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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark
One)

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

For
the fiscal year ended December 31, 2008

Commission
File Number 001-33806

OSG AMERICA L.P.(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of
incorporation or organization)

11-3812936 (IRS Employer
Identification No.)Two Harbour Place, 302 Knights Run Avenue,
Suite 1200, Tampa, FL (Address of principal executive offices)

33602 (Zip Code)


(813) 209-0600
Registrant's telephone number, including area code

None Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(g) of the Act:NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the registrants common units held by non-affiliates as of June 30, 2008 the last business day of the registrant's most recently
completed second quarter, was $102,405,713 based on a closing price of $13.65 per unit on the New York Stock Exchange on that date. (For this purpose, all outstanding common units have been considered
held by non-affiliates, other than the units beneficially owned by directors, officers and certain 5% unitholders of the registrant). As of March 4, 2009, 15,004,500 Common Units
and 15,000,000 Subordinated Units were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

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TABLE OF CONTENTS



PagePART IItem 1.

Business


4Item 1A.

Risk Factors


21Item 1B.

Unresolved Staff Comments


47Item 2.

Properties


47Item 3.

Legal Proceedings


47Item 4.

Submission of Matters to a Vote of Security Holders


47PART IIItem 5.

Market for Registrant's Common Equity, Related Securityholder Matters and Issuer Purchases of Equity Securities


48Item 6.

Selected Financial Data


50Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


54Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


71Item 8.

Financial Statements and Supplementary Data


72Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure


111Item 9A.

Controls and Procedures


111Item 9B.

Other Information


111PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


112Item 11.

Executive Compensation


117Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Securityholder Matters


119Item 13.

Certain Relationships and Related Transactions, and Director Independence


120Item 14.

Principal Accounting Fees and Services


125PART IVItem 15.

Exhibits, Financial Statement Schedules


126Signatures


129


2                                        
                                          
                               OSG America L.P.

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Table of Contents

FORWARD-LOOKING STATEMENTS

Statements included in this report which are not historical facts (including statements concerning plans and objectives of management for future operations or economic
performance, or assumptions related thereto) are forward-looking statements. In addition, we may from time to time make other oral or written statements which are also forward-looking statements.

Forward-looking
statements appear in a number of places and include statements with respect to, among other things:

These
forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number
of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking
statements. Please read "Risk Factors" in Item 1A. of this Annual Report for a list of important factors that could cause our actual results of operations or financial condition to differ from
the expectations reflected in these forward-looking statements.

2008 Annual
Report                                        
                                          
                                          
                                        3

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Table of Contents

PART I

ITEM 1. BUSINESS

Our Partnership

OSG America L.P. ("OSP", "We" or "Us") is the largest operator, based on barrel-carrying capacity, of U.S. flag product carriers and barges transporting refined petroleum
products. We were formed in 2007 by Overseas Shipholding Group, Inc. ("OSG") (NYSE: OSG), a market leader in providing global energy transportation services. We plan to use the expertise,
customer base and reputation of OSG to expand our marine transportation service. Our operating fleet of product carriers and barges consists of twelve product carriers, eight articulated tug barges
("ATB"s) and one conventional tug-barge unit ("CTB"), with an aggregate carrying capacity of approximately 6.0 million barrels. We also have one product carrier that is is held for
sale at December 31, 2008 and not part of our operating fleet. Alaska Tanker Company, LLC ("ATC"), a joint venture in which we have a 37.5% ownership interest, transports crude oil from
Alaska to the continental United States using a fleet of four crude-oil tankers with an aggregate carrying capacity of 5.5 million barrels. OSG owns a 77.1% interest in OSP,
including a 2% interest through our general partner, which OSG owns and controls.

The
majority of our vessels transport refined petroleum products in the U.S. "coastwise" trade over three major trade routes:

The
Gulf Coast to Florida trade route is the most important of these trade routes due to the absence of pipelines that service Florida. We also provide lightering services on the East Coast by
offloading crude oil from large crude-oil tankers and transporting it to refineries in the Delaware River Basin.

Our
market is protected from direct foreign competition by the Merchant Marine Act of 1920 (the "Jones Act"), which mandates that all vessels transporting cargo between U.S. ports must be built in the
United States, registered under the U.S. flag, manned by U.S. crews and owned and operated by U.S. organized companies that are controlled and at least 75% owned by U.S. citizens (or owned by other
entities meeting U.S. citizenship requirements to own vessels operating in the U.S. coastwise trade and, in the case of limited partnerships, where the general partner meets U.S. citizenship
requirements for the U.S. coastwise trade). Charter rates for Jones Act vessels have historically been more stable than those of similar vessels operating in the international shipping markets. We
currently operate nineteen of our twenty-one operating vessels in the U.S. coastwise trade in accordance with the Jones Act and all of our future scheduled newbuild deliveries will qualify
to operate under the Jones Act.

OSG
has assigned to us its agreements to bareboat charter eight newbuild product carriers from subsidiaries of American Shipping Company ("AMSC"), five of the newbuilds have delivered through
December 31, 2008 and their bareboat charters have commenced, the remaining three bareboat charters will commence upon delivery of the newbuild product carriers from the shipyard between 2009
and early 2010. The remaining three product carriers have already been time chartered to customers for fixed periods of 3 years, which can be further extended at the customer's option. We also
have the opportunity to increase the size of our fleet through the exercise of options granted to us by OSG to:

The
options to purchase the newbuild ATBs from OSG and the rights to bareboat charter the newbuild product carriers and shuttle tankers from AMSC will be exercisable prior to the first anniversary of
the delivery of each vessel. The exercise of any of the options will be subject to the negotiation of a purchase price.

4                                        
                                          
                               OSG America L.P.

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Table of Contents

The
following chart details the potential growth of our fleet and its aggregate carrying capacity:

After
Scheduled
Deliveries

Optional
Product
Carriers
and
Barges
2009-2011At December 31, 2008





TotalScheduled
Deliveries
2009-2010Vessels(1)

Capacity
(barrels)

Vessels

Capacity
(barrels)

Phase-out
2011-2013

Vessels

Capacity
(barrels)(in thousands)



(in thousands)





(in thousands)Product Carriers(2)


12


3,843


3


15


4,815


4


(4
)

15


4,787ATBs(3)(4)


8


2,028





8


2,028


2





10


2,722CTB


1


172





1


172








1


172Total Fleet


21


6,043


3


24


7,015


6


(4
)

26


7,681


In 2008, over 95% of our revenues were from fixed-rate contracts, which include Time Charters, Contracts of Affreightment ("COA"), and Consecutive
Voyage Charters ("CVC"). Our contracts have an average of two years before they expire. Time charters on the three newbuild product carriers that will be delivered to us between 2009 and early 2010
have an average term of three years. We believe that our strong customer relationships provide a foundation for stable revenue and long term growth of our business.

Business Strategy

Our primary business objective is to continue to grow our distributable cash flow per unit by executing the following strategies:

Increase Market ShareWe operate the largest fleet of U.S. flag product carriers and barges, based on barrel-carrying capacity, transporting
refined petroleum products. Our bareboat charter of three newbuild product carriers from AMSC and, assuming we exercise all of our options with OSG to bareboat charter two newbuild product carriers
and two newbuild shuttle tankers from AMSC and to purchase two newbuild ATBs previously scheduled to be constructed by Bender Shipbuilding & Repair Co., Inc. ("Bender"), will
further strengthen our leading position in the Jones Act trade. We will continue to evaluate strategic acquisitions in order to meet the demand for U.S. flag vessels in a manner that will increase our
distributable cash flow.

Capitalize on Relationship with OSGWe intend to use OSG's customer relationships with leading integrated oil companies and independent
refiners to secure longer-term contracts for our vessels.

Generate Stable Cash Flows With High-Quality CharterersOur customers are predominantly leading integrated oil companies and
independent refiners. We believe that entering into medium to long-term charters with these customers will provide us with relatively stable cash flows.

Expand into Related SegmentsWe believe that our high-quality Jones Act vessels, our reputation for dependable service and our
relationship with OSG will enable OSP to expand into new segments, such as shuttle tankers in the Gulf of Mexico.

Emphasize SafetyWe have an excellent vessel safety record and reputation for customer service and support. We believe that by maintaining a
high standard for operational safety and environmental compliance, we will be able to maintain our leading market position.

Maintain Financial Strength and FlexibilityWe intend to maintain financial strength and flexibility so as to enable us to pursue acquisition
opportunities as they arise. We had access to $155 million under our senior secured revolving credit facility for working capital and acquisitions at December 31, 2008.

