the future net undiscounted cash flows and the estimated fair
market value of the vessel are less than the carrying value an impairment loss
is recorded equal to the difference between the vessel's carrying value and fair
value. Any impairment charges incurred as a result of declines in charter rates
and other market deterioration could negatively affect our business, financial
condition, operating results or the trading price of our Ordinary
Shares.




Fuel
or bunker prices, may adversely affect our profits




For
vessels on voyage charters, fuel oil, or bunkers, is a significant, if not the
largest, expense. Changes in the price of fuel may adversely affect our
profitability to the extent we have vessels on voyage charters. The price and
supply of fuel is unpredictable and fluctuates based on events outside our
control, including geopolitical developments, supply and demand for oil and gas,
actions by OPEC and other oil and gas producers, war and unrest in oil producing
countries and regions, regional production patterns and environmental concerns.
Further, fuel may become much more expensive in the future, which may reduce the
profitability and competitiveness of our business versus other forms of
transportation, such as truck or rail.




Operational
risks and damage to our vessels could adversely impact our
performance




If our
vessels suffer damage due to inherent operational risks, we may experience
unexpected drydocking costs and delays or total loss of our vessels, which may
adversely affect our revenues and business and financial condition.




Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. These hazards may
result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, delay or rerouting.




In
addition, the operation of tankers has unique operational risks associated with
the transportation of oil. An oil spill may cause significant environmental
damage, and the costs associated with a catastrophic spill could exceed the
insurance coverage available to us.  Compared to other types of
vessels, tankers are exposed to a higher risk of damage and loss by fire,
whether ignited by a terrorist attack, collision, or other cause, due to the
high flammability and high volume of the oil transported in
tankers.






20




If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and may be substantial. We may
have to pay drydocking costs that our insurance does not cover in full. The loss
of earnings while these vessels are being repaired and repositioned, as well as
the actual cost of these repairs, may adversely affect our business and
financial condition. In addition, space at drydocking facilities is sometimes
limited and not all drydocking facilities are conveniently located. We may be
unable to find space at a suitable drydocking facility or our vessels may be
forced to travel to a drydocking facility that is not conveniently located to
our vessels' positions. The loss of earnings while these vessels are forced to
wait for space or to travel to more distant drydocking facilities may adversely
affect our business and financial condition. Further, the total loss of any of
our vessels could harm our reputation as a safe and reliable vessel owner and
operator.  If we are unable to adequately maintain or safeguard our
vessels, we may be unable to prevent any such damage, costs or loss which could
negatively impact our business, financial condition, results of operations and
ability to pay dividends.




Increased
inspection procedures and tighter import and export controls could increase
costs and disrupt our business




International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination. Inspection procedures can
result in the seizure of contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines or other
penalties against us.




Changes
to inspection procedures could impose additional financial and legal obligations
on us. Furthermore, changes to inspection procedures could also impose
additional costs and obligations on our customers and may, in certain cases,
render the shipment of certain types of cargo uneconomical or impractical. Any
such changes or developments may have an adverse effect on our business,
financial condition and results of operations.




Risks
Related to Our Company




Incurrence
of expenses or liabilities may reduce or eliminate distributions




Our
policy is to make distributions to shareholders based on earnings and cash flow,
and our dividends have fluctuated based on such factors.  The amount
and timing of dividends will depend on our earnings, market prospects, capital
expenditure program, investment opportunities and other
factors.  However, we could incur other expenses or contingent
liabilities that would reduce or eliminate the cash available for distribution
by us as dividends.  In addition, the timing and amount of dividends,
if any, is at the discretion of our Board of Directors. We cannot assure you
that we will pay dividends.




Our
financing obligations could affect our ability to incur additional indebtedness
or engage in certain transactions




Our
existing and future financing agreements impose operational and financing
restrictions on us which may significantly limit or prohibit, among other
things, our ability to incur additional indebtedness, create liens, sell capital
shares of subsidiaries, make certain investments, engage in mergers and
acquisitions, purchase and sell vessels, enter into time or consecutive voyage
charters or pay dividends without the consent of our lenders. In addition, our
lenders may accelerate the maturity of indebtedness under our financing
agreements and foreclose on the collateral securing the indebtedness upon the
occurrence of certain events of default, including our failure to comply with
any of the covenants contained in our financing agreements, not rectified within
the permitted time. For instance, declining vessel values could lead to a breach
of covenants under our financing agreements. If we are unable to pledge
additional collateral or obtain waivers from our lenders, our lenders could
accelerate our debt and foreclose on our vessels. In addition, if the lenders
accelerate the debt outstanding under one facility in default, it could result
in a default on our other facilities.






21




We
may not be able to finance our future capital commitments




We cannot
guarantee that we will be able to obtain additional financing at all or on terms
acceptable to us.  If adequate funds are not available, we may have to
reduce expenditures for investments in new and existing projects, which could
hinder our growth and prevent us from realizing potential revenues from prior
investments which will have a negative impact on our cash flows and results of
operations.




If
the volatility in LIBOR resumes, it could affect our profitability, earnings and
cash flow




The
London Interbank Offered Rate, or LIBOR, has shown high volatility in 2008 and
2009, with the spread between LIBOR and the prime lending rate widening
significantly at times. These conditions are the result of the recent
disruptions in the international credit markets. Because the interest rates
borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this
volatility were to continue, it would affect the amount of interest payable on
our debt, which in turn, could have an adverse effect on our profitability,
earnings and cash flow.




If
we do not set aside funds and are unable to borrow or raise funds for vessel
replacement at the end of a vessel's useful life our revenue will decline, which
would adversely affect our business, results of operations, financial condition
and ability to pay dividends




If we do
not set aside funds and are unable to borrow or raise funds for vessel
replacement, we will be unable to replace the vessels in our fleet upon the
expiration of their remaining useful lives. Our cash flows and income are
dependent on the revenues earned by the chartering of our vessels. If we are
unable to replace the vessels in our fleet upon the expiration of their useful
lives, our business, results of operations, financial condition and ability to
pay dividends would be adversely affected. Any funds set aside for vessel
replacement will not be available for dividends.




We
may be unable to attract and retain key management personnel in the tanker
industry, which may negatively impact the effectiveness of our management and
our results of operation




Our
success depends to a significant extent upon the abilities and efforts of our
senior executives, and particularly John Fredriksen, our Chairman and Chief
Executive Officer, for the management of our activities and strategic guidance.
While we believe that we have an experienced management team, the loss or
unavailability of one or more of our senior executives, and particularly Mr.
Fredriksen, for any extended period of time could have an adverse effect on our
business and results of operations.




Our
new ship management company and crewing company may not be successful in hiring
employees and may expose us to additional liabilities, which could adversely
affect our results of operations and financial position





Ship
management and crewing are undertakings in competitive environments. It is
possible that we could not recruit suitable employees for these companies.
Although the companies are intended to complement external entities to which we
currently outsource technical management of our vessels, a failure on the new
companies' part to successfully staff their operations could adversely affect
our results of operations. These companies also expose us to additional
liabilities. Claims against the companies could result in expensive litigation.
This could also have an adverse effect on our financial position.







22




We
may not have adequate insurance to compensate us if our vessels are damaged or
lost




We
procure insurance for our fleet against those risks that we believe the shipping
industry commonly insures against. These insurances include hull and machinery
insurance, protection and indemnity insurance, which include environmental
damage and pollution insurance coverage, and war risk insurance. We can give no
assurance that we are adequately insured against all risks. We may not be able
to obtain adequate insurance coverage at reasonable rates for our fleet in the
future. Additionally, our insurers may not pay particular claims. Our insurance
policies contain deductibles for which we will be responsible, limitations and
exclusions which, although we believe are standard in the shipping industry, may
nevertheless increase our costs or lower our revenue.




Our
operations outside the United States expose us to global risks that may
interfere with the operation of our vessels




We are an
international company and primarily conduct our operations outside of the United
States. Changing economic, regulatory, political and governmental conditions in
the countries where we are engaged in business or where our vessels are
registered affect us. Hostilities or other political instability in regions
where our vessels trade could affect our trade patterns and adversely affect our
operations and performance. The terrorist attacks against targets in the United
States on September 11, 2001 and the military response by the United States has
increased the likelihood of acts of terrorism worldwide. Acts of terrorism,
regional hostilities or other political instability, as shown by the attack on
the Limburg in Yemen in
October 2002, attacks on oil pipelines during and subsequent to the Iraq war in
2003 and attacks on expatriate workers in the Middle East could adversely affect
the oil trade and reduce our revenue or increase our expenses.




Because
we are a foreign corporation, you may not have the same rights that a
shareholder in a United States corporation may have




We are a
Bermuda company. Our memorandum of association and bye-laws and the Bermuda
Companies Act 1981, as amended, govern our affairs. Investors may have more
difficulty in protecting their interests in the face of actions by management,
directors or controlling shareholders than would shareholders of a corporation
incorporated in a United States jurisdiction. Under Bermuda law a director
generally owes a fiduciary duty only to the company; not to the company's
shareholders. Our shareholders may not have a direct course of action against
our directors. In addition, Bermuda law does not provide a mechanism for our
shareholders to bring a class action lawsuit under Bermuda law. Further, our
bye-laws provide for the indemnification of our directors or officers against
any liability arising out of any act or omission except for an act or omission
constituting fraud, dishonesty or illegality.




United
States tax authorities could treat the Company as a "passive foreign investment
company," which could have adverse United States federal income tax consequences
to United States shareholders




A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of "passive income"
or (2) at least 50% of the average value of the corporation's assets produce or
are held for the production of those types of "passive income."  For
purposes of these tests, "passive income" includes dividends, interest, and
gains from the sale or exchange of investment property and rents and royalties
other than rents and royalties which are received from unrelated parties in
connection with the active conduct of a trade or business.  For
purposes of these tests, income derived from the performance of services does
not constitute "passive income."  United States shareholders of a PFIC
are subject to a disadvantageous United States federal income tax regime with
respect to the income derived by the PFIC, the distributions they receive from
the PFIC and the gain, if any, they derive from the sale or other disposition of
their shares in the PFIC.






23




Based on
our current and proposed method of operation, we do not believe that we are,
have been or will be a PFIC with respect to any taxable year. In this regard, we
intend to treat the gross income we derive or are deemed to derive from our time
chartering activities as services income, rather than rental
income.  Accordingly, we believe that our income from our time
chartering activities does not constitute "passive income," and the assets that
we own and operate in connection with the production of that income do not
constitute assets that produce, or are held for the production of, "passive
income."




Although
there is no direct legal authority under the PFIC rules addressing our method of
operation there is substantial legal authority supporting our position
consisting of case law and United States Internal Revenue Service, or the IRS,
pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax
purposes.  However, it should be noted that there is also authority
which characterizes time charter income as rental income rather than services
income for other tax purposes. Accordingly, no assurance can be given that the
IRS or a court of law will accept our position, and there is a risk that the IRS
or a court of law could determine that we are a PFIC.  Moreover, no
assurance can be given that we would not constitute a PFIC for any future
taxable year if there were to be changes in the nature and extent of our
operations.




If the
IRS were to find that we are or have been a PFIC for any taxable year, our
United States shareholders will face adverse United States federal income tax
consequences.  Under the PFIC rules, unless those shareholders make an
election available under the United States Internal Revenue Code of 1986, as
amended, or the Code (which election could itself have adverse consequences for
such shareholders, as discussed below under "Taxation"), such shareholders would
be liable to pay United States federal income tax at the then prevailing income
tax rates on ordinary income plus interest upon excess distributions and upon
any gain from the disposition of our Ordinary Shares, as if the excess
distribution or gain had been recognized ratably over the shareholder's holding
period of our Ordinary Shares.  See "Taxation" for a more
comprehensive discussion of the United States federal income tax consequences to
United States shareholders if we are treated as a PFIC.




We
may have to pay tax on United States source income, which would reduce our
earnings




Under the
Code, 50% of the gross shipping income of a vessel owning or chartering
corporation, such as ourselves and our subsidiaries, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States, may be subject to a 4% United States federal income tax without
allowance for deduction, unless that corporation qualifies for exemption from
tax under Section 883 of the Code and the applicable Treasury Regulations
promulgated thereunder.




We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we will take this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption and
thereby become subject to United States federal income tax on our United States
source shipping income.  For example, we would no longer qualify for
exemption under Section 883 of the Code for a particular taxable year if
shareholders with a five percent or greater interest in the our Ordinary Shares
owned, in the aggregate, 50% or more of our outstanding Ordinary Shares for more
than half the days during the taxable year.  Due to the factual nature
of the issues involved, there can be no assurances on our tax-exempt status or
that of any of our subsidiaries.




If we or
our subsidiaries are not entitled to exemption under Section 883 of the Code for
any taxable year, we, or our subsidiaries, could be subject for those years to
an effective 42% United States federal income tax on gross shipping income
derived during such year that is attributable to the transport of cargoes to or
from the United States. The imposition of this tax would have a negative effect
on our business and would result in decreased earnings available for
distribution to our shareholders.






24




Our
Liberian subsidiaries may not be exempt from Liberian taxation, which would
materially reduce our Liberian subsidiaries', and consequently our, net income
and cash flow by the amount of the applicable tax




The
Republic of Liberia enacted an income tax law generally effective as of January
1, 2001, or the New Act, which repealed, in its entirety, the prior income tax
law in effect since 1977, pursuant to which our Liberian subsidiaries, as
non-resident domestic corporations, were wholly exempt from Liberian
tax.




In 2004,
the Liberian Ministry of Finance issued regulations, or the New Regulations,
pursuant to which a non-resident domestic corporation engaged in international
shipping, such as our Liberian subsidiaries, will not be subject to tax under
the New Act retroactive to January 1, 2001. In addition, the Liberian Ministry
of Justice issued an opinion that the New Regulations were a valid exercise of
the regulatory authority of the Ministry of Finance. Therefore, assuming that
the New Regulations are valid, our Liberian subsidiaries will be wholly exempt
from tax as under prior law.




If our
Liberian subsidiaries were subject to Liberian income tax under the New Act, our
Liberian subsidiaries would be subject to tax at a rate of 35% on their
worldwide income. As a result, their, and subsequently our, net income and cash
flow would be materially reduced by the amount of the applicable tax. In
addition, we, as a shareholder of the Liberian subsidiaries, would be subject to
Liberian withholding tax on dividends paid by the Liberian subsidiaries at rates
ranging from 15% to 20%.




Because
our offices and most of our assets are outside the United States, you may not be
able to bring suit against us, or enforce a judgment obtained against us in the
United States




Our
executive offices, administrative activities and assets are located outside the
United States. As a result, it may be more difficult for investors to effect
service of process within the United States upon us, or to enforce both in the
United States and outside the United States judgments against us in any action,
including actions predicated upon the civil liability provisions of the federal
securities laws of the United States.




Investor
confidence and the market price of our ordinary shares may be adversely impacted
if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of
2002




We are
subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to
include in our Annual Report on Form 20-F our management's report on, and
assessment of the effectiveness of, our internal controls over financial
reporting. In addition, our independent registered public accounting firm is
required to attest to and report on management's assessment of the effectiveness
of our internal controls over financial reporting. If we fail to maintain the
adequacy of our internal controls over financial reporting, we will not be in
compliance with all of the requirements imposed by Section 404. Any failure to
comply with Section 404 could result in an adverse reaction in the financial
marketplace due to a loss of investor confidence in the reliability of our
financial statements, which ultimately could harm our business and could
negatively impact the market price of our common stock.




ITEM
      4.
            INFORMATION
      ON THE COMPANY





A.  HISTORY
AND DEVELOPMENT OF THE COMPANY




The
Company





We are
Frontline Ltd., a Bermuda based shipping company and we were incorporated in
Bermuda on June 12, 1992 (Company No. EC-17460). Our registered and principal
executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road,
Hamilton, HM 08, Bermuda, and our telephone number is +(1) 441 295
6935.






25




We are
engaged primarily in the ownership and operation of oil tankers and
oil/bulk/ore, or OBO carriers, which are currently configured to carry dry
cargo. We operate oil tankers of two sizes: VLCCs, which are between 200,000 and
320,000 dwt, and Suezmaxes, which are vessels between 120,000 and 170,000 dwt.
We operate through subsidiaries and partnerships located in the Bahamas,
Bermuda, the Cayman Islands, the Isle of Man, Liberia, Norway, the United
Kingdom and Singapore. We are also involved in the charter, purchase and sale of
vessels. Since 1996, we have emerged as a leading tanker company within the VLCC
and Suezmax size sectors of the market.




We have
our origin in Frontline AB, which was founded in 1985, and which was listed on
the Stockholm Stock Exchange from 1989 to 1997. In May 1997, Frontline AB was
redomiciled from Sweden to Bermuda and its shares were listed on the Oslo Stock
Exchange. The change of domicile was executed through a share for share exchange
offer from the then newly formed Bermuda company, Frontline Ltd, or Old
Frontline. In September 1997, Old Frontline initiated an amalgamation with
London & Overseas Freighters Limited, or LOF, also a Bermuda company. This
process was completed in May 1998. As a result of this transaction, Frontline
became listed on the London Stock Exchange and on the NASDAQ National Market (in
the form of American Depositary Shares, or ADSs, represented by American
Depositary Receipts, or ADRs) in addition to its listing on the Oslo Stock
Exchange.




The ADR
program was terminated on October 5, 2001 and the ADSs were delisted from the
NASDAQ National Market on August 3, 2001. The Company's Ordinary Shares began
trading on the New York Stock Exchange on August 6, 2001.




Vessel
Acquisitions, Disposals and Other Significant Transactions




We
entered into the following acquisitions and disposals in 2007, 2008 and
2009:




Newbuilding
and Option Contracts





As of
December 31, 2006, we had eight contracts for the construction of four VLCC
newbuildings at Waigaoqiao and four Suezmax newbuildings at Rongsheng. We also
had options for the construction of four Suezmax vessels at Rongsheng. In March
and April 2007, we exercised our options with Rongsheng for four Suezmax
newbuildings. As of December 31, 2007, we had contracts for the construction of
four VLCC newbuildings and eight Suezmax newbuildings.




In April
2008, we entered into a contract with Jinhaiwan for the delivery of four VLCC
newbuildings. In April 2008, we also secured fixed price options, which were
exercised in May 2008, for two similar VLCC newbuildings. As of December 31,
2008, we had contracts for the construction of ten VLCC newbuildings and eight
Suezmax newbuildings.




Two of
the VLCCs, Front Kathrine and Front Queen, were delivered to us on January 8,
2009 and May 18, 2009, respectively. In the second quarter of 2009, we reached
agreements with two shipyards to cancel two VLCC and four Suezmax newbuilding
contracts and agreed that the instalments already paid on the cancelled
newbuildings be applied to and set off against future payments in the remaining
newbuildings. In the third quarter of 2009, we reached agreement with a shipyard
whereby the financial exposure of $252 million on two VLCC newbuildings can be
limited to the $54 million already paid. At December 31, 2009, we had
newbuilding contracts for four Suezmaxes and six VLCCs. Two of the Suezmax
newbuildings, Northia and Naticina, were delivered to us on January 5, 2010 and
March 9, 2010, respectively.




As of
December 31, 2009, installments of $364 million have been paid on the
newbuildings. The remaining installments to be paid as of December 31, 2009 for
the newbuildings amounted to $428 million, with expected payments of
approximately $338 million and $90 million in 2010 and 2011, respectively.
Outstanding installments of $428 million were reduced to $344 million following
the delivery of Northia and Naticina in January and March 2010, respectively and
payments made in 2010 up to March 29. These numbers exclude the payments on the
two VLCCs that have a financial exposure that can be limited to the $54 million
already paid-in installments.







26


Acquisitions
and Disposals





Consistent with our strategy to reduce
our exposure to chartering single hull vessels, we have entered into a number of
transactions to reduce the number of single hull vessels in our
fleet;





·
            In
      January 2007, Ship Finance sold its single hull Suezmax tanker Front
      Transporter to an unrelated third party for a gross sales price of $38.0
      million. We received a compensation payment of $14.8 million from Ship
      Finance, which was eliminated on consolidation, on termination of the
      charter. The vessel was delivered to her new owner in March
      2007.





·
            In
      March 2007, the single hull VLCC Front Vanadis was sold and delivered to
      an unrelated third party in May 2007. Upon delivery, our long-term
      charterparty contract with Ship Finance was terminated early, and
      Frontline received a compensation payment in the amount of $13.2
      million.





·
            In
      August 2007, we sold the single hull Suezmax tanker Front Horizon to a
      subsidiary of Farahead Holdings Limited, a company subject to significant
      influence or indirect control of our Chairman, John Fredriksen for net
      proceeds of $28.0 million resulting in a net gain of $6.2
      million.




·
            In
      December 2007, we agreed with Ship Finance to terminate the long term
      charter parties between the companies for the double sided, single bottom
      Suezmax vessels Front Birch and Front Maple. Ship Finance simultaneously
      sold the vessels. Delivery of the Front Birch and Front Maple took place
      in December 2007 and January 2008, respectively. We received compensation
      payments of approximately $32.8 million for the early termination of the
      current charter parties, which was recognized at the time of delivery to
      the new owners.





·
            Additionally,
      in March 2008, we agreed with Ship Finance to terminate the long term
      charter party between the companies for the single hull VLCC Front Sabang.
      Ship Finance simultaneously sold the vessel. We received a compensation
      payment of approximately $25 million for the early termination of the
      current charterparty, which was recognized in the second quarter of 2008
      at the time of delivery to the new
owners.





·
            In
      June 2008, we acquired en bloc five secondhand double hull Suezmax tankers
      built between 1992 and 1996 from Top Ships Inc. for an aggregate purchase
      price of $240 million. We took delivery of these vessels between June 2008
      and September 2008 and took over existing time charters on three of the
      vessels. We allocated $247.3 million and a negative value of $7.3 million
      to the vessels and time charters,
respectively.




·
              In
      July 2009, we agreed with Ship Finance to terminate the long term
      charterparty for the single hull VLCC Front Duchess and received a
      compensation payment of approximately $2.4 million in October
      2009.
 
 ·
              In
      March 2010, we agreed with Ship Finance to terminate the long term charter
      party for the single hull VLCC Golden River. The termination of the
      charter is expected to take place in April 2010 and Ship Finance will make
      a compensation payment to us of approximately $2.9 million for the early
      termination of the charter
party.




·
              In
      March 2010, we agreed to sell the single hull Suezmax Front Voyager with
      expected delivery to the buyer in April
2010.
  27


Charters
and Redeliveries





In
September 2008, we chartered out the Suezmax OBO carriers Front Guider and Front
Viewer for a period of five years with commencement of charter early December
2008 and mid April 2009, respectively.




In
November 2008, we chartered out the VLCC Front Energy for a three year period
with delivery mid November 2008 and the VLCC Front Champion for a period of one
year with commencement of charter end November 2008.




In early
December 2008, we redelivered Cosglory Lake after a total length of the
charterparty of approximately 3.5 years.




In
December 2008, we entered into an agreement with Teekay Corporation to
commercially combine their Suezmax tankers within the Gemini Pool, the world's
largest Suezmax tanker pool. Our vessels entered the pool between January 8 and
February 12, 2009.




In
December 2008, we chartered out the Suezmax tanker Front Brabant for a three
year timecharter with commencement in January 2009.




In
January 2009, we entered into an agreement with Shell to charter out the two
double hull Suezmax tankers Genmar Phoenix and Genmar Harriet G. on time charter
for the remainder of their existing charters in.




In April
2009, we entered into an agreement with the charterer of Front Lady and Front
Highness to amend the time charter agreements to bareboat agreements and extend
the contracts for one additional year from the single hull phase out date in
2010 to around April 2011 and August 2011, respectively.  The
charterers also assumed the drydocking for Front Lady. The vessels will be
operated as floating storage units (FSU) and have ceased to trade as regular
tankers. The vessels have been renamed "Ticen Ocean" and "Ticen
Sun".




In early
November and December 2009, we redelivered four of the five Suezmax tankers
chartered in from Eiger. We redelivered the final vessel in February
2010.




In
November 2009, we did not exercise the purchase options for Front Chief, Front
Commander and Front Crown. We have agreed to charter in the three vessels on one
year time charters at $29,000 per day.




In
November 2009, we entered into an agreement to time charter out the OBO carrier
Front Striver for a period of at least five months at a time charter rate of
$40,000 per day gross.




Spin-Off
of Ship Finance




In
October 2003, we formed Ship Finance as our wholly-owned subsidiary for the
purpose of acquiring certain of our shipping assets. In December 2003, Ship
Finance issued $580.0 million of 8.5% Senior Notes due 2013, which we refer to
as the Notes. In the first quarter of 2004, Ship Finance used the proceeds of
the Notes, together with a refinancing of existing debt, to fund the acquisition
from us of a fleet of 46 crude oil tankers and an option to purchase one
additional tanker from a third party.  We have chartered each of the
vessels back from Ship Finance for most of their remaining lives through our
wholly owned subsidiary Frontline Shipping Limited which we refer to as
Frontline Shipping. We also entered into fixed rate management and
administrative services agreements with Ship Finance to provide for the
operation and maintenance of the Company's vessels and administrative support
services. The charters and the management agreements were each given economic
effect as of January 1, 2004.




28


In May
2004, we announced the distribution of 25% of Ship Finance's Ordinary Shares to
our Ordinary Shareholders in a partial spin off.  In June 2004, each
Frontline shareholder received one share of Ship Finance for every four
Frontline shares held. In June 2004, the Ship Finance common shares commenced
trading on the New York Stock Exchange under the ticker symbol "SFL". Two
further dividends of shares of Ship Finance were distributed in 2004. In
September 2004, every Frontline shareholder received one share of Ship Finance
for every 10 shares of ours that they held and in December 2004, every Frontline
shareholder received two shares of Ship Finance for every 15 shares of ours that
they held. At December 31, 2004, our remaining shareholding in Ship Finance was
approximately 50.8%.




In
January 2005 and February 2005 our board of directors, or Board, approved
further spin offs of the shares of Ship Finance. In February 2005, each
shareholder of Frontline received one share of Ship Finance for every four
shares of ours held and in March 2005 each shareholder of Frontline received one
share of Ship Finance for every ten shares of ours held. Following these
transactions our shareholding in Ship Finance was approximately 16.2% at
December 31, 2005.




In
February 2006, our Board approved a further spin off of the shares of Ship
Finance. In March 2006, each shareholder of Frontline received one share of Ship
Finance for every twenty shares of ours held. Following these transactions our
shareholding in Ship Finance was approximately 11.1% at December 31, 2006 and
Ship Finance remained consolidated under the provisions of FASB Interpretation
46(R) "Consolidation of Variable Interest Entities".




In
February 2007, our Board approved a further spin off of our remaining interest
in the shares of Ship Finance and this occurred in March 2007. As a result of
this spin off, we currently hold 73,383 shares in Ship Finance, which represents
0.01% of Ship Finance's total outstanding shares and as of March 31, 2007, we no
longer consolidate Ship Finance and its subsidiaries in our financial
statements.




Establishment
and Spin-Off of Sealift Ltd




In
January 2007, we established a separate entity named Sealift Ltd, or Sealift, to
develop our heavy lift business. Sealift completed a private placement in the
amount of $180.0 million and its shares were listed on the Norwegian
over-the-counter (OTC) market in January 2007. We invested $60.0 million in the
company and following the initial private placement in January we became a 33.3%
shareholder. Sealift acquired four single-hull Suezmax vessels from us, which we
were obligated to convert to heavy lift vessels for $100.0 million each. Sealift
also acquired two Suezmax vessels from us for $38.0 million each and option
contracts with a shipyard to convert these two additional Suezmax vessels into
heavy lift vessels.  The total consideration for all six vessels
acquired by Sealift is $476.0 million, of which $396.0 million was received in
cash and $80.0 million in an interest free seller's credit.  $40.0
million of the interest free seller's credit was payable on the delivery of each
of the final two converted vessels.  Five of the vessels sold to
Sealift were first acquired by Frontline from Ship Finance. We delivered the
converted heavy lift vessels to Sealift in May and December 2007 and May and
July 2008. The $80.0 million interest free seller's credit was paid in July 2008
and we recorded a gain of $91.0 million in 2008 relating to the delivery of the
converted heavylift vessels. We incurred net damages of $1.2 million with
respect to the late delivery of the fourth and final converted heavylift
vessel.




In May
2007, Sealift completed a reorganization with the Dockwise group of companies.
As part of the transaction, Sealift completed a private placement of 39.8
million shares of which we purchased five million shares. Sealift also issued
94.1 million shares to the former Dockwise Ltd, or Dockwise, shareholders.
Sealift was renamed Dockwise Ltd in July 2007. In October 2007, we sold our
entire shareholding of 34,976,500 shares in Dockwise.




29


Establishment
and Spin-Off of Sea Production Ltd




In
February 2007, the Company's wholly owned subsidiary, Frontline Floating
Production Ltd, or FFP, sold its assets to Sea Production.  The assets
of FFP included a 70% investment in Puffin Ltd, the entity who ultimately owns
the vessel Front Puffin.  Sea Production was incorporated in January
2007 as a wholly owned subsidiary of the Company. Also in February 2007, Sea
Production raised $180.0 million in equity in a private placement. The shares
have been listed on the Norwegian OTC market.  We held 28.33% of the
shares in Sea Production following the private placement. In June 2007, we sold
our entire holding in Sea Production in line with our strategy to remain a pure
crude oil transportation company and our previously announced strategy to either
sell or spin off the Sea Production shares.




Establishment
and spin-off of Independent Tankers Corporation Limited




In
January 2008, we established Independent Tankers Corporation Limited, or ITCL, a
Bermuda company and our wholly owned subsidiary for the purpose of holding, by
way of contribution, our interests in Independent Tankers Corporation, or ITC.
ITC owns or leases six VLCC and four Suezmax tankers, which are financed through
bonds in the U.S. market and financial lease arrangements. On February 20, 2008,
our Board declared the distribution of a special dividend of 17.53% of the
capital stock of ITCL to our shareholders. On February 28, 2008, we distributed
to our shareholders one share of ITCL for every five shares of
Frontline.  Certain of our U.S. shareholders were excluded from the
distribution and received a cash payment in lieu of shares equal to $0.34 per
Frontline share. ITCL listed its shares on the Oslo OTC Market on March 7,
2008.




B.  BUSINESS
OVERVIEW




As of
December 31, 2009, our tanker fleet consisted of 76 vessels.  The
fleet consists of 41 VLCCs which are either owned or chartered in, 27 Suezmax
tankers which are either owned or chartered in and eight Suezmax OBOs which are
chartered in. We also had six VLCC newbuildings and four Suezmax newbuildings on
order and five VLCCs under our commercial management.  Two of the Suezmax
newbuildings, Northia and Naticina, were delivered to us on January 5, 2010 and
March 9, 2010, respectively.




As of
December 31, 2009, the fleet that we operate has a total tonnage of
approximately 19.2 million dwt, including the 1.5 million dwt under commercial
management. Our tanker vessels have an average age of approximately 12 years
compared with an estimated industry average of approximately 9 years. We believe
that our vessels comply with the most stringent of generally applicable
environmental regulations for tankers.




We own
various vessel owning and operating subsidiaries. Our operations take place
substantially outside of the United States. Our subsidiaries, therefore, own and
operate vessels which may be affected by changes in foreign governments and
other economic and political conditions. We are engaged primarily in
transporting crude oil and, in addition, raw materials like coal and iron ore
and our vessels operate in the spot and time charter markets.  Our
VLCCs are specifically designed for the transportation of crude oil and, due to
their size, are primarily used to transport crude oil from the Middle East Gulf
to the Far East, Northern Europe, the Caribbean and the Louisiana Offshore Oil
Port, or LOOP. Our Suezmax tankers are similarly designed for worldwide trading,
but the trade for these vessels is mainly in the Atlantic Basin and Middle East
to South East Asia.




In
December 2008, Teekay Corporation, or Teekay, and the Company announced an
agreement to commercially combine their Suezmax vessels within the Gemini Pool,
a global Suezmax tanker pool. Effective from January 1, 2009, we placed our
Suezmax vessels within the Gemini Pool bringing the total number of vessels in
the pool to 36. Gemini Tankers LLC, a wholly-owned subsidiary of Teekay, has
established an office in Oslo, Norway to, among other things, manage the larger
fleet and establish a chartering presence in Europe to supplement its existing
operations in Stamford, Connecticut. We expect to improve the utilization on our
fleet and to reduce the cost basis by entering a large pool. In addition to the
Company and Teekay, König & Cie and Hyundai Merchant Marine also participate
in the Gemini Pool.




30


Historically,
the tanker industry has been highly cyclical, with attendant volatility in
profitability and asset values resulting from changes in the supply of and
demand for tanker capacity. Our OBO carriers are specifically designed to carry
oil or dry cargo and may be used to transport either oil or dry cargo on any
voyage. Currently, our eight Suezmax OBOs are configured to carry dry bulk cargo
and are fixed on medium to long-term charters.




The
supply of tanker and OBO capacity is influenced by the number of new vessels
built, the number of older vessels scrapped, converted, laid up and lost, the
efficiency of the world tanker or OBO fleet and government and industry
regulation of maritime transportation practices. The demand for tanker and OBO
capacity is influenced by global and regional economic conditions, increases and
decreases in industrial production and demand for crude oil and petroleum
products, the proportion of world oil output supplied by Middle Eastern and
other producers, political changes and armed conflicts (including wars in the
Middle East) and changes in seaborne and other transportation patterns. The
demand for OBO capacity is, in addition, influenced by increases and decreases
in the production and demand for raw materials such as iron ore and coal. In
particular, demand for our tankers and our services in transporting crude oil
and petroleum productsand dry cargoes has been
dependent upon world and regional markets. Any decrease in shipments of crude
oil or raw materials in world markets could have a material adverse effect on
our earnings. Historically, these markets have been volatile as a result of,
among other things, general economic conditions, prices, environmental concerns,
weather and competition from alternative energy sources. Because many factors
influencing the supply of and demand for tankers and OBO carriers are
unpredictable, the nature, timing and degree of changes in industry conditions
are also unpredictable.




We are
committed to providing quality transportation services to all of our customers
and to developing and maintaining long-term relationships with the major
charterers of tankers. Increasing global environmental concerns have created a
demand in the petroleum products/crude oil seaborne transportation industry for
vessels that are able to conform to the stringent environmental standards
currently being imposed throughout the world.




The
tanker industry is highly cyclical, experiencing volatility in profitability,
vessel values and freight rates. Freight rates are strongly influenced by the
supply of tanker vessels and the demand for oil transportation. Refer to Item 5
"Operating and Financial Review and Prospects" for a discussion of the tanker
market in 2009 and 2010.




Similar
to structures commonly used by other shipping companies, our vessels are all
owned by, or chartered to, separate subsidiaries or associated companies.
Frontline Management AS, and Frontline Management (Bermuda) Limited which we
refer to as Frontline Management, both wholly-owned subsidiaries, support us in
the implementation of our decisions. Frontline Management is responsible for the
commercial management of our shipowning subsidiaries, including chartering and
insurance. Each of our vessels is registered under the Bahamas, French,
Liberian, Panamanian, Cypriot, Singaporean, Norwegian, Isle of Man, Marshall
Islands, Hong Kong or Maltese flag.




Frontline
has a strategy of extensive outsourcing. Ship management, crewing and accounting
services are provided by a number of independent and competing suppliers. Our
vessels are managed by independent ship management companies. Pursuant to
management agreements, each of the independent ship management companies
provides operations, ship maintenance, crewing, technical support, shipyard
supervision and related services to Frontline. A central part of our strategy is
to benchmark operational performance and cost level amongst our ship managers.
Independent ship managers provide crewing for our vessels. Currently, our
vessels are crewed with Russian, Ukrainian, Croatian, Romanian, Indian and
Filipino officers and crews, or combinations of these nationalities. Accounting
services for each of our shipowning subsidiaries are also provided by the ship
managers.




31


Frontline
decided in August 2009 to establish a ship management company in Singapore. The
new company, Sea Team Management Pte. Ltd., will be a complement to the external
ship management companies currently offering services to Frontline and is not a
change in the Company's outsourcing strategy. However, we would like to
strengthen our position towards our service providers to enhance and secure
delivery of high quality service at low cost in the future. Sea Team Management
Pte Ltd. was certified and received its ISM Document of Compliance by Det Norske
Veritas on February 3, 2010 and is as such an approved ship management company.
In addition a crewing company was formally opened in Chennai, India, on January
17, 2010.





Strategy




Our
strategy is to maintain and expand our position as a world leading operator and
charterer of modern, high quality oil tankers. Our principal focus is the
transportation of crude oil and its related refined dirty petroleum cargoes for
major oil companies and major oil trading companies. We seek to optimize our
income and adjust our exposure through actively pursuing charter opportunities
be it via time charters, bareboat charters, sale and leasebacks, straight sales
and purchases of vessels, newbuilding contracts and acquisitions.




We
presently operate VLCC and Suezmax vessels in the tanker market and OBO vessels
in the dry cargo market. Our strategy is to have at least 30% fixed charter
income coverage for our fleet, predominantly through time charters and trade the
balance of the fleet on the spot market. We focus on minimizing time spent on
ballast by "cross trading" our vessels, typically with voyages loading in the
Persian Gulf discharging in Northern Europe, followed by a trans-Atlantic voyage
to the U.S. Gulf of Mexico and finally a voyage from either the Caribbean or
West Africa to the Far East/Indian Ocean. We believe that operating a certain
number of vessels in the spot market, enables us to capitalize on a potential
stronger spot market as well as to serve our main customers on a regular non
term basis. We believe that the size of our fleet is important in negotiating
terms with our major clients and charterers. We also believe that our large,
high-quality VLCC and Suezmax fleet enhances our ability to obtain competitive
terms from suppliers and ship repairers and builders and to produce cost savings
in chartering and operations.




Our
business strategy is primarily based upon the following principles:




·
            emphasizing
      operational safety and quality maintenance for all of our
      vessels;





·
            complying
      with all current and proposed environmental
  regulations;





·
            outsourcing
      technical operations and crewing;





·
            continuing
      to achieve competitive operational
costs;





·
            operating
      a modern and homogeneous fleet of
tankers;





·
            achieving
      high utilization of our vessels;





·
            achieving
      competitive financing arrangements;





·
            achieving
      a satisfactory mix of term charters, contracts of affreightment and spot
      voyages; and





·
            developing
      and maintaining relationships with major oil companies and industrial
      charterers.





We have
newbuilding contracts for six VLCCs and two Suezmaxes as of March 29,
2010.




32


We
continue to evaluate opportunities in the time charter market. On the basis of
the strength of the drybulk market when the vessels became available, all of our
eight OBO carriers have been fixed on medium to long term charters at an average
daily rate of approximately $43,000 and $49,300 in 2009 and 2010, respectively.
As of December 31, 2009 approximately 44% of our remaining operating days for
our total fleet for 2010 were on fixed time charter and bareboat
charter.




Although
there has been a trend towards consolidation over the past 15 years, the tanker
market remains highly fragmented. We estimate, based on available industry data
that we currently own or operate approximately 8% of the world VLCC fleet and 7%
of the world Suezmax tanker fleet.  We intend to use our strong
operational cash flow together with our available financing to continue the
consolidation of the tanker market.  We always look opportunistically
for attractive investments and acquisitions and will finance such investments
through a combination of debt and equity. Our role in the consolidation of the
tanker market may include the acquisition of new vessels and second-hand vessels
and we may also engage in business acquisitions and strategic transactions such
as marketing joint ventures. In the ordinary course of our business, we engage
in the evaluation of potential candidates for acquisitions and strategic
transactions.