We
are a Delaware limited partnership formed on May 14, 2007. On November 15, 2007, we completed an initial public offering of 7,500,000 common units at $19.00 per unit representing a
24.5% limited partner interest. OSG

2008 Annual
Report                                        
                                          
                                          
                                        5

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Table of Contents

America LLC,
a wholly owned subsidiary of Overseas Shipholding Group, Inc., is our sole general partner and has a 2% general partner interest. During 2008, subsidiaries of OSG acquired a
1.6% limited partnership interest from unitholders, increasing the limited partnership interest held by subsidiaries of OSG to 75.1%.

Our
principal executive offices are located at Two Harbour Place, 302 Knights Run Avenue, Suite 1200, Tampa, FL 33602, and our phone number is (813) 209-0600.

Industry

Fleet

Our operating fleet consists of twenty-one U.S. flag product carriers and barges composed of twelve product carriers, eight ATBs and one CTB with an aggregate
carrying capacity of approximately 6.0 million barrels.

We
have:

If
we purchase and bareboat charter all of these newbuild vessels, and after adjusting for the phase out of the four single-hull vessels, our operating fleet will increase from
twenty-one to twenty-six product carriers and ATBs and our aggregate carrying capacity will increase from 6.0 million to 7.7 million barrels. We believe that
employing a fleet consisting of product carriers and ATBs allows us to effectively meet the requirements of various customers in a number of different markets.

6                                        
                                          
                               OSG America L.P.

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Table of Contents

The
following table sets forth information concerning our operating fleet of twelve product carriers, eight ATBs and one CTB as of December 31, 2008:

Cargo Capacity

Owned/
Bareboat-In
ExpirationYear Built/
Rebuilt



Charter-Out
ExpirationVessel Name

DWT

Barrels(1)

Charterer(2)Single-hulled Product CarriersOverseas Puget Sound

1983


50,861


356,000

Owned

Tesoro TC

March 2009(4)Overseas New Orleans

1983


42,954


306,000

Owned

OSG TC

Dec 2009Overseas Galena Bay

1982


50,116


356,000

Owned

SeaRiver TC

March 2009Overseas Philadelphia

1982


43,387


306,000

Owned

Citgo TC

Jan 2010Double-hulled Product CarriersOverseas Diligence

1977


39,732


269,000

Owned

COA

Overseas Maremar

1998


47,225


315,000

Owned

Spot/COA

Dec 2009Overseas Luxmar

1998


45,999


315,000

Owned

Spot/COA

Dec 2009Overseas Houston

2007


46,815


324,000

Feb 2014(3)

Shell TC

Mar 2010(4)Overseas Long Beach

2007


46,817


324,000

Jun 2014(3)

BP TC

Jul 2014(4)Overseas Los Angeles

2007


46,815


324,000

Nov 2014(3)

BP TC

Nov 2014(4)Overseas New York

2008


46,815


324,000

April 2015(3)

Shell TC

April 2011(4)Overseas Texas City

2008


46,815


324,000

Sep 2015(3)

BP TC

Oct 2011(4)Double-hulled ATBs (Barge / Tug)M 209 / OSG Enterprise

1980/2005


25,321


206,000

Owned

Spot

OSG 214 / OSG Honour

1975/2004


26,410


207,000

Owned

Marathon TC

Nov 2009OSG 254 / OSG Intrepid

1970/2002


31,605


250,000

Owned

Valero TC

Aug 2010M 252 / Navigator

1972/2002


30,933


250,000

Owned

Chevron CVC

June 2010M 244 / Seafarer(5)

1971/2001


29,042


236,000

Owned

Chevron CVC

June 2010OSG 242 / OSG Columbia

1981/2007


30,391


234,299

Owned

OSG TC

Dec 2009OSG 243 / OSG Independence

1982/2008


30,448


234,299

Owned

OSG TC

Dec 2009OSG 400 / OSG Constitution(6)

1981


54,062


410,000

June 2010

COA

Double-hulled CTBs (Barge / Tug)M 192 / Freedom(7)

1979/1998


21,914


172,000

Owned

COA




Newbuilds

OSG has contributed to us, without any further obligation to OSG, the membership interests in subsidiaries that have entered into bareboat charters for three Jones Act product
carriers to be constructed by Aker Philadelphia Shipyard, Inc. ("APSI") and scheduled for delivery between early 2009 and early 2010; and subsidiaries that have entered into shipbuilding
contracts for the construction of two tugs. With respect to the remaining three product carriers we are committed to bareboat charter from AMSC, we are only required to pay charter hire once the
product carriers have been delivered. Please read "Bareboat Charters from AMSC of Our Newbuilds." With respect to the two tugs we are committed to purchase that were to be constructed at Bender
Shipbuilding & Repair ("Bender"), we are in negotiations with Bender to terminate these contracts. We intend to have the tugs constructed at an alternative yard on a time and materials basis
and we will be responsible for the cost of completion of these tugs. As the new contracts will not be fixed price contracts, the total cost of completion of the tugs is currently unknown. However, we
currently estimate the cost to complete to be approximately an additional $33 million. To date, $25.4 million has been paid under the Bender contracts. See risk factor related to Bender
in Item 1A.

2008 Annual
Report                                        
                                          
                                          
                                        7

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Table of Contents

The following table sets forth information concerning the three newbuild product carriers to be constructed by APSI that we have agreed to bareboat charter from subsidiaries of
AMSC and two tugs previously under construction by Bender that we have agreed to acquire, which will replace two older tugs currently included in our initial fleet shown above.

Expected
Delivery
Date

Cargo CapacityBareboat-In
Expiration



Charter-Out
ExpirationVessel Name

DWT

Barrels(1)

Charterer(2)Double-hulled Product CarriersOverseas Boston(3)


2009


46,815


324,000


Feb 2014(4)


Tesoro TC


Feb 2012(2)Overseas Nikiski


2009


46,815


324,000


June 2014(4)


Tesoro TC


June 2012(5)Overseas Anacortes


2010


46,815


324,000


June 2015(4)


Tesoro TC


May 2013(5)8,000 Horsepower TugsOSG Courageous


2010OSG Endurance


2010


Optional Vessels

Pursuant to our omnibus agreement with OSG, we have options to purchase up to two newbuild ATBs scheduled for delivery between 2009 and 2010 and to acquire from OSG the right to
bareboat charter up to two newbuild product carriers and up to two newbuild shuttle tankers from AMSC, scheduled for delivery between late 2009 and early 2011. The following table sets forth
information concerning the two newbuild ATBs for which we have options to purchase and two newbuild product carriers and two newbuild shuttle tankers for which we have options to bareboat charter:

Owned/Expected
Delivery
Date

Cargo CapacityBareboat-In
Expiration



Charter-Out
ExpirationVessel Name

DWT

Barrels(1)

Charterer(2)Double-hulled Product CarriersOverseas Martinez

2010

46,815

324,000

Jan 2015(3)

Tesoro TC

Oct 2012(4)Overseas Tampa

2011

46,815

324,000

Mar 2021(3)



Double-hulled Shuttle TankersOverseas Chinook

2010(5)

46,815

324,000

Sep 2019(3)

Petrobras TC

Mar 2015(4)Overseas Cascade

2011(5)

46,815

324,000

Nov 2020(3)

Petrobras TC

May 2015(4)Double-hulled ATBs (Barge/Tug)OSG 350 / OSG Vision

2009

45,556

347,000

Owned

COA

Nov 2019OSG 351 / OSG Quest

2010

45,556

347,000

Owned

COA

Nov 2019


See risk factors related to each of AMSC and Bender in Item 1A.

8                                        
                                          
                               OSG America L.P.

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Table of Contents

Bareboat Charters from AMSC of Our Newbuilds

General

We believe that employing a fleet of both owned and bareboat chartered vessels provides us operational and financial flexibility. Our vessels that are bareboat chartered provide
us with several advantages including:

In
June 2005, OSG entered into bareboat charters for ten Jones Act product carriers to be constructed by APSI and scheduled for delivery between 2007 and 2010. Following completion of construction,
the vessels are sold to leasing subsidiaries of American Shipping Company, that in turn bareboat charter the vessels to OSG. In October 2007, OSG entered into bareboat charters for two additional
vessels, theOverseas Cascadeand theOverseas Chinook. The bareboat charters of eight of the original ten
vessels have been assigned to us and we have options to acquire from OSG the right to bareboat charter up to all four of the remaining vessels, which include theOverseas
Cascadeand theOverseas Chinook.

AMSC
and OSG have signed a nonbinding agreement in principle ("Nonbinding Agreement") to provide for a global settlement of a number of outstanding issues, including, among other things, settlement of
the arbitration described herein. See risk factors related to AMSC in Item 1A. Implementation of the Nonbinding Agreement is subject to negotiation and signing of definitive agreements and
certain other conditions. The Nonbinding Agreement contains a number of provisions materially altering the prior agreements between the parties. No assurance can be given that AMSC and OSG will enter
into definitive agreements and satisfy the required conditions to implement the Nonbinding Agreement.

Terms of the Bareboat Charters

The initial terms of the bareboat charters vary in length from five, seven and ten years. We have the right to extend the initial terms an unlimited number of times for renewal
periods of one, three or five years upon 12 months' advance notice, provided, however, that our right to a one-year extension may only be exercised once. Under the bareboat
charters, we are required to pay charter hire on a "hell-or-high-water" basis. This means that, except in the case of an "Event of Loss" as defined in the bareboat
charter, we will be required to pay the agreed bareboat charter hire whether or not the vessel is available to us for charter to our customers. We are also responsible for all operating costs,
including the cost of repairs, maintenance, drydocking, spares, stores, hull and machinery insurance, war risk insurance and protection and indemnity insurance coverage for each vessel for the benefit
of the owner and its lenders. The bareboat charter rate for each option period is subject to increase based upon the increase, if any, in the interest rate payable by AMSC on the related vessel debt
above a stated amount.

We
have also provided AMSC a guaranty of the payment and performance of the obligations of our subsidiaries under the bareboat charters, other than any obligations relating to or arising in connection
with any environmental
laws or liabilities, in which case we have provided AMSC with a limited indemnity for losses arising out of any environmental liability excluded from our guaranty if the losses arose from an incident
not fully covered by insurance and the unavailability or insufficiency of insurance is determined to have occurred as a result of a breach by us of the provisions of the bareboat charter. Our
indemnity is limited to an amount equal to the lesser of (1) the outstanding principal amount of AMSC's loans solely attributable to the vessel and (2) a notional loan balance
attributable to the vessel.

Profit Sharing

We have time chartered-out the eight vessels we have bareboat chartered-in from AMSC to OSG Product Tankers, LLC, an entity that is indirectly
owned by us and AMSC. OSG Product Tankers, LLC has in turn time chartered the vessels to customers for fixed terms of between three and seven years, which terms can be further extended at the
customer's option. The effect of the ownership structure of OSG Product Tankers, LLC and the other limited liability companies owned by OSG and AMSC is to share profits between us and AMSC, or
OSG and AMSC, respectively, at a rate of 51%/49%, respectively.

2008 Annual
Report                                        
                                          
                                          
                                        9

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Table of Contents

The
time charter hire paid to us by OSG Product Tankers, LLC is equal to the sum of the bareboat charter hire paid to AMSC, our cost of operating the vessels, a management fee, and a fixed
charge. Profit is calculated as the difference between the time charter hire paid by customers to OSG Product Tankers, LLC and the time charter hire paid by OSG Product Tankers, LLC to
us. During any period that the amount of time charter hire paid by the customer to OSG Product Tankers, LLC is insufficient to pay the full amount of the time charter hire payable by OSG
Product Tankers, LLC, we have agreed to advance the amount of any such shortfall to OSG Product Tankers, LLC. In general, advances are repaid to us quarterly, provided that such
obligation to repay the advances is subject to reduction at the end of the calendar year in which the advances are made by the amount of the fixed charge paid to us during such year. If any advances
remain unpaid at the end of the following calendar year, such advances will terminate without being repaid. AMSC is not entitled to receive profit sharing while any advances are outstanding.

In
the event we exercise our options to acquire the right to bareboat charter one or both of theOverseas Martinezand theOverseas
Tampa, we will similarly time charter-out these vessels to OSG Product Tankers, LLC. Until such time as we exercise our options, these two vessels will be
time chartered by OSG to OSG Product Tankers Martinez, LLC ("New Martinez Time Charterer"), a limited liability company indirectly owned by OSG and AMSC and in which we have no equity interest.
If we exercise any of our options to acquire the right to bareboat charter one or both of the newbuild shuttle tankers from AMSC, theOverseas Cascadeand
theOverseas Chinook, we will time charter-out these vessels to OSG Shuttle Tankers Chinook, LLC , a limited liability company
indirectly owned by us and AMSC and in which OSG has no direct equity interest. During the time that we have not exercised our options to acquire the right to the bareboat charters of the Overseas Martinez, Overseas Tampa,
Overseas CascadeorOverseas Chinook, OSG has agreed to make advances to
New Martinez Time Charterer and the limited liability company organized by OSG and AMSC to be the time charterer of the Overseas Cascade and the Overseas Chinook (such newly formed entity together
with the New Martinez Time Charterer, the "New OSG Time Charterers") to fund the difference between time charter hire paid to such New OSG Time Charterer by its customers and the amount of time
charter hire payable by such New OSG Time Charterer. OSG's advances with respect to a New OSG Time Charterer are subject to reduction and termination by the amount of the fixed charge paid to OSG by
such New OSG Time Charterer in the same manner as our advances to OSG Product Tankers, LLC.

To
maintain the economics of the profit sharing arrangement with AMSC with respect to the vessels we have bareboat chartered-in from AMSC, we and OSG have agreed with AMSC that for so long
as we have not exercised the options to acquire the right to bareboat charter-in both theOverseas Martinezand the Overseas Tampa, all calculations of
advances and profit sharing shall be made as if OSG Product Tankers, LLC and New Martinez Time Charterer were a
single entity. This arrangement may result in, among other things, both us and OSG making or receiving repayment of greater or lesser advances than would be the case absent this agreement. However, we
have agreed with OSG for each to reimburse the other in such amount as may be necessary so that the distributions we receive and the advances we make are the same as would have been the case absent
such agreement with AMSC. Similar situation could arise if we exercise our option to acquire the right to bareboat charter-in from AMSC one but not both of the Overseas CascadeandOverseas Chinook.

Pooling Agreement

We are party to a pooling agreement with OSG, OSG Ship Management, Inc. ("OSGM"), New Martinez Time Charterer and certain other subsidiaries of OSG under which the TCE
revenues from all Jones Act product carriers owned or operated by OSG (and certain of its subsidiaries), us and the New Martinez Time Charterer are allocated among the pool vessels according to an
agreed-upon formula. The formula gives effect to each product carrier's performance, taking into account factors such as carrying capacity, speed, fuel consumption, and the number of days
that the vessel was available for employment during the relevant time period. The formula is subject to review and adjustment by the parties every six months. The pooling arrangement was established
to provide for the common marketing, commercial operation and employment of our product carriers, thereby eliminating any conflict of interest that might arise from OSG's commercial management of
product carriers from which it earns 100% of the profit and the product carriers bareboat chartered from AMSC, from which it earns 51% of the profit. The pooling agreement does not have an established
term of duration, but product carriers will cease to be subject to the agreement when it is no longer controlled by a pool member. All of our existing and future tank vessels engaged in the Jones Act
trade of transporting refined petroleum products are subject to the pooling agreement.

10                                        
                                          
                               OSG America L.P.

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Table of Contents

AMSC's Debt and Deferred Principal Obligation

Under the bareboat charters for the first ten vessels ordered from AMSC, the bareboat charterer has the right to help AMSC improve the terms of its debt financing for the
vessels, including without limitation, by reducing the interest rate or extending the principal amortization schedule and, if successful, to reap the benefit through a reduced bareboat charter rate
during the term in which the benefit is obtained.

To
the extent that a longer principal amortization schedule results in an increased amount of debt outstanding at the end of the initial or optional terms, a Deferred Principal Obligation ("DPO") is
created in the form of an interest-bearing obligation to be amortized in equal quarterly installments over the remaining useful life of the vessel and added to the bareboat charter hire paid.
Additional profit sharing earned by AMSC will reduce the DPO dollar for
dollar during the initial term of the bareboat charters. If the charterer fails to renew the bareboat charter, the remaining DPO becomes payable upon redelivery of the vessel.

In
August 2005, OSG assisted AMSC with a financing of the first five vessels which gave rise to a DPO that accrues on a daily basis over the seven year initial term of the five charters to a maximum
liability of $7 million per vessel, or $35 million in total. As a result of the assignment of these bareboat charters to us, we will pay the reduced bareboat rate and assume the DPO
liability. If the charters are not extended, the liability is immediately payable upon redelivery of the vessels to AMSC. If, on the other hand, the charters are extended, the liability is repaid over
18 years; but, if at any time during those 18 years the charters are discontinued, the remaining balance of the liability is immediately payable upon redelivery of the vessels. The DPO
liability that accrues on each of the five vessels each year during the initial term is reduced by the increase in profit sharing paid by OSG Product Tankers, LLC to AMSC resulting from the
reduction in the bareboat rate. We account for the DPO liability that accrues each year as additional bareboat charter hire expense.