Our goal
is to generate competitive returns for our shareholders with quarterly dividend
payments. Our dividend payments are based on present earnings, market prospects,
current capital expenditure programs as well as investment
opportunities.




Seasonality




Historically,
oil trade and therefore charter rates increased in the winter months and eased
in the summer months as demand for oil in the Northern Hemisphere rose in colder
weather and fell in warmer weather. The tanker industry in general is less
dependent on the seasonal transport of heating oil than a decade ago as new uses
for oil and oil products have developed, spreading consumption more evenly over
the year. Most apparent is a higher seasonal demand during the summer months due
to energy requirements for air conditioning and motor vehicles.




Customers




During
the year ended December 31, 2009, we reported total revenue from one customer of
$250.1 million, which represented approximately 22% of consolidated operating
revenues (2008: one customer, which represented approximately 20% and 2007: one
customer, which represented approximately 19%). No other customers represent
more than 10% of consolidated operating revenues for the periods
presented.




Competition




The
market for international seaborne crude oil transportation services is highly
fragmented and competitive. Seaborne crude oil transportation services generally
are provided by two main types of operators: major oil company captive fleets
(both private and state-owned) and independent ship-owner fleets. In addition,
several owners and operators pool their vessels together on an ongoing basis,
and such pools are available to customers to the same extent as independently
owned and operated fleets. Many major oil companies and other oil trading
companies, the primary charterers of the vessels owned or controlled by us, also
operate their own vessels and use such vessels not only to transport their own
crude oil but also to transport crude oil for third party charterers in direct
competition with independent owners and operators in the tanker charter market.
Competition for charters is intense and is based upon price, location, size,
age, condition and acceptability of the vessel and its manager. Competition is
also affected by the availability of other size vessels to compete in the trades
in which the Company engages. Charters are to a large extent brokered through
international independent brokerage houses that specialize in finding the
optimal ship for any particular cargo based on the aforementioned criteria.
Brokers may be appointed by the cargo shipper or the ship owner.




33


Environmental
and Other Regulations




Government
regulations and laws significantly affect the ownership and operation of our
vessels. We are subject to international conventions, national, state and local
laws and regulations in force in the countries in which our vessels may operate
or are registered and compliance with such laws, regulations and other
requirements may entail significant expense.




Our
vessels are subject to both scheduled and unscheduled inspections by a variety
of government, quasi-governmental and private organizations including local port
authorities, national authorities, harbor masters or equivalent, classification
societies, flag state administrations (countries of registry) and charterers.
Our failure to maintain permits, licenses, certificates or other approvals
required by some of these entities could require us to incur substantial costs
or temporarily suspend operation of one or more of our vessels.




We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry. Increasing environmental concerns have created
a demand for vessels that conform to stricter environmental
standards.  We believe that the operation of our vessels is in
substantial compliance with applicable environmental laws and regulations and
that our vessels have all material permits, licenses, certificates or other
authorizations necessary for the conduct of our operations; however, because
such laws and regulations are frequently changed and may impose increasingly
stricter requirements, we cannot predict the ultimate cost of complying with
these requirements, or the impact of these requirements on the resale value or
useful lives of our vessels. In addition, additional legislation or regulation
applicable to the operation of our vessels that may be implemented in the
future could negatively affect our profitability.




International
Maritime Organization




The
International Maritime Organization, the United Nations agency for maritime
safety and the prevention of pollution by ships or the IMO, has adopted several
international conventions that regulate the international shipping industry,
including the International Convention on Civil Liability for Oil Pollution
Damage, the International Convention on Civil Liability for Bunker Oil Pollution
Damage, and the International Convention for the Prevention of Pollution from
Ships, or the MARPOL Convention. The MARPOL Convention establishes environmental
standards relating to oil leakage or spilling, garbage management, sewage, air
emissions, handling and disposal of noxious liquids and the handling of harmful
substances in packaged forms.




The
operation of our vessels is also affected by the requirements contained in the
International Safety Management Code for the Safe Operation of Ships and for
Pollution Prevention, or ISM Code, promulgated by the IMO under the
International Convention for the Safety of Life at Sea, or SOLAS. The ISM Code
requires the party with operational control of a vessel to develop an extensive
safety management system that includes, among other things, the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing procedures for
responding to emergencies. We intend to rely upon the safety management system
that our appointed ship managers have developed.




In
December 2003, the Marine Environmental Protection Committee of the IMO, or
MEPC, adopted an amendment to the MARPOL Convention, which became effective in
April 2005. The amendment revised an existing regulation 13G accelerating the
phase-out of single hull oil tankers and adopted a new regulation 13H on the
prevention of oil pollution from oil tankers when carrying heavy grade oil.
Under the revised regulation, single hull oil tankers were required to be phased
out no later than April 5, 2005 or the anniversary of the date of delivery of
the ship on the date or in the year specified in the following
table:




34


Category
      of Oil Tankers
            
            Date
      or Year for Phase OutCategory
      1 oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy
      diesel oil or lubricating oil as cargo, and of 30,000 dwt and above
      carrying other oils, which do not comply with the requirements for
      protectively located segregated ballast tanks
            
            April
      5, 2005 for ships delivered on April 5, 1982 or earlier; or
              2005
      for ships delivered after April 5, 1982Category
      2 - oil tankers of 20,000 dwt and above carrying crude oil, fuel oil,
      heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above
      carrying other oils, which do comply with the protectively located
      segregated ballast tank requirements
              and
              Category
      3 - oil tankers of 5,000 dwt and above but less than the tonnage specified
      for Category 1 and 2 tankers.
            
            April
      5, 2005 for ships delivered on April 5, 1977 or earlier
              2005
      for ships delivered after April 5, 1977 but before
              January
      1, 1978
              2006
      for ships delivered in 1978 and 1979
              2007
      for ships delivered in 1980 and 1981
              2008
      for ships delivered in 1982
              2009
      for ships delivered in 1983
              2010
      for ships delivered in 1984 or
later





Under the
revised regulations, a flag state may permit continued operation of certain
Category 2 or 3 tankers beyond their phase-out date in accordance with the above
schedule. Under regulation 13G, the flag state may allow for some newer single
hull oil tankers registered in its country that conform to certain technical
specifications to continue operating until the earlier of the anniversary of the
date of delivery of the vessel in 2015 or the 25th anniversary of their
delivery. Under regulations 13G and 13H, as described below, certain Category 2
and 3 tankers fitted only with double bottoms or double sides may be allowed by
the flag state to continue operations until their 25th anniversary of delivery.
Any port state, however, may deny entry of those single hull oil tankers that
are allowed to operate under any of the flag state exemptions.




The
following table summarizes the impact of such regulations on the Company's
single hull (SH) and double sided (DS) tankers:




Vessel
      Name
            
            Vessel
      type
            
            Vessel
              Category
            
            Year
              Built
            
            IMO
      phase out
            
            Flag
      state
              ExemptionFront
      Voyager(1)
            
            Suezmax
            
            SH
            
            1992
            
            2010
            
            2015Edinburgh(2)
            
            VLCC
            
            DS
            
            1993
            
            2018
            
            n/aFront
      Ace(2)
            
            VLCC
            
            SH
            
            1993
            
            2010
            
            2015Front
      Duke(2)
            
            VLCC
            
            SH
            
            1992
            
            2010
            
            2015Ticen
      Sun(2)
            
            VLCC
            
            SH
            
            1991
            
            2010
            
            2015Ticen
      Ocean(2)
            
            VLCC
            
            SH
            
            1991
            
            2010
            
            2015Golden
      River (2)(3)
            
            VLCC
            
            SH
            
            1991
            
            2010
            
            2015








(1)
            A
      Memorandum of Agreement, dated March 15, 2010,  has been signed
      regarding the sale of this vessel.  Delivery to the buyers is
      expected in the first half of April
2010.




(2)
            Vessel
      chartered in from Ship Finance and not consolidated after March 31,
      2007.




(3)
            Agreement
      reached in March 2010 regarding termination of the lease. Termination
      expected to be April 2010.




35


In
December 2003, the MEPC adopted a new regulation 13H on the prevention of oil
pollution from oil tankers when carrying heavy grade oil, or HGO, which includes
most of the grades of marine fuel. The new regulation bans the carriage of HGO
in single hull oil tankers of 5,000 dwt and above after April 5, 2005, and in
single hull oil tankers of 600 dwt and above but less than 5,000 dwt, no later
than the anniversary of their delivery in 2008.




Under
regulation 13H, HGO means any of the following:




·
            crude
      oils having a density at 15єC higher than 900
  kg/m3;





·
            fuel
      oils having either a density at 15єC higher than 900 kg/m3 or a kinematic
      viscosity at 50oC higher than 180
      mm2/s; or





·
            bitumen,
      tar and their emulsions.





Under the
regulation 13H, the
flag state may allow continued operation of oil tankers of 5,000 dwt and above,
carrying crude oil with a density at 15єC higher than 900 kg/m3 but lower than
945 kg/m3, that conform to certain technical specifications and, in the opinion
of the such flag state, the ship is fit to continue such operation,
having regard to the size, age, operational area and structural conditions of
the ship and provided that the continued operation shall not go beyond the date
on which the ship reaches 25 years after the date of its delivery. The flag
state may also allow continued operation of a single hull oil tanker of 600 dwt
and above but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of
the such flag state, the ship is fit to continue such operation, having regard
to the size, age, operational area and structural conditions of the ship,
provided that the operation shall not go beyond the date on which the ship
reaches 25 years after the date of its delivery.




The flag
state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo
if the ship is either engaged in voyages exclusively within an area under its
jurisdiction, or is engaged in voyages exclusively within an area under the
jurisdiction of another party, provided the party within whose jurisdiction the
ship will be operating agrees. The same applies to vessels operating as floating
storage units of HGO.




Any port
state, however, can deny entry of single hull tankers carrying HGO which have
been allowed to continue operation under the exemptions mentioned above, into
the ports or offshore terminals under its jurisdiction, or deny ship-to-ship
transfer of HGO in areas under its jurisdiction except when this is necessary
for the purpose of securing the safety of a ship or saving life at
sea.




Noncompliance
with the ISM Code or with other IMO regulations may subject a shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports including United States and European Union
Ports.




United
States





The
U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response,
Compensation and Liability Act




The U.S.
Oil Pollution Act of 1990, or OPA, is an extensive regulatory and liability
regime for environmental protection and cleanup of oil spills. OPA affects all
owners and operators whose vessels trade with the United States or its
territories or possessions, or whose vessels operate in the waters of the United
States, which include the U.S. territorial sea and the 200 nautical mile
exclusive economic zone around the United States. The Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, imposes
liability for cleanup and natural resource damage from the release of hazardous
substances (other than oil) whether on land or at sea. Both OPA and CERCLA
impact our operations.




36


Under
OPA, vessel owners, operators and bareboat charterers are responsible parties
who are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from oil spills
from their vessels.OPA limits the liability of responsible parties with respect
to tankers over 3,000 gross tons to the greater of $3,000 per gross tons or
$22.0 million per single hull tanker, and $1,900 per gross ton or $16.0 million
per double hull tanker, respectively, and permits individual states to impose
their own liability regimes with regard to oil pollution incidents occurring
within their boundaries. Some states have enacted legislation providing for
unlimited liability for discharge of pollutants within their waters, however, in
some cases, states which have enacted this type of legislation have not yet
issued implementing regulations defining tanker owners' responsibilities under
these laws. CERCLA, which applies to owners and operators of vessels, contains a
similar liability regime and provides for cleanup, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per gross ton
or $5.0 million for vessels carrying a hazardous substance as cargo and the
greater of $300 per gross ton or $0.5 million for any other vessel.




These
limits of liability do not apply, however, where the incident is caused by
violation of applicable U.S. federal safety, construction or operating
regulations, or by the responsible party's gross negligence or willful
misconduct. These limits also do not apply if the responsible party fails or
refuses to report the incident or to cooperate and assist in connection with the
substance removal activities. OPA and CERCLA each preserve the right to recover
damages under existing law, including maritime tort law. We believe that we are
in substantial compliance with OPA, CERCLA and all applicable state regulations
in the ports where our vessels call.




OPA also
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their potential strict liability under the act. Under the regulations, evidence
of financial responsibility may be demonstrated by insurance, surety bond,
self-insurance or guaranty. Under OPA regulations, an owner or operator of more
than one tanker is required to demonstrate evidence of financial responsibility
for the entire fleet in an amount equal only to the financial responsibility
requirement of the tanker having the greatest maximum strict liability under OPA
and CERCLA. We have provided such evidence and received certificates of
financial responsibility from the U.S. Coast Guard for each of our vessels
required to have one.




Other
U.S. Environmental Initiatives




The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances
and ballast water in U.S. navigable waters unless authorized by a duly-issued
permit or exemption, and imposes strict liability in the form of penalties for
any unauthorized discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages and complements the remedies available
under OPA and CERCLA. Furthermore, most U.S. states that border a navigable
waterway have enacted environmental pollution laws that impose strict liability
on a person for removal costs and damages resulting from a discharge of oil or a
release of a hazardous substance. These laws may be more stringent than U.S.
federal law.




The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. Our vessels
are subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas. Our vessels that operate in such port areas with
restricted cargoes are equipped with vapor recovery systems that satisfy these
requirements. The CAA also requires states to draft State Implementation Plans,
or SIPs, designed to attain national health-based air quality standards in
primarily major metropolitan and/or industrial areas. Several SIPs regulate
emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. As indicated above, our vessels
operating in covered port areas are already equipped with vapor recovery systems
that satisfy these existing requirements.







37


European
Union




The
European Union has adopted legislation that would: (1) ban manifestly
sub-standard vessels (defined as those over 15 years old that have been detained
by port authorities at least twice in a six month period) from European waters
and create an obligation of port states to inspect vessels posing a high risk to
maritime safety or the marine environment; and (2) provide the European Union
with greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent societies. In
addition, European Union regulations enacted in 2003 now prohibit all single
hull tankers from entering into its ports or offshore terminals




Greenhouse
Gas Regulation




The IMO
is evaluating various mandatory measures to reduce greenhouse gas emissions from
international shipping, which may include market-based instruments or a carbon
tax. Any passage of climate control legislation or other regulatory initiatives
by the IMO, EU, the U.S. or other countries where we operate that restrict
emissions of greenhouse gases could require us to make significant financial
expenditures that we cannot predict with certainty at this time.




Vessel
Security Regulations




Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security including the U.S. Maritime
Transportation Security Act of 2002, or MTSA, amendments to SOLAS and a
requirement that any vessel trading internationally obtain an International Ship
Security Certificate from a recognized security organization approved by the
vessel's flag state. We believe that our fleet is currently in compliance with
applicable security requirements.




Inspection
by Classification Societies




Every
oceangoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in-class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.




Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in-class" by a classification society which is a member of the
International Association of Classification Societies. All our vessels are
certified as being "in-class" by a recognized classification
society.






38




Risk
of Loss and Insurance




The
operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters and property losses caused by adverse weather conditions,
mechanical failures, human error, war, terrorism and other circumstances or
events. In addition, the transportation of crude oil is subject to the risk of
spills, and business interruptions due to political circumstances in foreign
countries, hostilities, labor strikes and boycotts. OPA has made liability
insurance more expensive for ship owners and operators imposing potentially
unlimited liability upon owners, operators and bareboat charterers for oil
pollution incidents in the territorial waters of the United States. We believe
that our current insurance coverage is adequate to protect us against the
principal accident-related risks that we face in the conduct of our
business.




Our
protection and indemnity insurance, or P&I insurance, covers third-party
liabilities and other related expenses from, among other things, injury or death
of crew, passengers and other third parties, claims arising from collisions,
damage to cargo and other third-party property and pollution arising from oil or
other substances. Our current P&I insurance coverage for pollution is the
maximum commercially available amount of $1.0 billion per tanker per incident
and is provided by mutual protection and indemnity associations. Each of the
vessels currently in our fleet is entered in a protection and indemnity
association which is a member of the International Group of Protection and
Indemnity Mutual Assurance Associations. The 13 protection and indemnity
associations that comprise the International Group insure approximately 90% of
the world's commercial tonnage and have entered into a pooling agreement to
reinsure each association's liabilities. Each protection and indemnity
association has capped its exposure to this pooling agreement at $4.3 billion.
As a member of protection and indemnity associations, which are, in turn,
members of the International Group, we are subject to calls payable to the
associations based on its claim records as well as the claim records of all
other members of the individual associations and members of the pool of
protection and indemnity associations comprising the International
Group.




Our hull
and machinery insurance covers actual or constructive total loss from covered
risks of collision, fire, heavy weather, grounding and engine failure or damages
from same. Our war risk insurance covers risks of confiscation, seizure,
capture, vandalism, sabotage and other war-related risks. Our loss-of-hire
insurance covers loss of revenue at $23,000 per day for Suezmaxes and $30,000
per day for VLCCs for not less than 90 days resulting from an accident covered
by the terms of our hull and machinery insurance for each of our vessels, with a
fourteen day deductible for OBO vessels, a fourteen day deductible for the
Golden Victory and a 60 day deductible for all other Suexmaxes and
VLCCs.




C. 
ORGANIZATIONAL STRUCTURE




See
Exhibit 8.1 for a list of our significant subsidiaries.




D. 
PROPERTY, PLANTS AND EQUIPMENT






39




The
Company's Vessels




The
following table sets forth the fleet that we operated as of December 31, 2009
(including contracted newbuildings not yet delivered):




Vessel
            Built
            Approximate
      Dwt.
            Construction
            Flag
            Type
      of EmploymentTonnage
      Owned DirectlyVLCCsAntares
      Voyager
            1998
            310,000
            Double-hull
            BA
            Bareboat
      charterPhoenix
      Voyager
            1999
            308,500
            Double-hull
            BA
            Bareboat
      charterBritish
      Pioneer
            1999
            307,000
            Double-hull
            IoM
            Bareboat
      charterFront
      Shanghai
            2006
            298,500
            Double-hull
            HK
            Spot
      marketFront
      Kathrine
            2009
            297,974
            Double-hull
            MI
            Spot
      marketFront
      Queen
            2009
            297,000
            Double-hull
            MI
            Time
      charterHull
      2419 (Newbuilding)
            2010
            297,000
            Double-hull
            n/a
            n/aHull
      2420 (Newbuilding)
            2010
            297,000
            Double-hull
            n/a
            n/aHull
      J0025 (Newbuilding)
            2011
            320,000
            Double-hull
            n/a
            n/aHull
      J0026 (Newbuilding)
            2011
            320,000
            Double-hull
            n/a
            n/aHull
      J0027 (Newbuilding)
            2012
            320,000
            Double-hull
            n/a
            n/aHull
      J0028 (Newbuilding)
            2012
            320,000
            Double-hull
            n/a
            n/a





Suezmax
      TankersFront
      Voyager (1)
            1992
            155,000
            Single-hull
            BA
            Spot
      marketFront
      Fighter
            1994
            147,048
            Double-hull
            MI
            Spot
      marketFront
      Hunter
            1996
            146,286
            Double-hull
            MI
            Spot
      marketFront
      Alfa
            1993
            150,038
            Double-hull
            MI
            Time
      charterFront
      Beta
            1992
            135,915
            Double-hull
            MI
            Time
      charterFront
      Delta
            1993
            136,055
            Double-hull
            MI
            Time
      charterCygnus
      Voyager
            1993
            157,000
            Double-hull
            BA
            Bareboat
      charterAltair
      Voyager
            1993
            136,000
            Double-hull
            BA
            Bareboat
      charterSirius
      Voyager
            1994
            156,000
            Double-hull
            BA
            Bareboat
      charterHull
      1017 (Newbuilding) (2)
            2009
            156,000
            Double-hull
            n/a
            n/aHull
      1018 (Newbuilding)
            2009
            156,000
            Double-hull
            n/a
            n/aHull
      1019 (Newbuilding) (3)
            2009
            156,000
            Double-hull
            n/a
            n/aHull
      1026 (Newbuilding)
            2010
            156,000
            Double-hull
            n/a
            n/a









40


Tonnage
      Chartered in from Ship FinanceVLCCsTicen
      Sun
            1991
            284,000
            Single-hull
            SG
            Bareboat
      charterTicen
      Ocean
            1991
            284,000
            Single-hull
            SG
            Bareboat
      charterGolden
      River (4)
            1991
            284,000
            Single-hull
            SG
            Time
      charterFront
      Duke
            1992
            284,000
            Single-hull
            SG
            Time
      charterEdinburgh
            1993
            302,000
            Double-side
            LIB
            Spot
      marketFront
      Ace
            1993
            276,000
            Single-hull
            LIB
            Time
      charterFront
      Vanguard
            1998
            300,000
            Double-hull
            MI
            Spot
      marketFront
      Century
            1998
            311,000
            Double-hull
            MI
            Time
      charterFront
      Champion
            1998
            311,000
            Double-hull
            BA
            Time
      charter


Front
      Vista (5)
            1998
            300,000
            Double-hull
            MI
            Spot
      marketFront
      Comanche
            1999
            300,000
            Double-hull
            FRA
            Time
      charterGolden
      Victory
            1999
            300,000
            Double-hull
            MI
            Time
      charterFront
      Circassia
            1999
            306,000
            Double-hull
            MI
            Spot
      marketFront
      Opalia
            1999
            302,000
            Double-hull
            MI
            Spot
      marketOcana
            1999
            300,000
            Double-hull
            IoM
            Bareboat
      charterFront
      Scilla
            2000
            303,000
            Double-hull
            MI
            Spot
      marketOliva
            2001
            299,000
            Double-hull
            IoM
            Bareboat
      charterFront
      Serenade
            2002
            299,000
            Double-hull
            LIB
            Time
      charterOtina
            2002
            298,000
            Double-hull
            IoM
            Bareboat
      charterOndina
            2002
            299,000
            Double-hull
            IoM
            Bareboat
      charterFront
      Falcon
            2002
            309,000
            Double-hull
            BA
            Spot
      marketFront
      Page
            2002
            299,000
            Double-hull
            LIB
            Time
      charterFront
      Energy
            2004
            305,000
            Double-hull
            CYP
            Time
      charterFront
      Force
            2004
            305,000
            Double-hull
            CYP
            Spot
      market




Suezmax
      OBO CarriersFront
      Breaker
            1991
            169,000
            Double-hull
            MI
            Time
      charterFront
      Climber
            1991
            169,000
            Double-hull
            SG
            Time
      charterFront
      Driver
            1991
            169,000
            Double-hull
            MI
            Time
      charterFront
      Guider
            1991
            169,000
            Double-hull
            SG
            Time
      charterFront
      Leader
            1991
            169,000
            Double-hull
            SG
            Time
      charterFront
      Rider
            1992
            169,000
            Double-hull
            SG
            Time
      charterFront
      Striver
            1992
            169,000
            Double-hull
            SG
            Time
      charterFront
      Viewer
            1992
            169,000
            Double-hull
            SG
            Time
      charter





Suezmax
      TankersFront
      Pride
            1993
            150,000
            Double-hull
            NIS
            Spot
      marketFront
      Glory
            1995
            150,000
            Double-hull
            NIS
            Spot
      marketFront
      Splendour
            1995
            150,000
            Double-hull
            NIS
            Spot
      market


Front
      Ardenne
            1997
            150,000
            Double-hull
            NIS
            Spot
      marketFront
      Brabant
            1998
            150,000
            Double-hull
            NIS
            Time
      charterMindanao
            1998
            150,000
            Double-hull
            SG
            Spot
      market






41


Tonnage
      Chartered in from Third Parties


VLCCsFront
      Chief
            1999
            311,000
            Double-hull
            BA
            Spot
      marketFront
      Commander
            1999
            311,000
            Double-hull
            BA
            Spot
      marketFront
      Crown
            1999
            311,000
            Double-hull
            BA
            Spot
      marketBritish
      Pride
            2000
            307,000
            Double-hull
            IoM
            Bareboat
      charterBritish
      Progress (6)
            2000
            307,000
            Double-hull
            IoM
            Bareboat
      charterBritish
      Purpose
            2000
            307,000
            Double-hull
            IoM
            Bareboat
      charterFront
      Tina
            2000
            299,000
            Double-hull
            LIB
            Spot
      marketFront
      Commodore
            2000
            299,000
            Double-hull
            LIB
            Time
      charterFront
      Eagle
            2002
            309,000
            Double-hull
            BA
            Spot
      marketHampstead
            1996
            298,000
            Double-hull
            IoM
            Time
      charterKensington
            1995
            298,000
            Double-hull
            IoM
            Time
      charter




Suezmax
      TankersFront
      Warrior
            1998
            153,000
            Double-hull
            BA
            Spot
      marketFront
      Melody
            2001
            150,000
            Double-hull
            LIB
            Spot
      marketFront
      Symphony
            2001
            150,000
            Double-hull
            LIB
            Time
      charter


Nordic
      Apollo (7)
            2003
            149,997
            Double-hull
            MI
            Spot
      marketNordic
      Discovery(7)
            1998
            149,999
            Double-hull
            NIS
            Spot
      marketNordic
      Fighter(7)
            1998
            149,999
            Double-hull
            NIS
            Spot
      marketNordic
      Hawk (7)
            1997
            151,475
            Double-hull
            BA
            Spot
      marketNordic
      Hunter(7)
            1997
            151,400
            Double-hull
            BA
            Spot
      marketNordic
      Saturn (7)
            1998
            157,332
            Double-hull
            MI
            Spot
      marketNordic
      Sprite(7)
            1999
            147,188
            Double-hull
            NIS
            Spot
      marketNordic
      Mistral(7)
            2002
            164,236
            Double-hull
            MI
            Spot
      marketGenmar
      Harriet G
            2006
            149,999
            Double-hull
            MI
            Spot
      market




VLCCsMayfair
            1995
            298,405
            Double-hull
            MI
            Time
      charterCamden
            1995
            298,306
            Double-hull
            MI
            Time
      charterSonga
      Chelsea
            1995
            298,432
            Double-hull
            MI
            Spot
      marketSonga
      Julie
            2000
            299,089
            Double-hull
            MI
            Spot
      marketUniversal
      Queen
            2005
            309,373
            Double-hull
            PAN
            Spot
      market






42





(1)
            A
      Memorandum of Agreement, dated March 15, 2010, has been signed regarding
      the sale of this vessel. Delivery to the buyers is expected in the first
      half of April 2010.




(2)
            Newbuilding
      (named Northia) was delivered in January
2010.




(3)
            Newbuilding
      (named Naticina) was delivered in March
2010.




(4)
            Agreement
      reached in March 2010 regarding termination of the lease. Termination
      expected to be April 2010.




(5)
            Vessel
      was purchased from Ship Finance in February 2010 and simultaneously
      sold.




(6)
            Vessel
      was sold to a majority owned subsidiary in January
  2010.




(7)
            Vessel
      is chartered in on a floating time
charter.




Our
chartered in fleet is contracted to us under leasing arrangements with fixed
terms of between seven and twenty three years. Lessors have options to extend
nine of these leases by up to an additional five years from expiry of the
initial fixed term.  We have fixed purchase price options to buy nine
of these vessels at certain future dates and the lessors have fixed options to
sell nine of these vessels to us at the end of the lease period.  Four
of the lease agreements may not be terminated by us without the agreement of the
end-user of the vessel.




43


Key to
Flags:




BA –
Bahamas, IoM – Isle of Man, LIB - Liberia, MAL – Malta, NIS - Norwegian
International Ship Register, PAN – Panama,  SG - Singapore, FRA –
France, MI – Marshall Islands, CYP – Cyprus, HK – Hong Kong.




Other
than our interests in the vessels described above, we do not own any material
physical properties. We lease office space in Hamilton, Bermuda from an
unaffiliated third party. Frontline Management AS leases office space, at market
rates, in Oslo, Norway from Bryggegata AS, a company indirectly affiliated with
Hemen, our principal shareholder.




ITEM
4A.               UNRESOLVED
STAFF COMMENTS




None.




ITEM
5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS




Overview




The
following discussion should be read in conjunction with Item 3 "Selected
Financial Data", Item 4 "Information on the Company" and our audited
Consolidated Financial Statements and Notes thereto included
herein.




As of
December 31, 2009, our tanker fleet consisted of 76 vessels.  The
fleet consists of 41 VLCCs which are either owned or chartered in, 27 Suezmax
tankers which are either owned or chartered in and eight Suezmax OBOs which are
chartered in. We also had six VLCC newbuildings and four Suezmax newbuildings on
order and five VLCCs under our commercial management.  Two of the Suezmax
newbuildings, Northia and Naticina, were delivered to us on January 5, 2010 and
March 9, 2010, respectively.




A full
fleet list is provided in Item 4.D. "Information on the Company" showing the
vessels that we currently own and charter in.




Fleet
Changes




Refer to
Item 4 for discussion on acquisitions and disposals of vessels. A summary of our
fleet changes for the years ended December 31, 2009, 2008 and 2007 is as
follows:






44




2009
            
            
            2008
            
            
            2007VLCCsAt
      start of period
            
            
            40
            
            
            
            42
            
            
            
            41Acquisitions
            
            
            2
            
            
            
            —
            
            
            
            2Dispositions
            
            
            (1
            )
            
            
            (2
            )
            
            
            (1
            )At
      end of period
            
            
            41
            
            
            
            40
            
            
            
            42





SuezmaxAt
      start of period
            
            
            29
            
            
            
            16
            
            
            
            23Acquisitions
            
            
            —
            
            
            
            5
            
            
            
            —Dispositions
            
            
            —
            
            
            
            (3
            )
            
            
            (7
            )Chartered
      In
            
            
            (2
            )
            
            
            11
            
            
            
            —At
      end of period
            
            
            27
            
            
            
            29
            
            
            
            16Suezmax
      OBOsAt
      start and end of period
            
            
            8
            
            
            
            8
            
            
            
            8AframaxAt
      start of period
            
            
            —
            
            
            
            —
            
            
            
            1Acquisitions
            
            
            —
            
            
            
            —
            
            
            
            —Dispositions
            
            
            —
            
            
            
            —
            
            
            
            (1
            )At
      end of period
            
            
            —
            
            
            
            —
            
            
            
            —Total
      fleetAt
      start of period
            
            
            77
            
            
            
            66
            
            
            
            73Acquisitions
            
            
            2
            
            
            
            5
            
            
            
            2Dispositions
            
            
            (1
            )
            
            
            (5
            )
            
            
            (9
            )Chartered
      In
            
            
            (2
            )
            
            
            11
            
            
            
            —At
      end of period
            
            
            76
            
            
            
            77
            
            
            
            66






45





Summary
of Fleet Employment




As
discussed below, our vessels are operated under time charters, bareboat
charters, voyage charters, pool arrangements and COAs.







As
      of December 31,2009
            
            
            2008
            
            
            2007Number
      of vessels
            
            
            Percentage
      of fleet
            
            
            Number
      of vessels
            
            
            Percentage
      of fleet
            
            
            Number
      of vessels
            
            
            Percentage
      of fleetVLCCsSpot
      or pool
            
            
            15
            
            
            
            37
            %
            
            
            15
            
            
            
            38
            %
            
            
            17
            
            
            
            40
            %Time
      charter
            
            
            14
            
            
            
            34
            %
            
            
            15
            
            
            
            38
            %
            
            
            15
            
            
            
            36
            %Bareboat
      charter
            
            
            12
            
            
            
            29
            %
            
            
            10
            
            
            
            25
            %
            
            
            10
            
            
            
            24
            %Total
            
            
            41
            
            
            
            100
            %
            
            
            40
            
            
            
            100
            %
            
            
            42
            
            
            
            100
            %SuezmaxSpot
      or pool
            
            
            19
            
            
            
            70
            %
            
            
            21
            
            
            
            73
            %
            
            
            12
            
            
            
            75
            %Time
      charter
            
            
            5
            
            
            
            19
            %
            
            
            5
            
            
            
            17
            %
            
            
            1
            
            
            
            6
            %Bareboat
      charter
            
            
            3
            
            
            
            11
            %
            
            
            3
            
            
            
            10
            %
            
            
            3
            
            
            
            19
            %Total
            
            
            27
            
            
            
            100
            %
            
            
            29
            
            
            
            100
            %
            
            
            16
            
            
            
            100
            %


Suezmax
      OBOsTime
      charter
            
            
            8
            
            
            
            100
            %
            
            
            8
            
            
            
            100
            %
            
            
            8
            
            
            
            100
            %Total
            
            
            8
            
            
            
            100
            %
            
            
            8
            
            
            
            100
            %
            
            
            8
            
            
            
            100
            %Total
      fleetSpot
      or pool
            
            
            34
            
            
            
            45
            %
            
            
            36
            
            
            
            47
            %
            
            
            29
            
            
            
            44
            %Time
      charter
            
            
            27
            
            
            
            35
            %
            
            
            28
            
            
            
            36
            %
            
            
            24
            
            
            
            36
            %Bareboat
      charter
            
            
            15
            
            
            
            20
            %
            
            
            13
            
            
            
            17
            %
            
            
            13
            
            
            
            20
            %Total
            
            
            76
            
            
            
            100
            %
            
            
            77
            
            
            
            100
            %
            
            
            66
            
            
            
            100
            %





Market
Overview and Trend Information




According
to industry sources, the average TCE rate for a modern VLCC in the first quarter
of 2009 was $55,400/day, ranging between $83,000/day in January to $36,500/day
at the end of March. For the second, third and fourth quarter, the average TCE
rate was $27,700/day, $23,400/day and $39,500/day, respectively. For the full
year, the average TCE rate was $36,500/day.





The
tanker market began the year rather strongly, as the world economic downturn did
not have a significant effect on tanker rates. The demand for oil remained high
and the supply of tonnage remained tight. In addition, primarily due to
"contango" in the oil markets, some 45 to 50 VLCCs on average throughout this
period were employed in storage of oil.  This, in conjunction with
weak fleet growth for 2008 and the first quarter of 2009, positioned owners for
increased rates. However, significant factors, such as projections of reduced
global oil demand and a high and steady influx of new tonnage, inevitably tended
to have a countervailing negative impact.





46


Transport
distances fell sharply in the first half of the year but recovered substantially
throughout the second half due to China's large crude oil importing program and
build up of reserves. Industry sources estimate that 2009 experienced a
reduction of 4.3% in total tanker ton-mile demand compared with 2008. In
contrast, the fourth quarter remained relatively steady (-0.1%) year-on-year.
Storage was at the level of the first half of the year, but oil demand decreased
and newbuilding deliveries began to increase in frequency. Removals from the
fleet were below expectations, but fleet growth should slow down as the 2010
phase out deadline for single hull vessels approaches. Delays in the Turkish
straits increased towards the end of the year with approximately 6 to 7 days
waiting time through the Bosporus and Dardanelles through much of November and
all of December. Port strikes in Fos and Lavera also contributed to a tightening
tonnage supply.





Global
oil demand remains the most important driver for ton-mile demand, and as oil
demand decreased by 1.5% in 2009, ton-miles subsequently dropped by about 4.3%.
However, the average transportation distance is increasing year-on-year as China
and India are enhancing their West Africa and Central and South American crude
programs. Furthermore, expected increased trade volume between the Persian Gulf
and the U.S. should also help boost the 2010 ton-mile demand, which industry
sources currently estimate at approximately 7% larger than in 2009.





The dry
bulk shipping market opened 2009 in a highly depressed state. After the all-time
high of $234,000 per day for spot earnings for a capsize vessel in June 2008,
the spot market declined by more than 99% in just six
months.  However, the dramatic fall of the costs of transportation and
of commodity prices in general served as incentives for the rapidly growing
Chinese economy to secure raw materials at considerably lower delivered cost
than that which had been experienced in recent years.





Global
steel production fell by 110 million mt during 2009 while China's steel
production rose by 67 million mt. China's iron ore imports increased by 187
million mt, or 41%.  In addition, the dry bulk market was unexpectedly
bolstered by strong Chinese coal imports. China is the biggest coal producer in
the world and has traditionally been a net exporter, but, in 2009, China
suddenly became a substantial net importer.





The
supply of new drybulk vessels entering the market remains a concern. Due to
delays and cancellations, actual deliveries fell about 40% short of
expectations. As a consequence, the utilization of the dry bulk fleet from the
second quarter onward exceeded 90%, and spot earnings as well as the period time
charter market outperformed expectations.





The
average spot rate for a Capesize bulker in 2009 was $42,650 per day,
representing a 60% decrease from 2008, though still high from a historic
perspective.





According
to the February 2010 report from the International Energy Agency, or "IEA",
average OPEC production is estimated at 28.7 million barrels per day in 2009.
The expected 2010 OPEC production output figure has not yet been published by
the IEA.  However, the IEA estimates a production figure of 29.1
million barrels per day for January 2010, which is equivalent to their
production output in January 2009.





The IEA
further estimates that the average world oil demand was 84.9 million barrels per
day in 2009, which represents a decrease of 1.5% or 1.3 million barrels per day
from 2008. For 2010, the world oil demand is estimated at 86.5 million barrels
per day, representing an increase of 1.8% or 1.6 million barrels per day from
2009.






47





Throughout
2009, the oil majors continued to discriminate against single hull tankers. An
increasing number of port and flag states also announced their reluctance to
accept such vessels beginning in January 2010. Subsequently, the market for
these vessels has started to diminish, leaving only a few areas in East Asia
where they are still allowed to trade.





The
bunker (vessel fuel oil) market followed movements in the oil market closely in
2009. The average bunker price in Fujairah was approximately $370/mt, which
represents a decrease of $137/mt from 2008. The prices ranged from a low of
$226/mt in the middle of March to a high of $485/mt at the end of
December.





According
to the 'World Economic Outlook
- Update' published by The International Monetary Fund, or "IMF", in
January 2010, World Output, or GDP, decreased 0.8% in 2009, which was a
substantial downward shift compared to the 2009 3% growth estimate as reported
in October 2008. For 2010 and 2011, however, the IMF forecasts World GDP growth
of 3.9% and 4.3%, respectively.





Furthermore,
the IMF reported a U.S. GDP decrease of 2.5% for 2009, down from the 2008
increase of 0.4%. It is, however, estimated that U.S. GDP will increase by 2.7%
in 2010.





While the
Euro area (Germany, France, Italy and Spain) and Japan both experienced a
decrease in GDP throughout 2009 of 3.9% and 5.3%, respectively, they are also
expected to report GDP growth for both 2010 and 2011.





The
emerging and developing economies increased their GDP by 2% for 2009, which
represents a decrease from their 2008 growth of 6%. Current estimates, however,
estimate a healthier economy in the next four years with a predicted growth rate
of approximately 6% for 2010 and 2011, according to the IMF.





China
reported figures consistent with expectations. After an unprecedented domestic
industry build-up, China's GDP increased by 8.7% throughout 2009. While this
represents a small decrease in growth relative to the 9.6% growth experienced in
2008, the IMF has forecast GDP growth of about 10% for 2010 and
2011.





The total
VLCC fleet increased by approximately 8% in 2009 to 529 vessels. Throughout the
year, a total of 54 new vessels were delivered to owners and 12 new orders were
placed. The total order book consisted of 178 vessels at the end of the year,
representing approximately 34% of the existing fleet.





The total
Suezmax fleet increased by approximately 13% in 2009 to 393 vessels. Throughout
the year, a total of 46 new vessels were delivered to owners and 24 new orders
were placed. The total order book consisted of 134 vessels at the end of the
year, which represented approximately 34% of the existing fleet.





Throughout
2010, it is estimated that 67 VLCCs and 62 Suezmaxes will enter the market,
including 20 and 24, respectively, in the first quarter. This substantial amount
of new tonnage will be cushioned, to some extent, by the expected phase-out
program of single hull vessels which, at the end of 2009, consisted of 84 VLCCs
and 33 Suezmaxes. Finally, to help mitigate the future influx of vessels, we
expect further changes to orders such as cancellations, delays and
deferrals.