Maritime Security Program ("MSP")

The Maritime Administration of the Department of Transportation administers the MSP, which is intended to support the operation of up to 60 U.S. flag vessels in the foreign
commerce of the United States to make available a fleet of active, commercially viable, privately owned vessels to the Department of Defense during times of war or national emergency.

Payments
are made under the MSP to vessel operators, including OSG and us, to help offset the high cost of employing a U.S. crew. These payments equal $2.6 million per ship per year through
2009, $2.9 million per ship per year from 2010 through 2011 and $3.1 million per ship per year for 2012 through 2016, subject in each case to annual Congressional appropriations.

We
own and operate two foreign-built U.S. flag product carriers, theOverseas MaremarandOverseas Luxmar,which are entered in the MSP. These two product carriers are not eligible to operate in the Jones Act trade because they were not built in the United States.

Management of Ship Operations, Administration and Safety

OSG provides to us, through its subsidiary OSGM, expertise that allows for the safe, efficient and cost-effective operation for our vessels. Pursuant to the
management agreement and an administrative services agreement entered into with OSGM we have access to:

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For
more information on the management and administrative services agreements we have with OSGM, please read "Certain Relationships and Related TransactionsManagement Agreement" and
"Certain Relationships and Related Party TransactionsAdministrative Services Agreement."

Our Investment in Alaska Tanker Company, LLC

We own a 37.5% interest in Alaska Tanker Company, LLC ("ATC"). ATC is a joint venture that was formed in 1999 by OSG, Keystone Alaska, LLC and BP Oil Shipping
USA, Inc. ("BP") to consolidate the management of BP's Alaskan crude oil shipping operations. As a result, ATC has the exclusive right to transport all of BP's Alaskan oil and natural gas. ATC
currently bareboat charters and operates four crude-oil tankers that transport Alaskan crude oil for BP from the Trans Alaska Pipeline terminus in Valdez, Alaska to a number of refineries
on the West Coast. The four vessels are 185,000 dwt "Alaska Class" tankers, which were purpose-built for the Alaska crude trade by NASSCO, a San Diego shipyard owned by General Dynamics Corporation,
between 2004 and 2006. These vessels have double-hulls and redundant propulsion and steering systems. ATC is time chartering these vessels to BP until 2023.

The
time charter revenue ATC receives under each time charter is equal to the sum of:

The
incentive hire earned by ATC effectively constitutes its net income and is distributed to its members, based upon their ownership interest in ATC, once a year in the first quarter of the
subsequent year. The dividend paid to all members in respect of the year ended December 31, 2008 was $14.3 million.

Our Customers

Our two largest customers in 2008 based on gross revenue were BP and Sunoco, each of which accounted for more than 10% of our consolidated revenues for those periods. No other
customer accounted for more than 10% of our consolidated revenues for those periods. See Note B to the consolidated financial statements in Item 8 of this report.

Preventative Maintenance

OSGM is responsible for the maintenance of our fleet. OSGM has a computerized preventative maintenance program that tracks U.S. Coast Guard and American Bureau of Shipping
inspection schedules and establishes a system for the reporting and handling of routine maintenance and repair.

Vessels
utilize a computerized maintenance system that provides for daily inputs, which are used to note conditions that may require maintenance or repair. Vessel superintendents are responsible for
reviewing these entries, inspecting identified discrepancies, assigning a priority classification and generating work orders. Work orders establish job type, assign personnel responsible for the task
and record target start and completion dates. Vessel superintendents inspect repairs completed by the crew, supervise outside contractors as needed and conduct follow-up inspections.
Drills and training exercises are conducted in conjunction with these inspections, which are typically more comprehensive in scope. In addition, an operations duty officer is available on a
24-hour basis to handle any operational issues. In addition, a qualified individual is prepared to respond on scene whenever required and is trained in spill control and emergency
response.

The
American Bureau of Shipping and the U.S. Coast Guard establish drydocking schedules. Prior to sending a vessel to a shipyard, we develop comprehensive work lists to ensure all required work is
completed. Shipyard facilities bid on these work lists, and jobs are awarded based on price and time to complete. Vessels then clean to prepare for the shipyard. Once the vessel is
gas-free, a certified marine chemist issues paperwork certifying that no dangerous vapors are present. The vessel proceeds to the shipyard where the vessel superintendent and certain crew
members assist in performing the required work. The drydock period is considered complete when all work has been tested to the satisfaction of American Bureau of Shipping or U.S. Coast Guard
inspectors or both and us.

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Safety

General

OSGM is responsible for managing our health and safety programs. OSGM is committed to operating our vessels in a manner that protects the safety and health of our employees, the
general public and the environment. Its primary goal is to minimize the number of safety and health related accidents involving our vessels and considerable effort is devoted to avoiding personal
injuries and reducing occupational health hazards and preventing accidents that may cause damage to our personnel, equipment or the environment. OSGM is committed to reducing harmful emissions from
our vessels and to the safe management of waste generated by cargo residues and tank cleaning.

OSGM's
policy is to follow all applicable laws and regulations and actively participate with government, trade organizations and the public in creating responsible laws, regulations and standards to
safeguard the workplace, the community and the environment. OSGM identifies areas that may require special training, including new initiatives that are evolving within the industry. Its Marine
Personnel department is responsible for all training, whether conducted in-house or at an independent training facility.

Vessel Characteristics

All of our vessels are subject to U.S. Coast Guard inspection and classification by the American Bureau of Shipping. In addition, air quality regulations require our vessels to
be fitted to prevent the release of any cargo fumes or vapors into the atmosphere. Each of our product carriers and barges that transports refined petroleum products has been outfitted with a vapor
recovery system that connects the cargo tanks to the shore terminal via pipe and hose to return to the plant the vapors generated while loading. Our product carriers and barges have alarms that
indicate when the tank is full (98% of capacity) in order to alert the operator of the risk of overfilling one or more tanks.

Safety Management Systems

OSGM has developed and implemented a Safety Management System ("SMS") for our entire fleet that is ISO 9001:2000 and ISO 14001:2004 certified. It incorporates the
requirements of the International Safety Management ("ISM") system and the American Waterways Operators Responsible Carrier Program. The SMS is designed to be a framework for continuously improving
our operational and safety performance by incorporating industry best practices in the areas of management and administration and equipment and inspection. The program is designed to complement and
expand on existing governmental regulations requiring, in many instances, that our safety and training standards exceed those required by federal law or regulation.

All
of our vessels are currently certified under the standards of the ISM system. The ISM standards were promulgated by the International Maritime Organization ("IMO") several years ago and have been
adopted through treaty by many IMO member countries, including the United States.

Major Oil Company Vetting Process

Shipping, especially the carriage of crude oil and refined petroleum product carriers and barges operating in the Jones Act trade, has been, and will remain heavily regulated by
the federal government, the IMO and classification societies such as the American Bureau of Shipping. Furthermore, concerns for the environment and public image have led the major oil companies to
develop and implement a strict due diligence process when selecting their commercial shipping partners to ensure risk exposure is managed using pre-defined acceptance criteria. The vetting
process has therefore evolved into a sophisticated and comprehensive assessment of both the vessel and the vessel operator.

While
numerous factors are considered and evaluated prior to a commercial decision, major oil companies through their association, Oil Companies International Marine Forum ("OCIMF"), have developed
and implemented two basic tools: a Ship Inspection Report Program ("SIRE") and the Tanker Management Self Assessment ("TMSA") Program.

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The SIRE ship inspection process is based upon a thorough vessel inspection performed by accredited OCIMF inspectors, resulting in a report being generated and available for
viewing by all OCIMF members. The report is an important element of the ship evaluation undertaken by any major oil company when a commercial need exists.

The
TMSA Program, a recent addition to the risk assessment tools used by major oil companies, is composed of a set of key performance indicators against which a tanker management company must self
assess their compliance and submit the results to the major oil companies for their evaluation. The tanker management company is expected to develop a comprehensive plan for full compliance with both
the key performance indicators and the best practices identified in the TMSA Program. Major oil companies will then use the submitted results as a baseline when performing management audits to
determine if the tanker management company is in fact operating in accordance with expectations.

Based
upon commercial needs, there are three levels of assessment used by the major oil companies: (1) terminal use, which will clear a vessel to call at one of the major oil company's
terminals; (2) voyage charter, which will clear the vessel for a single voyage; and (3) term charter, which will clear the vessel for use for an extended period of time. The depth,
complexity and difficulty of each of these levels of assessment vary.

While
for the terminal use and voyage charter relationships a ship inspection and the operator's TMSA will be sufficient for the major oil company's assessment, a term charter relationship might also
require a thorough office audit. The major oil company will then review SIRE reports and TMSA submissions, as well as the vessel's status with the U.S. Coast Guard and the American Bureau of Shipping.

OSG
and OSGM have undergone and successfully completed numerous audits by major international oil companies in the past and we are well positioned to be a carrier of choice in the Jones Act trade.

Classification, Inspection and Certification

In accordance with standard industry practice, all of our operating vessels have been certified as being "in-class" by the American Bureau of Shipping. The American
Bureau of Shipping is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with structural standards and
certain applicable safety regulations. Most insurance underwriters require an "in-class" certification by a classification society before they will extend coverage to a vessel. The
classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the 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. Inspections are conducted on our vessels by a surveyor of the classification society in three types of surveys
of varying frequency and thoroughness: (1) annual surveys, (2) an intermediate survey every two to three years, and (3) a special survey every four to five years. As part of the
intermediate survey, a vessel may be required to be drydocked or have an underwater survey every 24 to 36 months for inspection of its underwater parts and for any necessary repair work related
to such inspection.

Our
vessels are also inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with federal safety and security regulations. All of our cargo carrying operating vessels carry
Certificates of Inspection issued by the U.S. Coast Guard.

Our
vessels and shoreside operations are also inspected and audited periodically by our customers, in some cases as a precondition to chartering our vessels. We maintain all necessary approvals
required for our vessels to operate in their normal trade. We believe that the high quality of our vessels, our crews and our shoreside staff are advantages when competing against other vessel
operators.

Insurance and Risk Management

We believe that OSGM has arranged for adequate insurance coverage to protect against the accident-related risks involved in the conduct of our business and risks of liability
for environmental damage and pollution, consistent with industry practice. We cannot assure you, however, that all risks are adequately insured against, that any particular
claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Our
hull and machinery insurance covers risks of actual or constructive loss from collision, fire, grounding, engine breakdown and other casualties up to an agreed value per vessel. Our
war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. Our commercial loss-of-hire
insurance

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policy
covers us for loss of revenue during extended vessel off-hire periods due to casualties covered by our hull and machinery coverage. We believe that this type of coverage reduces our
exposure to large drops in revenue due to catastrophic events.

Our
protection and indemnity 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, damage to third-party property, past asbestos exposure and pollution arising from oil or other substances. Our current protection and indemnity insurance coverage for
pollution is $1 billion per incident and is provided by the UK Club and GARD, each of which is a member of the International Group of P&I Clubs. The protection and indemnity mutual assurance
associations that comprise the International Group of P&I Clubs 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 approximately $5.0 billion per non-pollution incident. As a member of the
UK Club and GARD, we are subject to periodic assessments payable to the associations based on our claims record, as well as the claims record of all other members of the individual associations and
members of the UK Club and GARD.

Regulation

Our operations are subject to significant international, federal, state and local regulation, the principal provisions of which are described below.

Environmental

General.

Government
environmental regulation significantly affects the ownership and operation of our vessels. Our vessels are subject to international conventions, federal, state and local laws and
regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission, transportation and discharge of hazardous and non-hazardous
materials. We have incurred, and will continue to incur, substantial costs
to meet environmental requirements. Although we believe that we are in substantial compliance with applicable safety and health and environmental laws and regulations, 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. The recent trend in environmental legislation is toward more stringent
requirements and we believe this trend will continue. In addition, a future serious marine incident occurring in U.S. or international waters that results in significant oil pollution or otherwise
causes significant environmental impact could result in additional legislation or regulation.

Various
governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our vessels. While we believe that we have all permits, licenses and
certificates necessary for the conduct of our operations, frequently changing and increasingly stringent requirements, future non-compliance or failure to maintain necessary permits or
approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.

We
maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our crews, officers and shoreside staff, care for the environment
and compliance with U.S. regulations. Our vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities (U.S. Coast Guard or other port authorities), classification societies and charterers, particularly terminal operators and oil
companies.

We
manage our exposure to losses from potential discharges of pollutants through the use of well maintained, managed and equipped vessels, a comprehensive safety and environmental program, including a
maritime compliance program, and our insurance program. Moreover, we believe we will be able to accommodate reasonably foreseeable environmental regulatory changes. However, the risks of substantial
costs, liabilities and penalties are inherent in marine operations, including potential criminal prosecution and civil penalties for discharge of pollutants. As a result, there can be no assurance
that any new regulations or requirements or any discharge of pollutants by us will not have a material adverse effect on us.

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The Oil Pollution Act of 1990.

The
Oil Pollution Act of 1990 ("OPA 90") established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA 90 affects all vessels trading
in U.S. waters, including the exclusive economic zone extending 200 miles seaward. OPA 90 sets forth various technical and operating requirements for vessels operating in U.S. waters. In general, all
newly-built or converted vessels carrying crude oil and petroleum-based products in U.S. waters must be built with double hulls. Existing single-hulled, double-sided or double-bottomed vessels must be
phased out of service by 2015 based on their tonnage and age. Our double-hull ATBs were successfully rebuilt to comply with OPA 90 using OSG's patented double-hulling process. The majority
of our current fleet is double-hulled in terms of barrel-carrying capacity. Our four non-double hull product carriers are due to be phased out under OPA 90 according to the following
schedule:

Vessel Name

OPA 90 Retrofit/
Phase-Out DateOverseas Philadelphia


May 2012Overseas Galena Bay


October 2012Overseas Puget Sound


May 2013Overseas New Orleans


June 2013


TheOverseas New OrleansandOverseas Philadelphiaare poor
candidates for retrofitting due to their size and single-hull configuration. While the remaining two vessels,Overseas Puget Soundand Overseas Galena Bay,are better candidates for retrofitting because they are larger and have double-bottoms, we have not decided whether to
double-hull these vessels. We will base our final decision on the cost of shipyard work for retrofitting these vessels, market conditions, charter rates, the availability and cost of
financing and other customary factors governing investment decisions.

Under
OPA 90, owners or operators of vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and operate in compliance with these plans. These vessel response
plans must, among other things:

Our
vessel response plans have been accepted by the U.S. Coast Guard and all of our vessel crew members and spill management team personnel have been trained to comply with these guidelines. In
addition, we conduct regular oil-spill response drills in accordance with the guidelines set out in OPA 90. We believe that all of our vessels are in substantial compliance with OPA 90.

Environmental Spill and Release Liability.

OPA
90 and various state laws have substantially increased the statutory liability of owners and operators of vessels for the discharge or substantial threat of a discharge of petroleum and the
resulting damages, both as to the limits of liability and the scope of damages. OPA 90 imposes joint and several strict liability on responsible parties, including owners, operators and bareboat
charterers, for all containment and clean-up costs and other damages arising from spills attributable to their vessels. A complete defense is available only when the responsible party
establishes that it exercised due care and took precautions against foreseeable acts or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war
and insurrection) or a third party other than an employee or agent or party in a contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails
to report the incident or reasonably cooperate with the appropriate authorities or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a
third party, the owner or operator must pay removal costs and damage claims and then seek reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain
circumstances involving oil spills from vessels, OPA 90 and other environmental laws may impose criminal liability on personnel and the corporate entity.

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OPA
90 previously limited the liability of each responsible party for a product carrier or barge that is over 3,000 gross tons to the greater of $1,200 per gross ton or $10 million per
discharge. However, amendments to OPA 90 signed into law on July 11, 2006 increased these limits on the liability of responsible parties to the greater of $1,900 per gross ton or
$16 million per double-hull product carrier or barge that is over 3,000 gross tons. This limit does not apply where the spill is caused by gross negligence or willful misconduct of,
or a violation of an applicable federal safety, construction or operating regulation by, a responsible party or its agent or employee or a person acting pursuant to a contractual relationship with the
responsible party. The right to limitation will also be lost if the responsible party fails to report an oil spill, fails to cooperate with governmental authorities in spill removal efforts or fails
to comply with a governmental spill removal order.

In
addition to removal costs, OPA 90 provides for recovery of damages, including:

OPA
90 imposes financial responsibility requirements for petroleum product carriers and barges operating in U.S. waters and requires owners and operators of such vessels to establish and maintain with
the U.S. Coast Guard evidence of their financial responsibility sufficient to meet their potential liabilities, as discussed below. Under the regulations, we may satisfy these requirements through
evidence of insurance, a surety bond, a guarantee, letter of credit, qualification as a self-insurer or other evidence of financial responsibility. We have received certificates of
financial responsibility from the U.S. Coast Guard for all of our vessels subject to this requirement.