Accounting
Changes




Following
the dividend of most of our remaining interest in Ship Finance on March 22,
2007, we re-evaluated the basis of our consolidation of Ship Finance under FIN
46(R) (codified in ASC 810) and determined that consolidation of Ship Finance
and its subsidiaries was no longer appropriate and that the vessels chartered in
from Ship Finance should be accounted for as assets held under capital leases. A
summary of the major changes to the financial statements is as
follows;




48


·
            Vessels
      leased from Ship Finance, which were previously reported as wholly owned
      are reported as vessels held under capital
  lease.





·
            Capital
      lease obligations with Ship Finance, which were previously eliminated on
      consolidation are reported as liabilities with the related interest
      recorded in the income statement.





·
            Debt
      incurred by Ship Finance, which was previously reported as debt of the
      Company is no longer reported.





·
            Derivative
      instruments held by Ship Finance are no longer
  reported.





·
            Noncontrolling
      interest expense relating to Ship Finance is no longer
      reported.





·
            Profit
      share expense relating to amounts due to Ship Finance is shown in the
      income statement.





·
            Results
      from Ship Finance's container ships, jack-up rigs and Panamax vessels are
      no longer reported in the Company's consolidated
  results.





Discontinued
Operations




As a
result of the spin off of Ship Finance in March 2007, we disposed of the
container vessel and rig operations of Ship Finance. These operations have been
recorded as discontinued operations in 2007 and 2006. The results of the
container vessels have also been recorded as discontinued operations in
2005.




Critical
Accounting Policies and Estimates




The
preparation of our financial statements in accordance with accounting principles
generally accepted in the United States requires that management make estimates
and assumptions affecting the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.




Management
believes that the following accounting policies are the most critical in fully
understanding and evaluating our reported financial results as they require a
higher degree of judgment in their application resulting from the need to make
estimates about the effect of matters that are inherently uncertain. See Note 2
to our audited Consolidated Financial Statements included herein for details of
all of our material accounting policies.




Revenue
and expense recognition




Revenues
and expenses are recognized on the accruals basis. Revenues are generated from
freight billings, time charter and bareboat charter hires. Voyage revenues and
expenses are recognized ratably over the estimated length of each voyage and,
therefore, are allocated between reporting periods based on the relative transit
time in each period. The impact of recognizing voyage expenses ratably over the
length of each voyage is not materially different on a quarterly and annual
basis from a method of recognizing such costs as incurred. Probable losses on
voyages are provided for in full at the time such losses can be estimated. Time
charter and bareboat charter revenues are recorded over the term of the charter
as service is provided. The Company uses a discharge-to-discharge basis in
determining percentage of completion for all spot voyages and voyages servicing
contracts of affreightment whereby it recognizes revenue ratably from when
product is discharged (unloaded) at the end of one voyage to when it is
discharged after the next voyage. However, the Company does not recognize
revenue if a charter has not been contractually committed to by a customer and
the Company, even if the vessel has discharged its cargo and is sailing to the
anticipated load port on its next voyage.




49


Amounts
receivable or payable arising from profit sharing arrangements are accrued based
on amounts earned as of the reporting date. Profit share income represents
vessel earnings earned by the Company's customers in excess of market rates.
Profit share expense represents amounts due to Ship Finance based on 20% of the
excess of vessel revenues earned by the Company over the base hire paid to Ship
Finance for chartering in the vessels.




Revenues
and voyage expenses of the vessels operating in pool arrangements are pooled and
the resulting net pool revenues, calculated on a time charter equivalent basis,
are allocated to the pool participants according to an agreed
formula.  Formulae used to allocate net pool revenues vary among
different pools but generally allocate revenues to pool participants on the
basis of the number of days a vessel operates in the pool with weighting
adjustments made to reflect vessels' differing capacities and performance
capabilities.  The same revenue and expense principles stated above
are applied in determining the pool's net pool revenues.  Certain
pools are responsible for paying voyage expenses and distribute net pool
revenues to the participants.  Certain pools require the participants
to pay and account for voyage expenses, and distribute gross pool revenues to
the participants such that the participants' resulting net pool revenues are
equal to net pool revenues calculated according to the agreed
formula.  The Company accounts for gross pool revenues allocated by
these pools as "pool revenues" which are included in voyage revenues in its
consolidated statements of operations.




Vessels
and equipment




The cost
of the vessels less estimated residual value is depreciated on a straight-line
basis over the vessels' estimated remaining economic useful lives. The estimated
economic useful life of the Company's double hull vessels is 25 years and for
single hull vessels is either 25 years or the vessel's anniversary date in 2015,
whichever comes first. Other equipment is depreciated over its estimated
remaining useful life, which approximates five years.




On July
1, 2009, the Company effected a change in estimate related to the estimated
scrap rate for all of its owned vessels and for leased vessels where the Company
has an interest in the residual value. The scrap rate was amended from an
average of $222 per lightweight tonne to $281 per lightweight tonne for VLCCs
and from an average of $378 per lightweight tonne to $281 per lightweight tonne
for Suezmaxes. The resulting change in salvage values has been applied
prospectively and reduced depreciation by approximately $0.1 million for the six
months ended December 31, 2009. This change also resulted in an increase in net
income of approximately $0.1 million with no impact in earnings per share for
the year ended December 31, 2009. The Company's assumptions used in the
determination of estimated salvage value took into account then current scrap
prices, the historic pattern of scrap rates over the ten years ended December
31, 2008, estimated changes in future market demand for scrap steel and
estimated future demand for vessels. Management believes that $281 per
lightweight tonne is a reasonable estimate of future scrap prices, taking into
consideration the cyclicality of the nature of future demand for scrap steel.
Although management believes that the assumptions used to determine the scrap
rate are reasonable and appropriate, such assumptions are highly subjective, in
part, because of the cyclicality of the nature of future demand for scrap
steel.





Vessel
Impairment





The
carrying values of the Company's vessels may not represent their fair market
value at any point in time since the market prices of second-hand vessels tend
to fluctuate with changes in charter rates and the cost of newbuildings.
Historically, both charter rates and vessel values tend to be cyclical. The
carrying amounts of vessels held and used by the Company are reviewed for
potential impairment whenever events or changes in circumstances indicate that
the carrying amount of a particular vessel may not be fully recoverable. In such
instances, an impairment charge would be recognized if the estimate of the
undiscounted future cash flows expected to result from the use of the vessel and
its eventual disposition is less than the vessel's carrying amount. This
assessment is made at the individual vessel level as separately identifiable
cash flow information for each vessel is available.





50


In
developing estimates of future cash flows, the Company must make assumptions
about future charter rates, ship operating expenses, and the estimated remaining
useful lives of the vessels. These assumptions are based on historical trends as
well as future expectations. Although management believes that the assumptions
used to evaluate potential impairment are reasonable and appropriate, such
assumptions are highly subjective.




Vessels
and equipment under capital lease




The
Company charters in certain vessels and equipment under leasing agreements.
Leases of vessels and equipment, where the Company has substantially all the
risks and rewards of ownership, are classified as capital leases. Capital leases
are capitalized at the inception of the lease at the lower of the fair value of
the leased assets and the present value of the minimum lease
payments.




Each
lease payment is allocated between liability and finance charges to achieve a
constant rate on the finance balance outstanding. The interest element of the
finance cost is charged to the income statement over the lease
period.




Depreciation
of vessels and equipment under capital lease is included within "depreciation
and amortization expense" in the consolidated statement of operations. Vessels
and equipment under capital lease are depreciated on a straight-line basis over
the vessels' remaining economic useful lives or on a straight-line basis over
the term of the lease. The method applied is determined by the criteria by which
the lease has been assessed to be a capital lease.




Factors
Affecting our Results




The
principal factors which affect our results of operations and financial position
include:







·
            the
      earnings of our vessels in the charter
market;





·
            gains
      from the sale of assets;





·
            vessel
      operating expenses;





·
            profit
      share expense;





·
            administrative
      expenses;





·
            depreciation;





·
            interest
      expense;





·
            impairment
      of securities.





We have
derived our earnings from bareboat charters, time charters, voyage charters,
pool arrangements and contracts of affreightment.




As of
December 31, 2009, 2008 and 2007, 34, 36 and 29, respectively, of our vessels
operated in the voyage charter market. The tanker industry has historically been
highly cyclical, experiencing volatility in profitability, vessel values and
freight rates. In particular, freight and charter rates are strongly influenced
by the supply of tanker vessels and the demand for oil transportation
services.




51


Gains
from the sale of assets relates to gains from the sale of vessels and marketable
securities and payments received on the termination of leases.




Operating
costs are the direct costs associated with running a vessel and include crew
costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils
and insurance.




Profit
share expense relates to the vessels amounts due to Ship Finance based on 20% of
the excess of vessel revenues earned by the Company over the base hire paid to
Ship Finance for chartering in the vessels.




Administrative
expenses are composed of general corporate overhead expenses, including
personnel costs, property costs, legal and professional fees and other general
administrative expenses. Personnel costs include, among other things, salaries,
pension costs, fringe benefits, travel costs and health insurance.




Depreciation,
or the periodic cost charged to our income for the reduction in usefulness and
long-term value of our vessels, is also related to the number of vessels we own
or lease. We depreciate the cost of vessels we own, less their estimated
residual value, over their estimated useful life on a straight-line basis. We
depreciate the cost of vessels held under capital lease over the term of the
lease. No charge is made for depreciation of vessels under construction until
they are delivered.




Interest
expense relates to vessel specific debt facilities, corporate debt and capital
leases. Interest expense depends on our overall borrowing levels and may
significantly increase when we acquire vessels or on the delivery of
newbuildings.  Interest incurred during the construction of a
newbuilding is capitalized in the cost of the newbuilding. Interest expense may
also change with prevailing interest rates, although the effect of these changes
may be reduced by interest rate swaps or other derivative
instruments.




An
other-than-temporary impairment regarding our available-for-sale marketable
securities will be recorded as an impairment of securities.




Inflation




Although
inflation has had a moderate impact on our vessel operating expenses and
corporate overheads, management does not consider inflation to be a significant
risk to direct costs in the current and foreseeable economic environment. It is
anticipated that insurance costs, which have risen over the last three years,
may well continue to rise moderately over the next few years. Oil transportation
is a specialized area and the number of vessels is increasing. There will
therefore be an increased demand for qualified crew and this has and will
continue to put inflationary pressure on crew costs. However, in a shipping
downturn, costs subject to inflation can usually be controlled because shipping
companies typically monitor costs to preserve liquidity and encourage suppliers
and service providers to lower rates and prices in the event of a
downturn.




Year
ended December 31, 2009 compared with the year ended December 31,
2008




Total
operating revenues and voyage expenses and commission




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Voyage
      charter revenues
            
            
            565,331
            
            
            
            1,425,968
            
            
            
            (860,637)
            
            
            
            (60.3)Time
      charter revenues
            
            
            486,361
            
            
            
            602,980
            
            
            
            (116,619)
            
            
            
            (19.3)Bareboat
      charter revenues
            
            
            64,526
            
            
            
            57,152
            
            
            
            7,374
            
            
            
            12.9Other
      income
            
            
            17,068
            
            
            
            17,918
            
            
            
            (850)
            
            
            
            (4.7)Total
      operating revenues
            
            
            1,133,286
            
            
            
            2,104,018
            
            
            
            (970,732)
            
            
            
            (46.1)





52


Total
operating revenues decreased in 2009, as compared to 2008, primarily due to
significant decreases in voyage and time charter revenues.




Voyage
charter revenues decreased mainly due to the following reasons:




·
              The
      average TCE rates for double hull VLCCs and double hull Suezmaxes
      decreased from approximately $90,000 and $58,400, respectively, in 2008 to
      approximately $38,000 and $23,200, respectively, in
  2009.·
              The
      average TCE rates for single hull VLCCs and single hull Suezmaxes
      decreased from approximately $40,500 and $39,900, respectively, in 2008 to
      approximately $23,800 and $9,100, respectively, in
2009.·
              The
      lease on a single hull VLCC, Front Duchess, was terminated in September
      2009 resulting in a decrease in voyage charter revenues of $14.4 million
      compared with 2008.·
              Demurrage
      income was lower in 2009 than in the prior year, resulting in a $82.2
      million reduction in voyage charter revenues. These rates are determined
      by the market rates which were also lower in the year.
 ·
              Revenues
      generated from relets were $69.2 million lower in 2009. This was largely
      matched by a $68.9 million reduction in voyage expenses in the
      year.·
              A
      decrease in trading days in 2009 due mainly to the redelivery of a vessel
      chartered in for 2008, which reduced income by $52.6 million, and the
      transfer of three double hull VLCCs and one double hull Suezmax to time
      charters from voyage charters for the majority of 2009. There was a
      reduction of $166.5 million in voyage charter revenues for these
      vessels.·
              Eighteen
      double hull Suezmax vessels entered the Gemini Pool during the first
      quarter of the year. Earnings on the vessels traded in the pool were
      $277.3 million lower in 2009 than in 2008 as a result of the weaker spot
      market.
 
 Time
charter revenues decreased mainly due to the following
reasons:




·
            Six
      OBOs were drydocked in the year compared with one in 2008. As a result
      these vessels incurred much larger periods of offhire, which reduced
      income by $7.9 million.





·
            Two
      single hull VLCCs, Front Sabang and Front Duchess, did not trade on time
      charter in 2009 decreasing revenue by $6.2 million. Two other vessels were
      transferred onto bareboat charters from time charters. The impact on
      revenue was a decrease of $37.5 million from the prior year. Two
      other vessels were chartered out at rates linked to the Baltic Exchange
      Index which fell in 2009 from 2008, resulting in reported revenues
      decreasing by $17.0 million.





·
            Six
      double hull VLCCs are chartered out under floating rate time charters. In
      2009, revenues from these vessels was $121.4 million lower
      than  2008.





·
            Movement
      of double hull VLCCs between spot and time charters gave rise to a $20.7
      million increase in time charter revenues in 2009 on
  2008.





53


These
items were partially offset by an increase in double hull Suemax trading days
compared to 2008. This is due to three of the Suezmax double hull vessels
purchased midway through 2008 operating for the whole of 2009 resulting in
increased revenues of $21.2 million. In addition, two vessels that had traded in
the spot market moved to time charters, increasing income by $15.9
million.





Bareboat
revenues increased during the year after two single hull VLCCs were chartered
out on long term bareboat agreements during the year.





The
decrease in administrative income in 2009 is mainly due to a decrease in income
earned from supervising the newbuilding projects of related parties and a
decrease in commercial management commissions, which were partially offset by
cost recharges to various related parties.




In order
to compare vessels trading under different types of charters, it is standard
industry practice to measure the revenue performance of a vessel in terms of
time charter equivalent revenue, or TCE. Total TCE is the sum of time charter,
voyage charter and bareboat charter revenues, less voyage expenses. Total TCE,
which is not covered by generally accepted accounting principles, or GAAP,
provides more meaningful information to us than total operating revenues, the
most directly comparable GAAP measure. Average daily TCEs are also widely used
by investors and analysts in the shipping industry for comparing financial
performance between companies and to industry averages. Other companies may
calculate TCE using a different method. A summary of average time charter
equivalent earnings per day for our fleet is as follows:




(in
      $ per day)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005VLCC
            
            
            38,300
            
            
            
            74,500
            
            
            
            45,700
            
            
            
            56,800
            
            
            
            57,400Suezmax
            
            
            25,300
            
            
            
            55,200
            
            
            
            33,000
            
            
            
            37,800
            
            
            
            40,300Suezmax
      OBO
            
            
            43,000
            
            
            
            43,500
            
            
            
            39,700
            
            
            
            31,700
            
            
            
            34,900





Gain
on sale of assets




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Gain
      on sale of assets
            
            
            3,061
            
            
            
            142,293
            
            
            
            (139,232)
            
            
            
            (97.8)





The gain
on sale of assets in 2009 comprises a gain resulting from the termination of the
long-term charterparty agreement for Front Duchess.




The gain
on sale of assets in 2008 comprises gains of $17.1 million and $24.8 million
resulting from the termination of the long-term charterparty agreements for
Front Maple and Front Sabang respectively. Also included in the gain on sale of
assets are gains of $26.0 million and $26.4 million relating to the delivery of
two completed heavy lift conversions, the Front Comor and Front Traveller,
respectively. Upon delivery of these final two vessels a further $38.6 million
was recognized on the gain on the sale of the heavylift vessels. A further gain
of $9.4 million was recognized on the sale of the Front Comor and Front
Traveller mid-sections.




Ship
operating expenses




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %VLCC
            
            
            124,357
            
            
            
            141,565
            
            
            
            (17,208)
            
            
            
            (12.2)Suezmax
            
            
            49,980
            
            
            
            45,210
            
            
            
            4,770
            
            
            
            10.6Suezmax
      OBO
            
            
            32,044
            
            
            
            26,991
            
            
            
            5,053
            
            
            
            18.7Total
      ship operating expenses
            
            
            206,381
            
            
            
            213,766
            
            
            
            (7,385)
            
            
            
            (3.5)





54


Ship
operating expenses are the direct costs associated with running a vessel and
include crew costs, vessel supplies, repairs and maintenance, drydockings,
lubricating oils and insurance.




VLCC
operating costs have decreased mainly due to the following reasons:




·
              Eight
      double hull and one single hull vessel were drydocked in 2009 compared
      with six double hull and three single hull vessels in 2008. Drydocking
      expenditure in 2009 was $14.6 million lower than in 2008 due to fewer
      single hull vessels being drydocked and more vessels being drydocked in
      China, which proved to be cost
effective.
 
 ·
              Two
      single hull vessels were delivered onto bareboat charters in April and May
      2009. Operating costs incurred on these vessels was $7.0 million lower in
      2009 when compared to 2008.
 
 ·
              The
      Front Sabang which had previously reported operating expenditure in 2008
      but was sold in the first half of the year led to a decrease of $1.3
      million in 2009. The Front Duchess was sold in 2009 and resulted in
      decreased operating expenditure of $1.7
million.
  These
items were partially offset by two newbuilding double hull VLCCs, which were
completed and delivered during 2009 resulting in additional operating costs of
$4.4 million compared to 2008 and an increase in crew costs on the VLCCs
contributed of $3.0 million compared to 2008.




Suezmax
operating costs have increased mainly due to the following:


·
              One
      double hull Suezmax was drydocked in 2009 compared with three double hull
      Suezmaxes in 2008, which resulted in a decrease of $4.6 million in
      drydocking expenses.
 
 ·
              Operating
      expenditure for single hull Suezmax vessels for the whole of 2009 related
      to one single hull Suezmax. As a result of the disposal of other single
      hull Suezmaxes in the prior year, operating expenditure fell by $1.7
      million.
 
 ·
              Five
      double hull Suezmax vessels were acquired and delivered during the period
      from June to August 2008 and consequently a full year of operating
      expenditure was incurred in 2009 resulting in an increase of $10.0
      million.
  OBO
operating costs have increased mainly due to drydocking costs. Six OBOs were
drydocked in 2009, compared with one in 2008, resulting in increased drydocking
costs of $4.2 million.




Profit
share expense




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Profit
      share expense
            
            
            33,018
            
            
            
            110,962
            
            
            
            (77,944)
            
            
            
            (70.2)





Profit
share expense relates to the vessels leased from Ship Finance and is calculated
as 20% of TCE in excess of daily base charter hire.




Charterhire
expenses




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Charterhire
      expenses
            
            
            169,503
            
            
            
            220,170
            
            
            
            (50,667)
            
            
            
            (23.0)Number
      of vessels chartered in and accounted for
              as
      operating leases:
            
            
            2009
            
            
            
            2008VLCC
            
            
            2
            
            
            
            4Suezmax
            
            
            15
            
            
            
            14Total
            
            
            17
            
            
            
            18





55




Charterhire
expenses decreased in 2009 following the redelivery of two VLCCs and two
Suezmaxes during 2008 and due to a fall in rates for the vessels chartered in on
floating rates and profit share basis. In 2009, an additional three Suezmaxes
were chartered in under floating rate charters, bringing the total under such
agreements to nine during 2009. Two vessels (2008: two) are chartered in on a
profit share basis.




Administrative
expenses




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Administrative
      expenses
            
            
            30,647
            
            
            
            35,226
            
            
            
            (4,579)
            
            
            
            (13.0)





The
decrease in administrative expenses during 2009 was mainly due to a $1.3 million
reduction in stock compensation, a $1.0 million reduction in personnel costs due
mainly to a decrease in the number of staff and a $1.8 million reduction in
consultancy, audit and other professional costs, which were partially offset by
a $0.7 million increase in newbuilding supervision expenses.




Interest
income




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Interest
      income
            
            
            22,969
            
            
            
            41,204
            
            
            
            (18,235)
            
            
            
            (44.3)





Interest
income has decreased primarily as a result of a decrease in average cash
balances held during the year resulting from increased investments and lower
cash generated from operations as a result of the weaker market.




Interest
expense




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Interest
      expense
            
            
            160,988
            
            
            
            183,925
            
            
            
            (22,937)
            
            
            
            (12.5)





Interest
expense has decreased in 2009 mainly as a result of lower capital lease interest
on the vessels leased from Ship Finance due to the decreasing capital lease
balances outstanding and one fewer vessel being leased during 2009. In addition,
the capital lease interest expense on the vessels in the ITCL group decreased
due to one fewer vessel being leased during 2009 and the effect of foreign
exchange.





Equity
earnings of unconsolidated subsidiaries and associated companies




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Share
      of results of associated companies
            
            
            (544)
            
            
            
            (901)
            
            
            
            
            
            (357)
            
            (39.6)





As of
December 31, 2009, we account for four investees (2008: five) under the equity
method.




56


Other




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Foreign
      currency exchange (losses) gains
            
            
            (346
            )
            
            
            1,565
            
            
            
            (1,911
            )
            
            
            (122.1
            )Mark
      to market of derivatives
            
            
            -
            
            
            
            (17,399
            )
            
            
            17,399
            
            
            
            100.0Impairment
      of securities
            
            
            -
            
            
            
            (25,134
            )
            
            
            25,134
            
            
            
            100.0Dividends
      received
            
            
            3,087
            
            
            
            1,522
            
            
            
            1,565
            
            
            
            102.8Loss
      on sale of securities
            
            
            -
            
            
            
            (221
            )
            
            
            221
            
            
            
            100.0Other
      non-operating items, net
            
            
            1,545
            
            
            
            34,043
            
            
            
            (32,498
            )
            
            
            (95.5
            )





There
were no derivative transactions during 2009. The unfavorable movement in mark to
market of derivatives in 2008 relates primarily to the forward contracts and
total return swap in relation to the purchase and sale of securities in Overseas
Shipholding Group Inc. ("OSG") totaling $15.0 million. The remaining loss in
2008 relates to losses on forward freight contracts.




Impairment
of securities in 2008 relates to the other-than-temporary impairment recorded
against securities held in OSG. The securities were written down to fair value
of $59.3 million as of December 31, 2008 resulting in an impairment loss of
$25.1 million.




The loss
on sale of securities in 2008 relates to the disposal of securities in
OSG.




Other non
operating items, net in 2008 is primarily due to a gain of $16.6 million
following settlement by Bocimar of a legal case and a $18.0 million gain on the
partial spin-off of ITCL.




Net
income attributable to noncontrolling interest




Change(in
      thousands of $)
            
            2009
            
            
            2008
            
            
            $
            
            
            
            %Net
      income attributable to noncontrolling interest
            
            
            2,771
            
            
            
            2,184
            
            
            
            587
            
            
            
            26.9





In 2009
and 2008, net income attributable to noncontrolling interest represents the
17.53% interest not owned by Frontline in the net income of ITCL from February
2008.




Year
ended December 31, 2008 compared with the year ended December 31,
2007




Total
operating revenues and voyage expenses and commission




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Voyage
      charter revenues
            
            
            1,425,968
            
            
            
            801,546
            
            
            
            624,422
            
            
            
            77.9Time
      charter revenues
            
            
            602,980
            
            
            
            432,813
            
            
            
            170,167
            
            
            
            39.3Bareboat
      charter revenues
            
            
            57,152
            
            
            
            57,052
            
            
            
            100
            
            
            
            -Other
      income
            
            
            17,918
            
            
            
            8,516
            
            
            
            9,402
            
            
            
            110.4Total
      operating revenues
            
            
            2,104,018
            
            
            
            1,299,927
            
            
            
            804,091
            
            
            
            61.9





Total
operating revenues increased in 2008, as compared to 2007, primarily due to
significant increases in voyage and time charter revenues. Voyage charter
revenues increased mainly due to the following reasons:




·
            An
      increase in trading days due to the charter in of 11 Suezmax vessels,
      which resulted in an increase of $213.3
million.





57


·
            The
      purchase of five Suezmax vessels, which were delivered in the period from
      June to August 2008, two of which traded in the spot market and increased
      revenue by $33.9 million.





·
            TCE
      rates increased in 2008 compared to 2007 resulting in a rise in income
      across all revenue categories in the period. In voyage charter earnings,
      TCE for double hull VLCCs and double hull Suezmaxes was approximately
      $90,000 and $58,400, respectively, in 2008 compared with approximately
      $48,200 and $41,100, respectively, in
2007.





·
            The
      average TCE voyage charter rates earned on single hull Suezmaxes and
      single hull VLCCs were approximately $39,900 and $40,500, respectively, in
      2008. This compares with rates of approximately $23,000 for single hull
      Suezmaxes and $37,600 for single hull VLCCs in 2007. As has been the case
      in prior years the rates earned underline a continuing variance in market
      rates for single and double hull
vessels.





·
            The
      leases on two single hull vessels were terminated in the January and April
      2008 resulting in a decrease in voyage charter revenue of $24.7 million in
      the year.





Time
charter revenues increased mainly due to the following reasons:




·
            The
      OBO's were fixed on new charters throughout 2007 at higher rates and
      consequently the current year results reflect a full trading period on
      these charters, generating increased revenues of $12.9
      million.





·
            Our
      Suezmax vessels increased revenues by $1.6 million in 2008 as compared to
      2007. The delivery of three new vessels in 2008 resulted in increased
      revenues of $20.5 million, which was partially offset by the shift in
      employment of two vessels to the spot market, resulting in a $13.9 million
      decrease in revenues and a further decrease of $7.6 million as there were
      no single hull Suezmaxes traded on time charter during 2008 as compared to
      2007.





·
            Single
      hull VLCC time charter earnings were increased due to higher market linked
      charter rates. Four single hulled vessels were chartered out at rates
      linked to the Baltic Exchange Index which continued to increase in 2008,
      resulting in a $39.3 million increase in revenues, which was partially
      offset by a $7.6 million loss of revenue from the Front Sabang which was
      sold in the second quarter of 2008. The remaining $3.2 million increase
      represents receipts from old insurance
claims.





·
            The
      double hull VLCC revenues were augmented by a full year of trading two
      vessels that were chartered in during 2007. These vessels increased
      earnings by $15.4 million, assisted by a market linked charter out
      rate.





·
            The
      most significant increase was realized by six other VLCC vessels chartered
      out under floating time charters. In 2008, these vessels posted a $99.3
      million increase on earnings compared to
2007.





Other
income has increased due to an increase in income earned from supervising the
newbuilding projects of related parties and an increase in commissions earned on
the commercial management of vessels chartered in from Nordic American Tankers
and the Songa Chelsea. These vessels were not managed by us in
2007.




Gain
on sale of assets




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Gain
      on sale of assets
            
            
            142,293
            
            
            
            118,168
            
            
            
            24,125
            
            
            
            20.4





58


The gain
on sale of assets in 2008 comprises gains of $17.1 million and $24.8 million
resulting from the termination of the long-term charterparty agreements for
Front Maple and Front Sabang respectively. Also included in the gain on sale of
assets are gains of $26.0 million and $26.4 million relating to the delivery of
two completed heavy lift conversions, the Front Comor and Front Traveller,
respectively. Upon delivery of these final two vessels a further $38.6 million
was recognized on the gain on the sale of the heavylift vessels. A further gain
of $9.4 million was recognized on the sale of the Front Comor and Front
Traveller mid-sections.




The gain
on sale of assets in 2007 comprises gains of $21.3 million and $6.2 million from
the sale of the single hull vessels Front Transporter and Front Horizon,
respectively, a gain of $60.7 million from the delivery of two converted
heavylift vessels and gains of $13.3 million and $16.6 million resulting from
the termination of the long-term charterparty agreements for Front Vanadis and
Front Birch, respectively.




Ship
operating expenses




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %VLCC
            
            
            141,565
            
            
            
            119,552
            
            
            
            22,013
            
            
            
            18.4Suezmax
            
            
            45,210
            
            
            
            52,642
            
            
            
            (7,432)
            
            
            
            (14.1)Suezmax
      OBO
            
            
            26,991
            
            
            
            24,064
            
            
            
            2,927
            
            
            
            12.2Total
      ship operating expenses
            
            
            213,766
            
            
            
            196,258
            
            
            
            17,508
            
            
            
            8.9





Ship
operating expenses are the direct costs associated with running a vessel and
include crew costs, vessel supplies, repairs and maintenance, drydockings,
lubricating oils and insurance.




VLCC
operating costs have increased mainly due to the following:




·
            Nine
      VLCCs (six double hull and three single hull) were drydocked in both 2008
      and 2007. The cost of vessels drydocked in 2008 was $16.1 million higher
      than in 2007.





·
            In
      May 2008, the long term charter for the Front Sabang was terminated
      resulting in a decrease in ship operating expenditure of $6.0 million in
      2008 as compared to 2007.




·
            Increased
      crew costs contributed to $6.0 million of the higher operating costs
      reported in 2008.





Suezmax
operating costs have decreased mainly due to the following:




·
            In
      2008, three double hull Suezmaxes were drydocked as compared with five
      Suezmaxes (two single hull and three double hull) in 2007, which resulted
      in a decrease of $2.9 million in drydocking
  expenses.





·
            A
      single hull Suezmax vessel was sold in January 2008 which had previously
      reported an entire year's operating expenditure resulting in a $2.5
      million decrease in 2008 operating
expenditures.





·
            The
      Front Birch was sold in December 2007 and, therefore, reported close to a
      full year's operating expenditure. The impact in 2008 was to decrease
      operating expenditure by $2.5
million.





·
            The
      Front Granite and Marble were sold to Dockwise in 2007 and time chartered
      back. In 2007 the vessels reported $4.7 million more operating expenditure
      as a result.





·
            Five
      other single hull Suezmaxes were sold in 2007 that reported $7.3 million
      of expenses compared with $0.3 million in
2008.






59





·
            Five
      newly acquired double hull Suezmax vessels were delivered during the
      period from June to August 2008 resulting in an increase in operating
      expenditure of $10.7 million in
2008.





·
            There
      have also been general costs increases across the Suezmax
      fleet.





OBO
operating costs have increased slightly due to increased cost associated with
spare parts purchases, higher crew costs, as well as hull and machinery claim
costs.




Profit
share expense




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Profit
      share expense
            
            
            110,962
            
            
            
            37,279
            
            
            
            73,683
            
            
            
            197.7





Profit
share expense relates to the vessels leased from Ship Finance and is calculated
as 20% of TCE in excess of daily base charter hire. Profit share expense of
$37.3 million recorded in the income statement in 2007 excludes $15.2 million
relating to the first quarter, which was eliminated on consolidation of Ship
Finance.




Charterhire
expenses




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Charterhire
      expenses
            
            
            220,170
            
            
            
            56,868
            
            
            
            163,302
            
            
            
            287.2Number
      of vessels chartered in and accounted for
              as
      operating leases:
            
            
            2008
            
            
            
            2007VLCC
            
            
            4
            
            
            
            3Suezmax
            
            
            14
            
            
            
            6Total
            
            
            18
            
            
            
            9





The
increase in charterhire expense in 2008 relates to 18 vessels under operating
lease in 2008 as compared to nine vessels under operating lease in 2007. Six of
the chartered in Suezmax vessels operated under floating charters in
2008.




Administrative
expenses




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Administrative
      expenses
            
            
            35,226
            
            
            
            36,410
            
            
            
            (1,184)
            
            
            
            (3.3)





The
decrease in administrative expenses during 2008 was mainly due to the
strengthening of the U.S. dollar against the Norwegian Kroner and the British
Pound as most of our administrative expenses are denominated in Norwegian Kroner
and the British Pound. In addition, administrative expenses in 2007 included
$2.0 million with respect to Ship Finance for the first quarter. These items
were partially offset by a $3.3 million increase in stock compensation and a
$2.1 million increase in newbuilding supervision expenses as a result of
additional projects being supervised in 2008.




Interest
income




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Interest
      income
            
            
            41,204
            
            
            
            54,316
            
            
            
            (13,112)
            
            
            
            (24.1)





60


Interest
income has decreased primarily as a result of a decrease in average cash
balances held during the year resulting from increased investments in fixed
assets and non trading financial instruments, which has been coupled with
significant decrease in interest rates.




Interest
expense




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Interest
      expense
            
            
            183,925
            
            
            
            204,535
            
            
            
            (20,610)
            
            
            
            (10.1)





The
decrease in interest expense is primarily due to the fact that the Company no
longer consolidates the results of Ship Finance from the end of March 2007 and
as a result the bank interest expense incurred by Ship Finance has significantly
decreased. This decrease in bank interest has been offset by an increase in
lease interest expense. This lease interest expense was eliminated in the first
quarter of 2007.




Equity
earnings of unconsolidated subsidiaries and associated companies




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Share
      of results of associated companies
            
            
            (901)
            
            
            
            573
            
            
            
            (1,474)
            
            
            
            (257.2)





As of
December 31, 2008, we account for five investees (2007: five) under the equity
method.  The decrease in share of results of associated companies is
primarily due to the disposal of International Maritime Exchange ASA, or IMAREX,
in 2007 and a write-down of the investment in Front Tobago Shipping
Corporation.




Other




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Foreign
      currency exchange gains
            
            
            1,565
            
            
            
            3,312
            
            
            
            (1,747
            )
            
            
            (52.8
            )Mark
      to market of derivatives
            
            
            (17,399
            )
            
            
            3,530
            
            
            
            (20,929
            )
            
            
            (592.9
            )Impairment
      of securities
            
            
            (25,134
            )
            
            
            -
            
            
            
            (25,134
            )
            
            
            -Dividends
      received
            
            
            1,522
            
            
            
            533
            
            
            
            989
            
            
            
            185.6(Loss)
      gain on sale of securities
            
            
            (221
            )
            
            
            122,120
            
            
            
            (122,341
            )
            
            
            (100.2
            )Other
      non-operating items, net
            
            
            34,043
            
            
            
            4,951
            
            
            
            29,092
            
            
            
            587.6





The
unfavorable movement in mark to market of derivatives relates primarily to the
forward contracts and total return swap in relation to the purchase and sale of
securities in OSG totaling $15.0 million. The remaining loss in 2008 relates to
losses on forward freight contracts.




Impairment
of securities relates to the other-than-temporary impairment recorded against
securities held in OSG. The securities were written down to fair value of $59.3
million as of December 31, 2008 resulting in an impairment loss of $25.1
million.




The loss
on sale of securities in 2008 relates to the disposal of securities in OSG. The
gain on sale of securities in 2007 comprises the gains arising on the sale of
our remaining shares in Dockwise, IMAREX, and Sea Production of $48.7 million,
$41.9 million and $31.2 million, respectively.




61


Other non
operating items, net in 2008 is primarily due to a gain of $16.6 million
following settlement by Bocimar of a legal case and a $18.0 million gain on the
partial spin-off of ITCL.




Net
income attributable to noncontrolling interest




Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Net
      income attributable to noncontrolling interest
            
            
            2,184
            
            
            
            22,162
            
            
            
            (19,978)
            
            
            
            (90.2)





In 2008,
net income attributable to noncontrolling interest represents the 17.53%
interest in the net income of ITCL from February 2008. The net income
attributable to noncontrolling interest in 2007 represents majority investors'
88.9% interests in the net income of Ship Finance for the first quarter. There
is no net income attributable to noncontrolling interest expense after March 31,
2007 as we no longer consolidate the results of Ship Finance.




Gain
on issuance of shares by associate





Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Gain
      on issuance of shares by associate
            
            
            —
            
            
            
            83,566
            
            
            
            (83,566
            )
            
            
            (100.0
            )





The gain
on issuance of shares in 2007 comprises a gain on the issuance of shares in Sea
Production of $39.8 million and a gain on the issuance of shares in Sealift of
$43.7 million in connection with the business combination with Dockwise. Based
on the information currently available to us, we do not expect to record any
gains on the issuance of shares by associates in 2009.




Discontinued
operations





Change(in
      thousands of $)
            
            2008
            
            
            2007
            
            
            $
            
            
            
            %Discontinued
      operations
            
            
            —
            
            
            
            5,442
            
            
            
            (5,442
            )
            
            
            (100.0
            )





Discontinued
operations in 2007 are the results of the containerships and jack up rig of Ship
Finance. We no longer consolidate the results of Ship Finance following the spin
off in March 2007.




62


Recent
accounting pronouncements




In
December 2007, the Financial Accounting Standards Board ('FASB') issued
Statements No. 141(R), Business Combinations,("FAS
141(R)", (codified in ASC 805), and No. 160 Noncontrolling Interests in
Consolidated Financial Statements,("FAS 160"), (codified in ASC 810).
Together these statements can affect the way companies account for future
business combinations and noncontrolling interests. ASC 805 requires, amongst
other changes, recognition of subsequent changes in the fair value of contingent
consideration in the Statement of Operations rather than against Goodwill, and
transaction costs to be recognized immediately in the Statement of Operations.
ASC 810-10-65-1 clarifies the classification of noncontrolling interests in
consolidated balance sheets and the accounting for and reporting of transactions
between the reporting entity and holders of such noncontrolling interests. In
particular the noncontrolling interest in subsidiaries should be presented in
the consolidated balance sheet within equity, but separate from the parent's
equity. Similarly the amount of net income attributable to the parent and to the
minority interest be clearly identified and presented on the consolidated
statement of income.  Both these Statements are effective for
transactions completed in fiscal years beginning after December 15, 2008.
Adoption of these Statements by the Company in the financial statements
beginning January 1, 2009 did not have a material effect on the Company's
consolidated financial statements except that noncontrolling interests is
classified as a component of equity.




In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1 (codified in ASC 825), Guidance
on Interim Fair Value Disclosures, which expands the fair value disclosures
required for all financial instruments within the scope of this topic to interim
periods for publicly traded entities. Entities must disclose the method(s) and
significant assumption used to estimate the fair value of financial instruments
in financial statements on an interim basis and to highlight any changes in the
methods and significant assumptions from prior periods. The guidance is
effective for interim and annual periods ending after June 15, 2009 and adoption
of this FSP did not have a material effect on our consolidated financial
statements.




In April
2009, the FASB issued FSP FAS 115-2 (codified in ASC 320) which provides
additional guidance to highlight and expand on the factors that should be
considered in estimating fair value when there has been a significant decrease
in market activity for a financial asset.  The guidance is effective
for interim and annual periods ending after June 15, 2009. Adoption of this FSP
did not have a material effect on our consolidated financial
statements.




In May
2009, the FASB issued Statement No. 165 Subsequent Events, ('FAS 165'),(codified in ASC 855).This Statement provides guidance on management's assessment of subsequent
events. The guidance clarifies that management must evaluate, as of each
reporting period, events or transactions that occur after the balance sheet date
"through the date that the financial statements are issued or are available to
be issued." Management must perform its assessment for both interim and annual
financial reporting periods. The new guidance is effective prospectively for
interim and annual periods ending after June 15, 2009. Adoption of the Statement
did not have a material effect on the Company's consolidated financial
statements. In February 2010, the FASB amended the subsequent events guidance
issued in May 2009 to remove the requirement for SEC filers to disclose a date
through which subsequent events have been evaluated in both issued and revised
financial statements. The amendment is effective upon issuance. The adoption of
this guidance did not have a material effect on our consolidated financial
condition or results of operations.