OPA
90 expressly provides that individual states are entitled to enforce their own pollution liability laws, even if imposing greater liability than OPA 90. There is no uniform liability scheme among
the states. Some states have schemes similar to OPA 90 for limiting liability to various amounts, while some rely on common law fault-based remedies and others impose strict and/or unlimited liability
on an owner or operator. Virtually all coastal states have enacted their own pollution prevention, liability and response laws, whether statutory or through court decisions, with many providing for
some form of unlimited liability. We believe that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability in the event of an oil spill, even when the vessel
owner or operator is not at fault. Some states have also established their own requirements for financial responsibility.

We
are also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), which applies to the discharge of hazardous
substances (other than petroleum), whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of vessels for cleanup and removal of hazardous substances and
provides for additional penalties in connection with environmental damage. Liability under CERCLA for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or
$5 million per discharge unless attributable to willful misconduct or neglect, a violation of applicable standards or rules or upon failure to provide reasonable cooperation and assistance, in
which case liability is unlimited. CERCLA liability for releases from facilities other than vessels is generally unlimited.

OPA
90 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 statute. The U.S. Coast Guard enacted regulations requiring evidence of financial responsibility consistent with the previous limits of liability described above for OPA 90 and
CERCLA. Effective October 17, 2008, the Coast Guard updated its regulations regarding required financial assurances to bring the amount of the required financial assurance in line with the
updated limits on liability provided for in the 2006 amendments of OPA 90. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond,
self-insurance, guaranty or an alternative method subject to approval by the Director of the U.S. Coast Guard National Pollution Funds Center. Under OPA 90 regulations, an owner or
operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the vessel

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having
the greatest maximum strict liability under OPA 90 and CERCLA. We have provided the requisite guarantees and have received certificates of financial responsibility from the U.S. Coast Guard for
each of its vessels required to have one.

Water Discharges.

OPA
90 also amended the Federal Water Pollution Control Act to require owners and operators of vessels to adopt vessel response plans for reporting and responding to oil spill scenarios up to a "worst
case" scenario and to identify and ensure, through contracts or other approved means, the availability of necessary private response resources to respond to a "worst case discharge." The plans must
include contractual commitments with clean-up response contractors in order to ensure an immediate response to an oil spill. We have developed and filed its vessel response plans with the
U.S. Coast Guard and have received approval of such plans. The U.S. Coast Guard has announced its intention to propose similar regulations requiring certain vessels to prepare response plans for the
release of hazardous substances.

OPA
90 also requires training programs and periodic drills for shore side staff and response personnel and for vessels and their crews.

OPA
90 does not prevent individual U.S. states from imposing their own liability regimes with respect to oil pollution incidents occurring within their boundaries. In fact, 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 are in some cases more stringent than U.S. federal law.

In
addition, the U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters and imposes strict liability in the form of penalties for unauthorized
discharges. The Clean Water Act also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under the more recent OPA and CERCLA,
discussed above.

The
U.S. Environmental Protection Agency, or EPA, had long exempted the discharge of ballast water and other substances incidental to the normal operation of vessels in U.S. ports from the U.S. Clean
Water Act permitting requirements. However, on March 30, 2005, a U.S. District Court ruled that the EPA exceeded its authority in creating an exemption for ballast water. On
September 18, 2006, the court issued an order invalidating the exemption in EPA's regulations for all discharges incidental to the normal operation of a vessel as of September 30, 2008
and directed EPA to develop a system for regulating all discharges from vessels by that date. On July 23, 2008, the United States Court of Appeals for the 9th Circuit upheld the District
Court's ruling. However, the District Court subsequently issued an order providing that the prior exemption from permitting would not be deemed vacated until February 6, 2009. Although the EPA
has appealed this decision, if the exemption is repealed, the Company's vessels would be subject to the U.S. Clean Water Act permitting requirements that could include ballast water treatment
obligations and vessel discharge stream processing requirements that could increase the cost of operating in the U.S.

The
EPA has issued a Vessel General Permit, or VGP, which is deemed to cover all regulated vessels as of February 6, 2009, addressing, among other matters, the discharge of ballast water, and
imposing new requirements, including effluent limitations. The VGP identifies twenty-six vessel discharge streams, establishes effluent limits for constituents of those streams and
requires that best management practices be implemented to decrease the amounts of certain constituents of the discharges. However, the VGP does not impose numerical treatment standards for the
discharge of living organisms in ballast water. Rather, the VGP mandates management practices that decrease the risk of introduction of aquatic nuisance species to bodies of water receiving ballast
water discharges. The EPA has indicated, however, that as ballast water treatment technologies become available in the future, the EPA will revisit its approach to the management of ballast water
discharges. In order to maintain coverage, the owner or operator of the vessel subject to the regulations must file a Notice of Intent to be covered no earlier than June 19, 2009 and no
later than September 19, 2009.

The
VGP system also permits individual states and territories to impose more stringent requirements for discharges into the navigable waters of such state or territory. Certain individual states have
enacted legislation or regulations addressing hull cleaning and ballast water management. For example, on October 10, 2007, California Governor Schwarzenegger signed into law AB 740,
legislation expanding regulation of ballast water discharges and the management of hull-fouling organisms. California has extensive requirements for more stringent effluent limits and
discharge monitoring and testing requirements with respect to discharges in its waters.

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Legislation
has been proposed in the U.S. Congress to amend the Nonindigenous Aquatic Nuisance Prevention and Control Act, which had been previously amended and reauthorized by the National Invasive
Species Act, to further increase the regulation of ballast water discharges. However, it can not currently be determined whether such legislation will eventually be enacted, and if enacted, what
actions might be required under such legislation.

Solid Waste.

Our
operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the
federal Resource Conservation and Recovery Act ("RCRA") and comparable state and local requirements. In August 1998, the EPA added four petroleum refining wastes to the list of RCRA hazardous wastes.
In addition, in the course of our vessel operations, we engage contractors to remove and dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous"
under either RCRA or the Clean Water Act and is disposed of in violation of applicable law, we could be found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the
EPA does not currently classify "used oil" as "hazardous waste," provided certain recycling standards are met. However, some states in which we pick up or deliver cargo have classified "used oil" as
"hazardous" under state laws patterned after RCRA. The cost of managing wastes generated by vessel operations has increased in recent years under stricter state and federal standards. Additionally,
from time to time we arrange for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, we might still
be liable for clean up costs under CERCLA or the equivalent state laws.

Air Emissions.

MARPOL
Annex VI came into force in the U.S. in January 2009, although its U.S. implementing regulations have not all been finalized. Our vessels are currently Annex VI compliant.
Accordingly, absent any new and onerous Annex VI implementing regulations, we do not expect to incur material additional costs in order to comply with this convention.

The
U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or 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. Each of our vessels operating in the transport of clean petroleum products in regulated port areas where vapor control standards are required has been outfitted with a vapor
recovery system that satisfies these requirements. In addition, in December 1999, the EPA issued a final rule regarding emissions standards for marine diesel engines. The final rule applies emissions
standards to new engines beginning with the 2004 model year. In the preamble to the final rule, the EPA noted that it may revisit the application of emissions standards to rebuilt or remanufactured
engines, if the industry does not take steps to introduce new pollution control technologies. On December 7, 2007, the EPA published an advanced notice of proposed rulemaking in which the EPA
indicated its intent to increase the control of air pollutant emissions from certain large marine engines. The EPA, however, has yet to formally propose these new regulations. Finally, the EPA
recently entered into a settlement that will expand this rulemaking to include certain large diesel engines not previously addressed in the final rule. Adoption of such standards could require
modifications to some existing marine diesel engines and may require us to incur capital expenditures.

Lightering
activities in Delaware are subject to Title V of the CAA. We are the only marine operator with a Title V permit to engage in lightering operations in Delaware. The State of Delaware is in
non-compliance with EPA requirements for volatile organic compounds ("VOC") and we are the State of Delaware's largest single source of VOCs. Regulations enacted in May 2007 defined
lightering operations and in addition, set limits on both the vapor balancing capability of the service vessels used for lightering and on the maximum volume of uncontrolled (non vapor balanced)
lightering allowed. Reporting periods began in May 2008 with additional restrictions becoming effective in May 2010 and May 2012. At the present time, the OSG DILIGENCE is engaged in vapor balancing
during lightering operations.