In
June 2009, the FASB issued Statement No. 168, Statement on Codification and
Hierarchy of Generally Accepted Accounting Principles, ('FAS 168'),
(codified in ASC 105).The Statement is a replacement for FAS 162. The GAAP hierarchy will be
modified to include only two levels of GAAP; authoritative and nonauthoritative.
The Statement is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The adoption of this Statement
did not have a material effect on the Company's consolidated financial
statements.




63


In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R)(FAS 167) (codified in ASC 810). The amended guidance requires
companies to qualitatively assess the determination of the primary beneficiary
of a variable-interest entities ("VIEs") based on whether the entity (1) has the
power to direct the activities of the VIE that most significantly impact the
entity's economic performance and (2) has the obligation to absorb losses of the
entity that could potentially be significant to the VIE or the right to receive
benefits from the entity that could potentially be significant to the VIE. It
also requires additional disclosures for any enterprise that holds a variable
interest in a VIE. The new accounting and disclosure requirements become
effective for the Company from January 1, 2010. The Company is currently
assessing the impact of this amendment on its consolidated financial
statements.




Liquidity
and Capital Resources




Liquidity




We
operate in a capital intensive industry and have historically financed our
purchase of tankers and other capital expenditures through a combination of cash
generated from operations, equity capital and borrowings from commercial banks.
Our ability to generate adequate cash flows on a short and medium term basis
depends substantially on the trading performance of our vessels in the
market.  Market rates for charters of our vessels have been volatile
historically.  Periodic adjustments to the supply of and demand for
oil tankers causes the industry to be cyclical in nature.  We expect
continued volatility in market rates for our vessels in the foreseeable future
with a consequent effect on our short and medium term liquidity.




Our
funding and treasury activities are conducted within corporate policies to
maximize investment returns while maintaining appropriate liquidity for our
requirements. Cash and cash equivalents are held primarily in U.S. dollars with
some balances held in British Pounds and Norwegian Kroner.




Our
short-term liquidity requirements relate to servicing our debt, payment of
operating costs (including drydocking), lease payments for our chartered in
fleet, funding working capital requirements and maintaining cash reserves
against fluctuations in operating cash flows. Sources of short-term liquidity
include cash balances, restricted cash balances, short-term investments and
receipts from our customers. Revenues from time charters and bareboat charters
are generally received monthly or fortnightly in advance while revenues from
voyage charters are received upon completion of the voyage.




Net cash
provided by operating activities was $321.5 million in 2009 compared with $826.8
million in 2008 and $556.2 million in 2007.  The Company’s reliance on
the spot market contributes to fluctuations in cash flows from operating
activities historically as a result of the exposure to highly cyclical tanker
rates and more recently as a result of the impact of the downturn in the world
economy on worldwide oil demand.  Any decrease in the average TCE
rates earned by the Company’s vessels in periods subsequent to December 31,
2009, compared with the actual TCE rates achieved during 2009, will have a
negative comparative impact on the amount of cash provided by operating
activities. As of February 2010, we
have average total cash cost breakeven rates on a TCE basis of
approximately $25,500 for our Suezmax tankers and approximately $30,800 for our
VLCCs. These are the daily rates our vessels must earn to cover budgeted
operating costs, estimated interest expenses and scheduled loan principal
repayments, bareboat hire and corporate overhead costs.  These rates
do not take into account capital expenditures or loan balloon repayments at
maturity which we expect to refinance with new loans.  Furthermore,
M/T Kensington, M/T Hampstead, the remaining Genmar vessel being chartered in
and three vessels on bareboat charters out are not included in the breakeven
rates.




Our
medium and long-term liquidity requirements include funding the equity portion
of investments in new or replacement vessels, repayment of long-term debt
balances and funding any payments we may be required to make due to lessor put
options on certain vessels we charter in.  Sources of funding our
long-term liquidity requirements include new loans or equity issues, public and
private debt offerings, vessel sales and sale and leaseback arrangements. We
believe our working capital is sufficient for the Company's present
requirements; however, we may not be able to refinance our current borrowings or
enter into future borrowings at an interest rate or on terms that are acceptable
to us or at all and we are reviewing our capital commitments in order to enhance
our liquidity. See "Risk Factors – We cannot assure you that we will be able to
refinance indebtedness incurred under our current credit
facilities."




64


As of
December 31, 2009, 2008 and 2007, we had cash and cash equivalents of $82.6
million, $190.8 million and $168.4 million, respectively. As of December 31,
2009, 2008 and 2007, we had restricted cash balances of $500.0 million, $554.8
million and $651.4 million, respectively. Our restricted cash balances
contribute to our total short and medium term liquidity as they are used to fund
payment of certain loans and lease payments which would otherwise be paid out of
our cash balances.  $184.3 million of our restricted cash as of
December 31, 2009 (2008: 216.1 million) serves to support our obligations to
make charterhire payments to Ship Finance, and is subject to adjustment based on
the number of charters that we are a party to.  We are entitled to use
these funds only (1) to make charterhire payments (including profit sharing
payments) to Ship Finance and (2) for reasonable working capital purposes to
meet short term voyage expenses.  In March
2010, we made certain amendments to the charter agreements with Ship
Finance relating to 31 double hull crude oil tankers and OBOs, which resulted in
our restricted cash deposits being reduced by approximately $112 million in
exchange for a guarantee from us for the payment of charterhire. Withdrawals
from these restricted cash deposits will be prohibited.  We also agreed
with Ship Finance to make an upfront payment of charterhire less operating
expenses of approximately $73 million covering part of the payments due to Ship
Finance over the next six months. On March 26, 2010, we paid $54.4 million of
this balance. The remainder is expected to be paid before the end of March
2010.





At
December 31, 2009, ITCL's assets included $314.9 million (2008: $336.7 million)
of restricted cash deposits which are held for the benefit of the holders of the
Notes issued on behalf of ITCL subsidiaries. This restricted cash also included
deposits, which can only be used to meet liabilities under the lease
agreements.




We
currently have six VLCC and two Suezmax vessels under construction with an
aggregate contract cost of approximately $855 million. Out of the total
contractual cost the financial exposure on two VLCC's of $252 million can be
limited to the $54 million already paid-in installments. As of December 31,
2009, installments of $364 million have been paid on the newbuildings. The
remaining installments to be paid as of December 31, 2009 for the newbuildings
amount to $428 million, with expected payments of approximately $338 million and
$90 million in 2010 and 2011, respectively. Outstanding installments of $428
million were reduced to $344 million following the delivery of Northia and
Naticina in January and March 2010, respectively and payments made in 2010 up to
March 29. These numbers exclude the payments on the two VLCCs that have a
financial exposure that can be limited to the $54 million already paid-in
installments. The remaining installments will be financed through a combination
of bank loans, other financing sources and existing liquidity.





We
delivered the third and fourth heavy lift vessels in May and June 2008,
respectively, generating net cash proceeds of approximately $28.0 million (the
net of an $80.0 million seller's credit and the remaining heavy lift conversion
commitments).




In
January 2008 and March 2008, Ship Finance sold the single hull vessels Front
Maple and Front Sabang, respectively, and terminated our long-term leases for
the vessels. We received termination payments of $16.7 million and $26.8
million, respectively.




In April
2008, we received a $16.6 million settlement from Bocimar NV following judgement
in January 2008 of a court case in our favor.




In March
2009, Frontline Shipping III Limited ("FSL III"), our wholly owned subsidiary,
and Ship Finance amended their charter ancillary agreement whereby the charter
service reserve totaling $26.5 million relating to vessels on charter from Ship
Finance may be in the form of a loan to Ship Finance. In March 2009, a loan in
the amount of $26.5 million was drawn down by Ship Finance. The loan bears
interest at LIBOR plus a margin and is due for repayment within 364 days of the
loan being provided, or earlier in accordance with the agreement.




In
January 2009, the lease agreement between Buckingham Shipping plc, a
majority-owned subsidiary, and Dresdner Kleinwort Leasing was terminated and the
outstanding lease obligation was settled in full using restricted cash. At
December 31, 2008, the outstanding lease obligation was $69.3 million. In
January 2010, the lease agreement between Caernarfon Shipping plc, a
majority-owned subsidiary, and Dresdner Kleinwort Leasing was terminated and the
outstanding lease obligation was settled in full using restricted cash. At
December 31, 2009, the outstanding lease obligation was $70.0 million. These
lease terminations were cash neutral for the Company.




65


In July
2009, we agreed with Ship Finance to terminate the long term charterparty for
the single hull VLCC Front Duchess and received a compensation payment of
approximately $2.4 million in October 2009.




In
February 2010, we acquired the VLCC Front Vista from Ship Finance for a purchase
price of $58.5 million and agreed to sell the vessel with the purchase price to
be paid in installments over a 10 year period. The purchase price was financed
with a $15 million bank loan, a $26.5 million sellers credit from Ship Finance
and equity. The buyer of Front Vista has secured a 10 year time charter with a
state owned oil company at a gross rate of $43,500 per day during the entire
charter period.




During
the year ended December 31, 2009, we paid total cash dividends of $70.1
million.  In the first quarter of 2010, we declared a cash dividend of
$0.25 per share for the fourth quarter of 2009 representing a total cash payment
of $19.5 million.




Borrowing
activities




In June
2006, we entered into an $80.0 million secured term loan facility. The proceeds
were used to finance the acquisition of a 2006 built VLCC tanker. The facility
bears interest at LIBOR plus a margin. The facility was refinanced in June 2008
and partially refinanced in June 2009 for $65.0 million. The facility matures in
June 2013. At December 31, 2009, the outstanding amount on this facility was
$52.9 million, and the available undrawn amount was $nil. The facility contains
a minimum value covenant and covenants that require the Company to maintain a
minimum level of free cash, a certain level of market adjusted net worth and
positive working capital.




In June
2008, we entered into a $129.6 million pre-delivery secured term loan facility.
This loan was refinanced in June 2009 and bears interest at LIBOR plus a margin.
The facility matures in June 2010. At December 31, 2009, the outstanding amount
on this facility was $34.8 million, and the available undrawn amount was $nil.
In June 2008, we also entered into a $420.0 million pre and post delivery
secured term loan facility due in 2017. This facility bears interest at LIBOR
plus a margin. At December 31, 2009, the outstanding amount on this facility was
$257.0 million and the available undrawn amount was $122 million. In May 2009,
we entered into a $146.4 million pre and post delivery secured term loan
facility falling due in 2020. At the year end, the outstanding amount on this
facility was $43.9 million and the available undrawn amount was $102.5 million.
This facility bears interest at LIBOR plus a margin. All three of these
facilities were used to part finance our newbuilding program and are secured
with the newbuildings. The facilities contain a minimum value covenant and
covenants that require us to maintain a minimum level of free cash, a certain
level of market adjusted net worth and positive working capital.




In July
2008 and August 2008, ITCL entered into a $21.6 million and $50.0 million
secured term loan facility, respectively. These facilities were used to purchase
three tranches of Windsor Petroleum Transport Corporation 7.84% term notes with
a par value of $38.0 million and were partially refinanced with a $33.0 million
secured loan facility in June 2009. This facility was fully drawn at December
31, 2009 and matures in June 2010. The facility requires ITCL to maintain a
minimum level of free cash, a certain level of market adjusted net worth and
positive working capital.




In
September 2008, we entered into a $180.0 million secured term loan facility
repayable over five years, which was used to part finance the acquisition of
five second hand Suezmax vessels with a cost of $240.0 million. The facility
bears interest at LIBOR plus a margin and is secured on the acquired vessels. At
December 31, 2009, the outstanding amount on this facility was $136.5 million
and the available undrawn amount was $nil. The facility contains a minimum value
covenant and covenants that require us to maintain a minimum level of free cash,
a certain level of market adjusted net worth and positive working
capital.




On March
26, 2010, we announced the private placement of $225 million of convertible
bonds. The proceeds from the bonds will be used for general corporate purposes,
financing of the remaining equity investments in our newbuilding program
and will improve our ability to react to attractive market
opportunities. The senior, unsecured convertible bonds will have an annual
coupon of 4.50%, payable quarterly in arrears and a conversion price of $39.00.
The reference price has been set at $29.7784 (NOK 180.0045). The applicable
exchange rate has been set at 6.0448. The bonds will be issued and redeemed at
100% of their principal amount and will, unless previously redeemed, converted
or purchased and cancelled, mature on April 14, 2015. The offering of the bonds
is expected to close on April 14, 2010.




66


As of
December 31, 2009, we were in compliance with all loan covenants.




Acquisitions
and Disposals




Independent
Tankers Corporation Limited




In
February 2008, we divested 17.53% of our holding in ITCL through a stock and
cash dividend of $11.4 million and $14.0 million, respectively. We recorded a
gain of $18.0 million in the first quarter of 2008 as a result of this
spin-off.




Tsakos
Shipping and Trading SA




In March
2007, we sold our entire holding of 32,000 shares in Tsakos for approximately
$1.5 million.




Sealift




In
January 2007, we subscribed for 30.0 million shares issued by Sealift in a
private placement at a cost of $60.0 million.  In May 2007, Sealift
completed the combination of its businesses with the Dockwise group of
companies. As part of the transaction, Sealift completed another private
placement of 39.8 million shares and Frontline subscribed for five million of
these additional shares.  Sealift also issued 94.1 million shares to
the former Dockwise shareholders.  After completion of this
transaction Frontline owned 17.1% of Sealift. In October 2007, we sold our
entire holdings of 34,976,500 shares in Dockwise for a gross price of NOK 25 per
share, generating net proceeds of approximately $157.0 million.




Sea
Production




In
February 2007, we subscribed for approximately 28% of the equity issued in a
private placement by Sea Production at a cost of $51 million. In June 2007, we
sold our entire holding of 25,500,000 shares in Sea Production for a net price
of NOK 15.75 per share, equivalent to approximately $67.0 million.




International
Maritime Exchange ASA




In
November 2007, we sold our entire holdings of 1,714,544 shares in IMAREX for a
price of NOK 160 per share, generating proceeds of $50.5 million.




Navig8
Limited




In
February 2008, we invested $20.0 million in Navig8 against the issue of new
share capital representing approximately 15.8% of the company.




Overseas
Shipholding Group, Inc.




In March
2008, we entered into a forward contract to purchase 1,366,600 shares
of OSG, which represented 4.4% of the total outstanding shares, for $92.2
million.  This contract was settled in October 2008. Also in October
2008, we sold 100,000 shares in OSG at a price of $64.50 per share. For the year
ending December 31, 2009, we did not purchase or sell any shares of
OSG.  As of March 29, 2010, we beneficially owned 1,408,868 shares of
OSG representing 5.4% of the total outstanding shares.




67


Equity




In June
2008, we completed a private placement of three million shares at a subscription
price of NOK 357 per share resulting in net proceeds of $207.2 million. We used
these proceeds to part finance the acquisition of the five Suezmax vessels from
Top Ships Inc. and the purchase of OSG shares.




Derivative
Activities




As of
December 31, 2009 and 2008, we did not hold any financial instruments for
speculative or trading purposes. In 2008, we entered a limited number of Forward
Freight Agreements, or FFAs, with an objective to utilize them as economic
hedging instruments that reduce our exposure to changes in the spot market rates
earned by some of our vessels or for trading purposes to take advantage of short
term fluctuations in the market. All of the FFAs were settled as of December 31,
2008. In 2008, realized losses of $1.2 million have been recorded in the income
statement.




Tabular disclosure of contractual
obligations




At
December 31, 2009, we had the following contractual obligations and
commitments:




Payment
      due by period(In
      thousands of $)
            
            Less
      than
              1
      year
            
            
            1
      – 3 years
            
            
            3
      – 5 years
            
            
            After
      5 years
            
            
            TotalFixed
      rate long-term debt
            
            
            12,352
            
            
            
            35,937
            
            
            
            45,015
            
            
            
            232,491
            
            
            
            325,795Floating
      rate long-term debt
            
            
            111,532
            
            
            
            95,664
            
            
            
            148,625
            
            
            
            202,966
            
            
            
            558,787Fixed
      rate long-term debt in unconsolidated subsidiaries
            
            
            9,526
            
            
            
            19,052
            
            
            
            19,052
            
            
            
            9,525
            
            
            
            57,155Operating
      lease obligations
            
            
            73,102
            
            
            
            39,958
            
            
            
            3,340
            
            
            
            1,423
            
            
            
            117,823Capital
      lease obligations
            
            
            285,578
            
            
            
            329,862
            
            
            
            282,221
            
            
            
            967,800
            
            
            
            1,865,461Newbuilding
      commitments
            
            
            381,716
            
            
            
            234,000
            
            
            
            -
            
            
            
            -
            
            
            
            615,716Interest
      on fixed rate long-term debt
            
            
            25,619
            
            
            
            47,708
            
            
            
            41,357
            
            
            
            72,048
            
            
            
            186,732Interest
      on floating rate long-term debt
            
            
            30,667
            
            
            
            46,026
            
            
            
            30,762
            
            
            
            97,059
            
            
            
            204,514Interest
      on fixed rate long-term debt in unconsolidated
subsidiaries
            
            
            4,464
            
            
            
            6,493
            
            
            
            3,246
            
            
            
            406
            
            
            
            14,609Interest
      on capital lease obligations
            
            
            119,673
            
            
            
            187,045
            
            
            
            144,610
            
            
            
            253,507
            
            
            
            704,835Total
            
            
            1,054,229
            
            
            
            1,041,745
            
            
            
            718,228
            
            
            
            1,837,225
            
            
            
            4,651,427





Interest
payments are based on the existing borrowings of both consolidated and
unconsolidated subsidiaries. It is assumed that no refinancing of existing loans
takes place. Interest on floating rate debt has been calculated using the five
year U.S. dollar swap rate as of February 22, 2010 of 2.78% plus agreed margins.
Interest on fixed rate loans is calculated using the contracted interest
rates.




The
newbuilding commitments as of December 31, 2009 consist of six VLCC and four
Suezmax vessels.




As of
December 31, 2009, the Company leased in 50 vessels on long-term time charters
and bareboat charters from third parties and related parties.  Four of
these leases are classified as operating leases and 46 as capital
leases.   In addition, eight vessels were chartered in on
floating rates and can be terminated by giving one month notice and a further
three are leased on short-term fixed rate charters. With the exception of the
Company's long-term leases with Ship Finance, the Company's long-term leases of
vessels generally contain optional renewal periods and purchase and put
options.




68


Off
balance sheet financing




Charter
hire payments to third parties for certain contracted in vessels are accounted
for as operating leases. We are also committed to make rental payments under
operating leases for office premises. The future minimum rental payments under
our non-cancellable operating leases are disclosed above in "Tabular disclosure
of contractual obligations".




Forward-looking
information discussed in this Item 5 includes assumptions, expectations,
projections, intentions and beliefs about future events. These statements are
intended as "forward-looking statements." We caution that assumptions,
expectations, projections, intentions and beliefs about future events may and
often do vary from actual results and the differences can be material. Please
see "Cautionary Statement Regarding Forward-Looking Statements" in this
report.




Safe
harbor




Forward-looking
information discussed in this Item 5 includes assumptions, expectations,
projections, intentions and beliefs about future events. These statements are
intended as "forward-looking statements." We caution that assumptions,
expectations, projections, intentions and beliefs about future events may and
often do vary from actual results and the differences can be material. Please
see "Cautionary Statement Regarding Forward-Looking Statements" in this
report.




ITEM
6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES




A.  DIRECTORS
AND SENIOR MANAGEMENT




The
following table sets forth information regarding our executive officers and
directors and certain key officers of our wholly owned subsidiary, Frontline
Management AS, who are responsible for overseeing our management.




Name
            Age
            PositionJohn
      Fredriksen
            65
            Chairman,
      Chief Executive Officer, President
  and  DirectorKathrine
      Fredriksen
            26
            DirectorKate
      Blankenship
            45
            Director
      and Audit Committee ChairmanFrixos
      Savvides
            58
            Director
      and Audit Committee memberTony
      Curry
            59
            DirectorJens
      Martin Jensen
            46
            Chief
      Executive Officer of Frontline Management ASInger
      M. Klemp
            47
            Chief
      Financial Officer of Frontline Management
AS





Tor Olav
Trøim acts as an alternate director for Kathrine Fredriksen.




Certain
biographical information about each of our directors and executive officers is
set forth below.




John Fredriksen has served as
Chairman of the Board, Chief Executive Officer, President and a director of the
Company since November 3, 1997.  Mr. Fredriksen has established trusts
for the benefit of his immediate family which control Hemen, our largest
shareholder.  Mr. Fredriksen is Chairman, President and a director of
a related party Seadrill Limited, a Bermuda company listed on the Oslo Stock
Exchange.  He is also a director of a related party Golar LNG Limited,
or Golar, a Bermuda company listed on the Nasdaq Global Market and the Oslo
Stock Exchange whose principal shareholder is World Shipholding Limited, a
company indirectly controlled by trusts established by Mr. John Fredriksen for
the benefit of his immediate family.  He is also a director of a
related party Golden Ocean Group Limited, or Golden Ocean, a Bermuda
company listed on the Oslo Stock Exchange whose principal shareholder is
Hemen.




Kathrine Fredriksen has been a
director since February 2008.  Ms. Fredriksen is also a director of Golar
LNG Limited, Seadrill Limited and Independent Tankers Corporation Limited. 
She graduated from Wang Handels Gymnas in Norway and studied at the
European Business School in London. Ms. Fredriksen is the daughter of Mr. John
Fredriksen, our Chairman and Chief Executive Officer.




69





Kate Blankenship has been a
director since August 2003. Mrs. Blankenship joined the Company in 1994 and
served as the Company's Chief Accounting Officer and Company Secretary until
October 2005. Mrs. Blankenship served as Chief Financial Officer of
Knightsbridge Tankers Limited from April 2000 to September 2007 and Secretary of
Knightsbridge from December 2000 to March 2007. Mrs. Blankenship has been a
Director of Ship Finance since October 2003.  Mrs. Blankenship has
served as a director of Independent Tankers Corporation Limited since February
2008, Golar LNG Limited since July 2003 and Golden Ocean since November 2004.
Mrs. Blankenship has served as a director of Seadrill Limited since May
2005.  She is a member of the Institute of Chartered Accountants in England
and Wales.




Frixos Savvides a Chartered
Accountant, is a Fellow of the Institute of Chartered Accountants of England and
Wales. He was the founder of the audit firm PKF Savvides and Partners in Cyprus
and held the position of Managing Partner until 1999 when he became Minister of
Health of the Republic of Cyprus. He held this office until 2003. Mr. Savvides
is currently a senior independent business consultant and holds several Board
positions. Mr. Savvides was appointed to the Board of Directors of Frontline in
July 2005.




Tony Curryhas been a director
since October 2009. Mr. Curry retired from Shell in May 2009 having spent 40
years in Shell Shipping. For the last 12 years Mr. Curry was the Time Charter
and Sale and Purchase Manager. Prior to this, Mr. Curry spent seven years in
Shell Western Services, Nassau, Bahamas as the Oil Freight Manager. Mr. Curry is
very familiar with the international oil and tanker sector and also the growing
LNG and LPG areas.




Jens Martin Jensen served as
the Acting Chief Executive Officer of Frontline Management AS since April 2008
and was appointed as permanent Chief Executive Officer in May 2009. Mr. Jensen
joined Frontline in September 2004 as Commercial Director. From August 1996 to
September 2004, Mr. Jensen was a partner in Island Shipbrokers in Singapore.
From April 1985 to August 1996, Mr. Jensen worked in the A.P. Moller Group with
postings to Singapore, Tokyo, Mexico and Denmark. Mr. Jensen completed the A.P.
Moller training program in 1987.




Inger M. Klemp has served as
Chief Financial Officer of Frontline Management AS since June 1, 2006. Mrs.
Klemp has served as a director of Independent Tankers Corporation Limited since
February 2008 and has served as Chief Financial Officer of Knightsbridge Tankers
Limited since September 2007. Mrs. Klemp served as Vice President Finance from
August 2001 until she was promoted in May 2006. Mrs. Klemp graduated as MSc in
Business and Economics from the Norwegian School of Management (BI) in 1986.
Mrs. Klemp served as Assistant Director Finance in Color Group ASA from 1998 to
2001 and as Group Financial Manager in Color Line ASA from 1992 to 1998, a
Norwegian based cruise operator which was stock listed up to October 1999. From
1989 to 1992 Mrs. Klemp served as Assistant Vice President in Nordea Bank Norge
ASA handling structuring and syndication of loan facilities in the international
banking market. From 1986 to 1989, Mrs. Klemp served as a lending officer of
Fokus Bank ASA.




B.  COMPENSATION




During
the year ended December 31, 2009, we paid to our directors and executive
officers (seven persons) aggregate cash compensation of $1,586,814 and an
aggregate amount of $47,219 for pension and retirement benefits. In addition to
cash compensation, during 2009 we also recognized stock compensation expense of
$1,394,689 in
respect of 320,000 options, which were granted in October 2009 under the
Frontline Ltd. Share Option Scheme.  All options vest over a three
year period beginning in October 2010 and expire in October 2013. The initial
exercise price of these options is NOK 145.00, which is reduced by the amount of
dividends paid after the date of grant. The exercise price of these options as
of December 31, 2009 is NOK 144.16.


70


C.  BOARD
PRACTICES




In
accordance with our Bye-laws the number of Directors shall be such number not
less than two as our shareholders by Ordinary Resolution may from time to time
determine and each Director shall hold office until the next annual general
meeting following his election or until his successor is elected. We currently
have five Directors.




We
currently have an audit committee, which is responsible for overseeing the
quality and integrity of our financial statements and its accounting, auditing
and financial reporting practices, our compliance with legal and regulatory
requirements, the independent auditor's qualifications, independence and
performance and our internal audit function. Our audit committee consists of two
members, Mr. Savvides and Mrs. Blankenship.




In lieu
of a compensation committee comprised of independent directors, our Board of
Directors is responsible for establishing the executive officers' compensation
and benefits.  In lieu of a nomination committee comprised of
independent directors, our Board of Directors is responsible for identifying and
recommending potential candidates to become board members and recommending
directors for appointment to board committees.




Our
officers are elected by the Board of Directors as soon as possible following
each Annual General Meeting and shall hold office for such period and on such
terms as the Board may determine.




There are
no service contracts between us and any of our Directors providing for benefits
upon termination of their employment or service.




As a
foreign private issuer we are exempt from certain requirements of the New York
Stock Exchange that are applicable to U.S. listed companies.  For a
listing and further discussion of how our corporate governance practices differ
from those required of U.S. companies listed on the New York Stock Exchange,
please see Item 16G or visit the corporate governance section of our website at
www.frontline.bm.




D.  EMPLOYEES




As of
December 31, 2009, Frontline and its subsidiaries employed approximately 51
people in their respective offices in Bermuda, London, Oslo, Singapore and
India. We contract with independent ship managers to manage and operate our
vessels.




E.  SHARE
OWNERSHIP




The
beneficial interests of our Directors and officers in the Ordinary Shares of
Frontline as of February 28, 2010, were as follows:




Director
      or Officer
            
            Ordinary
      Shares of $2.50 each
            
            
            %
      of
              Ordinary
              Shares
              Outstanding
            
            
            Options
      for Ordinary Shares of $2.50 eachJohn
      Fredriksen*
            
            
            *
            
            
            
            *
            
            
            
            100,000Katherine
      Fredriksen
            
            
            -
            
            
            
            -
            
            
            
            30,000Kate
      Blankenship
            
            
            2,000
            
            
            
            **
            
            
            
            30,000Frixos
      Savvides
            
            
            -
            
            
            
            -
            
            
            
            30,000Tony
      Curry
            
            
            -
            
            
            
            -
            
            
            
            30,000Jens
      Martin Jensen
            
            
            -
            
            
            
            -
            
            
            
            50,000Inger
      M. Klemp
            
            
            16,000
            
            
            
            **
            
            
            
            50,000





*
            Hemen
      Holding Ltd, or Hemen, is a Cyprus holding company, the shares of
      which are held in trusts established by Mr. John Fredriksen for the
      benefit of his immediate family. Mr. Fredriksen disclaims beneficial
      ownership of the 26,304,053 Ordinary Shares held by Hemen, except to the
      extent of his voting and dispositive interest in such shares of common
      stock. Mr. Fredriksen has no pecuniary interest in the shares held by
      Hemen.**
            Less
      than one per cent.





71





The
options were granted in October 2009 under the Frontline Ltd. Share Option
Scheme, which was approved by the board on November 16, 2006. All options vest
over a three year period beginning in October 2010 and expire in October 2013.
The initial exercise price of these options is NOK 145.00, which is reduced by
the amount of dividends paid after the date of grant. The exercise price of
these options as of December 31, 2009 is NOK 144.16.




ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.  MAJOR
SHAREHOLDERS




The
following table presents certain information as at February 28, 2010, regarding
the ownership of our Ordinary Shares with respect to each shareholder whom we
know to beneficially own more than five percent of our outstanding Ordinary
Shares.




Owner
            Ordinary
              Shares
      Amount
            
            
            %Hemen
      Holding Ltd. (1)
            26,304,053
            
            
            33.78
            %





(1)
            Hemen,
      a Cyprus holding company, the shares of which are held in trusts
      established by Mr. John Fredriksen for the benefit of his immediate
      family.





As of
March 9, 2010, 36,446,932 of our Ordinary Shares were held on the New York Stock
Exchange.




Our major
shareholders have the same voting rights as our other shareholders. No
corporation or foreign government owns more than 50% of our outstanding Ordinary
Shares. We are not aware of any arrangements, the operation of which may at a
subsequent date result in a change in control of Frontline.




B.  RELATED
PARTY TRANSACTIONS




As of
March 31, 2007, the Company is no longer consolidating the results of Ship
Finance. The majority of the Company's leased vessels are leased from Ship
Finance and under a Charter Ancillary Agreement; Ship Finance is entitled to a
share of 20% of the Company's earnings on these leased vessels. A summary of
leasing transactions with Ship Finance during the years ended December 31, 2009
and 2008 (excluding amounts prior to deconsolidation) is as
follows:





(in
      thousands of $)
            2009
            2008Charterhire
      paid (principal and interest)
            331,534
            345,551Payments
      received for termination of leases
            2,386
            43,510Profit
      share expense
            33,018
            110,962Remaining
      lease obligation
            1,462,753
            1,609,987




A summary
of net amounts earned (incurred) from related parties excluding the Ship Finance
lease related balances above for the years ended December 31, 2009, 2008 and
2007 are as follows:






72





(in
      thousands of $)
            2009
            2008
            2007Seatankers
      Management Co. Ltd
            1,126
            1,175
            582Golar
      LNG Limited
            156
            17
            284Ship
      Finance International Limited
            2,347
            3,430
            1,525Golden
      Ocean Group Limited
            4,253
            6,714
            2,099Geveran
      Trading Co Ltd
            (405)
            (366)
            -Greenwich
      Holdings Ltd
            -
            -
            69Bryggegata
      AS
            (1,300)
            (1,395)
            (1,430)Arcadia
      Petroleum Limited
            42,264
            64,784
            17,443Seadrill
      Limited
            322
            25
            (52)Seawell
      Limited
            126
            -
            -Deep
      Sea Supply Plc
            32
            -
            -Aktiv
      Kapital ASA
            63
            -
            -CalPetro
      Tankers (Bahamas I) Limited
            45
            43
            40CalPetro
      Tankers (Bahamas II) Limited
            45
            43
            40CalPetro
      Tankers (IOM) Limited
            45
            43
            40





Net
amounts earned from related parties comprise office rental income and
management, technical and commercial advisory, newbuilding supervision,
corporate and administrative service income and interest income. Net expenses
paid to related parties comprise primarily of rental for office
space.





A summary
of balances with related parties as at December 31, 2009 and 2008 is as
follows:





(in
      thousands of $)
            2009
            2008ReceivablesShip
      Finance International Limited
            26,944
            8,351Seatankers  Management
      Co. Ltd
            214
            370Golar
      LNG Limited
            247
            381Northern
      Offshore Ltd
            13
            13Golden
      Ocean Group Limited
            1,119
            2,012Seadrill
      Limited
            160
            106CalPetro
      Tankers (Bahamas I) Limited
            11
            35CalPetro
      Tankers (Bahamas II) Limited
            11
            35CalPetro
      Tankers (IOM) Limited
            11
            35Deep
      Sea Supply Plc
            2
            -Arcadia
      Petroleum Limited
            11
            -28,743
            11,338








(in
      thousands of $)
            2009
            2008PayablesShip
      Finance International Limited
            (33,158)
            (46,540)Seatankers
      Management Co. Ltd
            (96)
            (119)Golar
      LNG Limited
            (519)
            (242)Golden
      Ocean Group Limited
            (30)
            (155)Geveran
      Trading Co Ltd
            -
            (366)(33,803)
            (47,422)





Receivables
and payables with related parties comprise unpaid management, technical
advisory, newbuilding supervision, administrative service and rental
charges.  In addition, certain payables and receivables arise when the
Company pays an invoice on behalf of a related party and vice
versa.  The payable with Ship Finance also includes unpaid profit
share due to Ship Finance. Receivables and payables with related parties are
generally settled quarterly in arrears with the exception of profit share due to
Ship Finance which is settled annually.





73


Ship
Finance International Limited, Golar LNG Limited, Northern Offshore Ltd, Norse
Energy Group ASA, Seadrill Limited, Bryggegata AS, Golden Ocean Group Limited,
Greenwich Holdings Ltd, Arcadia Petroleum Limited ("Arcadia"), Geveran Trading
Co Ltd ("Geveran"), Deep Sea Supply Plc ("Deep Sea"), Seawell Limited
("Seawell"), and Seatankers Management Co. Ltd are each subject to the
significant influence or indirect control of John
Fredriksen.  CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro
Tankers (IOM) Limited were all equity accounted until March 31, 2006 at which
point, the Company began consolidating CalPetro (Bahamas III)
Limited.





During
2008, the Company engaged in the trading of forward freight agreement trading
through Arcadia, a related party, for which Arcadia was paid commission on each
trade. The total amount of commissions paid to Arcadia in 2008 was $12,500. The
Company did not engage in forward freight agreement trading in 2009. In
addition, the Company earned freights on chartering vessels to Arcadia in the
amount of $42.5million (2008: $64.8 million).





In
November 2008, the Company advanced $60.0 million of the profit share balance,
which was paid to Ship Finance in March 2009. The advance bore interest at a
fixed rate.





In March
2009, Frontline Shipping III Limited ("FSL III"), a wholly owned subsidiary of
the Company, and Ship Finance amended their charter ancillary agreement whereby
the charterservice reserve totaling $26.5 million relating to vessels on charter
from Ship Finance may be in the form of a loan to Ship Finance. In March 2009, a
loan in the amount of $26.5 million was drawn down by Ship Finance. The loan
bears interest at LIBOR plus a margin and is due for repayment within 364 days
of the loan being provided, or earlier in accordance with the
agreement.





Geveran
acted as a guarantor for two loan facilities taken out by ITCL that expired in
July and August 2009. Geveran received an annual fee of 2% of the draw down
facility for acting as guarantor. Both of these facilities were refinanced by
ITCL in the year, with Frontline Ltd acting as guarantor.





In
September 2009, Ship Finance sold the single hull vessel Front Duchess to a
third party and as a result, terminated the Company's long-term lease for the
vessel. The Company received a termination payment of $2.4 million and recorded
a net gain of $3.1 million as a gain on sale of assets.





During the year ended December 31,
2007, the Company held investments in Sea Production and Dockwise and earned
income from these companies in the form of rental income and income earned from
the provision of accounting services totaling $1.0 million. During 2007, the
Company disposed of its entire investments in these companies and they are no
longer considered to be related parties.






C.  INTERESTS
OF EXPERTS AND COUNSEL




Not
applicable.




ITEM
8.   FINANCIAL INFORMATION




A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION




See Item
18.




74


Legal
Proceedings




We are a
party, as plaintiff or defendant, to several lawsuits in various jurisdictions
for demurrage, damages, off-hire and other claims and commercial disputes
arising from the operation of its vessels, in the ordinary course of business or
in connection with its acquisition activities. We believe that the resolution of
such claims will not have a material adverse effect on the Company's operations
or financial condition.




Dividend
Policy




The
timing and amount of dividends, if any, is at the discretion of our Board of
Directors. The level of dividend will be guided by present earnings, market
prospects, current capital expenditure programs as well as investment
opportunities. We have paid the following cash dividends in 2007, 2008 and
2009.







Payment
      Date
            
            Amount
      per Share2007March
      22, 2007
            
            $
            2.05June
      22, 2007
            
            $
            1.50October
      24, 2007
            
            $
            1.50October
      24, 2007
            
            $
            1.75December
      12, 2007
            
            $
            1.502008March
      10, 2008
            
            $
            2.00June
      25, 2008
            
            $
            2.75September
      19, 2008
            
            $
            3.00December
      22, 2008
            
            $
            0.502009March
      27, 2009
            
            $
            0.25June
      23, 2009
            
            $
            0.25September
      24, 2009
            
            $
            0.25December
      22, 2009
            
            $
            0.15





On
February 25, 2010 the Board declared a cash dividend of $0.25 per share for the
fourth quarter of 2009 which will be paid on or about March 30,
2010.




B.
SIGNIFICANT CHANGES




None.




ITEM
9.    THE OFFER AND LISTING




The
Company's Ordinary Shares are traded on the New York Stock Exchange, or NYSE,
the Oslo Stock Exchange, or OSE, and on the London Stock Exchange, or LSE, under
the symbol "FRO".




The New
York Stock Exchange is the Company's "primary listing". As an overseas company
with a secondary listing on the LSE, the Company is not required to comply with
certain listing rules applicable to companies with a primary listing on the LSE.
The listing on the OSE is also a secondary listing. The Company's Ordinary
Shares have been thinly traded on the London Stock Exchange since
1999.




75


The
following table sets forth, for the five most recent fiscal years, the high and
low prices for the Ordinary Shares on the NYSE and OSE.




NYSE
            
            OSEHigh
            
            
            Low
            
            High
            LowFiscal
      year ended December 31,2009
            
            $
            33.29
            
            
            $
            15.78
            
            NOK
      235.00
            NOK
      107.002008
            
            $
            72.36
            
            
            $
            25.00
            
            NOK
      376.50
            NOK
      165.252007
            
            $
            53.09
            
            
            $
            29.35
            
            NOK
      306.00
            NOK
      183.752006
            
            $
            44.65
            
            
            $
            28.80
            
            NOK
      280.00
            NOK
      184.002005
            
            $
            57.97
            
            
            $
            35.89
            
            NOK
      355.00
            NOK
      230.00





The
following table sets forth, for each full financial quarter for the two most
recent fiscal years, the high and low prices of the Ordinary Shares on the NYSE
and the OSE.