The
CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in major metropolitan and industrial areas. Where states fail
to present approvable SIPs, or SIP revisions by certain statutory deadlines, the U.S. government is required to draft a Federal Implementation Plan. Several SIPs regulate emissions resulting from
barge loading and degassing operations by requiring the installation of vapor control equipment. Where required, our vessels are already equipped with vapor control systems that satisfy these
requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase our costs, we believe, based upon the regulations that have been
proposed to date, that no

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material
capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required as a result of the SIPs program.

Individual
states have been considering their own restrictions on air emissions from engines on vessels operating within state waters. California regulations of emissions of diesel particulate matter,
nitrogen oxides and sulfur oxides from the use of certain types of engines on ocean-going vessels within California waters became effective January 1, 2007. On February 27, 2008, the
U.S. Court of Appeals for the 9th Circuit ruled that these California regulations were preempted by federal law. However, on July 24, 2008, the California Air Resources Board adopted new
regulations providing for the phasing-in of requirements that certain vessels operating within 24 nautical miles of the Californian coast reduce air pollution by using only
low-sulfur marine distillate fuel rather than bunker fuel. Our vessels that operate in California waters are in compliance with these regulations.

Coastwise Laws

The
majority of our operations are conducted in the U.S. domestic trade and governed by the coastwise laws of the United States, which we refer to as the Jones Act. The Jones Act restricts marine
transportation between points in the United States to vessels built in and documented under the laws of the United States ("U.S. flag") and owned and manned by U.S. citizens. Generally, an entity is
deemed a U.S. citizen for these purposes so long as:

Because
we could lose our privilege of operating our vessels in the Jones Act trade if non-U.S. citizens were to own or control in excess of 25% of our outstanding partnership interests,
our partnership agreement restricts foreign ownership and control of our partnership interests to not more than a fixed percentage (currently 15%), which is ten percentage points less than the
percentage that would prevent us from being a U.S. citizen for purposes of the Jones Act.

There
have been repeated efforts to repeal or significantly change the Jones Act. In addition, the U.S. government recently granted limited short-term waivers to the Jones Act following
Hurricanes Katrina and Rita, which allowed foreign vessels to operate in the Jones Act trade. Although we believe it is unlikely that the Jones Act will be substantially modified or repealed, there
can be no assurance that Congress will not substantially modify or repeal such laws.

Other

Our
vessels are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs Service and the U.S. Maritime Administration, as well as subject to
rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations establish safety standards and are authorized to investigate vessels and accidents and
to recommend improved maritime safety standards. Moreover, to ensure compliance with applicable safety regulations, the U.S. Coast Guard is authorized to inspect vessels at will.

Workplace Injury Liability

The
Supreme Court has ruled that application of state workers' compensation statutes to maritime workers is unconstitutional. Injuries to maritime workers are therefore covered by the Jones Act, a
separate statute that regulates the U.S. coastwise trade. The Jones Act permits seamen to sue their employers for job-related injuries. In addition, seamen may sue for
work-related injuries under the maritime law doctrine of unseaworthiness. Because we are not generally protected by the limits imposed by state workers' compensation statutes, we
potentially have

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greater
exposure for claims made by these employees as compared to employers whose employees are covered by state workers' compensation laws.

Occupational Safety and Health Regulations

Our
vessel operations are subject to occupational safety and health regulations issued by the U.S. Coast Guard. These regulations currently require us to perform monitoring, medical testing and
recordkeeping with respect to personnel engaged in the handling of the various cargoes transported by our vessels. We believe we are currently in compliance in all material respects with such
occupational safety and health requirements.

Security

In
2002, Congress passed the Maritime Transportation Security Act of 2002 ("MTS Act") which, together with the IMO's recent security proposals, requires specific security plans for our vessels and
more rigorous crew identification requirements. We have implemented vessel security plans and procedures for each of our vessels pursuant to rules implementing the MTS Act issued by the U.S. Coast
Guard. The U.S. Coast Guard has performed security audits on our entire fleet and each vessel was found to be in compliance with our security plans. The U.S. Coast Guard issued security certificates
for each of our vessels, including our tugboats, even though the tugboats are not required to be certified under current regulations.

Vessel Condition

Our
vessels are subject to periodic inspection and survey by, and the shipyard maintenance requirements of, the U.S. Coast Guard, American Bureau of Shipping, or both. We believe we are currently in
compliance in all material respects with the environmental and other laws and regulations, including health and safety requirements, to which our operations are subject. We are unaware of any pending
or threatened litigation or other judicial, administrative or arbitration proceedings against us occasioned by any alleged non-compliance with such laws or regulations. The risks of
substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance that significant costs, liabilities or penalties will not be incurred by or
imposed on us in the future.

ITEM 1A. RISK FACTORS

The following important risk factors could cause actual results to differ materially from those contained in this forward-looking statements made in this report or presented
elsewhere by management from time to time. If any of the circumstances or events described below actually arise or occur, our business, financial condition or operating results could be materially
adversely affected. In that case, we might not be able to pay distributions on our common units and the trading price of our common units could decline.

Risks Inherent in Our Business

We must make substantial capital expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution. In
addition, our general partner is required to deduct estimated maintenance capital expenditures from operating surplus each quarter, which may result in less cash available to unitholders than if
actual maintenance capital expenditures were deducted.

We
must make substantial capital expenditures to maintain the operating capacity of our fleet, which we estimate will be approximately $10 to $20 million per year over the three years ended
December 31, 2011 based on the average remaining life of our existing vessels assuming that the optional vessels are acquired or deliver in accordance with the current schedule. These capital
expenditures include expenditures for drydocking our vessels, modifying our
vessels and acquiring new vessels to replace existing vessels as they reach the end of their useful lives. These expenditures could increase as a result of changes in:

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These
capital expenditures will reduce the amount of cash available for distribution to our unit holders. In addition, our actual maintenance capital expenditures will vary significantly from quarter
to quarter based on, among other things, the number of vessels drydocked during that quarter.

Our
partnership agreement requires our general partner to deduct estimated, rather than actual, maintenance capital expenditures from operating surplus each quarter to reduce fluctuations in operating
surplus. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by the board of directors of our general partner at least once a year,
provided that any change must be approved by our conflicts committee. In years when estimated maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of
cash available for distribution to unit holders will be lower than if actual maintenance capital expenditures were deducted from operating surplus. If our general partner underestimates the
appropriate level of estimated maintenance capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures exceed our previous estimates.

Capital expenditures and other costs necessary to maintain our vessels tend to increase with the age of the vessel.

Capital
expenditures and other costs necessary to maintain our vessels tend to increase and become harder to estimate as a vessel becomes older. Accordingly, it is likely that the operating costs of
our vessels will increase as they age. In the future, market conditions may not justify these expenditures or enable us to operate our older vessels profitably during the remainder of their economic
lives. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and
customer requirements or competition, may require us to make additional capital expenditures on these older vessels.

The capacity of our fleet will be reduced when four of our vessels are phased-out due to OPA 90. Delays or the failure in the delivery of
newbuilds we have agreed to bareboat charter will result in the failure to replace this capacity and the reduction of our operating results. The cost of bringing certain of our vessels into compliance
with OPA 90 will be significant and may cause us to reduce the amount of our cash distributions or prevent us from increasing the amount of our cash distributions.

OPA
90 provides for the scheduled phase-out of all single-hull product carriers and barges carrying oil in U.S. waters. This law will force the retirement of these vessels
unless they are retrofitted with a double hull. Our four single-hull product carriers are due to be phased-out according to the following schedule:

Vessel Name

OPA 90 Retrofit/
Phase-out DateOverseas Philadelphia


May 2012Overseas Galena Bay


October 2012Overseas Puget Sound


May 2013Overseas New Orleans


June 2013


TheOverseas PhiladelphiaandOverseas New Orleansare poor
candidates for retrofitting due to their size. TheOverseas Galena BayandOverseas Puget Soundare better
candidates for retrofitting because they are larger, but we have not yet decided whether we will double-hull these vessels. We will base our final decision on the cost of shipyard work for
retrofitting these vessels, market conditions, charter rates, the availability and cost of financing and other customary factors governing investment decisions. If it is not economical for us to
retrofit these vessels, it will be necessary for us to take them out of service transporting petroleum-based products.

Although
we have agreed to bareboat charter newbuild product carriers from subsidiaries of American Shipping Company ("AMSC"), which could replace the four product carriers that may be retired due to
OPA 90, there is no assurance that AMSC will complete the construction of these vessels. In the event that AMSC does not deliver any or all of these vessels, the capacity of our fleet will be reduced,
which will adversely affect our operating results and the amount of cash available for distribution.