NYSE
            
            OSEHigh
            
            Low
            
            High
            LowFiscal
      year ended December 31, 2009First
      quarter
            
            $
            33.29
            
            
            $
            15.78
            
            NOK
      235.00
            NOK
      112.00Second
      quarter
            
            $
            28.59
            
            
            $
            17.00
            
            NOK
      186.50
            NOK
      107.00Third
      quarter
            
            $
            25.28
            
            
            $
            19.76
            
            NOK
      164.00
            NOK
      125.70Fourth
      quarter
            
            $
            29.88
            
            
            $
            21.50
            
            NOK
      175.90
            NOK
      124.20







NYSE
            
            OSEHigh
            
            Low
            
            High
            LowFiscal
      year ended December 31, 2008First
      quarter
            
            $
            49.66
            
            
            $
            34.00
            
            NOK
      268.00
            NOK
      180.00Second
      quarter
            
            $
            72.36
            
            
            $
            46.34
            
            NOK
      376.50
            NOK
      231.50Third
      quarter
            
            $
            69.09
            
            
            $
            43.25
            
            NOK
      358.00
            NOK
      256.50Fourth
      quarter
            
            $
            47.50
            
            
            $
            25.00
            
            NOK
      279.50
            NOK
      165.25


The following table sets forth, for the
most recent six months, the high and low prices for the Ordinary Shares on the
NYSE and OSE.





NYSE
            
            OSEHigh
            
            
            Low
            
            High
            LowFebruary
      2010
            
            $
            29.95
            
            
            $
            25.02
            
            NOK180.30
            NOK146.40January
      2010
            
            $
            34.15
            
            
            $
            28.52
            
            NOK194.00
            NOK160.20December
      2009
            
            $
            29.88
            
            
            $
            26.36
            
            NOK175.90
            NOK152.30November
      2009
            
            $
            28.80
            
            
            $
            22.53
            
            NOK159.40
            NOK130.20October
      2009
            
            $
            27.51
            
            
            $
            21.50
            
            NOK155.20
            NOK124.20September
      2009
            
            $
            25.00
            
            
            $
            20.66
            
            NOK147.90
            NOK125.70





ITEM
10.    ADDITIONAL INFORMATION




A.  SHARE
CAPITAL




Not
applicable.




76


B.  MEMORANDUM
AND ARTICLES OF ASSOCIATION




The
Memorandum of Association of the Company has previously been filed as Exhibit
3.1 to the Company's Registration Statement on Form F-1, (Registration No.
33-70158) filed with the Securities and Exchange Commission on October 13, 1993,
and is hereby incorporated by reference into this Annual Report.




At the
2007 Annual General Meeting of the Company, our shareholders voted to amend the
Company's Bye-laws to ensure conformity with recent revisions to the Bermuda
Companies Act 1981, as amended.  These amended Bye-laws of the Company
as adopted on September 28, 2007, are incorporated by reference
in Exhibit 1.2 to this Annual Report.




The
purposes and powers of the Company are set forth in Items 6(1) and 7(a) through
(h) of our Memorandum of Association and in the Second Schedule of the Bermuda
Companies Act of 1981 which is attached as an exhibit to our Memorandum of
Association.  These purposes include exploring, drilling, moving,
transporting and refining petroleum and hydro-carbon products, including oil and
oil products; the acquisition, ownership, chartering, selling, management and
operation of ships and aircraft; the entering into of any guarantee, contract,
indemnity or suretyship and to assure, support, secure, with or without the
consideration or benefit, the performance of any obligations of any person or
persons; and the borrowing and raising of money in any currency or currencies to
secure or discharge any debt or obligation in any manner.




The
Company's Bye-laws provide that its board of directors shall convene and the
Company shall hold annual general meetings in accordance with the requirements
of the Bermuda Companies Act of 1981 at such times and places (other than
Norway) as the Board shall decide.  The board of directors may call
special meetings at its discretion or as required by the Bermuda Companies Act
of 1981.




Bermuda
law permits the Bye-laws of a Bermuda company to contain provisions excluding
personal liability of a director, alternate director, officer, member of a
committee authorized under Bye-law 104, resident representative or their
respective heirs, executors or administrators to the company for any loss
arising or liability attaching to him by virtue of any rule of law in respect of
any negligence default, breach of duty or breach of trust of which the officer
or person may be guilty.  Bermuda law also grants companies the power
generally to indemnify directors, alternate directors and officers of the
Company and any members of a committee authorized under Bye-law 104, resident
representatives or their respective heirs, executors or administrators if any
such person was or is a party or threatened to be made a party to a threatened,
pending or completed action, suit or proceeding by reason of the fact that he or
she is or was a director, alternate director or officer of the Company or member
of a committee authorized under Bye-law 104, resident representative or their
respective heirs, executors or administrators or was serving in a similar
capacity for another entity at the company's request.




Special
rights attaching to any class of our shares may be altered or abrogated with the
consent in writing of not less than 75% of the issued and shares of that class
or with the sanction of a resolution passed at a separate general meeting of the
holders of such shares voting in person or by proxy.




The
Company's Bye-laws do not prohibit a director from being a party to, or
otherwise having an interest in, any transaction or arrangement with the Company
or in which the Company is otherwise interested.  The Company's
Bye-laws provide that a director who has an interest in any transaction or
arrangement with the Company and who has complied with the provisions of the
Companies Acts and with its Bye-Laws with regard to disclosure of such interest
shall be taken into account in ascertaining whether a quorum is present, and
will be entitled to vote in respect of any transaction or arrangement in which
he is so interested.  The Company's Bye-laws provide its board of
directors the authority to exercise all of the powers of the Company to borrow
money and to mortgage or charge all or any part of our property and assets as
collateral security for any debt, liability or obligation.  The
Company's directors are not required to retire because of their age, and the
directors are not required to be holders of the Company's Ordinary
Shares.  Directors serve for one year terms, and shall serve until
re-elected or until their successors are appointed at the next annual general
meeting.




77


The
Company's Bye-laws provide that no director, alternate director, officer, person
or member of a committee, if any, resident representative, or his heirs,
executors or administrators, which we refer to collectively as an indemnitee, is
liable for the acts, receipts, neglects, or defaults of any other such person or
any person involved in our formation, or for any loss or expense incurred by us
through the insufficiency or deficiency of title to any property acquired by us,
or for the insufficiency of deficiency of any security in or upon which any of
our monies shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency, or tortious act of any person with whom any monies,
securities, or effects shall be deposited, or for any loss occasioned by any
error of judgment, omission, default, or oversight on his part, or for any other
loss, damage or misfortune whatever which shall happen in relation to the
execution of his duties, or supposed duties, to us or otherwise in relation
thereto.  Each indemnitee will be indemnified and held harmless out of
our funds to the fullest extent permitted by Bermuda law against all
liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation and
all reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such director, alternate director, officer, person or
committee member or resident representative (or in his reasonable belief that he
is acting as any of the above).  In addition, each indemnitee shall be
indemnified against all liabilities incurred in defending any proceedings,
whether civil or criminal, in which judgment is given in such indemnitee's
favor, or in which he is acquitted.  The Company is authorized to
purchase insurance to cover any liability it may incur under the indemnification
provisions of its Bye-laws.




There are
no pre-emptive, redemption, conversion or sinking fund rights attached to our
Ordinary Shares.  Holders of Ordinary Shares are entitled to one vote
per share on all matters submitted to a vote of holders of Ordinary
Shares.  Unless a different majority is required by law or by our
bye-laws, resolutions to be approved by holders of Ordinary Shares require
approval by a simple majority of votes cast at a meeting at which a quorum is
present.




In the
event of our liquidation, dissolution or winding up, the holders of Ordinary
Shares are entitled to share in our assets, if any, remaining after the payment
of all of our debts and liabilities, subject to any liquidation preference on
any outstanding preference shares.




The
Company's Bye-laws provide that its board of directors may, from time to time,
declare and pay dividends out of contributed surplus.  Each Ordinary
Share is entitled to dividends if and when dividends are declared by the board
of directors, subject to any preferred dividend right of the holders of any
preference shares.




There are
no limitations on the right of non-Bermudians or non-residents of Bermuda to
hold or vote our Ordinary Shares.




The
Company's Bye-laws provide that any person, other than its registrar, who
acquires or disposes of an interest in shares which triggers a notice
requirement of the Oslo Stock Exchange must notify the Company's registrar
immediately of such acquisition or disposal and the resulting interest of that
person in shares.




The
Company's Bye-laws laws require the Company to provide notice to the Oslo Stock
Exchange if a person resident for tax purposes in Norway (or such other
jurisdiction as the Board may nominate from time to time) is found to hold 50%
or more of the Company's aggregate issued share capital, or holds shares with
50% or more of the outstanding voting power, other than the Company's
registrar.  The Company's Bye-laws also require it to comply with
requirements that the Oslo Stock Exchange may impose from time to time relating
to notification of the Oslo Stock Exchange in the event of specified changes in
the ownership of the Company's Ordinary Shares.




78


C.
MATERIAL CONTRACTS




Sealift
Ltd.




Purchase
of Vessels and Option Agreements




During
January 2007, we agreed with Ship Finance that we should acquire five single
purpose companies from them, each being the owner of one single hull Suezmax
tanker vessel. All of the five vessels were subject to long-term charters to our
subsidiaries, Frontline Shipping Ltd. and Frontline Shipping II Ltd. Four of the
vessels were furthermore parties to conversion contracts with Cosco Shipyard
Group Co. Ltd., or Cosco, setting out the terms and conditions subject to which
Cosco would convert their respective vessels to specially designed heavy lift
vessels. In addition to the acquisition of the five companies we agreed with
Ship Finance that we would acquire their rights and obligations under an option
agreement with Cosco pursuant to which Ship Finance had a right to conclude
conversion contracts for a further two vessels, or the Option
Agreement.




Purchase
Agreement with Sealift




In
January 2007, we also agreed with Sealift that they would purchase six single
purpose companies from us, each being the owner of one single hull Suezmax
tanker vessel together with our rights and obligations under the Option
Agreement. Five of the companies to be sold were the same companies we had
agreed to purchase from Ship Finance while the sixth was an existing subsidiary
owning one single hull Suezmax tanker vessel. The long-term charters with
Frontline Shipping Ltd. and Frontline Shipping II Ltd. were agreed to be
replaced with bareboat charters and time charters with our subsidiary Key
Chartering Inc., covering the period until each vessel was delivered to Cosco
for conversion. The terms of the agreement included an obligation on us to take
responsibility for the completion of the conversion of the four vessels subject
to the conversion contracts with Cosco. This responsibility would include both
the financing and payment of the work to be performed by Cosco and the
supervision thereof throughout the conversion period.  We were liable
for certain damages if the converted vessels were delivered after certain agreed
times and paid damages of $1.2 million regarding the late delivery of the fourth
and final converted vessel.




Sealift's
Financing




Completion
of the purchase agreement between Sealift and us was subject to Sealift being
able to obtain the required financing. This was done by way of the taking up by
Sealift of a senior bank loan of $240 million, a bond issue by Sealift of $110
million and a private placement of shares in Sealift raising in total $180
million. We agreed to subscribe for one third of the shares in Sealift issued at
a cost of $60 million. The transaction between Sealift and ourselves closed in
March, 2007, whereafter we became a minority shareholder in
Sealift.




Sealift
subsequently made an agreement to purchase all of the shares in Delphi
Acquisition Holding (which was the owner of Dockwise Transport B.V., an
established operator in the heavy lift market). This was financed by another
share issue which diluted our ownership share in Sealift to 17.1%. We
subsequently sold all our shares in Sealift and have no financial interest in
the company.




Sea
Production Ltd




On
February 14, 2007 our subsidiary, FFP, entered into an agreement for the sale
and purchase of assets with Sea Production whereby FFP agreed to sell to Sea
Production; (i) 70% of its shares in Puffin Ltd., the company indirectly holding
the ownership of the vessel "Front Puffin" under conversion to an FPSO, (ii) our
outstanding inter-company loans relating to the purchase and conversion of
"Front Puffin", and (iii) all the shares of Sea Production Management AS, a
Norwegian subsidiary where the floating production organization and expertise
are employed. Also on February 14, 2007 Sea Production entered into a share
purchase agreement with KSI Production Ltd. to acquire the remaining 30% of the
shares of Puffin Ltd.




79


On
February 15, 2007 Sea Production entered into two share purchase agreements with
Greenwich Holdings Limited to acquire all the shares of Langford Shipping
Company Limited and Melrose Shipping Company Limited respectively. Langford
Shipping Company owned the Aframax tanker "Sea Cat", and Melrose Shipping
Company the vessel "Sea Jaguar", also an Aframax tanker. Also on February 15
2007, Sea Production entered into a share purchase agreement with Seadrill Ltd.
to acquire all the shares of Wisdom Shipping (S) Pte. Ltd., the owner of the
FPSO "Crystal Ocean".




Sea
Production financed these acquisitions and the future conversion costs of Front
Puffin through a $180 million equity issue, a $130 million bond issue and a $105
million bank facility. We agreed to subscribe for 28.33% of the shares in Sea
Production in the equity offering at an aggregate cost of $51 million. The
acquisition of the shares and assets, the equity issue and the bond issue where
completed simultaneously on February 15, 2007. We have subsequently sold all our
shares in Sea Production in market transactions and currently have no financial
interest in the company.




Gemini
Pool




Frontline
Chartering Services, Inc., or FCS, a wholly-owned subsidiary, Gemini Tankers
LLC, or Gemini Tankers, Teekay Chartering Ltd., Koenig & Cie GMBH & Co
and Hyundai Merchant Marine (Europe) Ltd entered into an Amended & Restated
Pool Agreement regarding the Gemini Tankers Suezmax Pool, or the Pool, with
effect from January 1, 2009. This agreement amended a pool agreement, which
became effective on December 1, 2003 between the above parties excluding FCS.
The Pool is commercially operated by the Gemini Tankers, or the Pool Manager,
which employs the vessels in the Pool under a contract with a particular
charterer or shipper for a number of voyages, with each single voyage or
contract of carriage being performed by a pool vessel after nomination by the
Pool Manager. Each participant in the Pool shall, in relation to each of its
vessels, maintain the vessel in a seaworthy condition and to defined technical
and operational standards and obtain and maintain the required number of
vettings. Each participant in the Pool shall also keep its vessels in the Pool
insured for its own account and is responsible for the technical management of
its vessels.




D.  EXCHANGE
CONTROLS




The
Company is classified by the Bermuda Monetary Authority as a non-resident of
Bermuda for exchange control purposes.




The
transfer of Ordinary Shares between persons regarded as resident outside Bermuda
for exchange control purposes may be effected without specific consent under the
Exchange Control Act of 1972 and regulations there under and the issuance of
Ordinary Shares to persons regarded as resident outside Bermuda for exchange
control purposes may be effected without specific consent under the Exchange
Control Act of 1972 and regulations there under. Issues and transfers of
Ordinary Shares involving any person regarded as resident in Bermuda for
exchange control purposes require specific prior approval under the Exchange
Control Act of 1972.




The
owners of Ordinary Shares who are ordinarily resident outside Bermuda are not
subject to any restrictions on their rights to hold or vote their shares.
Because the Company has been designated as a non-resident for Bermuda exchange
control purposes, there are no restrictions on its ability to transfer funds in
and out of Bermuda or to pay dividends to U.S. residents who are holders of
Ordinary Shares, other than in respect of local Bermuda currency.




E.  TAXATION




United
States Taxation




The
following discussion is based upon the provisions of the United States Internal
Revenue Code of 1986, as amended, or the Code, existing and proposed United
States Treasury Department regulations, administrative rulings, pronouncements
and judicial decisions, all as of the date of this Annual
Report.  Unless otherwise noted, references to the "Company" include
the Company's Subsidiaries.  This discussion assumes that the Company
does not have an office or other fixed place of business in the United
States.




80


Taxation
of the Company's Shipping Income: In General




The
Company anticipates that it will derive substantially all of its gross income
from the use and operation of vessels in international commerce and that this
income will principally consist of freights from the transportation of cargoes,
charterhire or lease from time or voyage charters and the performance of
services directly related thereto, which the Company refers to as "shipping
income."




Shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping income attributable to
transportation that both begins and ends in the United States will be considered
to be 100% derived from sources within the United States. The Company is not
permitted by law to engage in transportation that gives rise to 100% United
States source income.




Shipping
income attributable to transportation exclusively between non-United States
ports will be considered to be 100% derived from sources outside the United
States. Shipping income derived from sources outside the United States will not
be subject to U.S. federal income tax.




Based
upon the Company's anticipated shipping operations, the Company's vessels will
operate in various parts of the world, including to or from United States ports.
Unless exempt from United States federal income taxation under Section 883 of
the Code, or Section 883, the Company will be subject to United States federal
income taxation, in the manner discussed below, to the extent its shipping
income is considered derived from sources within the United States.




Application
of Section 883




Under the
relevant provisions of Section 883, the Company will be exempt from United
States federal income taxation on its United States source shipping income
if:







(i)
            It
      is organized in a qualified foreign country which is one that grants an
      equivalent exemption from taxation to corporations organized in the United
      States in respect of the shipping income for which exemption is being
      claimed under Section 883 and which the Company refers to as the "country
      of organization requirement"; and





(ii)
            It
      can satisfy any one of the following two stock ownership requirements for
      more than half the days during the taxable
year:





●
            the
      Company's stock is "primarily and regularly" traded on an established
      securities market located in the United States or a qualified foreign
      country, which the Company refers to as the "Publicly-Traded Test";
      or





●
            more
      than 50% of the Company's stock, in terms of value, is beneficially owned
      by any combination of one or more individuals who are residents of a
      qualified foreign country or foreign corporations that satisfy the country
      of organization requirement and the Publicly-Traded Test, which the
      Company refers to as the "50% Ownership
Test."





The
United States Treasury Department has recognized Bermuda, the country of
incorporation of the Company and certain of its subsidiaries, as a qualified
foreign country. In addition, the United States Treasury Department has
recognized Liberia, the Isle of Man and the Bahamas, the countries of
incorporation of certain of the Company's subsidiaries, as qualified foreign
countries.  Accordingly, the Company and its vessel owning
subsidiaries satisfy the country of organization requirement.




81


Therefore,
the Company's eligibility for exemption under Section 883 is wholly dependent
upon being able to satisfy one of the stock ownership requirements.




For the
2009 taxable year, the Company satisfied the Publicly-Traded Test since, on more
than half the days of the taxable year, the Company's Ordinary Shares were
primarily and regularly traded on the New York Stock Exchange.




Taxation
in Absence of Section 883 Exemption




To the
extent the benefits of Section 883 are unavailable with respect to any item of
United States source income, the Company's United States source shipping income,
would be subject to a 4% tax imposed by Section 887 of the Code on a gross
basis, without the benefit of deductions, which the Company refers to as the "4%
gross basis tax regime". Since under the sourcing rules described above, no more
than 50% of the Company's shipping income would be treated as being derived from
United States sources, the maximum effective rate of United States federal
income tax on the Company's shipping income would never exceed 2% under the 4%
gross basis tax regime.




Gain
on Sale of Vessels




Regardless
of whether the Company qualifies for exemption under Section 883, the Company
will not be subject to United States federal income taxation with respect to
gain realized on a sale of a vessel, provided the sale is considered to occur
outside of the United States under United States federal income tax
principles.  In general, a sale of a vessel will be considered to
occur outside of the United States for this purpose if title to the vessel, and
risk of loss with respect to the vessel, pass to the buyer outside of the United
States.  It is expected that any sale of a vessel by the Company will
be considered to occur outside of the United States.




Taxation
of United States Holders




The
following is a discussion of the material United States federal income tax
considerations relevant to an investment decision by a United States Holder, as
defined below, with respect to the Ordinary Shares.  This discussion
does not purport to deal with the tax consequences of owning Ordinary Shares to
all categories of investors, some of which, such as dealers in securities,
tax-exempt organizations, investors whose functional currency is not the United
States dollar and investors that own, actually or under applicable constructive
ownership rules, 10% or more of the Company's common shares, may be subject to
special rules.  You are encouraged to consult your own tax advisors
concerning the overall tax consequences arising in your own particular situation
under United States federal, state, local or foreign law of the ownership of
Ordinary Shares.




As used
herein, the term "United States Holder" means a beneficial owner of Ordinary
Shares that (i) is a United States citizen or resident, a United States
corporation or other United States entity taxable as a corporation, an estate,
the income of which is subject to United States federal income taxation
regardless of its source, or a trust if a court within the United States is able
to exercise primary jurisdiction over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust and (ii) owns the Ordinary Shares as a capital asset,
generally, for investment purposes.




If a
partnership holds Ordinary Shares, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the
partnership.  If you are a partner in a partnership holding Ordinary
Shares, you are encouraged to consult your own tax advisor regarding the United
States federal income tax consequences of owning an interest in a partnership
that holds Ordinary Shares.




82


Distributions




Subject
to the discussion of passive foreign investment companies below, any
distributions made by the Company with respect to Ordinary Shares to a United
States Holder will generally constitute dividends, which may be taxable as
ordinary income or "qualified dividend income" as described in more detail
below, to the extent of the Company's current or accumulated earnings and
profits, as determined under United States federal income tax
principles.  Distributions in excess of the Company's earnings and
profits will be treated first as a non-taxable return of capital to the extent
of the United States Holder's tax basis in his Ordinary Shares on a
dollar-for-dollar basis and thereafter as capital gain.  Because the
Company is not a United States corporation, United States Holders that are
corporations will not be entitled to claim a dividends-received deduction with
respect to any distributions they receive from the Company.




Dividends
paid on Ordinary Shares to a United States Holder which is an individual, trust
or estate (a "United States Non-Corporate Holder") will generally be treated as
"qualified dividend income" that is taxable to such shareholders at preferential
United States federal income tax rates (currently through 2010) provided that
(1) Ordinary Shares are readily tradable on an established securities market in
the United States (such as the New York Stock Exchange on which the Ordinary
Shares are listed); (2) the Company is not a passive foreign investment company
for the taxable year during which the dividend is paid or the immediately
preceding taxable year (which the Company does not believe it is, has been or
will be); and (3) the United States Non-Corporate Holder has owned the Ordinary
Shares for more than 60 days in the 121-day period beginning 60 days before the
date on which the Ordinary Shares become ex-dividend.




Legislation
has been previously introduced in the United States Congress which, if enacted
in its present form, would preclude the dividends paid by the Company from
qualifying for such preferential rates prospectively from the date of the
enactment. Any dividends paid by the Company which are not eligible for these
preferential rates will be taxed as ordinary income to a United States
Holder.




Sale,
Exchange or other Disposition of Common Stock




Assuming
the Company does not constitute a passive foreign investment company for any
taxable year, a United States Holder generally will recognize taxable gain or
loss upon a sale, exchange or other disposition of the Company's Ordinary Shares
in an amount equal to the difference between the amount realized by the United
States Holder from such sale, exchange or other disposition and the United
States Holder's tax basis in the Ordinary Shares.  Such gain or loss
will be treated as long-term capital gain or loss if the United States Holder's
holding period in the Ordinary Shares is greater than one year at the time of
the sale, exchange or other disposition.  A United States Holder's
ability to deduct capital losses is subject to certain limitations.




Passive
Foreign Investment Company Status and Significant Tax Consequences




Special
United States federal income tax rules apply to a United States Holder that
holds stock in a foreign corporation classified as a passive foreign investment
company, or a PFIC, for United States federal income tax purposes.  In
general, the Company will be treated as a PFIC with respect to a United States
Holder if, for any taxable year in which such United States Holder held the
Company's Ordinary Shares, either;







·
            at
      least 75% of the Company's gross income for such taxable year consists of
      passive income (e.g., dividends, interest, capital gains and rents derived
      other than in the active conduct of a rental business),
  or





·
            at
      least 50% of the average value of the assets held by the Company during
      such taxable year produce, or are held for the production of, passive
      income.





83


For
purposes of determining whether the Company is a PFIC, the Company will be
treated as earning and owning its proportionate share of the income and assets,
respectively, of any of its subsidiary corporations in which it owns at least
25% of the value of the subsidiary's stock.  Income earned, or deemed
earned, by the Company in connection with the performance of services would not
constitute passive income.  By contrast, rental income would generally
constitute "passive income" unless the Company is treated under specific rules
as deriving its rental income in the active conduct of a trade or
business.




Based on
the Company's current operations and future projections, the Company does not
believe that it is, nor does it expect to become, a PFIC with respect to any
taxable year.  Although there is no legal authority directly on point,
the Company's belief is based principally on the position that, for purposes of
determining whether the Company is a PFIC, the gross income the Company derives
or is deemed to derive from the time chartering and voyage chartering activities
should constitute services income, rather than rental
income.  Correspondingly, the Company believes that such income does
not constitute passive income, and the assets that the Company or its
wholly-owned subsidiaries own and operate in connection with the production of
such income, in particular, the vessels, do not constitute assets that produce,
or are held for the production of, passive income for purposes of determining
whether the Company is a PFIC.




Although
there is no direct legal authority under the PFIC rules, the Company believes
there is substantial legal authority supporting its position consisting of case
law and United States Internal Revenue Service, or the IRS, pronouncements
concerning the characterization of income derived from time charters and voyage
charters as services income for other tax purposes.  However, it
should be noted that there is also authority which characterizes time charter
income as rental income rather than services income for other tax purposes.
Accordingly, in the absence of any legal authority specifically relating to the
Code provisions governing PFICs, the IRS or a court could disagree with our
position.  In addition, although the Company intends to conduct its
affairs in such a manner as to avoid being classified as a PFIC with respect to
any taxable year, there can be no assurance that the nature of its operations
will not change in the future.




As
discussed more fully below, if the Company were to be treated as a PFIC for any
taxable year, a United States Holder would be subject to different taxation
rules depending on whether the United States Holder makes an election to treat
the Company as a "Qualified Electing Fund," which the Company refers to as a
"QEF election." As an alternative to making a QEF election, a United States
Holder should be able to elect to mark-to-market the Company's Ordinary Shares,
which the Company refers to as a "Mark-to-Market Election," as discussed
below.




Taxation
of United States Holders Making a Timely QEF Election




If a
United States Holder makes a timely QEF election, which United States Holder is
referred to by the Company as an "Electing United States Holder," the Electing
United States Holder must report each year for United States federal income tax
purposes its pro rata share of the Company's ordinary earnings and its net
capital gain, if any, for the Company's taxable year that ends with or within
the taxable year of the Electing United States Holder, regardless of whether or
not distributions were received from the Company by the Electing United States
Holder.  The Electing United States Holder's adjusted tax basis in the
Ordinary Shares will be increased to reflect taxed but undistributed earnings
and profits.  Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the adjusted tax
basis in the Ordinary Shares and will not be taxed again once
distributed.  An Electing United States Holder would generally
recognize capital gain or loss on the sale, exchange or other disposition of the
Ordinary Shares. A United States Holder will be eligible to make a QEF Election
with respect to its Ordinary Shares only if the Company provides the United
States Holder with annual tax information relating to the
Company.  There can be no assurance that the Company will provide such
tax information on an annual basis.




Taxation
of United States Holders Making a "Mark-to-Market" Election




Alternatively,
if the Company were to be treated as a PFIC for any taxable year and, as
anticipated, the Ordinary Shares are treated as "marketable stock," a United
States Holder would be allowed to make a Mark-to-Market Election with respect to
the Company's Ordinary Shares.  If that election is made, the United
States Holder generally would include as ordinary income in each taxable year
the excess, if any, of the fair market value of the Ordinary Shares at the end
of the taxable year over such United States Holder's adjusted tax basis in the
Ordinary Shares.  The United States Holder would also be permitted an
ordinary loss in respect of the excess, if any, of the United
States  Holder's adjusted tax basis in the Ordinary Shares over its
fair market value at the end of the taxable year, but only to the extent of the
net amount previously included in income as a result of the Mark-to-Market
Election.  A United States Holder's tax basis in his Ordinary Shares
would be adjusted to reflect any such income or loss amount.  Gain
realized on the sale, exchange or other disposition of the Ordinary shares would
be treated as ordinary income, and any loss realized on the sale, exchange or
other disposition of the Ordinary Shares would be treated as ordinary loss to
the extent that such loss does not exceed the net mark-to-market gains
previously included by the United States Holder.




84


Taxation
of United States Holders Not Making a Timely QEF or Mark-to-Market
Election




Finally,
if the Company were to be treated as a PFIC for any taxable year, a United
States  Holder who does not make either a QEF election or a
Mark-to-Market Election for that year, whom is referred to as a "Non-Electing
United States Holder," would be subject to special rules with respect to (1) any
excess distribution (i.e., the portion of any distributions received by the
Non-Electing United States Holder on the Ordinary Shares in a taxable year in
excess of 125% of the average annual distributions received by the Non-Electing
United States Holder in the three preceding taxable years, or, if shorter, the
Non-Electing United States Holder's holding period for the Ordinary Shares), and
(2) any gain realized on the sale, exchange or other disposition of the Ordinary
Shares.  Under these special rules:







·
            the excess distribution or gain
      would be allocated ratably over the Non-ElectingUnited States
      Holders' aggregate holding
      period for the Ordinary
Shares;





·
            the
      amount allocated to the current taxable year and any taxable years before
      the Company became a PFIC would be taxed as ordinary income;
      and





·
            the
      amount allocated to each of the other taxable years would be subject to
      tax at the highest rate of tax in effect for the applicable class of
      taxpayer for that year, and an interest charge for the deemed tax deferral
      benefit would be imposed with respect to the resulting tax attributable to
      each such other taxable year.





These
penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of the Ordinary Shares.  If a
Non-Electing United States Holder who is an individual dies while owning the
Ordinary Shares, the successor of such deceased Non-Electing United States
Holder generally would not receive a step-up in tax basis with respect to such
stock.




Backup
Withholding and Information Reporting




In
general, dividend payments, or other taxable distributions, made within the
United States to a holder of Ordinary Shares will be subject to information
reporting requirements.  Such payments will also be subject to "backup
withholding" if paid to a non-corporate United States  Holder
who:






85




·
              fails
      to provide an accurate taxpayer identification
  number;
 
 ·
              is notified by the IRS that he
      has failed to report all interest or dividends required to be shown on hisUnited States federal income tax returns;
      or
 
 ·
              in
      certain circumstances, fails to comply with applicable certification
      requirements.
  If a
holder sells his Ordinary Shares to or through a United States  office
or broker, the payment of the proceeds is subject to both United
States  information reporting and backup unless the holder establishes
an exemption.  If a holders sells his Ordinary Shares through a non-
United States  office of a non- United States  broker and
the sales proceeds are paid to the holder outside the United States then
information reporting and backup withholding generally will not apply to that
payment.  However, United States  information reporting
requirements, but not backup withholding, will apply to a payment of sales
proceeds, including a payment made to a holder outside the United States, if the
holder sells his Ordinary Shares through a non- United States  office
of a broker that is a United States  person or has some other contacts
with the United States.




Backup
withholding is not an additional tax.  Rather, a tax payer generally
may obtain a refund of any amounts withheld under backup withholding rules that
exceed then taxpayer's income tax liability by filing a refund claim with the
IRS.




Bermuda
Taxation




Bermuda
currently imposes no tax  (including a tax in the nature of an income,
estate  duty,  inheritance,  capital  transfer
or  withholding  tax) on profits,
income,  capital  gains
or  appreciations  derived  by,  or  dividends  or
other distributions paid to holders of Ordinary Shares. Bermuda has undertaken
not to impose any such Bermuda taxes on holders of Ordinary Shares prior to 2016
except in so far as such tax applies to  persons  ordinarily
resident in Bermuda. The Company is not eligible for the benefits of any tax
treaty between the United States and Bermuda.




Liberian
Taxation




The
Republic of Liberia enacted a new income tax act effective as of January 1,
2001, or the New Act.  In contrast to the income tax law previously in
effect since 1977, or the Prior Law, which the New Act repealed in its entirety,
the New Act does not distinguish between the taxation of a non-resident Liberian
corporation, such as the Company's Liberian subsidiaries, which conduct no
business in Liberia and were wholly exempted from tax under the Prior Law, and
the taxation of ordinary resident Liberian corporations.




In 2004,
the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident domestic corporation engaged in international shipping, such as the
Company's Liberian subsidiaries, will not be subject to tax under the New Act
retroactive to January 1, 2001, or the New Regulations.  In addition,
the Liberian Ministry of Justice issued an opinion that the New Regulations were
a valid exercise of the regulatory authority of the Ministry of
Finance.  Therefore, assuming that the New Regulations are valid, the
Company's Liberian subsidiaries will be wholly exempt from Liberian income tax
as under the Prior Law.




If the
Company's Liberian subsidiaries were subject to Liberian income tax under the
New Act, the Company's Liberian subsidiaries would be subject to tax at a rate
of 35% on their worldwide income.  As a result, their, and
subsequently the Company's, net income and cash flow would be materially reduced
by the amount of the applicable tax.  In addition, the Company, as
shareholder of the Liberian subsidiaries, would be subject to Liberian
withholding tax on dividends paid by the Liberian subsidiaries at rates ranging
from 15% to 20%.




86


F.
DIVIDENDS AND PAYING AGENTS




Not
applicable.




G.
STATEMENT BY EXPERTS




Not
applicable.




H.
DOCUMENTS ON DISPLAY




We are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended. In accordance with these requirements, we file reports and
other information with the Securities and Exchange Commission. These materials,
including this annual report and the accompanying exhibits, may be inspected and
copied at the public reference facilities maintained by the Commission 100 F
Street, N.E., Room 1580 Washington, D.C. 20549.  You may obtain
information on the operation of the public reference room by calling 1 (800)
SEC-0330, and you may obtain copies at prescribed rates from the public
reference facilities maintained by the Commission at its principal office in
Washington, D.C. 20549.  The SEC maintains a website
(http://www.sec.gov.) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. In addition, documents referred to in this annual report may be inspected
at our principal executive offices at Par-la-Ville Place, 14 Par-la-Ville Road,
Hamilton, Bermuda HM 08.




I.  SUBSIDIARY
INFORMATION




Not
applicable.




ITEM
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




We are
exposed to various market risks, including interest rates, spot market rates for
vessels and foreign currency fluctuations. We may enter into forward freight
agreements and futures for trading purposes in order to manage our exposure to
the risk of movements in the spot market for certain trade routes and, to some
extent, for speculative purposes but currently we have not entered into any such
agreements. We may also enter into other derivative instruments from time to
time for speculative purposes but currently we have not entered into any such
agreement.




Our
exposure to interest rate risk relates to our floating rate debt, which totaled
$558.1 million as of December 31, 2009 (2008: $568.1 million). A one per cent
change in interest rates would increase or decrease interest expense by $5.6
million per year as of December 31, 2009.




As of
December 31, 2009, the fair market value of our fixed rate debt was $313.6
million (2008: $352.9 million). If interest rates were to increase or decrease
by one per cent with all other variables remaining constant, we estimate that
the market value of our fixed rate debt would have decreased or increased by
approximately $15.7 million and $17.0 million respectively (2008: decrease by
$21.5 million and increase by $23.5 million).




The
majority of our transactions, assets and liabilities are denominated in U.S.
dollars, our functional currency. Certain of our subsidiaries report in Sterling
or Norwegian Kroner and risks of two kinds arise as a result: a transaction
risk, that is, the risk that currency fluctuations will have an effect on the
value of our cash flows; and a translation risk, which is the impact of currency
fluctuations in the translation of foreign operations and foreign assets and
liabilities into U.S. dollars in our consolidated financial
statements.




ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
applicable.




87





PART
II





ITEM
13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES




None.




ITEM
14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS




None.




ITEM
15.   CONTROLS AND PROCEDURES




a)   Disclosure
Controls and Procedures




Management
assessed the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934, as of the end of the period covered by this annual report
as of December 31, 2009. Based upon that evaluation, the principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective as of the evaluation date.




b)   Management's
annual report on internal controls over financial reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) promulgated under
the Securities Exchange Act of 1934.




Internal
control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a process designed by,
or under the supervision of, the Company's principal executive and principal
financial officers and effected by the Company's board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:




·
            Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of Company's management and
      directors; and





·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree or compliance
with the policies or procedures may deteriorate.







88




Management
conducted the evaluation of the effectiveness of the internal controls over
financial reporting using the control criteria framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) published in its
report entitled Internal Control-Integrated Framework.




Our
management with the participation of our principal executive officer and
principal financial officer assessed the effectiveness of the design and
operation of the Company's internal controls over financial reporting pursuant
to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2009.
Based upon that evaluation, the principal executive officer and principal
financial officer concluded that the Company's internal controls over financial
reporting are effective as of December 31, 2009.




The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers AS., an independent
registered public accounting firm, as stated in their report which appears
herein.




c)  
Attestation Report of Independent Registered Public Accounting Firm
  The
registered public accounting firm that audited the consolidated financial
statements, PricewaterhouseCoopers AS, has issued an attestation report on the
Company's internal control over financial reporting, appearing under Item 18,
and such report is incorporated herein by reference.




d)   Changes
in internal control over financial reporting




There
were no changes in our internal controls over financial reporting that occurred
during the period covered by this annual report that have materially effected or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.




ITEM
16.     RESERVED




ITEM
16A.  AUDIT COMMITTEE FINANCIAL EXPERT




Our board
of directors has determined that both Mr. Frixos Savvides and Mrs. Kate
Blankenship are independent directors and audit committee financial
experts.




ITEM
16B.  CODE OF ETHICS




We have
adopted a code of ethics that applies to all entities controlled by us and all
employees, directors, officers and agents of the Company. We have posted a copy
of our code of ethics on our website at www.frontline.bm.We
will provide any person, free of charge, a copy of our code of ethics upon
written request to our registered office.




ITEM
16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES




Our
principal accountant for 2009 and 2008 was PricewaterhouseCoopers AS. The
following table sets forth for the two most recent fiscal years the fees paid or
accrued for audit and services provided by PricewaterhouseCoopers
AS.




(in
      thousands of $)
            
            2009
            
            
            2008Audit
      Fees (a)
            
            
            1,457
            
            
            
            1,664Audit-Related
      Fees (b)
            
            
            —
            
            
            
            —Tax
      Fees (c)
            
            
            —
            
            
            
            —All
      Other Fees (d)
            
            
            —
            
            
            
            —Total
            
            
            1,457
            
            
            
            1,664





(a)           Audit
Fees




Audit
fees represent professional services rendered for the audit of our annual
financial statements and services provided by the principal accountant in
connection with statutory and regulatory filings or engagements.






89




(b)           Audit–Related
Fees




Audit-related
fees consisted of assurance and related services rendered by the principal
accountant related to the performance of the audit or review of our financial
statements which have not been reported under Audit Fees above.




(c)           Tax
Fees




Tax fees
represent fees for professional services rendered by the principal accountant
for tax compliance, tax advice and tax planning.




(d)           All
Other Fees




All other
fees include services other than audit fees, audit-related fees and tax fees set
forth above.




Our Board
of Directors has adopted pre-approval policies and procedures in compliance with
paragraph (c) (7)(i) of Rule 2-01 of Regulation S-X that require the Board to
approve the appointment of the independent auditor of the Company before such
auditor is engaged and approve each of the audit and non-audit related services
to be provided by such auditor under such engagement by the Company. All
services provided by the principal auditor in 2009 were approved by the Board
pursuant to the pre-approval policy.




ITEM
16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES




Not
applicable.




ITEM
16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS




None.




ITEM
16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT




Not
applicable.




ITEM
16G. CORPORATE GOVERNANCE




Pursuant
to an exception under the NYSE listing standards available to foreign private
issuers, we are not required to comply with all of the corporate governance
practices followed by U.S. companies under the NYSE listing standards. The
significant differences between our corporate governance practices and the NYSE
standards applicable to listed U.S. companies are set forth below:




·
              Executive
      Sessions.The NYSErequires that
      non-management directors meet regularly in executive sessions without
      management. The NYSEalso requires that
      all independent directors meet in an executive session at least once a
      year. As permitted under Bermuda law and our bye-laws, our non-management
      directors do not regularly hold executive sessions without management and
      we do not expect them to do so in the
future.
  ·
              Nominating/Corporate
      Governance Committee.  The NYSErequires that a
      listed U.S. company have a nominating/corporate governance committee of
      independent directors and a committee charter specifying the purpose,
      duties and evaluation procedures of the committee. As permitted under
      Bermuda law and our bye-laws, we do not currently have a nominating or
      corporate governance committee.
  90


·
            Audit
      Committee.  The NYSErequires, among
      other things, that a listed U.S. company have an audit committee with a
      minimum of three members. As permitted by Rule 10A-3 under the Securities
      Exchange Act of 1934, our audit committee consists of two independent
      members of our Board.




·
            Corporate Governance
      Guidelines.  The NYSErequires U.S.
      companies to adopt and disclose corporate governance guidelines. The
      guidelines must address, among other things: director qualification
      standards, director responsibilities, director access to management and
      independent advisers, director compensation, director orientation and
      continuing education, management succession and an annual performance
      evaluation. We are not required to adopt such guidelines under Bermuda law
      and we have not adopted such
guidelines.





91





PART
III





ITEM
17.     FINANCIAL STATEMENTS




Not
applicable.




ITEM
18.     FINANCIAL STATEMENTS




The
following financial statements listed below and set forth on pages F-1 through
F-35 are filed as part of this annual report:




Consolidated
      Financial Statements of Frontline Ltd.Index
      to Consolidated Financial Statements of Frontline Ltd.
            F-1Report
      of Independent Registered Public Accounting Firm – PricewaterhouseCoopers
      AS
            F-2Report
      of Independent Registered Public Accounting Firm – Grant Thornton
      LLP
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2009, 2008 and
      2007
            F-4Consolidated
      Balance Sheets as of December 31, 2009 and 2008
            F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
            F-6Consolidated
      Statements of Changes in Stockholders' Equity for the years ended December
      31, 2009, 2008 and 2007
            F-7Consolidated
      Statements of Comprehensive Income for the years ended December 31, 2009,
      2008 and 2007
            F-8Notes
      to Consolidated Financial Statements
            F-9








92





ITEM
19.                      EXHIBITS







Number
            Description
      of Exhibit1.1
            Memorandum
      of Association of the Company, incorporated by reference to Exhibit 3.1 of
      the Company's Registration Statement on Form F-1, Registration No.
      33-70158 filed on October 12, 1993 (the "Original Registration
      Statement").1.2
            Amended
      and Restated Bye-Laws of the Company as adopted by shareholders on
      September 28, 2007 incorporated by reference to Exhibit 1.2 of the
      Company's annual Report on form 20-F for the fiscal year ended December
      31, 2007.2.1
            Form
      of Ordinary Share Certificate, incorporated by reference to Exhibit 4.1 of
      the Original Registration Statement.2.2
            Form
      of Deposit Agreement dated as of November 24, 1993, among Frontline Ltd.
      (F/K/A London & Overseas Freighters Limited), The Bank of New York as
      Depositary, and all Holders from time to time of American Depositary
      Receipts issued there under, including form of ADR, incorporated by
      reference to Exhibit 4.2 of the Original Registration
      Statement.2.3
            Form
      of Deposit Agreement dated as of November 24, 1993, as amended and
      restated as of May 29, 2001, among Frontline Ltd. (F/K/A London &
      Overseas Freighters Limited), The Bank of New York as Depositary, and all
      Holders from time to time of American Depositary Receipts issued there
      under, including form of ADR, incorporated by reference to Exhibit 2 of
      the Company's Annual Report on Form 20-F, filed on June 13, 2001 for the
      fiscal year ended December 31, 2000.2.4
            Amendment
      No. 1 to the Rights Agreement incorporated by reference to Exhibit 4.3 of
      the Amalgamation Registration Statement.2.5
            The
      Subregistrar Agreement related to the registration of certain securities
      issued by Frontline Ltd. in the Norwegian Registry of Securities between
      Frontline Ltd. and Christiania Bank og Kreditkasse ASA together with the
      Form of Warrant Certificate and Conditions attaching thereto, incorporated
      by reference to Exhibit 1.1 of the Company's Annual Report on Form 20-F
      for the fiscal year ended December 31, 1998.4.4
            Master
      Agreement, dated September 22, 1999, among Frontline AB and Frontline Ltd
      (collectively "FL"), Acol Tankers Ltd. ("Tankers"), ICB Shipping AB
      ("ICB"), and Ola Lorentzon (the "Agent"), incorporated by reference to
      Exhibit 3.1 of the Company's Annual Report on Form 20-F for the fiscal
      year ended December 31, 1999.4.6
            Charter
      Ancillary Agreement between Frontline Ltd and Ship Finance International
      Limited dated January 1, 2004 incorporated by reference to Exhibit 10.2 of
      the Company's Annual Report on Form 20-F for the fiscal year ended
      December 31, 2004.4.7
            Addendum
      to Charter Ancillary Agreement between Frontline Ltd and Ship Finance
      International Limited dated June 15, 2004 incorporated by reference to
      Exhibit 10.3 of the Company's Annual Report on Form 20-F for the fiscal
      year ended December 31, 2004.   93
   4.8
            Form
      of Performance Guarantee issued by the Company incorporated by reference
      to Exhibit 10.4 of the Company's Annual Report on Form 20-F for the fiscal
      year ended December 31, 2004.4.9
            Form
      of Time Charter incorporated by reference to Exhibit 10.5 of the Company's
      Annual Report on Form 20-F for the fiscal year ended December 31,
      2004.4.10
            Form
      of Vessel Management Agreements incorporated by reference to Exhibit 10.6
      of the Company's Annual Report on Form 20-F for the fiscal year ended
      December 31, 2004.4.11
            Administrative
      Services Agreement incorporated by reference to Exhibit 10.7 of the
      Company's Annual Report on Form 20-F for the fiscal year ended December
      31, 2004.4.12
            Contribution
      Agreement between Frontline Ltd and Golden Ocean Group Limited dated
      November 29, 2004 incorporated by reference to Exhibit 10.8 of the
      Company's Annual Report on Form 20-F for the fiscal year ended December
      31, 2004.4.13
            Second
      Supplemental Purchase Agreement between Sealift Ltd., Southwest Tankers
      Inc., Front Target Inc., Front Traveller Inc., West Tankers Inc., Granite
      Shipping Ltd., Quadrant Marine Inc. and Frontline Ltd. dated April 27,
      2007 incorporated by reference to Exhibit 4.13 of the Company's Annual
      Report on Form 20-F for the fiscal year ended December
      31,  2007.4.14
            Shareholder's
      Agreement Relating to Sealift Ltd dated April 27, 2007 incorporated by
      reference to Exhibit 4.14 of the Company's Annual Report on Form 20-F for
      the fiscal year ended December 31, 2007.4.15
            Merger
      Agreement between Dockwise Limited and Sealift Ltd dated April 27, 2007
      incorporated by reference to Exhibit 4.15 of the Company's Annual Report
      on Form 20-F for the fiscal year ended December 31,
  2007.4.16
            Frontline
      Ltd Share Option Scheme dated November 16, 2006 incorporated by reference
      to Exhibit 4.16 of the Company's Annual Report on Form 20-F for the fiscal
      year ended December 31, 2007.4.17
            Management
      Agreement between Ship Finance International Limited and its subsidiaries
      and Frontline Management (Bermuda) Ltd, dated November 29, 2007. (Replaces
      Administrative Services Agreement dated December 31, 2004) incorporated by
      reference to Exhibit 4.17 of the Company's Annual Report on Form 20-F for
      the fiscal year ended December 31, 2007.4.18
            Addendum
      No. 3 to Charter Ancillary Agreement between Frontline Ltd, Ship Finance
      International Limited and Frontline Shipping Ltd, dated August 21, 2007
      incorporated by reference to Exhibit 4.18 of the Company's Annual Report
      on Form 20-F for the fiscal year ended December 31,
  2007.   94
  4.19
            Addendum
      No. 1 to Charter Ancillary Agreement between Frontline Ltd., Ship Finance
      International Limited and Frontline Shipping II Ltd., dated August 21,
      2007 incorporated by reference to Exhibit 4.19 of the Company's Annual
      Report on Form 20-F for the fiscal year ended December 31,
      2007.4.20
            Amended
      and Restated Gemini Suezmax Pool Agreement dated January 1,
      2009.8.1
            Subsidiaries
      of the Company.12.1
            Certification
      of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act, as amended.12.2
            Certification
      of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act, as amended.13.1
            Certification
      of the Principal Executive Officer pursuant to 18 USC Section 1350, as
      adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.13.2
            Certification
      of the Principal Financial Officer pursuant to 18 USC Section 1350, as
      adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





95





SIGNATURES





Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.







Frontline
      Ltd.(Registrant)Date:
      March 29, 2010
            
            By:Name:
            Inger
      M. KlempTitle:
            Principal
      Financial Officer














96
  Index
to Consolidated Financial Statements of Frontline Ltd.
 
 Report
      of Independent Registered Public Accounting Firm - PricewaterhouseCoopers
      AS
              F-2Report
      of Independent Registered Public Accounting Firm - Grant Thornton
      LLP
              F-3Consolidated
      Statements of Operations for the years ended December 31, 2009, 2008 and
      2007
              F-4Consolidated
      Balance Sheets as of December 31, 2009 and 2008
              F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
              F-6Consolidated
      Statements of Changes in Stockholders’ Equity for the years ended December
      31, 2009, 2008 and 2007
              F-7 Consolidated
      Statements of Comprehensive Income for the years ended December 31, 2009,
      2008 and 2007
              F-8Notes
      to Consolidated Financial Statements
              F-9
 
 
 
 F-1
 
 
 Report
of Independent Registered Public Accounting Firm
 
 To
the Board of Directors and Shareholders of Frontline Ltd.
 
 In our
opinion, based on our audits and the report of other auditors, the accompanying
consolidated balance sheets and the related consolidated statements of
operations, consolidated statements of cash flows, consolidated statements
of comprehensive income and consolidated statements of changes in
stockholders’ equity present fairly, in all material respects, the financial
position of Frontline Ltd. and its subsidiariesat December 31, 2009 and
December 31, 2008, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2009in conformity with
accounting principles generally accepted in the United States of
America.  Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control Over
Financial Reporting appearing under item 15(b) of Frontline Ltd.’s Annual Report
on Form 20-F. Our responsibility is to express opinions on these financial
statements and on the Company's internal control over financial reporting based
on our integrated audits.
 
 We did
not audit the financial statements for the year ended December 31, 2007 of
Independent Tankers Corporation, Buckingham Shipping PLC, Caernarfon Shipping
PLC, Holyrood Shipping PLC, Sandringham Shipping PlC, Golden State Petro (IOM
I-A) PLC, Golden State Petro (IOM I-B) PLC and CalPetro Tankers (Bahamas III)
Limited, wholly owned subsidiaries, whose statements reflect total revenues of
$60.1 million for the ended December 31, 2007.  The financial
statements of Independent Tankers Corporation, Buckingham Shipping PLC,
Caernarfon Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping PlC, Golden
State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and CalPetro Tankers
(Bahamas III) Limited,were audited by other
auditors whose report thereon has been furnished to us, and our opinion on the
financial statements expressed herein, insofar as it relates to the amounts
included for Independent Tankers Corporation, Buckingham Shipping PLC,
Caernarfon Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping PlC, Golden
State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and CalPetro Tankers
(Bahamas III) Limited, is based solely on the report of the other
auditors.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects.  Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinions.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
 /s/PricewaterhouseCoopers
AS
  PricewaterhouseCoopers
AS
 Oslo,
Norway
 March 29,
2010
 
  F-2
  Report of Independent
Registered Public Accounting Firm
 
 To
the Board of Directors and Stockholder of
 Independent
Tankers Corporation
   We have
audited the combined statements of operations, cash flows and changes in
stockholders’ equity of Independent Tankers Corporation (a Cayman Islands
Company and wholly owned subsidiary of Frontline Ltd.), and Buckingham Shipping
PLC, Caernarfon Shipping PLC, Holyrood Shipping PLC, Sandringham Shipping PLC,
Golden State Petro (IOM I-A) PLC, Golden State Petro (IOM I-B) PLC and Calpetro
Tankers (Bahamas III) Limited (the “Affiliates”), (collectively, the “Company”)
for the year ended December 31, 2007 (not presented separately herein). These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the combined financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Independent
Tankers Corporation and Affiliates for the year ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
 
 
 /s/Grant Thornton
LLP
 
 Grant
Thornton LLP
 New York,
New York
 April 9,
2008
  F-3
  Frontline
Ltd.
 Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and
2007
 (in
thousands of $, except per share data)
 2009
              
              
              2008
              
              
              2007Operating
      revenuesTime
      charter revenues
              
              
              486,361
              
              
              
              602,980
              
              
              
              432,813Bareboat
      charter revenues
              
              
              64,526
              
              
              
              57,152
              
              
              
              57,052Voyage
      charter revenues
              
              
              565,331
              
              
              
              1,425,968
              
              
              
              801,546Other
      income
              
              
              17,068
              
              
              
              17,918
              
              
              
              8,516Total
      operating revenues
              
              
              1,133,286
              
              
              
              2,104,018
              
              
              
              1,299,927Gain
      on sale of assets
              
              
              3,061
              
              
              
              142,293
              
              
              
              118,168Operating
      expensesVoyage
      expenses and commission
              
              
              219,375
              
              
              
              592,188
              
              
              
              352,451Ship
      operating expenses
              
              
              206,381
              
              
              
              213,766
              
              
              
              196,258Profit
      share expense
              
              
              33,018
              
              
              
              110,962
              
              
              
              37,279Charterhire
      expenses
              
              
              169,503
              
              
              
              220,170
              
              
              
              56,868Administrative
      expenses
              
              
              30,647
              
              
              
              35,226
              
              
              
              36,410Depreciation
              
              
              237,313
              
              
              
              223,519
              
              
              
              219,638Total
      operating expenses
              
              
              896,237
              
              
              
              1,395,831
              
              
              
              898,904Net
      operating income
              
              
              240,110
              
              
              
              850,480
              
              
              
              519,191Other
      income (expenses)Interest
      income
              
              
              22,969
              
              
              
              41,204
              
              
              
              54,316Interest
      expense
              
              
              (160,988
              )
              
              
              (183,925
              )
              
              
              (204,535
              )Equity
      (losses) earnings of unconsolidated subsidiaries and associated
      companies
              
              
              (544
              )
              
              
              (901
              )
              
              
              573Foreign
      currency exchange (loss) gain
              
              
              (346
              )
              
              
              1,565
              
              
              
              3,312Mark
      to market of derivatives
              
              
              -
              
              
              
              (17,399
              )
              
              
              3,530Impairment
      of securities
              
              
              -
              
              
              
              (25,134
              )
              
              
              -(Loss)
      gain on sale of securities
              
              
              -
              
              
              
              (221
              )
              
              
              122,120Dividends
      received
              
              
              3,087
              
              
              
              1,552
              
              
              
              533Other
      non-operating items, net
              
              
              1,545
              
              
              
              34,043
              
              
              
              4,951Net
      other expenses
              
              
              (134,277
              )
              
              
              (149,216
              )
              
              
              (15,200
              )Net
      income from continuing operations before income taxes and
      noncontrolling  interest
              
              
              105,833
              
              
              
              701,264
              
              
              
              503,991Income
      tax expense
              
              
              (361
              )
              
              
              (310
              )
              
              
              (419
              )Gain
      on issuance of shares by subsidiaries and associates
              
              
              -
              
              
              
              -
              
              
              
              83,566Net
      income from continuing operations
              
              
              105,472
              
              
              
              700,954
              
              
              
              587,138Discontinued
      operations
              
              
              -
              
              
              
              -
              
              
              
              5,442Net
      income
              
              
              105,472
              
              
              
              700,954
              
              
              
              592,580Net
      income attributable to noncontrolling interest
              
              
              (2,771
              )
              
              
              (2,184
              )
              
              
              (22,162
              )Net
      income attributable to Frontline Ltd.
              
              
              102,701
              
              
              
              698,770
              
              
              
              570,418Earnings
      per share attributable to Frontline Ltd. stockholders:Basic
      earnings per share from continuing operations
              
              $
              1.32
              
              
              $
              9.15
              
              
              $
              7.55Diluted
      earnings per share from continuing operations
              
              $
              1.32
              
              
              $
              9.14
              
              
              $
              7.55Basic
      and diluted earnings per share from discontinued
operations
              
              
              -
              
              
              
              -
              
              
              $
              0.07Basic
      earnings per share
              
              $
              1.32
              
              
              $
              9.15
              
              
              $
              7.62Diluted
      earnings per share
              
              $
              1.32
              
              
              $
              9.14
              
              
              $
              7.62Weighted
      average shares outstanding, basic
              
              
              77,859
              
              
              
              76,353
              
              
              
              74,825Weighted
      average shares outstanding, diluted
              
              
              77,867
              
              
              
              76,442
              
              
              
              74,867Cash
      dividends per share declared
              
              $
              0.90
              
              
              $
              8.25
              
              
              $
              8.30
 
 See
accompanying Notes that are an integral part of these Consolidated Financial
Statements
   F-4
 
 Frontline
Ltd.
 Consolidated
Balance Sheets as of December 31, 2009 and 2008
 (in
thousands of $)
 
 2009
              
              
              2008ASSETSCurrent
      AssetsCash
      and cash equivalents
              
              
              82,575
              
              
              
              190,819Restricted
      cash
              
              
              429,946
              
              
              
              370,078Marketable
      securities
              
              
              62,920
              
              
              
              60,138Trade
      accounts receivable, net
              
              
              44,598
              
              
              
              60,287Related
      party receivables
              
              
              28,743
              
              
              
              11,338Other
      receivables
              
              
              52,135
              
              
              
              17,498Inventories
              
              
              35,093
              
              
              
              42,223Voyages
      in progress
              
              
              32,358
              
              
              
              58,032Prepaid
      expenses and accrued income
              
              
              14,675
              
              
              
              10,832Other
      current assets
              
              
              139
              
              
              
              117Total
      current assets
              
              
              783,182
              
              
              
              821,362Long
      term assetsRestricted
      cash
              
              
              70,075
              
              
              
              184,673Newbuildings
              
              
              413,968
              
              
              
              454,227Vessels
      and equipment, net
              
              
              678,694
              
              
              
              438,161Vessels
      and equipment under capital lease, net
              
              
              1,740,666
              
              
              
              2,100,717Investment
      in unconsolidated subsidiaries and associated companies
              
              
              3,923
              
              
              
              4,467Deferred
      charges
              
              
              4,670
              
              
              
              4,081Long
      term investments
              
              
              20,020
              
              
              
              20,020Other
      long-term assets
              
              
              20
              
              
              
              20Total
      assets
              
              
              3,715,218
              
              
              
              4,027,728LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesShort-term
      debt and current portion of long-term debt
              
              
              123,884
              
              
              
              293,471Current
      portion of obligations under capital leases
              
              
              285,753
              
              
              
              243,293Related
      party payables
              
              
              33,803
              
              
              
              47,422Trade
      accounts payable
              
              
              36,574
              
              
              
              27,034Accrued
      expenses
              
              
              65,579
              
              
              
              71,670Deferred
      charter revenue
              
              
              15,442
              
              
              
              16,130Other
      current liabilities
              
              
              44,327
              
              
              
              11,910Total
      current liabilities
              
              
              605,362
              
              
              
              710,930Long-term
      liabilitiesLong-term
      debt
              
              
              760,698
              
              
              
              614,676Obligations
      under capital leases
              
              
              1,579,708
              
              
              
              1,969,919Deferred
      gains on sales of vessels
              
              
              12,649
              
              
              
              17,954Other
      long-term liabilities
              
              
              6,053
              
              
              
              5,395Total
      liabilities
              
              
              2,964,470
              
              
              
              3,318,874Commitments
      and contingenciesStockholders’
      equityShare
      capital (77,858,502 shares outstanding, par value $2.50)
              
              
              194,646
              
              
              
              194,646Additional
      paid in capital
              
              
              221,991
              
              
              
              219,036Contributed
      surplus
              
              
              248,360
              
              
              
              248,360Accumulated
      other comprehensive loss
              
              
              (1,686
              )
              
              
              (5,227
              )Retained
      earnings
              
              
              78,029
              
              
              
              45,402Total
      stockholders’ equity
              
              
              741,340
              
              
              
              702,217Noncontrolling
      interest
              
              
              9,408
              
              
              
              6,637Total
      equity
              
              
              750,748
              
              
              
              708,854Total
      liabilities and stockholders’ equity
              
              
              3,715,218
              
              
              
              4,027,728
 
 See accompanying Notes that are an
integral part of these Consolidated Financial Statements.
 
 F-5
 
 Frontline
Ltd.
 Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
 (in
thousands of $)
 2009
              
              
              2008
              
              
              2007Net
      income
              
              
              105,472
              
              
              
              700,954
              
              
              
              592,580Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
              
              
              237,313
              
              
              
              223,519
              
              
              
              221,246Amortization
      of deferred charges
              
              
              1,282
              
              
              
              550
              
              
              
              810Gain
      from sale of assets (including securities)
              
              
              (3,061
              )
              
              
              (160,031
              )
              
              
              (323,860
              )Equity
      earnings (losses) of unconsolidated subsidiaries and associated
      companies
              
              
              544
              
              
              
              901
              
              
              
              (573
              )Unrealized
      foreign exchange loss (gain)
              
              
              686
              
              
              
              (2,172
              )
              
              
              689Adjustment
      of derivatives and securities to market value
              
              
              -
              
              
              
              41,379
              
              
              
              (3,541
              )Other,
      net
              
              
              (2,612
              )
              
              
              2,223
              
              
              
              (1,922
              )Changes
      in operating assets and liabilities, net of effect of
      acquisitions:Trade
      accounts receivable
              
              
              15,689
              
              
              
              (764
              )
              
              
              (1,208
              )Other
      receivables
              
              
              (33,441
              )
              
              
              11,746
              
              
              
              39,238Inventories
              
              
              7,131
              
              
              
              13,212
              
              
              
              (11,772
              )Voyages
      in progress
              
              
              25,673
              
              
              
              2,447
              
              
              
              (17,068
              )Prepaid
      expenses and accrued income
              
              
              (4,516
              )
              
              
              (1,683
              )
              
              
              3,341Trade
      accounts payable
              
              
              9,541
              
              
              
              10,990
              
              
              
              11,646Accrued
      expenses
              
              
              (6,895
              )
              
              
              (12,852
              )
              
              
              17,241Deferred
      charter revenue
              
              
              (3,382
              )
              
              
              3,432
              
              
              
              2,441Related
      party balances
              
              
              (30,658
              )
              
              
              (466
              )
              
              
              19,441Other,
      net
              
              
              2,754
              
              
              
              (6,582
              )
              
              
              7,483Net
      cash provided by operating activities
              
              
              321,520
              
              
              
              826,803
              
              
              
              556,212Investing
      activitiesMaturity
      (placement) of restricted cash
              
              
              75,620
              
              
              
              (2,579
              )
              
              
              12,674Additions
      to newbuildings, vessels and equipment
              
              
              (170,049
              )
              
              
              (657,443
              )
              
              
              (348,176
              )Proceeds
      from sale of vessels and equipment
              
              
              2,390
              
              
              
              128,264
              
              
              
              503,407Investments
      in associated companies
              
              
              -
              
              
              
              -
              
              
              
              (60,510
              )Dividends
      received from associated companies
              
              
              -
              
              
              
              265
              
              
              
              255Proceeds
      from sale of investments in associated companies
              
              
              -
              
              
              
              -
              
              
              
              116,631Receipts
      from capital leases and loans receivable
              
              
              -
              
              
              
              -
              
              
              
              5,564Purchases
      of other assets
              
              
              -
              
              
              
              (109,360
              )
              
              
              (43,375
              )Proceeds
      from sale of other assets
              
              
              -
              
              
              
              3,286
              
              
              
              162,392Proceeds
      from issuance of shares in subsidiary
              
              
              -
              
              
              
              10,941
              
              
              
              -Sale
      of subsidiary, net of cash sold
              
              
              -
              
              
              
              -
              
              
              
              38,308Cash
      effect of deconsolidation of subsidiary
              
              
              -
              
              
              
              -
              
              
              
              (146,435
              )Net
      cash (used in) provided by investing activities
              
              
              (92,039
              )
              
              
              (626,626
              )
              
              
              240,735Financing
      activitiesProceeds
      from long-term debt
              
              
              243,771
              
              
              
              520,178
              
              
              
              127,188Repayments
      of long-term debt
              
              
              (267,336
              )
              
              
              (87,370
              )
              
              
              (165,108
              )Payment
      of obligations under capital leases
              
              
              (241,198
              )
              
              
              (171,900
              )
              
              
              (130,362
              )Debt
      fees paid
              
              
              (2,888
              )
              
              
              (4,928
              )
              
              
              (1,406
              )Net
      proceeds from share issuances
              
              
              -
              
              
              
              208,123
              
              
              
              -Cash
      dividends paid (including payments to noncontrolling
    interest)
              
              
              (70,074
              )
              
              
              (641,893
              )
              
              
              (656,008
              )Net
      cash used in financing activities
              
              
              (337,725
              )
              
              
              (177,790
              )
              
              
              (825,696
              )Net
      (decrease) increase in cash and cash equivalents
              
              
              (108,244
              )
              
              
              22,387
              
              
              
              (28,749
              )Cash
      and cash equivalents at beginning of year
              
              
              190,819
              
              
              
              168,432
              
              
              
              197,181Cash
      and cash equivalents at end of year
              
              
              82,575
              
              
              
              190,819
              
              
              
              168,432Supplemental
      disclosure of cash flow information:Interest
      paid, net of interest capitalized
              
              
              186,873
              
              
              
              202,840
              
              
              
              206,495Income
      taxes paid
              
              
              383
              
              
              
              372
              
              
              
              215
 
 See
accompanying Notes that are an integral part of these Consolidated Financial
Statements.
  F-6
  Frontline
Ltd.
 Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December 31,
2009, 2008 and 2007
 (in
thousands of $, except number of shares)
 2009
              
              
              2008
              
              
              2007NUMBER
      OF SHARES OUTSTANDINGBalance
      at beginning of year
              
              
              77,858,502
              
              
              
              74,825,169
              
              
              
              74,825,169Shares
      issued
              
              
              -
              
              
              
              3,033,333
              
              
              
              -Balance
      at the end of the year
              
              
              77,858,502
              
              
              
              77,858,502
              
              
              
              74,825,169SHARE
      CAPITALBalance
      at beginning of year
              
              
              194,646
              
              
              
              187,063
              
              
              
              187,063Shares
      issued
              
              
              -
              
              
              
              7,583
              
              
              
              -Balance
      at end of year
              
              
              194,646
              
              
              
              194,646
              
              
              
              187,063ADDITIONAL
      PAID IN CAPITALBalance
      at beginning of year
              
              
              219,036
              
              
              
              14,242
              
              
              
              494,067Shares
      issued
              
              
              -
              
              
              
              200,539
              
              
              
              -Stock
      option expense
              
              
              2,955
              
              
              
              4,255
              
              
              
              962Transfer
      to contributed surplus
              
              
              -
              
              
              
              -
              
              
              
              (480,787
              )Balance
      at end of year
              
              
              221,991
              
              
              
              219,036
              
              
              
              14,242CONTRIBUTED
      SURPLUSBalance
      at beginning of year
              
              
              248,360
              
              
              
              248,360
              
              
              
              (8,145
              )Cash
      dividends
              
              
              -
              
              
              
              -
              
              
              
              (212,896
              )Noncontrolling
      interest in deemed equity contributions and deemed
    dividends
              
              
              -
              
              
              
              -
              
              
              
              (11,386
              )Transfer
      from additional paid in capital
              
              
              -
              
              
              
              -
              
              
              
              480,787Balance
      at end of year
              
              
              248,360
              
              
              
              248,360
              
              
              
              248,360ACCUMULATED
      OTHER COMPREHENSIVE LOSSBalance
      at beginning of year
              
              
              (5,227
              )
              
              
              (3,696
              )
              
              
              (4,425
              )Other
      comprehensive income (loss)
              
              
              3,541
              
              
              
              (1,531
              )
              
              
              729Balance
      at end of year
              
              
              (1,686
              )
              
              
              (5,227
              )
              
              
              (3,696
              )RETAINED
      EARNINGSBalance
      at beginning of year
              
              
              45,402
              
              
              
              -
              
              
              
              -Net
      income
              
              
              102,701
              
              
              
              698,770
              
              
              
              570,418Cash
      dividends
              
              
              (70,074
              )
              
              
              (641,893
              )
              
              
              (408,196
              )Stock
      dividends
              
              
              -
              
              
              
              (11,475
              )
              
              
              (162,222
              )Balance
      at end of year
              
              
              78,029
              
              
              
              45,402
              
              
              
              -TOTAL  EQUITY
      ATTRIBUTABLE TO FRONTLINE LTD.
              
              
              741,340
              
              
              
              702,217
              
              
              
              445,969NONCONTROLLING
      INTERESTBalance
      at beginning of year
              
              
              6,637
              
              
              
              -
              
              
              
              541,122Net
      income
              
              
              2,771
              
              
              
              2,184
              
              
              
              22,162Deemed
      equity contributions and deemed dividends
              
              
              -
              
              
              
              -
              
              
              
              11,386Deconsolidation
      adjustments
              
              
              -
              
              
              
              -
              
              
              
              (574,670
              )Partial
      spin-off of ITCL
              
              
              -
              
              
              
              4,453
              
              
              
              -Balance
      at end of year
              
              
              9,408
              
              
              
              6,637
              
              
              
              -TOTAL  EQUITY
              
              
              750,748
              
              
              
              708,854
              
              
              
              445,969
 
  
 See
accompanying Notes that are an integral part of these Consolidated Financial
Statements
  F-7
  Frontline
Ltd.
 Consolidated
Statements of Comprehensive Income for the years ended December 31, 2009, 2008
and 2007
 (in
thousands of $, except number of shares)
   2009
                
                
                2008
                
                
                2007COMPREHENSIVE
      INCOME (LOSS), NET OF TAXNet
      income attributable to Frontline Ltd.
                
                
                102,701
                
                
                
                698,770
                
                
                
                570,418Unrealised
      gains (losses) from marketable securities
                
                
                2,782
                
                
                
                (219
                )
                
                
                (595
                )Foreign
      currency translation
                
                
                759
                
                
                
                (1,312
                )
                
                
                1,324Other
      comprehensive income (loss), net of tax
                
                
                3,541
                
                
                
                (1,531
                )
                
                
                729Comprehensive
      income
                
                
                106,242
                
                
                
                697,239
                
                
                
                571,147Comprehensive
      income attributable to:Stockholders
      of Frontline Ltd.
                
                
                103,471
                
                
                
                695,055
                
                
                
                548,985Noncontrolling
      interest
                
                
                2,771
                
                
                
                2,184
                
                
                
                22,162106,242
                
                
                
                697,239
                
                
                
                571,147
 See
accompanying Notes that are an integral part of these Consolidated Financial
Statements
  F-8
  Frontline
Ltd.
 Notes
to the Consolidated Financial Statements
 
 1.
              GENERAL
 
 Frontline
Ltd. (the “Company” or “Frontline”) is a Bermuda based shipping company engaged
primarily in the ownership and operation of oil tankers and oil/bulk/ore
(“OBO”) carriers, which are currently configured to carry dry cargo. The Company
operates oil tankers of two sizes: very large crude carriers (“VLCCs”) which are
between 200,000 and 320,000 deadweight tons (“dwt”), and Suezmaxes, which are
vessels between 120,000 and 170,000 dwt. The Company operates primarily through
subsidiaries and partnerships located in Bermuda, Isle of Man, Liberia, Norway,
Singapore, Cayman Islands, the United Kingdom and the Bahamas. The Company is
also involved in the charter, purchase and sale of vessels.
 
 The
Company’s ordinary shares are listed on the New York Stock Exchange, the Oslo
Stock Exchange and the London Stock Exchange.
 
 In
October 2003, the Company established Ship Finance International Limited (“Ship
Finance”) in Bermuda.  Through transactions executed in January 2004,
the Company transferred to Ship Finance ownership of 46 vessel-owning entities
each owning one vessel and its corresponding financing, and one entity owning an
option to acquire a VLCC. The Company then leased these vessels back on
long-term charters.
 
 Since May
2004, the Company has distributed its holding of Ship Finance to its
shareholders and in March 2007, the Company distributed the majority of its
remaining 11.1% shareholding to its shareholders. The Company still holds 73,383
shares in Ship Finance which represents 0.01% of Ship Finance’s total shares.
Prior to the final distribution of shares in March 2007, the Company
consolidated Ship Finance under the provisions of FASB Interpretation No. 46
(revised December 2003) Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51(“FIN46(R)”), (codified in ASC
810). Subsequent to the distribution in March 2007, the Company no longer
consolidates Ship Finance.
 
 In
January 2007, the Company’s wholly owned subsidiary Sealift Ltd (“Sealift”)
completed a private placement raising $180.0 million in equity. The Company
participated by investing $60.0 million and as a result of the private
placement, its shareholding was reduced to 33.3%. The Company consequently began
accounting for its investment under the equity method. Sealift used the proceeds
from the private placement along with the proceeds from a $110.0 million bond
facility, $120.0 million of a $240.0 million term loan facility and short-term
sellers credit of $80 million from the Company, to acquire from the Company four
single hull vessels to be converted to heavy lift vessels and two Suezmax
vessels. The private placement discussed above was conditional on the
acquisition of the assets described above being effective and the sellers credit
was payable to the Company upon the completion and delivery of each of the last
two converted vessels with $40 million allocated to each vessel. In May 2007,
Sealift acquired Dockwise Ltd (“Dockwise”) and immediately completed another
private placement for 39.8 million shares, of which the Company subscribed for
five million shares. The Company’s investment was reduced to 17.1% as a result
of these transactions. In July 2007, Sealift changed its name to Dockwise. In
October 2007, the Company sold its entire shareholding in Dockwise.
 
 In
February 2007, the Company’s wholly owned subsidiary Sea Production Ltd (“Sea
Production”) completed a private placement raising $180.0 million in equity and
simultaneously acquired the Company’s floating production activities. The
Company subscribed for 28.3% of the shares and consequently accounted for its
investment under the equity method.  In June 2007, the Company
disposed of its entire shareholding in Sea Production.
 
 In
February 2008, Frontline spun off 17.53% of its holding in its subsidiary
Independent Tankers Corporation Limited (“ITCL”) to Frontline shareholders in
conjunction with the listing of ITCL on the Norwegian over-the-counter (“OTC”)
market. Frontline recorded a gain of $18.0 million in the first quarter of 2008
as a result of this spin off. This was reported in other non-operating
items.
 
 
 F-9
 2.
              ACCOUNTING
      POLICIES
 
 Basis
      of accounting
 The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The consolidated financial
statements include the assets and liabilities of the Company and its
subsidiaries and certain variable interest entities in which the Company is
deemed to be the primary beneficiary.  All intercompany balances and
transactions have been eliminated on consolidation. The 2008 and 2007 financial
information has been recast to reflect the adoption of an accounting
pronouncement, which changed the presentation of noncontrolling interest.
Certain amounts in the consolidated statements of cash flows for the years ended
December 31, 2008 and 2007 have been reclassified to conform to the 2009
presentation.
 
 A
variable interest entity (“VIE”) is a legal entity where either (a) equity
interest holders as a group lack the characteristics of a controlling financial
interest, including: decision making ability and an interest in the entity's
residual risks and rewards or (b) the equity holders have not provided
sufficient equity investment to permit the entity to finance its activities
without additional subordinated financial support, or  where (c) the
voting rights of some investors are not proportional to their obligations to
absorb the expected losses of the entity, their rights to receive the expected
residual returns of the entity, or both and substantially all of the entity's
activities either involve or are conducted on behalf of an investor that has
disproportionately few voting rights. FIN46(R) (codified in ASC 810) requires a
variable interest entity to be consolidated if any of its interest holders are
entitled to a majority of the entity's residual return or are exposed to a
majority of its expected losses.
 
 The
Company accounts for all business combinations by the purchase method in
accordance with Financial Accounting Standard No. 141(R), Business Combinations(codified in ASC 805). The Company assesses
whether it has purchased a business or a group of assets, in accordance with
Emerging Issues Task Force (“EITF”) 98-3: Determining Whether a Transaction Is
an Exchange of Similar Productive Assets or a Business Combination.The
Company ascertains the cost of the asset (or net asset) group and allocates that
cost to the individual assets (or individual assets and liabilities) that make
up the group in accordance with this guidance.  A portion of the cost
of the group of assets is then assigned to each individual asset (or assets)
acquired on the basis of its fair value.
 
 Investments
in companies over which the Company exercises significant influence but does not
control are accounted for using the equity method. The Company records its
investments in equity-method investees in the consolidated balance sheets as
“Investment in unconsolidated subsidiaries and associated companies” and its
share of the investees’ earnings or losses in the consolidated statements of
operations as “Share in results of unconsolidated subsidiaries and associated
companies”. The excess, if any, of purchase price over book value of the
Company’s investments in equity method investees is included in the accompanying
consolidated balance sheets in “Investment in unconsolidated subsidiaries and
associated companies”.
 
 Investments
in which the Company has a majority shareholding but which it does not control,
due to the participating rights of minority shareholders, are accounted for
using the equity method.
 
 The
preparation of financial statements in accordance with generally accepted
accounting principles requires that management make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
 We
evaluated all of our activity through the issue date of these financial
statements and concluded that no subsequent events have occurred that would
require recognition in the financial statements or additional disclosure in the
Notes to Consolidated Financial Statements.
 
 Cash
      and cash equivalents
 For the
purposes of the consolidated statements of cash flows, all demand and time
deposits and highly liquid, low risk investments with original maturities of
three months or less are considered equivalent to cash.
 
 Restricted
      cash
 Restricted
cash consists of bank deposits which may only be used to settle certain
pre-arranged loan or lease payments or minimum deposits which must be maintained
in accordance with contractual arrangements.  Restricted cash is
classified as long-term when it is segregated for the liquidation of long-term
obligations.
   F-10
 
 Marketable
      securities
 Marketable
equity securities held by the Company are considered to be available-for-sale
securities and as such are carried at fair value. Any resulting unrealized gains
and losses, net of deferred taxes if any, are recorded as a separate component
of other comprehensive income in stockholders’ equity unless the securities are
considered to be other than temporarily impaired, in which case unrealized
losses are recorded in the income statement.
  Long-term
      investments
 Long-term
investments consist of unlisted securities for which fair values are not readily
determinable and for which the investments are not equity method investees.
Long-term investments are recorded at cost less impairment.
 
 Inventories
 Inventories
comprise principally of fuel and lubricating oils and are stated at the lower of
cost and market value. Cost is determined on a first-in, first-out
basis.
 
 Vessels
and equipment
 The cost
of the vessels less estimated residual value is depreciated on a straight-line
basis over the vessels’ estimated remaining economic useful lives. The estimated
economic useful life of the Company’s double hull vessels is 25 years and for
single hull vessels is either 25 years or the vessel’s anniversary date in 2015,
whichever comes first. Other equipment is depreciated over its estimated
remaining useful life, which approximates five years.
 
 Vessels
and equipment under capital lease
 The
Company charters in certain vessels and equipment under leasing agreements.
Leases of vessels and equipment, where the Company has substantially all the
risks and rewards of ownership, are classified as capital leases. Capital leases
are capitalized at the inception of the lease at the lower of the fair value of
the leased assets and the present value of the minimum lease
payments.
 
 Each
lease payment is allocated between liability and capital charges to achieve a
constant rate on the capital balance outstanding. The interest element of the
capital cost is charged to the income statement over the lease
period.
 
 Depreciation
of vessels and equipment under capital lease is included within “depreciation
and amortization expense” in the consolidated statement of operations. Vessels
and equipment under capital lease are depreciated on a straight-line basis over
the vessels’ remaining economic useful lives or on a straight-line basis over
the term of the lease. The method applied is determined by the criteria by which
the lease has been assessed to be a capital lease.
 
 Vessel
residual values – owned vessels and vessels under capital leases
 On July
1, 2009, the Company effected a change in estimate related to the estimated
scrap rate for all of its owned vessels  and for leased vessels where
the Company has an interest in the residual value. The scrap rate was amended
from an average of $222 per lightweight tonne to $281 per lightweight tonne
for VLCC’s and from an average of $378 per lightweight tonne to $281 per
lightweight tonne for Suezmax’s. The resulting change in salvage values has been
applied prospectively and reduced depreciation by approximately $0.1 million for
the six months ended December 31, 2009. This change also resulted in an increase
in net income of approximately $0.1 million with no impact in earnings per share
for the year ended December 31, 2009.
 
 Newbuildings
 The
carrying value of the vessels under construction (“Newbuildings”) represents the
accumulated costs to the balance sheet date which the Company has had to pay by
way of purchase installments and other capital expenditures together with
capitalized interest and associated finance costs. No charge for depreciation is
made until the vessel is available for use.
 
 Interest
expense
 Interest
costs are expensed as incurred except for interest costs that are capitalized.
Interest is capitalized on all qualifying assets that require a period of time
to get them ready for their intended use. Qualifying assets consist of vessels
constructed for the Company’s own use.
 
 F-11
 Impairment
of long-lived assets
 The
carrying value of long-lived assets that are held and used by the Company are
reviewed whenever events or changes in circumstances indicate that the carrying
amount of an asset may no longer be recoverable. The Company assesses
recoverability of the carrying value of the asset by estimating the future net
cash flows expected to result from the asset, including eventual disposal. If
the future net undiscounted cash flows are less than the carrying value of the
asset, an impairment loss is recorded equal to the difference between the
asset’s carrying value and fair value.  In addition, long-lived assets to
be disposed of are reported at the lower of carrying amount and fair value less
estimated costs to sell.
 
 Deferred
charges
 Loan
costs, including debt arrangement fees, are capitalized and amortized on a
straight-line basis over the term of the relevant loan. The straight line basis
of amortization approximates the effective interest method in the Company’s
consolidated statement of operations. Amortization of loan costs is included in
interest expense.  If a loan is repaid early, any unamortized portion
of the related deferred charges is charged against income in the period in which
the loan is repaid.
 
 Trade
accounts receivable
 Trade and
other receivables are presented net of allowances for doubtful balances. If
amounts become uncollectible, they are charged against income when that
determination is made.
  Revenue
and expense recognition
 Revenues
and expenses are recognized on the accruals basis. Revenues are generated from
freight billings, time charter and bareboat charter hires. Voyage revenues and
expenses are recognized ratably over the estimated length of each voyage and,
therefore, are allocated between reporting periods based on the relative transit
time in each period. The impact of recognizing voyage expenses ratably over the
length of each voyage is not materially different on a quarterly and annual
basis from a method of recognizing such costs as incurred. Probable losses on
voyages are provided for in full at the time such losses can be estimated. Time
charter and bareboat charter revenues are recorded over the term of the charter
as a service is provided. The Company uses a discharge-to-discharge basis in
determining percentage of completion for all spot voyages and voyages servicing
contracts of affreightment whereby it recognizes revenue ratably from when
product is discharged (unloaded) at the end of one voyage to when it is
discharged after the next voyage. However, the Company does not recognize
revenue if a charter has not been contractually committed to by a customer and
the Company, even if the vessel has discharged its cargo and is sailing to the
anticipated load port on its next voyage.
  Amounts
receivable or payable arising from profit sharing arrangements are accrued based
on amounts earned as of the reporting date. Profit share income represents
vessel earnings earned by the Company’s customers in excess of market rates.
Profit share expense represents amounts due to Ship Finance based on 20% of the
excess of vessel revenues earned by the Company over the base hire paid to Ship
Finance for chartering in the vessels.
  Revenues
and voyage expenses of the vessels operating in pool arrangements are pooled and
the resulting net pool revenues, calculated on a time charter equivalent basis,
are allocated to the pool participants according to an agreed
formula.  Formulae used to allocate net pool revenues vary among
different pools but generally allocate revenues to pool participants on the
basis of the number of days a vessel operates in the pool with weighting
adjustments made to reflect vessels’ differing capacities and performance
capabilities.  The same revenue and expense principles stated above
are applied in determining the pool’s net pool revenues.  Certain
pools are responsible for paying voyage expenses and distribute net pool
revenues to the participants.  Certain pools require the participants
to pay and account for voyage expenses, and distribute gross pool revenues to
the participants such that the participants’ resulting net pool revenues are
equal to net pool revenues calculated according to the agreed
formula.  Revenues allocated by these pools are included in voyage
charter revenues in the consolidated statements of operations.
  Gain
on sale of assets
 Gain on
sale of assets includes gains from the sale of vessels, gains from the
termination of leases and gains from the sale of heavy lift conversion projects.
Gains from the sale of assets are recognized when the vessel has been delivered
and all risks have been transferred and are determined by comparing the proceeds
received with the carrying value of the vessel. Gains from the termination of
leases are recognized when the lease is effectively terminated and the vessel
has been redelivered to the owner. Gains from sale of heavy lift conversion
projects are recognized as each converted vessel is delivered.  The
amount recognized is the gain allocated to each vessel that is not contingent
upon future events.  Deferred gains are recorded as Current or
Long-term Liabilities as applicable.
 
 F-12
 Drydocking
 Normal
vessel repair and maintenance costs are expensed when incurred. The Company
recognizes the cost of a drydocking at the time the drydocking takes place, that
is, it applies the “expense as incurred” method.
 
 Derivatives
 The
Company may enter into interest rate swap transactions to hedge a portion of its
exposure to floating interest rates. These transactions involve the conversion
of floating rates into fixed rates over the life of the transactions without an
exchange of underlying principal. The fair values of the interest rate swap
contracts are recognized as assets or liabilities with changes in fair values
recognized in “interest expense” in the consolidated statements of operations
unless related to discontinued operations, in which case these are shown in
“discontinued operations”.
 
 The
Company may enter into forward freight contracts and options in order to hedge
exposure to the spot market for certain trade routes and in some cases, for
speculative purposes. These transactions involve entering into a contract to
swap theoretical market index based voyage revenues for a fixed daily rate. The
fair values of the forward freight contracts are recognized as assets or
liabilities with changes in fair values recognized in “mark to market of
derivatives” in the consolidated statements of operations.
 
 Financial
instruments
 In
determining the fair value of its financial instruments, the Company uses a
variety of methods and assumptions that are based on market conditions and risks
existing at each balance sheet date. For the majority of financial instruments,
including most derivatives and long-term debt, standard market conventions and
techniques such as options pricing models are used to determine fair value. All
methods of assessing fair value result in a general approximation of value, and
such value may never actually be realized.
 
 Foreign
currencies
 The
functional currency of the Company and the majority of its subsidiaries is the
U.S. dollar as the majority of revenues and expenditures are denominated in U.S.
dollars. The Company’s reporting currency is also U.S. dollars. For subsidiaries
that maintain their accounts in currencies other than U.S. dollars, the Company
uses the current method of translation whereby the statements of operations are
translated using the average exchange rate and the assets and liabilities are
translated using the year end exchange rate. Foreign currency translation gains
or losses are recorded as a separate component of other comprehensive income in
stockholders’ equity.
 
 Transactions
in foreign currencies during the year are translated into U.S. dollars at the
rates of exchange in effect at the date of the transaction. Foreign currency
monetary assets and liabilities are translated using rates of exchange at the
balance sheet date. Foreign currency non-monetary assets and liabilities are
translated using historical rates of exchange. Foreign currency transaction
gains or losses are included in the consolidated statements of
operations.
 
 Share-based
      payments
 The
Company accounts for share based payments in accordance with SFAS 123(R) Share-Based Payments(“FAS
123(R)”)(codified
in ASC 718). Accordingly, the Company expenses the fair value of stock options
issued to employees over the period in which the options vest.
 
 Earnings
per share
 Basic
earnings per share (“EPS”) is computed based on the income available to common
stockholders and the weighted average number of shares outstanding for basic
EPS. Diluted EPS includes the effect of the assumed conversion of potentially
dilutive instruments.
 
 Issuance
of shares by a subsidiary/ associate
 The
Company recognizes a profit when its subsidiary or associate issues stock to
third parties at a price per share in excess of its carrying amount if such
profit is realizable.  If such profit is not realizable, it is
recorded as an increase to contributed surplus.  Following the
issuance of FAS 141(R), (codified in ASC 805), applied prospectively from
January 1, 2009, the effect of changes in ownership interest arising on
consolidated subsidiaries are treated as equity transactions. Only gains or
losses arising on deconsolidation will be recognized in the consolidated
statements of operations.
 
 F-13
 
 3.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
 
 In
December 2007, the Financial Accounting Standards Board (‘FASB’) issued
Statements No. 141(R), Business Combinations,(“FAS
141(R)”), (codified in ASC 805), and No. 160 Noncontrolling Interests in
Consolidated Financial Statements,(“FAS 160”), (codified in ASC 810).
Together these statements can affect the way companies account for future
business combinations and noncontrolling interests. ASC 805 requires, amongst
other changes, recognition of subsequent changes in the fair value of contingent
consideration in the Statement of Operations rather than against Goodwill, and
transaction costs to be recognized immediately in the Statement of Operations.
ASC 810-10-65-1 clarifies the classification of noncontrolling interests in
consolidated balance sheets and the accounting for and reporting of transactions
between the reporting entity and holders of such noncontrolling interests. In
particular the noncontrolling interest in subsidiaries should be presented in
the consolidated balance sheet within equity, but separate from the parent’s
equity. Similarly the amount of net income attributable to the parent and to the
minority interest be clearly identified and presented on the consolidated
statement of income.  Both these Statements are effective for
transactions completed in fiscal years beginning after December 15, 2008.
Adoption of these Statements by the Company in the financial statements
beginning January 1, 2009 did not have a material effect on the Company’s
consolidated financial statements except that noncontrolling interests is
classified as a component of equity.
 
 In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1 Guidance on Interim Fair Value Disclosures,
(codified in ASC 825), which expands the fair value disclosures required for all
financial instruments within the scope of this topic to interim periods for
publicly traded entities. Entities must disclose the method(s) and significant
assumption used to estimate the fair value of financial instruments in financial
statements on an interim basis and to highlight any changes in the methods and
significant assumptions from prior periods. The guidance is effective for
interim and annual periods ending after June 15, 2009 and adoption of this FSP
did not have a material effect on our consolidated financial
statements.
 
 In April
2009, the FASB issued FSP FAS 115-2 Recognition
and Presentation of Other-Than-Temporary Impairments, (codified in ASC
320) which provides additional guidance to highlight and expand on the factors
that should be considered in estimating fair value when there has been a
significant decrease in market activity for a financial asset.  The
guidance is effective for interim and annual periods ending after June 15, 2009.
Adoption of this FSP did not have a material effect on our consolidated
financial statements.
 
 In May
2009, the FASB issued Statement No. 165 Subsequent Events, (“FAS 165”),(codified in ASC 855).This Statement provides guidance on management’s assessment of subsequent
events. The guidance clarifies that management must evaluate, as of each
reporting period, events or transactions that occur after the balance sheet date
“through the date that the financial statements are issued or are available to
be issued.” Management must perform its assessment for both interim and annual
financial reporting periods. The new guidance is effective prospectively for
interim and annual periods ending after June 15, 2009. Adoption of the Statement
did not have a material effect on the Company’s consolidated financial
statements. In February 2010, the FASB amended the subsequent events guidance
issued in May 2009 to remove the requirement for SEC filers to disclose a date
through which subsequent events have been evaluated in both issued and revised
financial statements. The amendment is effective upon issuance. The adoption of
this guidance did not have a material effect on our consolidated financial
statements.
 
 In
June 2009, the FASB issued Statement No. 168, Statement on Codification and
Hierarchy of Generally Accepted Accounting Principles, (‘FAS 168’),
(codified in ASC 105).The Statement is a replacement for FAS 162. The GAAP hierarchy will be
modified to include only two levels of GAAP; authoritative and nonauthoritative.
The Statement is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The adoption of this Statement
did not have a material effect on the Company’s consolidated financial
statements.
  In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R)(“FAS 167”) (codified in ASC 810). The amended guidance
requires companies to qualitatively assess the determination of the primary
beneficiary of a variable-interest entities (“VIEs”) based on whether the entity
(1) has the power to direct the activities of the VIE that most significantly
impact the entity’s economic performance and (2) has the obligation to absorb
losses of the entity that could potentially be significant to the VIE or the
right to receive benefits from the entity that could potentially be significant
to the VIE. It also requires additional disclosures for any enterprise that
holds a variable interest in a VIE. The new accounting and disclosure
requirements become effective for the Company from January 1, 2010. The Company
is currently assessing the impact of this amendment on its consolidated
financial statements.
 
 F-14
 
 4.
              DECONSOLIDATION
      OF SHIP FINANCE
 
 The
Company distributed the majority of its remaining shareholding of Ship Finance
in March 2007 and no longer consolidates Ship Finance as of March 31, 2007. FIN
46(R) (codified in ASC 810) was applied to Ship Finance as a holding company and
to each of its subsidiaries. The Company was determined to be the primary
beneficiary of the holding company Ship Finance as a result of the variable
interests held by the Company and its related parties. Consequently, Ship
Finance and its subsidiaries were consolidated until Frontline distributed the
majority of its remaining shares in Ship Finance.
 
 Under
this guidance, the primary beneficiary should reconsider whether it is still the
primary beneficiary if it sells or otherwise disposes of its variable interests
to unrelated parties. As such, the Company’s distribution of shares in March is
a reconsideration event and it was determined that the Company was no longer the
primary beneficiary of Ship Finance. Accordingly, the Company is no longer
consolidating Ship Finance as of March 31, 2007.
 
 Prior to
the deconsolidation of Ship Finance, items of expenditure incurred by Ship
Finance which have been recorded in the Company’s consolidated statement of cash
flows for the year ended December 31, 2007 include:
  ·
              Purchase
      of the container ship Horizon Hawk for $56.8
  million
 ·
              Payments
      totaling $126.5 million relating to Ship Finance’s second jack up rig West
      Prospero
 ·
              Cash
      from debt draw downs totaling $127.2
million
 ·
              Debt
      repayments totaling $122.4 million
 
 
 5.
              SEGMENT
      INFORMATION
 
 The
Company and the chief operating decision maker (“CODM”) measure performance
based on the Company’s overall return to shareholders based on consolidated net
income. The CODM does not review a measure of operating result at a lower level
than the consolidated group. Consequently, the Company has only one reportable
segment: tankers. The tankers segment includes crude oil tanker vessels and OBO
or oil/bulk/ore vessels. Both types of vessel are managed as part of this one
segment.
 
 The
Company’s management does not evaluate performance by geographical region as
this information is not meaningful.
 
 The
Company operates in two markets, the wet market whereby crude oil is
transported, and the dry market whereby dry cargo is transported. An analysis of
revenues from these services is as follows:
  (in
      thousands of $)
                2009
                2008
                2007Total
      operating revenues – wet market
                989,773
                1,955,427
                1,171,000Total
      operating revenues – dry market
                124,983
                130,228
                120,170
 
 During
the year ended December 31, 2009, the Company reported total revenue from one
customer of $250.1 million which represented approximately 22% of consolidated
operating revenues (2008: one customer which represented approximately 20% and
2007: one customer which represented approximately 19%). No other customers
represent more than 10% of consolidated operating revenues for the periods
presented.
 
 6.
              INCOME
      TAXES
 
 Bermuda
 Under
current Bermuda law, the Company is not required to pay taxes in Bermuda on
either income or capital gains. The Company has received written assurance from
the Minister of Finance in Bermuda that, in the event of any such taxes being
imposed, the Company will be exempted from taxation until the year
2016.
   F-15
 
 United
      States
 The
Company does not accrue U.S. income taxes as, in the opinion of U.S. counsel,
the Company is not engaged in a U.S. trade or business and is exempted from a
gross basis tax under Section 883 of the U.S. Internal Revenue
Code.
 
 A
reconciliation between the income tax expense resulting from applying the U.S.
Federal statutory income tax rate and the reported income tax expense has not
been presented herein as it would not provide additional useful information to
users of the financial statements as the Company’s net income is subject to
neither Bermuda nor U.S. tax.
 
 Other
Jurisdictions
 Certain
of the Company’s subsidiaries in Singapore, Norway and the United Kingdom are
subject to income tax in their respective jurisdictions. The tax paid by
subsidiaries of the Company that are subject to income tax is not
material.
 
 The
Company adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (“FIN 48”), (codified in ASC 740) on January 1, 2007. The Company
has not recognized any additional liabilities or expenses under ASC 740 for 2009
or 2008 and does not have any unrecognized tax benefits, material accrued
interest or penalties relating to income taxes.
 
 
 7.
              EARNINGS
      PER SHARE
 
 The
computation of basic earnings per share (“EPS”) is based on the weighted average
number of shares outstanding during the year. The computation of diluted EPS
assumes the exercise of stock options using the treasury stock
method.
 
 The
components of the numerator for the calculation of basic EPS and diluted EPS for
net income from continuing operations and net income are as
follows:
 
 (in
      thousands of $)
              2009
              2008
              2007Net
      income from continuing operations attributable to Frontline
      Ltd.
              102,701
              698,770
              564,976Discontinued
      operations
              -
              -
              5,442Net
      income attributable to Frontline Ltd.
              102,701
              698,770
              570,418
 
 The
components of the denominator for the calculation of basic EPS and diluted EPS
are as follows:
 
 (in
      thousands)
              2009
              2008
              2007Weighted
      average number of ordinary shares outstanding - basic
              77,859
              76,353
              74,825Stock
      options
              8
              89
              42Weighted
      average number of ordinary shares outstanding
      -  diluted
              77,867
              76,442
              74,867
  There
were no anti-dilutive options in 2009, 2008 and 2007.
  The
effect on EPS related to discontinued operations is as
follows:
 
 (in
      thousands of $)
              2009
              2008
              2007Discontinued
      operations – containers and rigs
              -
              -
              5,442Basic
      and diluted EPS – containers and rigs
              -
              -
              $0.07
 
 8.
              LEASES
 
 As of
December 31, 2009, the Company leased in fifty vessels on long-term time
charters and bareboat charters from third parties and related
parties.  Four of these leases are classified as operating leases and
forty-six as capital leases. In addition to these, eight Suezmax vessels were
leased in at floating charter rates and can be terminated by giving one month
written notice and a further three are leased on short-term fixed rate charters.
With the exception of the Company’s long-term leases with Ship Finance, the
Company’s long-term leases of vessels generally contain optional renewal periods
and purchase and put options.
 
 F-16
 Rental
      expense
  Charter
hire payments to third parties for certain contracted-in vessels are accounted
for as operating leases. The Company is also committed to make rental payments
under operating leases for office premises. The future minimum rental payments
under the Company’s non-cancellable operating leases are as
follows:
 
 (in
      thousands of $)Year
      ending December 31,2010
              73,1022011
              33,2442012
              6,7142013
              1,7392014
              1,6012015
      and later
              1,423Total
      minimum lease payments
              117,823
 
 Total
rental expense for operating leases was $171.5 million, $222.2 million and $59.0
million for the years ended December 31, 2009, 2008 and 2007,
respectively.
 
 The
following table discloses information about the terms of the Company’s long-term
leases for vessels contracted in which are accounted for as operating
leases:
 
 Vessel
      Type
              Expiry
      of
                Mandatory
                Lease
      Period
              
              Extended
      Lease Periods at Lessor’s Option
              
              
              Extended
      Lease Periods at Company’s Option
              
              
              Company’s
      Purchase Option Periods
              
              
              Lessor’s
      Put Option Exercise DateFront
      Warrior (Suezmax)
              2007
              
              
              2008-2011
              
              
              
              2010-2011
              
              
              
              2007-
      2011
              
              
              
              2011Hampstead
      (VLCC)
              2012
              
              none
              
              
              none
              
              
              none
              
              
              noneKensington
      (VLCC)
              2011
              
              none
              
              
              none
              
              
              none
              
              
              none
 
 The lease
for Front Warrior was extended for an additional two years at the lessor’s
option on January 1, 2008. The lease for Front Warrior was extended for a
further two year period (2010-11) at the Company’s option on December 31, 2008.
The minimum lease payments for this optional period have been included in the
analysis above.
 
 A
liability for put options on vessels leased on operating leases is recorded at
such time that market conditions make it likely that a put option will be
exercised on the exercise date.  A liability is recognized based on
the amount, if any, by which the put option price exceeds the fair market value
of the related vessel. As of December 31, 2009, no such liability had
arisen.
 
 Six of
the vessels leased by the Company are leased from special purpose lessor
entities which were established and are owned by independent third parties who
provide financing through debt and equity participation. Each entity owns one
vessel, which is leased to the Company, and has no other
activities.  Prior to the adoption of FIN 46(R) (codified in ASC 810),
these special purpose entities were not consolidated by Frontline. One of these
leases is accounted for as an operating lease and five of these leases are
accounted for as capital leases.  The Company has determined that due
to the existence of certain put and call options over the leased vessels, these
entities are variable interest entities.  The determination of the
primary beneficiary of a variable interest entity requires knowledge of the
participations in the equity of that entity by individual and related equity
holders.  Our lease agreements with the leasing entities do not give
us any right to obtain this information and the Company has been unable to
obtain this information by other means.  Accordingly the Company is
unable to determine the primary beneficiary of these leasing entities. As of
December 31, 2009, the original cost to the lessor of the assets under such
arrangements was $383.0 million (2008: $618.5 million). As of December 31, 2009
and 2008, the Company's residual value guarantees associated with these leases,
which represent the maximum exposure to loss, are $55.0 million and $85.0
million, respectively.
 
 F-17
 The
following table discloses information about the Company’s activity with these
non-consolidated lessor entities in the three year period ended December 31,
2009:
 
 (in
      thousands of $)
              2009
              2008
              2007Repayments
      of principal obligations under capital leases
              35,215
              32,599
              28,857Interest
      expense for capital leases
              27,202
              29,807
              32,605Charterhire
      expense for operating leases
              5,963
              6,064
              5,311
 
 Rental
income
  The
minimum future revenues to be received on time and bareboat charters which are
accounted for as operating leases and other contractually committed income as of
December 31, 2009 are as follows:
  
 (in
      thousands of $)2010
              
              
              
              276,5522011
              
              
              
              158,0312012
              
              
              
              77,7412013
              
              
              
              42,7202014
              
              
              
              3,5782015
      and later
              
              
              
              -Total
      minimum lease revenues
              
              
              
              558,622
 
 As of
December 31, 2009, the Company leased out 37 of its vessels to third parties on
time and bareboat charters with initial periods ranging between four months and
eleven years. All of these vessels are leased out on operating
leases.
 
 The cost
and accumulated depreciation of the vessels leased to third parties as of
December 31, 2009 were approximately $2,066.1 million and $704.3 million,
respectively, and as of December 31, 2008 were approximately $2,069.6 million
and $597.8 million, respectively. Three of the vessels currently leased to third
parties are leased in on operating leases by the Company.
 
 
 9.
              MARKETABLE
      SECURITIES
 
 Marketable
      securities held by the Company are equity securities considered to be
      available-for-sale securities.
 
 (in
      thousands of $)
              
              2009
              
              
              2008Cost
              
              
              85,815
              
              
              
              85,815Accumulated
      other-than-temporary impairment
              
              
              (25,134
              )
              
              
              (25,134
              )Accumulated
      net unrealized gain (loss)
              
              
              2,239
              
              
              
              (543
              )Fair
      value
              
              
              62,920
              
              
              
              60,138
 
 An
other-than-temporary impairment was recorded against securities held in Overseas
Shipholding Group Inc. (“OSG”) and the OSG shares were written down to fair
value of $59.3 million as of December 31, 2008.  This
other-than-temporary impairment was recorded in “Impairment of securities”. Net
unrealized gain on marketable securities, including a component of foreign
currency translation, included in comprehensive income is $2.2 million (2008 –
net unrealized loss of $0.5 million).
 
 (in
      thousands of $)
              2009
              2008
              2007Proceeds
      from sale of available-for-sale securities
              -
              3,286
              162,392Realized
      gain (including amounts classified in discontinued
    operations)
              -
              -
              49,023Realized
      loss (including amounts classified in discontinued
    operations)
              -
              (221)
              (40)
 
 The cost
of sale of available-for-sale marketable securities is calculated on an average
cost basis. Realized gains and losses are recorded as gain on sale of securities
in the consolidated statement of operations.
 
 F-18
 
 10.
              TRADE
      ACCOUNTS RECEIVABLE, NET
 
 Trade
accounts receivable are presented net of allowances for doubtful accounts
relating to freight and demurrage claims amounting to $2.1 million and $3.2
million as of December 31, 2009 and 2008, respectively.
 
 
 11.
              OTHER
      RECEIVABLES
 
 (in
      thousands of $)
              2009
              2008Agent
      receivables
              3,074
              2,751Claims
      receivables
              6,740
              5,098Deposit
      for newbuilding installment
              27,986
              -Other
      receivables
              14,335
              9,64952,135
              17,498
 
 Other
receivables are presented net of allowances for doubtful accounts amounting to
$nil and $nil as of December 31, 2009 and 2008 respectively.
 
 
 12.
              LONG-TERM
      INVESTMENTS
 
 (in
      thousands of $)
              2009
              2008Investment
      in Navig8
              20,020
              20,020
 
 The
investment in Navig8 consists of preference shares and ordinary shares shown at
cost. The Company has a 15.8% voting interest in Navig8. Both the preference
shares and ordinary shares are unlisted.
 
 
 13.
              NEWBUILDINGS
 
 (in
      thousands of $)
              2009
              2008Newbuildings
              413,968
              454,227
 
 The
carrying value of newbuildings represents the accumulated costs which the
Company has paid by way of purchase installments and other capital expenditures
together with capitalized loan interest.  Interest capitalized in the
cost of newbuildings amounted to $22.7 million in 2009 (2008: $18.0 million,
2007: $10.4 million).
 
 As of
December 31, 2009, there were ten newbuilding contracts representing costs of
$414.0 million. During 2009 six newbuilding contracts were cancelled with the
associated costs being transferred to four of the remaining contracts. Two
contracts were completed during 2009. The VLCC Front Kathrine was delivered on
January 8, 2009 at a total cost of $110.2 million and the VLCC Front Queen was
delivered on May 18, 2009 at a total cost of $110.4 million. These costs are now
included within Vessels and Equipment, net. As of December 31, 2008 there were
eighteen newbuilding contracts representing costs of $454.2
million.
 
 
 14.
              VESSELS
      AND EQUIPMENT, NET
 
 (in
      thousands of $)
              2009
              2008Cost
              799,023
              519,016Accumulated
      depreciation
              (120,329)
              (80,855)Net
      book value at end of year
              678,694
              438,161
   Included
in the above amounts as of December 31, 2009 and 2008 is equipment with a net
book value of $2.4 million and $2.4 million, respectively.
 
 During
2009, the Company took delivery of two VLCC double hull newbuildings at a cost
of $220.6 million, and purchased a secondhand VLCC double hull vessel which was
previously accounted for as a vessel under capital lease.
 
 F-19
 In 2008,
the Company purchased five second hand Suezmax double hull vessels at a cost of
$247.3 million.
 
 Depreciation
expense for vessels and equipment was $38.8 million, $17.1 million and $46.3
million for the years ended December 31, 2009, 2008 and 2007, respectively,
including amounts recorded in discontinued operations. Depreciation expense for
the year ended December 31, 2007 includes $32.1 million relating to vessels
leased from Ship Finance, which are now accounted for as vessels under capital
leases.
  15.
              VESSELS
      UNDER CAPITAL LEASE, NET
 
 (in
      thousands of $)
              2009
              2008Cost
              2,763,382
              3,099,974Accumulated
      depreciation
              (1,022,716)
              (999,257)Net
      book value at end of year
              1,740,666
              2,100,717
 
 Depreciation
expense for vessels under capital lease was $198.5 million, $206.4 million and
$174.9 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
 
 The
outstanding obligations under capital leases are payable as
follows:
 
 (in
      thousands of $)Year
      ending December 31,2010
              
              405,2532011
              
              299,7652012
              
              217,1422013
              
              214,3922014
              
              212,4362015
      and later
              
              1,221,308Minimum
      lease payments
              
              2,570,296Less:
      imputed interest
              
              (704,835)Present
      value of obligations under capital leases
              
              1,865,461
 
 As of
December 31, 2009, the Company held 46 vessels under capital leases (2008 – 51
vessels), of which 38 (2008 – 39 vessels), are leased from Ship Finance. These
leases are for initial terms that range from 6 to 22 years. The remaining
periods on these leases at December 31, 2009 range from 5 days to 17
years.
 
 The
Company has purchase options over five of these vessels at certain specified
dates and the lessor has options to put these vessels to the Company at the end
of the lease term. Gains arising from the sale and leaseback transactions have
been deferred and are being amortized over the lease terms. The leases on three
of these vessels were terminated in December 2009 and the Company did not
exercise the purchase options on them. These three vessels are being chartered
in for a minimum period of eleven months from January 1, 2010 and are being
accounted for as operating leases. A gain of $24.9 million arising on the
termination of these three capital leases has been deferred and will be
recognized over the minimum lease period in 2010. This deferred gain is included
in Other Current Liabilities.
 
 On
January 2, 2009 the lease agreement between Buckingham Shipping Plc, a
subsidiary of ITCL, and Dresdner Kleinwort Leasing was terminated and the
outstanding lease obligation was settled in full using restricted cash. At
January 2, 2009 the total obligation including accrued interest that was settled
from resticted cash funds was $69.7 million. The vessel was sold to another
subsidiary of ITCL on January 2, 2009 and was, therefore, transferred from
leased to owned vessels at net book value.
 
 The
following table discloses information about the terms of the Company’s capital
leases for vessels excluding those leased from Ship Finance:
   F-20
 
 Vessel
      Type
              Expiry
      of
                Mandatory
                Lease
      Period
              
              Extended
      Lease Periods at Lessor’s Option
              
              Company’s
      Purchase
                Option
      Periods
              
              Lessor’s
      Put Option Exercise DateFront
      Eagle (VLCC)
              2013
              
              
              2014-2015
              
              2010
      to 2015
              
              
              2015Front
      Melody (Suezmax)
              2011
              
              
              2012-2015
              
              2011
      to 2015
              
              
              2015Front
      Symphony (Suezmax)
              2011
              
              
              2012-2015
              
              2011
      to 2015
              
              
              2015Front
      Tina  (VLCC)
              2011
              
              
              2012-2015
              
              2011
      to 2015
              
              
              2015Front
      Commodore (VLCC)
              2011
              
              
              2012-2015
              
              2011
      to 2015
              
              
              2015British
      Progress (VLCC)
              2010
              
              none
              
              Note
      (1)(2)
              
              NoneBritish
      Purpose (VLCC)
              2010
              
              none
              
              Note
      (1)(3)
              
              NoneBritish
      Pride (VLCC)
              2011
              
              none
              
              Note
      (1)(4)
              
              None
 
 Put
      options on vessels leased under leases classified as capital leases are
      recorded as part of the lease’s minimum lease payments.  Lease
      liabilities are amortized so that the remaining balance at the date the
      put option becomes exercisable is equal to the put option
      amount.  An additional liability is recognized based on the
      amount, if any, by which the put option price exceeds the fair market
      value of the related vessel. As of December 31, 2009 no such additional
      liability had arisen.
 
 Note 1.
              The
      Company does not have options to purchase the vessel but it has first
      refusal if the vessel’s owner offers the vessel for
  sale.
 
 Note 2.
              The
      capital lease for the British Progress was terminated on January 15,
      2010.
 
 Note 3.
              On
      March 12, 2010, the lessor gave notice that it will terminate the capital
      lease for the British Purpose on July 15,
2010.
 
 Note 4.
              The
      lessor has the right to terminate the lease for the British Pride at the
      end of the fixed period being July 30,
2011.
 
 The
Company’s capital leases for vessels leased from Ship Finance are long-term,
fixed rate leases, which extend for various periods depending on the age of the
vessels. The following table discloses information about the terms of these
leases:
 
 Vessel
      Type
                
                Expiry
      of Mandatory Lease Period
                
                Company’s
      Optional Termination Date
                Company’s
      Purchase Option Periods
                Lessor’s
      Put
                  Option
                  Exercise
      DateOBO
      (8 vessels)
                
                2015
                
                none
                none
                noneNon
      double hull Suezmax and VLCC (6 vessels)
                
                2013
                
                2010
                none
                noneDouble
      hull Suezmax (6 vessels)
                
                
                2018-2025
                
                none
                none
                noneDouble
      hull VLCC (18 vessels)
                
                
                2016-2027
                
                none
                none
                none
 In
conjunction to the leases with Ship Finance, the Company has also entered into
charter ancillary agreements whereby the Company agrees to pay Ship Finance a
profit sharing payment equal to 20% of the charter revenues earned by the
Company in excess of the daily base charterhire paid to Ship Finance. Subsequent
to 2010, non-double hull vessels will be excluded from this profit sharing
calculation. In the year ended December 31, 2009, total profit share due to Ship
Finance was $33.0 million (2008: $111.0 million).
 
 The
Company is obligated to ensure that a charter service reserve be held which can
only be used to make charter payments to Ship Finance and for reasonable working
capital purposes to meet short-term voyage expenses. The charter reserve is
based on the number of vessels that the Company charters from Ship Finance. As
of December 31, 2009, the total charter service reserve is $184.3 million (2008:
$216.1 million) and the balance is recorded as restricted cash in the Company’s
consolidated balance sheet.
 
 
 16.
              EQUITY
      METHOD INVESTMENTS
 
 As of
December 31, the Company had the following participation in investments that are
recorded using the equity method:
 
 2009
              2008Front
      Tobago Shipping Corporation
              40%
              40%CalPetro
      Tankers (Bahamas I) Limited
              100%
              100%CalPetro
      Tankers (Bahamas II) Limited
              100%
              100%CalPetro
      Tankers (IOM) Limited
              100%
              100%
 
 Golden
Fountain Corporation was liquidated during the year ended December 31, 2008 and
the Company received a final dividend on liquidation of $0.1
million.
 
 F-21
 
 Summarized
balance sheet information of investees which the Company accounts for under the
equity method as of December 31, is as follows:
 
 (in
      thousands of $)
              2009
              2008Current
      assets
              18,137
              18,518Non
      current assets
              44,904
              54,712Current
      liabilities
              10,843
              11,083Non
      current liabilities
              47,629
              57,155
 
 Summarized
statement of operations information of investees which the Company accounts for
under the equity method as for the three years ended December 31, is as
follows:
 
 (in
      thousands of $)
              2009
              2008
              2007Net
      operating revenues
              5,047
              5,836
              35,020Net
      operating income
              4,694
              5,493
              5,197Net
      (loss) income
              (544)
              (483)
              5,232
 
 Dividends
totaling $nil were received from equity method investees in the year ended
December 31, 2009 (2008: $0.3 million)
 
 The
Company has determined that under FIN 46(R) (codified in ASC 810), it is not the
primary beneficiary of the VIEs CalPetro Tankers (Bahamas I) Limited (“CalPetro
BI”), CalPetro Tankers (Bahamas II) Limited (“CalPetro BII”) and CalPetro
Tankers (IOM) Limited (“CalPetro IOM”) and as such, these entities are being
accounted for under the equity method. These companies were incorporated in 1994
for the purpose of acquiring three oil tankers from Chevron Transport
Corporation (“Chevron”) and concurrently charter these vessels back to Chevron
on long-term charter agreements. The companies were acquired by Independent
Tankers Corporation (“ITC”), a wholly owned subsidiary of ITCL, which in turn is
a 82.47% owned subsidiary of the Company. In April 2006, Chevron cancelled its
bareboat contract with CalPetro Tankers (Bahamas III) Limited (“CalPetro BIII”).
Under FIN 46(R) (codified in ASC 810) this was considered to be a
reconsideration event and the Company began consolidating the VIE into its
accounts from that date. Prior to this date, CalPetro BIII, was also equity
accounted. The Company does not guarantee the debt of these entities and the net
assets of the three entities that are not consolidated total $3.3 million (2008:
$3.7 million). The Company’s exposure is limited to its share of the net assets
of these three entities while the Chevron charters are still in
place.  Refer to Note 28. ‘Commitments and
Contingencies’.
  In
January 2007, the Company had a 33.3% investment in Sealift and accounted for
this investment under the equity method. In May 2007, the Company’s investment
was reduced to 17.1% and as a result of the Company’s inability to exercise
significant influence, the investment was accounted for as marketable securities
from that date until October 2007, when these securities were sold.
 
 In
February 2007, the Company had a 28.3% investment in Sea Production and
accounted for this investment under the equity method until it sold its entire
shareholding in June 2007.
 
 In
November 2007, the Company sold its entire investment in International Maritime
Exchange ASA (“IMAREX”) for net proceeds of $50.5 million resulting in a gain on
sale of $41.9 million which has been reported in gain from sale of
securities.
 
 
 17.
              DEFERRED
      CHARGES
 
 (in
      thousands of $)
              2009
              2008Debt
      arrangement fees
              6,837
              4,966Accumulated
      amortization
              (2,167)
              (885)4,670
              4,081
 
  F-22
 
 18. 
ACCRUED EXPENSES
 
 (in
      thousands of $)
              2009
              2008Voyage
      expenses
              14,392
              14,353Ship
      operating expenses
              20,966
              24,423Administrative
      expenses
              4,068
              4,260Interest
      expense
              22,456
              25,216Taxes
              376
              318Other
              3,321
              3,10065,579
              71,670
 
 19. 
OTHER CURRENT LIABILITIES
 
 (in
      thousands of $)
              2009
              2008Accrued
      charterhire
              724
              718Deferred
      gain on termination of capital leases
              24,917
              -Newbuilding
      installment payable
              10,460
              -Other
              8,226
              11,19244,327
              11,910
 
 The
Company terminated three capital leases in December 2009, entering into new
operating leases in the same month for the same vessels. The gain on the
termination of the capital leases has been deferred and will be recognized over
the new minimum lease period, ending December 1, 2010.
  20.
 DEBT
 
 (in
      thousands of $)
              2009
              2008US
      Dollar denominated floating rate debt due through 2020
              558,121
              568,013US
      Dollar denominated fixed rate debt:-
      Serial Notes:  6.5% to 6.68% due through 2010
              1,200
              6,300-
      First Preferred Mortgage Term  Notes:  8.52% due
      2015
              10,884
              11,328-
      First Preferred Mortgage Term Notes:  7.84% and 8.04% due
      through 2021
              313,711
              321,095883,916
              906,736Credit
      facilities
              666
              1,411Total
      debt
              884,582
              908,147Less
      current portion of long-term debt
              (123,884)
              (293,471)760,698
              614,676
 
 The
      outstanding debt as of December 31, 2009 is repayable as
      follows:
 
 (in
      thousands of $)Year
      ending December 31,2010
              123,8842011
              63,7742012
              67,8272013
              149,7172014
              43,9232015
      and later
              435,457884,582
 
 The
weighted average interest rate for floating rate debt denominated in US dollars
was 2.67% as of December 31, 2009 (2008: 4.02%).
 
 In July
and August 2008, ITCL, purchased three tranches of the Windsor Petroleum
Transport Corporation 7.84% term notes on the open market. The bonds that were
repurchased have not been cancelled. The term notes above have been presented
net of the bonds owned by ITCL.
   F-23
 
 US
DOLLAR DENOMINATED FLOATING RATE DEBT
 
 $65.0
million term loan facility
 In June
2006, the Company entered into a $80.0 million secured term loan facility. The
facility bears interest at LIBOR plus a margin. The facility was partially
refinanced for $65.0 million in June 2009 and matures in June 2013. The facility
contains a minimum value covenant and covenants that require the Company to
maintain a minimum level of free cash and positive working capital. At December
31, 2009 the balance outstanding on the loan was $52.9 million.
 
 $21.6
million term loan facility
 In July
2008, the Company, through the ITCL group entered into a $21.6 million secured
term loan facility. The facility bore interest at LIBOR plus a margin. The
facility contained a covenant that requires ITCL to maintain a positive working
capital balance and was guaranteed by Geveran Trading Co. Ltd, a related party
for an annual fee of 2% of the facility drawn down. This facility was repaid in
June 2009.
 
 $50.0
million loan facility
 In August
2008, the Company, through ITCL entered into a $50.0 million secured loan
facility with $19.0 million drawn down as at December 31, 2008. The remaining
facility expired in September 2008. The facility bore interest at LIBOR plus a
margin. The facility contained a covenant that requires ITCL to maintain a
positive working capital balance and was guaranteed by Geveran Trading Co. Ltd,
a related party for an annual fee of 2% of the facility drawn down. This
facility was repaid in June 2009.
 
 $33.0
million loan facility
 In June
2009, the Company, through ITCL entered into a $33.0 million secured loan
facility with the full amount drawn down at the year end. The loan bears
interest at LIBOR plus a margin and falls due in June 2010. The facility
requires ITCL to maintain a minimum level of free cash, a certain level of
market adjusted net worth and positive working capital.
 
 $129.6
million term loan facility
 In June
2008, the Company entered into a $129.6 million pre-delivery secured term loan
facility. This loan was refinanced in June 2009 and falls due in June 2010. At
December 31, 2009 the balance outstanding on the loan was $34.8 million. The
loan bears interest at LIBOR plus a margin. The facility contains a minimum
value covenant and covenants that require the Company to maintain a minimum
level of free cash, a certain level of market adjusted net worth and positive
working capital.
 
 $180.0
million term loan facility
 In
September 2008, the Company entered into a $180.0 million secured term loan
facility falling due in September 2013. At December 31, 2009 the balance
outstanding on the loan was $136.6 million.. The loan bears interest at LIBOR
plus a margin. The facility contains a minimum value covenant and covenants that
require the Company to maintain a minimum level of free cash, a certain level of
market adjusted net worth and positive working capital.
 
 $420.0
million term loan facility
 In June
2008, the Company entered into a $420.0 million pre and post delivery secured
term loan facility falling due in 2017. At the year end, the Company had drawn
down $257.0 million. This facility bears interest at LIBOR plus a margin. The
facility contains a minimum value covenant and covenants that require the
Company to maintain a minimum level of free cash, a certain level of market
adjusted net worth and positive working capital.
 
 $146.4
million term loan facility
 In May
2009, the Company entered into a $146.4 million pre and post delivery secured
term loan facility falling due in 2020. At the year end, the Company had drawn
down $43.9 million. This facility bears interest at LIBOR plus a margin. The
facility contains a minimum value covenant and covenants that require the
Company to maintain a minimum level of free cash, a certain level of market
adjusted net worth and positive working capital.
 
 F-24
 
 US
DOLLAR DENOMINATED FIXED RATE DEBT
 
 ITCL is
the holding company for three separate structures involved in financing and
leasing transactions. One of these structures has Serial Notes with maturity
dates through 2010 and all of these structures have Term Notes maturing between
2015 and 2021. The Notes are collateralized by first preferred mortgages on the
vessels owned by the ITCL subsidiaries. As of December 31, 2009, the effective
interest rate for the Term and Serial Notes was 7.93% (2008 -
7.90%).
 
 7.84%
and 8.04% First Preferred Mortgage Term Notes
 The 7.84%
First Preferred Mortgage Term Notes due 2021 and the 8.04% First Preferred
Mortgage Term Notes due 2019 are each subject to redemption through the
operation of mandatory sinking funds according to the schedule of sinking fund
redemption payments set forth below.  The sinking fund redemption
price is 100% of the principal amount of Term Notes being redeemed, together
with accrued and unpaid interest to the date fixed for redemption.
 
 (in
      thousands of $)Year
      ending December 31,2010
              10,4222011
              15,1522012
              19,1452013
              20,7002014
              22,3762015
      and later
              225,916313,711
 
 The Notes
include certain covenants that, among other things, prohibit the separate
structures from (i) incurring any indebtedness other than the existing Notes and
obligations to the respective charterers, and in the case of one of the
structures obligations to the lessor and related support bank, (ii) making any
investments (other than the prescribed restricted investments), loans or
advances outside the current structure or (iii) creating any liens other than to
secure its obligations under the Notes and other relevant documents related to
the Notes and leasing transactions.
 
 8.52%
First Preferred Mortgage Term Notes
 Principal
is repayable on the 8.52% First
Preferred MortgageTerm Notes due 2015 in accordance with a remaining
seven year sinking fund schedule. Of the four entities reporting these term
loans, only one entity, CalPetro BIII is consolidated as the remaining three
entities are accounted for under the equity method under FIN 46(R) (codified in
ASC 810). As discussed above, CalPetro BIII’s initial charter with Chevron was
terminated on April 1, 2006 and as such, the revised sinking fund redemption
amounts and final principal payment is as follows:
 
 (in
      thousands of $)Year
      ending December 31,2010
              7302011
              7902012
              8502013
              9302014
              1,0102015
      and later
              6,57410,884
 
 Assets
pledged
 (in
      thousands of $)
              2009
              2008Vessels
      and newbuildings
              1,090,310
              783,592Marketable
      securities
              61,920
              -Restricted
      bank deposits (excluding amounts held in charter service
      reserve)
              315,721
              365,151
 
 In
addition, the Company has pledged its shares in ITCL and $37.8 million of
repurchased bonds in its ITCL subsidiary against its $33.0 million loan
facility.
 
 
 F-25
 
 21. 
SHARE CAPITAL
 
 Authorized
      share capital:
 (in
      thousands of $, except share data)
              2009
              2008125,000,000
      ordinary shares of $2.50 each
              312,500
              312,500
 
 
 Issued
      and fully paid share capital:
 (in
      number of shares)
              2009
              2008At
      January 1
              77,858,502
              74,825,169Issued
      during the year
              -
              3,033,333At
      December 31
              77,858,502
              77,858,502
 
 
 (in
      thousands of $)
              2009
              2008At
      January 1
              194,646
              187,063Issued
      for cash
              -
              7,583At
      December 31
              194,646
              194,646
 
 The
Company’s ordinary shares are listed on the New York Stock Exchange, the Oslo
Stock Exchange and the London Stock Exchange.
 
 In July
2008, the Company generated $211.1 million through a share placement of three
million shares at $70.37 per share. Share issuance costs of $3.9 million have
been deducted from additional paid in capital. In June 2008, 33,333 shares were
issued at a price of $26.57 under the share option plan generating $0.9
million.
 
 In
September 2008, the Company’s shareholders at the Annual General Meeting
approved a stock split which would result in authorized share capital of
625,000,000 ordinary shares of $0.50 per share. No record date was set for the
stock split and the stock split had not taken place at December 31,
2009.
 
 22.  ACCUMULATED
OTHER COMPREHENSIVE LOSS
 
 The
activity in Accumulated Other Comprehensive Loss is summarized as
follows:
 
 (in
      thousands of$)
              
              Unrealized
      investment gains (losses)
              Translation
      adjustments
              TotalBalance
      at December 31, 2006
              
              271
              (4,696)
              (4,425)Translation
      adjustment for the year
              
              -
              1,324
              1,324Net
      unrealized losses for the year
              
              (324)
              -
              (324)Realized
      losses reclassified to net income
              (271)
              -
              (271)Balance
      at December 31, 2007
              
              (324)
              (3,372)
              (3,696)Translation
      adjustment for year
              
              -
              (1,312)
              (1,312)Net
      unrealized losses for the year
              
              (25,574)
              -
              (25,574)Other-than-temporary
      impairment
              25,134
              -
              25,134Realized
      gains reclassified to net income
              221
              -
              221Balance
      at December 31, 2008
              
              (543)
              (4,684)
              (5,227)Translation
      adjustment for year
              
              -
              759
              759Net
      unrealized gains for the year
              
              2,782
              -
              2,782Balance
      at December 31, 2009
              
              2,239
              (3,925)
              (1,686)
 
 F-26
 
 23.  SHARE
OPTION PLANS
 
 In
November 2006, the Company’s board of directors approved the Frontline Ltd.
Share Option Scheme (the “Frontline Scheme”). In September 2009, this plan was
modified and approved at the Company’s Annual General Meeting. The Frontline
Scheme permits the board of directors, at its discretion, to grant options to
acquire shares in the Company to employees and directors of the Company or its
subsidiaries and will expire in November 2016.  The subscription price
for all options granted under the scheme will be reduced by the amount of all
dividends declared by the Company in the period from the date of grant until the
date the option is exercised, provided the subscription price is never reduced
below the par value of the share.  Options granted under the scheme
will vest at a date determined by the board at the date of the
grant.  The options granted under the plan to date vest over a period
of one to three years.  There is no maximum number of shares
authorized for awards of equity share options and authorized, unissued or
treasury shares of the Company may be used to satisfy exercised
options.
 
 The
Company had previously granted 760,000 options of which 142,000 had been
forfeited prior to vesting. During 2009 the remaining 618,000 options were
cancelled and concurrently replaced with new options. As prescribed by ASC 718,
this has been accounted for as a modification of previous award of equity
instruments. In addition, a further grant of options for 45,000 shares was
awarded in 2009. The fair value of the option modification and the new options
granted is estimated on the date of the modification or new grant using a
Black-Scholes option valuation model, with the following
assumptions:
 
 2009
              2008Risk
      free interest rate
              1.35%
              2.25%Expected
      life
              3.5
      years
              3.5
      yearsExpected
      volatility
              61%
              41%Expected
      dividend yield
              0%
              0%
 
 The
risk-free interest rate was estimated using the interest rate on 3 year US
treasury zero coupon issues.  The volatility was estimated using
historical share price data.  The dividend yield has been estimated at
0% as the exercise price is reduced by all dividends declared by the Company
from the date of grant to the exercise date.   It is assumed that
95% of all options granted in 2009 will vest.
 
 The
following summarizes share option transactions related to the Frontline
Scheme:
 
 (in
      thousands except per share data)
              Number
      of Options
              
              Weighted
      Average Exercise PriceOptions
      outstanding as of December 31, 2006
              100.0
              
              NOK
      238.50Granted
              -
              
              -Exercised
              -
              
              -Forfeited
              -
              
              -Options
      outstanding as of December 31, 2007
              100.0
              
              NOK
      162.36Granted
              760.0
              
              NOK
      243.00Exercised
              (33.3)
              
              NOK
      135.90Forfeited
              (201.7)
              
              NOK
      198.49Options
      outstanding as of December 31, 2008
              625.0
              
              NOK
      208.78Granted
              663.0
              
              NOK
      145.00Exercised
              -
              
              -Forfeited
              (7.0)
              
              NOK
      205.42Cancelled
              (618.0)
              
              NOK
      203.94Options
      outstanding as of December 31, 2009
              663.0
              
              NOK
      144.16Exercisable
      options as at:December
      31, 2009
              Nil
              
              NilDecember
      31, 2008
              Nil
              
              NilDecember
      31, 2007
              33.3
              
              NOK
      162.36
 
 F-27
 The
weighted average exercise price is adjusted for dividends in accordance with the
terms of the plan. The remaining contractual term for the options outstanding at
December 31, 2009, 2008 and 2007, is 4.8 years, 4.2 years and 3.8 years,
respectively.
 
 The total
fair value of share options vested in the years ended December 31, 2009, 2008
and 2007 was $nil, $nil and $0.5 million, respectively.
 
 The
weighted average grant-date fair value of options granted during 2009 is $9.92
per share (2008: $15.37 per share, 2007: $nil). The weighted average
modification-date fair value of options modified in 2009 is $3.10 per share
(2008: $nil, 2007: $nil). The exercise price of all options is reduced by the
amount of dividends declared.
 
 The total
incremental cost of options modified in 2009 is $1.8 million which will be
recognized as stock compensation expense over the vesting period.
 
 As of
December 31, 2009, there was $3.2 million (2008: $4.4 million) in unrecognized
compensation cost related to non-vested options granted under the Frontline
Scheme.  The compensation expense is recognized over a period of three
years in accordance with vesting conditions. Compensation expense recognized in
the years ended December 31, 2009, 2008 and 2007 was $3.0 million, $4.3 million
and $0.9 million, respectively.
 
 24.  FINANCIAL
INSTRUMENTS
 
 Foreign
      currency risk
  The
majority of the Company’s transactions, assets and liabilities are denominated
in U.S. dollars, the functional currency of the Company. Certain of the
Company’s subsidiaries report in Sterling or Norwegian kroner and risks of two
kinds arise as a result:
  ·
              a
      transaction risk, that is, the risk that currency fluctuations will have a
      negative effect on the value of the Company’s cash
  flows;
 ·
              a
      translation risk, that is, the impact of adverse currency fluctuations in
      the translation of foreign operations and foreign assets and liabilities
      into U.S. dollars for the Company’s consolidated financial
      statements.
 
 Accordingly,
such risk may have an adverse effect on the Company’s financial condition and
results of operations. The Company has not entered into derivative contracts for
either transaction or translation risk.
  Forward
freight contracts
 The
Company may enter into forward freight contracts, futures and option contracts
in order to manage its exposure to the risk of movements in the spot market for
certain trade routes for speculative purposes. Market risk exists to the extent
that spot market fluctuations have a negative effect on the Company’s cash flows
and consolidated statements of operations. As of December 31, 2009 and 2008, the
Company had no such contracts outstanding. The Company incurred a loss on
forward contracts of $nil in 2009 (2008: $2.4 million) included in “mark to
market of derivatives”.
 
 Contracts
to purchase and sell securities
 During
the year, the Company did not enter into any contracts to purchase or sell
securities. In 2008 the Company entered into forward contracts and a total
return swap in relation to the purchase and sale of securities in Overseas
Shipholding Group (“OSG”). Market risk exists to the extent that spot market
fluctuations have a negative effect on the Company’s cash flows and consolidated
statements of operations. As of December 31, 2009 and 2008, the Company had no
such contracts outstanding. In 2008, the Company incurred a loss on these
contracts of $15.0 million (2007: $nil) included in “mark to market of
derivatives”.
  Fair
Values
  The
carrying value and estimated fair value of the Company’s financial instruments
as of December 31, 2009 and 2008 are as follows:
 
 2009
              2008(in
      thousands of $)
              Carrying
      Value
              Fair
                Value
              Carrying
      Value
              Fair
                ValueNon-Derivatives:Cash
      and cash equivalents
              82,575
              82,575
              190,819
              190,819Restricted
      cash
              500,021
              500,021
              554,751
              554,751Marketable
      securities
              62,920
              62,920
              60,138
              60,138Long-term
      investments
              20,020
              20,020
              20,020
              20,020Floating
      rate debt and credit facilities
              558,787
              558,787
              569,424
              569,424Serial
      Notes (6.5% to 6.68%) due through 2010
              1,200
              1,200
              6,300
              6,300Term
      Loan (8.52%) due 2015
              10,884
              11,036
              11,328
              12,979Term
      Notes (7.84% and 8.04%) due through 2021
              313,711
              301,403
              321,095
              333,659
    F-28
 
 The
      carrying value of cash and cash equivalents, which are highly liquid, is a
      reasonable estimate of fair value. The restricted cash balance includes
      investments in guaranteed investment contracts that are readily
      convertible into cash.  Long-term investments consist of
      unlisted ordinary and preference shares. The Company estimates that the
      cost of the long-term investment equates to fair
  value.
 
 The
estimated fair value for floating rate long-term debt is considered to be equal
to the carrying value since it bears variable interest rates, which are reset on
a quarterly basis. The estimated fair value of the Term Notes is based on quoted
market prices. Quoted market prices are not available for the Serial Notes,
however the Company evaluates that their cost approximates to fair
value.
 
 Marketable
securities are measured at fair value on a recurring basis. The fair value of
marketable securities is based on the quoted market prices. This falls within
the “Level 1” category of FAS 157 (codified in ASC 820) being “measurements
using quoted prices in active markets for identical assets or
liabilities”.
  Concentrations
      of risk
  There is
a concentration of credit risk with respect to cash and cash equivalents to the
extent that substantially all of the amounts are carried with Skandinaviska
Enskilda Banken (“SEB”), The Bank of New York, DnB Nor Bank ASA and Nordea Bank
Norge (“Nordea”). There is a concentration of credit risk with respect to
restricted cash to the extent that substantially all of the amounts are carried
with SEB, Nordea, Pacific Life, The Bank of New York, HSBC Midland, CIBC World
Markets and JP Morgan Chase. However, the Company believes this risk is
remote.
 
 The
majority of the vessels’ gross earnings are receivable in U.S. dollars. During
the year ended December 31, 2009, one customer accounted for more than 10% of
our consolidated operating revenues (2008 and 2007: one customer).
 
 25.  RELATED
PARTY TRANSACTIONS
 
 As of
March 31, 2007, the Company is no longer consolidating the results of Ship
Finance. The majority of the Company’s leased vessels are leased from Ship
Finance and under a Charter Ancillary Agreement; Ship Finance is entitled to a
share of 20% of the Company’s earnings on these leased vessels. A summary of
leasing transactions with Ship Finance during the years ended December 31, 2009
and 2008 (excluding amounts prior to deconsolidation) is as
follows:
 
 (in
      thousands of $)
              2009
              2008Charterhire
      paid (principal and interest)
              331,534
              345,551Payments
      received for termination of leases
              2,386
              43,510Profit
      share expense
              33,018
              110,962Remaining
      lease obligation
              1,462,753
              1,609,987
 
 A summary
of net amounts earned (incurred) from related parties excluding the Ship Finance
lease related balances above for the years ended December 31, 2009, 2008 and
2007 are as follows:
 
 (in
      thousands of $)
              2009
              2008
              2007Seatankers
      Management Co. Ltd
              1,126
              1,175
              582Golar
      LNG Limited
              156
              17
              284Ship
      Finance International Limited
              2,347
              3,430
              1,525Golden
      Ocean Group Limited
              4,253
              6,714
              2,099Geveran
      Trading Co Ltd
              (405)
              (366)
              -Greenwich
      Holdings Ltd
              -
              -
              69Bryggegata
      AS
              (1,300)
              (1,395)
              (1,430)Arcadia
      Petroleum Limited
              42,264
              64,784
              17,443Seadrill
      Limited
              322
              25
              (52)Seawell
      Limited
              126
              -
              -Deep
      Sea Supply Plc
              32
              -
              -Aktiv
      Kapital ASA
              63
              -
              -CalPetro
      Tankers (Bahamas I) Limited
              45
              43
              40CalPetro
      Tankers (Bahamas II) Limited
              45
              43
              40CalPetro
      Tankers (IOM) Limited
              45
              43
              40
   F-29
 
 Net
amounts earned from related parties comprise office rental income and
management, technical and commercial advisory, newbuilding supervision,
corporate and administrative service income and interest income. Net expenses
paid to related parties comprise primarily of rental for office
space.
 
 A summary
of balances with related parties as at December 31, 2009 and 2008 is as
follows:
 
 (in
      thousands of $)
              2009
              2008ReceivablesShip
      Finance International Limited
              26,944
              8,351Seatankers  Management
      Co. Ltd
              214
              370Golar
      LNG Limited
              247
              381Northern
      Offshore Ltd
              13
              13Golden
      Ocean Group Limited
              1,119
              2,012Seadrill
      Limited
              160
              106CalPetro
      Tankers (Bahamas I) Limited
              11
              35CalPetro
      Tankers (Bahamas II) Limited
              11
              35CalPetro
      Tankers (IOM) Limited
              11
              35Deep
      Sea Supply Plc
              2
              -Arcadia
      Petroleum Limited
              11
              -28,743
              11,338
 
 
 (in
      thousands of $)
              2009
              2008PayablesShip
      Finance International Limited
              (33,158)
              (46,540)Seatankers
      Management Co. Ltd
              (96)
              (119)Golar
      LNG Limited
              (519)
              (242)Golden
      Ocean Group Limited
              (30)
              (155)Geveran
      Trading Co Ltd
              -
              (366)(33,803)
              (47,422)
 
 Receivables
and payables with related parties comprise unpaid management, technical
advisory, newbuilding supervision, administrative service and rental
charges.  In addition, certain payables and receivables arise when the
Company pays an invoice on behalf of a related party and vice
versa.  The payable with Ship Finance also includes unpaid profit
share due to Ship Finance. Receivables and payables with related parties are
generally settled quarterly in arrears with the exception of profit share due to
Ship Finance which is settled annually.
 
 Ship
Finance International Limited, Golar LNG Limited, Northern Offshore Ltd, Norse
Energy Group ASA, Seadrill Limited, Bryggegata AS, Golden Ocean Group Limited,
Greenwich Holdings Ltd, Arcadia Petroleum Limited (“Arcadia”), Geveran Trading
Co Ltd (“Geveran”), Deep Sea Supply Plc (“Deep Sea”), Seawell Limited
(“Seawell”), and Seatankers Management Co. Ltd are each subject to the
significant influence or indirect control of John
Fredriksen.  CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro
Tankers (IOM) Limited were all equity accounted until March 31, 2006 at which
point, the Company began consolidating CalPetro (Bahamas III)
Limited.
 
 During
2008, the Company engaged in the trading of forward freight agreement trading
through Arcadia, a related party, for which Arcadia was paid commission on each
trade. The total amount of commissions paid to Arcadia in 2008 was $12,500. The
Company did not engage in forward freight agreement trading in 2009. In
addition, the Company earned freights on chartering vessels to Arcadia in the
amount of $42.5 million (2008: $64.8 million).
 
 In
November 2008, the Company advanced $60.0 million of the profit share balance,
which was paid to Ship Finance in March 2009. The advance bore interest at a
fixed rate.
   F-30
 
 In March
2009, Frontline Shipping III Limited (“FSL III”), a wholly owned subsidiary of
the Company, and Ship Finance amended their charter ancillary agreement whereby
the charterservice reserve totaling $26.5 million relating to vessels on charter
from Ship Finance may be in the form of a loan to Ship Finance. In March 2009, a
loan in the amount of $26.5 million was drawn down by Ship Finance. The loan
bears interest at LIBOR plus a margin and is due for repayment within 364 days
of the loan being provided, or earlier in accordance with the
agreement.
 
 Geveran
acted as a guarantor for two loan facilities taken out by ITCL that expired in
July and August 2009. Geveran received an annual fee of 2% of the draw down
facility for acting as guarantor. Both of these facilities were refinanced by
ITCL in the year, with Frontline Ltd. acting as guarantor.
 
 In
September 2009, Ship Finance sold the single hull vessel Front Duchess to a
third party and as a result, terminated the Company’s long-term lease for the
vessel. The Company received a termination payment of $2.4 million and recorded
a net gain of $3.1 million as a gain on sale of assets.
 
 During
the year ended December 31, 2007, the Company held investments in Sea Production
and Dockwise and earned income from these companies in the form of rental income
and income earned from the provision of accounting services totaling $1.0
million. During 2007, the Company disposed of its entire investments in these
companies and they are no longer considered to be related parties.
  26.  DISPOSAL
OF ASSETS
 
 In March
2007, Sealift acquired six single hull vessels, of which four were to be
converted to heavy lift vessels, for a total purchase price of $476.0 million
which was based on the estimated market value of the four converted heavy lift
vessels and the two single hull Suezmax vessels. The purchase price included
$80.0 million short-term seller’s credit from the Company which was allocated
equally to each of the last two remaining converted heavy lift vessels. This
seller’s credit was payable on delivery of each vessel. The sale of vessels to
Sealift included an obligation on the Company to manage, supervise and pay the
conversion costs for the four heavy lift vessels. In addition, the midsections
of the last two vessels were sold for $4.7 million. The gain on sale arising
from this transaction was allocated to each vessel with $60.0 million of the
gain being accounted for as an adjustment against the Company’s investment. The
gain was recognized as each vessel was delivered. Two Suezmax vessels and two
converted vessels were successfully delivered to Dockwise in 2007 resulting in a
net gain of $60.7 million, which was recorded as a gain on sale of assets. The
remaining two converted vessels were delivered in the second quarter of 2008
resulting in a net gain of $100.4 million.
 
 The
Company accounted for its 33.3% investment in Sealift under the equity method.
In May 2007, Sealift issued 94.1 million shares to the shareholders of Dockwise
in exchange for all the shares and convertible securities of the entities owned
by Dockwise. Sealift also completed a private placement for 39.8 million shares
with the Company subscribing for 5 million shares. Sealift subsequently changed
its name to Dockwise. A gain of $43.7 million was recorded in 2007 as a gain on
issuance of shares by associates as a result. Subsequent to this transaction,
the Company accounted for its 17.1% investment in Dockwise as marketable
securities. In October 2007, the Company sold its entire investment in Dockwise
for a net gain of $48.7 million which was recorded as gain on sale of
securities.
 
 In
January 2008, Ship Finance sold the single hull vessel Front Maple to a third
party and as a result, terminated the Company’s long-term lease for the vessel.
The Company received a termination payment of $16.7 million and recorded a net
gain of $17.1 million as a gain on sale of assets.
 
 On March
6, 2008 the Company completed the partial non pro-rata spin off of its
subsidiary ITCL and distributed 17.53% of ITCL to the Company’s
shareholders.  The spin-off resulted in a gain on disposal of $18.0
million which has been recorded within “other
non-operating items, net”.
 
 In May
2008, Ship Finance sold the single hull vessel Front Sabang to a third party and
as a result, terminated the Company’s long-term lease for the vessel. The
Company received a termination payment of $26.8 million and recorded a net gain
of $24.8 million as a gain on sale of assets.
 
 In
September 2009, Ship Finance sold the single hull vessel Front Duchess to a
third party and as a result, terminated the Company’s long-term lease for the
vessel. The Company received a termination payment of $2.4 million and recorded
a net gain of $3.1 million as a gain on sale of assets.
   F-31
  27.  NONCONTROLLING
INTEREST AND DIVIDEND DISTRIBUTION TO SHAREHOLDERS
 
 The
Company accounts for pro-rata distributions to owners in a spin-off at the book
value of shares distributed and accounts for non pro-rata distributions to
owners in a spin-off at the fair value of shares distributed.
 
 In
February 2008, as part of the Company’s planned spin-off of its investment in
its Bermuda subsidiary ITCL to the Company’s shareholders, the Company’s Board
of Directors declared a special dividend-in-kind of 17.53% of the Company’s
investment in ITCL with the distribution date being March 6, 2008. Qualifying
shareholders received one share in ITCL for every five shares held in the
Company. Non qualifying shareholders received a cash equivalent of $0.34 per
Frontline share held a cash dividend of $14.0 million representing 8.5% of the
fair value of ITCL on the date of distribution.  The value of the
non-cash dividend was established as $11.4 million, representing 9.0% of the
fair value of ITCL on the date of distribution. Fair value was established by
using the average price of ITCL shares over the first five trading days after
the shares were listed on the Norwegian OTC market. As of December 31, 2009 and
2008 the Company owned 82.47% of ITCL.
 
 In March
2007, the Company completed its pro-rata partial spin offs of Ship Finance by
the Company as follows:
 
 Distribution
                Date
              %
      Frontline holding
                Distributed
              Distribution
      Ratio (Ship Finance/ Frontline shares held)
              Value
      of dividend
                $
      millionsJune
      16, 2004
              25.0%
              1/4
              $142.5September
      24, 2004
              9.9%
              1/10
              $59.8December
      15, 2004
              13.3%
              2/15
              $85.7February
      18, 2005
              25.0%
              1/4
              $154.9March
      24, 2005
              10.0%
              1/10
              $57.0March
      20, 2006
              5.14%
              1/20
              $27.8March
      22, 2007
              11.1%
              3/28
              $162.2
 
 The value
of the non-cash dividend is valued based on the book value of Ship Finance at
the date of distribution. As a result of the final distribution on March 2007,
the Company no longer consolidates Ship Finance and therefore no longer reports
any related noncontrolling interest.
 
 
 28. 
COMMITMENTS AND CONTINGENCIES
  The
Company insures the legal liability risks for its shipping activities with
Assuranceforeningen SKULD, Assuranceforeningen Gard Gjensidig and Britannia
Steam Ship Insurance Association Limited, all mutual protection and indemnity
associations. As a member of these mutual associations, the Company is subject
to calls payable to the associations based on the Company’s claims record in
addition to the claims records of all other members of the associations. A
contingent liability exists to the extent that the claims records of the members
of the associations in the aggregate show significant deterioration, which
result in additional calls on the members.
 
 As of
December 31, 2009, the Company had six vessels that were sold by the Company at
various times during the period from November 1998 to December 31, 2003, and
leased back on charters that have initial periods ranging from eight to twelve
and a half years including options on the lessor’s side to extend the charters
for periods that range up to five years. Five of these charters are accounted
for as capital leases and one is accounted for as operating leases. The Company
has purchase options at certain specified dates and the lessor has options to
put the vessels on the Company at the end of the lease terms for all six of
these vessels. The total amount that the Company would be required to pay under
these put options with respect to the operating lease is $9.5
million.
 
 As of
December 31, 2009 Chevron charters three vessels on long-term bareboat charters
recorded as ’Investments in unconsolidated subsidiaries and associated
companies’.  Chevron holds options to purchase each vessel for $1 on
April 1, 2015 provided no earlier optional termination of the bareboat charter
has occurred. Non binding notice must be given one year prior to the termination
date and binding notice must be given seven months prior to termination date.
The final termination dates for two of the vessels have passed with no notice of
termination given. The Company has not received notice of Chevron’s intent to
terminate the third charter.
 
 As of
December 31, 2009, the Company had ten contracts for the construction of six
VLCC newbuildings scheduled for delivery in 2010, 2011 and 2012 and four Suezmax
newbuildings scheduled for delivery in 2010. As of December 31, 2009, the
Company was committed to make further installments of $615.7 million as
follows:
  F-32
  
 (in
      thousands of $)Year
      ending December 31,
              
              
              Total2010
              
              
              381,7162011
              
              
              198,0002012
              
              
              36,000615,716
 
 The
Company has an option to reduce its newbuilding commitments on two VLCCs by
$198.0 million to $54.0 million already paid.  A newbuilding installment of
$10.5 million paid in January 2010 was accrued in these financial statements
and, therefore, not included in the above commitments.
 
 In
January 2008, Golden President Shipping Corporation, a 100% subsidiary of Golden
Ocean Group Limited ("Golden Ocean"),  had a full and final win in the
court case against Bocimar N.V. on the Channel Alliance Time Charter Party and
was awarded $14.7 million plus interest thereon. This amount was originally
guaranteed by Frontline to Golden Ocean in connection with the spin-off in
December 2004, and was later paid to Golden Ocean as it became due according to
the charter party.  The settlement paid during the year from Bocimar N.V.
was therefore due and paid to Frontline. Proceeds received of $16.6 million were
recognized in 2008 in “other non-operating items, net”.
 
 The
Company is a party, as plaintiff or defendant, to several lawsuits in various
jurisdictions for demurrage, damages, off-hire and other claims and commercial
disputes arising from the operation of its vessels, in the ordinary course of
business or in connection with its acquisition activities.  The
Company believes that the resolution of such claims will not have a material
adverse effect on the Company’s operations or financial condition.
 
 
 29.
 SUPPLEMENTAL INFORMATION
 
 Non-cash
      investing and financing activities include the
  following:
 
 (in
      thousands of $)
              2009
              2008
              2007Dividends
      in kind:Spin-off
      of Ship Finance
              -
              -
              162,222Spin-off
      of ITCL
              -
              11,475
              -
 
 30.  DISCONTINUED
OPERATIONS
 
 In 2007,
due to the deconsolidation of Ship Finance in March 2007, the Company no longer
reports results of Ship Finance’s containerships or jack up rigs.
 
 The
operations that were disposed of were recorded as discontinued operations in
accordance with the requirements of FAS 144 Accounting for the Impairment or
Disposal of Long-Lived Assets (“FAS 144”, codified in ASC 360) as the
operations and cash flows of the operations were eliminated from the ongoing
operations of the Company. The Company does not have any significant continuing
involvement in these dry bulk, containership or jack-up rig operations in the
future.
 
 The
following table presents the information required by ASC 205-20-50-1 in respect
of discontinued operations:
 
 (in
      thousands of $)
              2009
              2008
              2007Carrying
      amount of assets disposed of
              -
              -
              524,961Carrying
      amount of debt or lease retired
              -
              -
              317,543Amounts
      recorded in discontinued operations:Operating
      revenues
              -
              -
              11,465Net
      income
              -
              -
              5,442
 
 F-33
 
 31.  POOL
REVENUES
 
 Voyage
charter revenues include pool revenues. Certain pools are responsible for paying
voyage expenses and distribute net pool revenues to the participants while other
pools require the participants to pay and account for voyage expenses, and
distribute gross pool revenues to the participants such that the participants’
resulting net pool revenues are equal to net pool revenues calculated according
to the agreed formula. An analysis of the Company’s pool revenues included
within voyage revenues is as follows:
 
 (in
      thousands of $)
              2009
              2008
              2007Pool
      earnings allocated on a gross basis
              -
              373
              34,369Pool
      earnings allocated on a net basis
              120,904
              -
              -120,904
              373
              34,369
 
 
 32. 
 GAIN ON ISSUANCE OF SHARES BY SUBSIDIARY AND ASSOCIATE
 
 In
February 2007, the Company’s wholly owned subsidiary Sea Production completed a
private placement for 90.0 million shares at a price of $2 per share, raising a
total of $180.0 million. The Company subscribed for 25.5 million shares which
represented a 28.3% investment. A gain of $39.8 million was recorded in the
statement of operations as a result of the issue of shares by Sea
Production.
 
 In May
2007, Dockwise, which the Company accounted for under the equity method,
completed a private placement for 39.8 million shares at a price of NOK 30 per
share raising a total of NOK 1,194.0 million. The Company subscribed for five
million of these shares and as the subscription was not sufficient to maintain
the Company’s proportionate interest, the Company’s shareholding was reduced
from 33.3% to 17.1%. A gain of $43.8 million was recorded in the consolidated
statement of operations as a result. The Company subsequently accounted for its
17.1% investment as marketable securities. In September 2007, Dockwise issued a
further 0.5 million shares. The Company did not participate in this offering and
its shareholding was further reduced to 16.6%. In October 2007, the Company sold
its entire investment in Dockwise for a net gain of $48.7 million which was
recorded as gain on sale of securities.
 
 
 33.  SUBSEQUENT
EVENTS
 
 In
January 2010, the first Suezmax newbuilding from Rongsheng, the Northia, was
delivered.
 
 On
January 5, 2010, Front Voyager Inc. gave notice that it would terminate the
charter of the Front Voyager. The termination will take effect April 1, 2010.
Front Voyager Inc. is required to pay a termination fee calculated in accordance
with the bareboat charter, which will enable Bahamas III to satisfy its
estimated obligations. On March 2, 2010, CPTC received approval from the
bondholders through a consent solicitation to amend and clarify certain
indenture and related collateral agreement provisions and definitions to provide
for the sale of Front Voyager, and its release from collateral agreements (‘Sale
and Release’). As part of the Sale and Release, the charter for the vessel will
be amended to permit the mandatory redemption of approximately $10,884,000 in
aggregate principal amount of the CPTC 8.52% First Preferred Mortgage Term Notes
in connection with the Sale And Release as soon as possible. A Memorandum of
Agreement, dated March 15, 2010, has been signed regarding the sale of the Front
Voyager. Delivery to the buyers is expected in the first half of April
2010.
 
 On
January 15, 2010, the lease agreement between Caernarfon Shipping Plc and
Dresdner Kleinwort Leasing was terminated and the outstanding lease obligation
was settled in full using restricted cash. At December 31, 2009 the lease
obligation was $70.0 million. The vessel, the British Progress, was sold to
Caernarfon Petro Limited, a previously dormant subsidiary of ITCL, which
simultaneously entered into a lease with Caernarfon Shipping Plc. Therefore,
Caernarfon Petro Limited legally owns the vessel at January 15, 2010 subsequent
to the termination. The termination was cash neutral for the
Company.
   F-34
 
 On
February 2, 2010, BP Shipping Plc extended the charter of the British Progress
and therefore the charter will continue to February 2, 2012 at market rate with
a minimum rate of $20,000 per day.
 
 On
February 25, 2010 Chevron gave non-binding notice of termination of the
bareboat charter for the VLCC Antares Voyager. If Chevron choose to
terminate the bareboat charter, a six months binding notice of termination has
to be given in June 2010 and such termination to take effect in December
2010.
  In
February 2010, the Company’s Board of Directors declared a dividend of $0.25 per
share, which will be paid on or about March 30, 2010.
 
 In
February 2010, Frontline purchased the VLCC Front Vista and sold it to a buyer
who has secured a 10 year charter with a state owned oil company at a gross rate
of $43,500 per day during the entire charter period. The purchase price will be
settled through instalments over a 10 year period.
 
 In March
2010, the second Suezmax newbuilding from Rongsheng, the Naticina, was
delivered.
 
 In March
2010, the Company agreed with Ship Finance to terminate the long term
charter party for the single hull VLCC Golden River. The termination of the
charter is expected to take place in April 2010 and Ship Finance will make a
compensation payment to the Company of approximately $2.9 million for the early
termination of the charter party.
 
 On March
12, 2010, the Company was notified that the lease agreement between Sandringham
Shipping Plc, a subsidiary of ITCL, and Dresdner Kleinwort Leasing will be
terminated on July 15, 2010. The outstanding lease obligation will be settled in
full using restricted cash. At December 31, 2009 the lease obligation was $69.9
million. The vessel, the British Purpose, will then be sold to Sandringham Petro
Limited, a currently dormant subsidiary of ITCL, which will simultaneously enter
into a lease with Sandringham Shipping Plc. Therefore, Sandringham Petro Limited
will legally own the vessel at July 15, 2010 subsequent to the termination. The
termination will be cash neutral for the Company.
  In March
2010, the Company made certain amendments to the charter agreements with
Ship Finance relating to 31 double hull crude oil tankers and OBOs, which
resulted in our restricted cash deposits being reduced by approximately $112
million in exchange for a guarantee from us for the payment of charterhire.
Withdrawals from these restricted cash deposits will be prohibited.  We
also agreed with Ship Finance to make an upfront payment of charterhire less
operating expenses of approximately $73 million covering part of the payments
due to Ship Finance over the next six months. On March 26, 2010, we paid $54.4
million of this balance. The remainder is expected to be paid before the end of
March 2010.
  On March
26, 2010, the Company announced the private placement of $225 million of
convertible bonds. The proceeds from the bonds will be used for general
corporate purposes, financing of the remaining equity investments in the
Company’s newbuilding program and will improve the Company's ability to
react to attractive market opportunities. The senior, unsecured convertible
bonds will have an annual coupon of 4.50%, payable quarterly in arrears and a
conversion price of $39.00. The reference price has been set at $29.7784 (NOK
180.0045). The applicable exchange rate has been set at 6.0448. The bonds will
be issued and redeemed at 100% of their principal amount and will, unless
previously redeemed, converted or purchased and cancelled, mature on April 14,
2015. The offering of the bonds is expected to close on April 14,
2010.
 
 F-35