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If
we decide to retrofit theOverseas Galena BayandOverseas Puget Sound, the board of directors of our
general partner, with approval by the conflicts committee, may elect to increase our estimated maintenance capital expenditures, which would reduce our operating surplus and our cash available for
distribution.

We intend to finance the purchase of the newbuild ATBs for which we have options to purchase from OSG with a combination of debt and equity securities.
Depending on how we finance the acquisition of these ATBs, our ability to make cash distributions may be diminished or our unitholders could suffer dilution of their holdings. In addition, if we
expand the size of our fleet, we generally will be required to make significant installment payments for newbuild vessels prior to their delivery and generation of revenue.

We
intend to make substantial capital expenditures to increase the size of our fleet. We have options to purchase from OSG two newbuild ATBs that were to be constructed by Bender Shipbuilding &
Repair Co., Inc. ("Bender") and will now be constructed at an alternative yard. The actual purchase price to be paid upon the exercise of these options will be subject to negotiation
with OSG and the approval of our conflicts committee.

OSG
is currently incurring all costs for the construction and delivery of the two newbuild ATBs. Upon exercise of any of our options, we could finance the purchase in whole or in part by issuing
additional common units, which would dilute your ownership interest in us. We could also use cash from operations, incur borrowings or issue debt securities to fund these capital expenditures. Use of
cash from operations will reduce cash available for distributions. Our ability to obtain bank financing or issue debt securities may be limited by our financial condition at the time of any such
financing and adverse market conditions resulting from, among other things, general economic conditions, contingencies and uncertainties that are beyond our control. Even if we are successful in
obtaining necessary funds, the terms of such financing could limit our ability to pay cash distributions. In addition, incurring additional debt may significantly increase our interest expense, which
could have a material adverse effect on our ability to make cash distributions.

If
we purchase additional newbuilds, it is likely that we will be required to make installment payments prior to their delivery. We typically must pay approximately 5% of the purchase price of a
vessel upon signing the purchase contract, even though delivery of the completed vessel will not occur until much later (approximately two and a half years for current orders). If we finance these
acquisition costs by issuing debt or equity securities, we will increase
the aggregate amount of interest (in the case of debt) or cash required to pay the minimum quarterly distributions (in the case of units) we must make prior to generating cash from the newbuilds.

Our
failure to obtain the funds for necessary future capital expenditures would limit our ability to continue to operate some of our vessels or construct or purchase new vessels.

OSG's ability to obtain business from U.S. government agencies may be adversely affected by a determination by the Military Sealift Command (MSC) that OSG
is not presently responsible for a single contract.

OSG
Product Tankers, LLC ("Product Tankers"), which is an indirect OSG subsidiary (owned through OSG America L.P.), participated in a Request for Proposals issued by the MSC, an agency
of the United States Department of the Navy, to time charter two Jones Act compliant product carriers to the MSC. On June 25, 2007, the United Stated Maritime Administration of the Department
of Transportation ("MarAd"), acting as lead federal agency under the Federal Acquisition Regulation ("FAR"), entered into a compliance agreement with OSG in lieu of suspending or debarring OSG from
business with the U.S. Government based on the December 2006 guilty plea by OSG to violations related to the handling of bilge water and oily mixtures from the engine rooms on certain of its
international flag vessels. Notwithstanding that compliance agreement, on July 6, 2007, the MSC found that Product Tankers was not "responsible," pursuant to the FAR, for the particular
procurement based on the same violations by OSG's international flag vessels and, therefore, was ineligible to time charter the vessels to the MSC. MSC's non-responsibility determination
was upheld by the United States Court of Federal Claims, which ruled that the MSC was not bound by the MarAd's decision as lead federal agency and that the MSC decision was not arbitrary and
capricious.

Although
the MSC decision specifically addresses only the single contract, it may have an adverse effect on OSG's ability to obtain business from the U.S. government. For 2007 and 2008, OSG did not do
any material business with the MSC and, accordingly, did not generate any shipping revenues from the MSC. Historically, OSG has not sought to generate significant revenues from conducting business
with the MSC or other agencies and departments within

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the
U.S. government, nor does OSG intend to in the future. The only business OSG currently conducts with the U.S. government is the participation by two of its vessels in the Maritime Security Program
("MSP"), which is intended to support the operation of up to 60 U.S. Flag vessels in the foreign commerce of the United States to make available a fleet of privately owned vessels to the Department of
Defense during times of war or national emergency. Payments are made under the MSP to vessel operators, including OSG, to help offset the high cost of employing a U.S. crew. Mar Ad, the agency which
decided not to suspend or debar OSG, administers the MSP. To date, the MSC decision has not had an adverse effect on OSG's ability to obtain business from commercial customers.

Our business would be adversely affected if either we or our general partner failed to comply with the Jones Act foreign ownership provisions.

To
maintain our privilege of operating our vessels in the Jones Act trade we must maintain U.S. citizen status for Jones Act purposes. To ensure compliance with the Jones Act, both we and OSG, through
its ownership of our general partner, must be U.S. citizens qualified to document vessels for coastwise trade. Our partnership agreement restricts ownership by non-U.S. citizens of our
outstanding partnership interests to a percentage equal to no more than 24% as determined from time to time by our general partner. Our general partner has determined to initially limit foreign
ownership of our partnership interests to 15%. OSG's governing documents contain similar provisions restricting foreign ownership as determined from time to time by OSG's Board of Directors. OSG's
Board of Directors has limited foreign ownership of OSG's outstanding common stock to 23%.

On
April 16, 2008, OSG announced that U.S. ownership of its common stock at the close of business on April 15, 2008 had declined to 77%, the minimum percentage (the "Minimum Percentage")
that its certificate of incorporation and by-laws mandate must be owned by U.S. citizens. While the percentage of U.S. citizenship ownership of OSG's outstanding common stock fluctuates
daily, the highest it has been since April 15, 2008 has been approximately 3% above the Minimum Percentage. If more than 25% of OSG's outstanding common stock were owned or controlled by
non-U.S. citizens, OSG would no longer qualify as a U.S. citizen for Jones Act purposes. The consequences of OSG's failure to qualify as a U.S. citizen under the Jones Act would have an
adverse effect on us as we would be prohibited from operating our vessels in the U.S. coastwise trade.

Our business would be adversely affected if the Jones Act provisions on coastwise trade were modified or repealed or if changes in international trade
agreements were to occur.

If
the restrictions contained in the Jones Act were repealed or altered, the maritime transportation of cargo between U.S. ports could be opened to foreign-flag or foreign-built vessels.
The Secretary of the Department of Homeland Security, or the Secretary, is vested with the authority and discretion to waive the coastwise laws if the Secretary deems that such action is necessary in
the interest of national defense. On two occasions during 2005, the Secretary, at the direction of the President of the United States, issued limited waivers of the Jones Act for the transportation of
refined petroleum products in response to the extraordinary circumstances created by Hurricanes Katrina and Rita and their effect on Gulf Coast refineries and petroleum product pipelines. Any waiver
of the coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from foreign product carrier and barge operators, which could reduce our revenues
and cash available for distribution.

During
the past several years, interest groups have lobbied Congress to repeal or modify the Jones Act in order to facilitate foreign-flag competition for trades and cargoes currently
reserved for U.S. flag vessels under the Jones Act. Foreign-flag vessels generally have lower construction costs and generally operate at significantly lower costs than we do in U.S.
markets, which would likely result in reduced charter rates. We believe that continued efforts will be made to modify or repeal the Jones Act. If these efforts are successful, foreign-flag
vessels could be permitted to trade in the United States coastwise trade and significantly
increase competition with our fleet, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Additionally,
the Jones Act restrictions on the provision of maritime cabotage services are subject to certain exceptions under certain international trade agreements, including the General Agreement
on Trade in Services and the North American Free Trade Agreement. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or
other international trade agreements, the transportation of maritime cargo between U.S. ports could be opened to foreign-flag or foreign-manufactured vessels.

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We and OSG have reached a nonbinding agreement in principal with American Shipping Company ASA, formerly known as Aker American Shipping ASA ("AMSC") to
provide for a global settlement of a number of issues outstanding between them, including, among other things, settlement of their arbitration concerning AMSC's claim that as a result of OSG's order
of three articulated tug barges ("ATBs") from Bender, AMSC may impose a five year extension of the term of each of the bareboat charters for the ten Jones Act product carriers that we and other
subsidiaries of OSG are chartering from subsidiaries of AMSC. The nonbinding agreement in principle also resolves the dispute as to whether AMSC may unilaterally reverse the building sequence of two
vessels, one of which is to be used as a shuttle tanker.

AMSC
and OSG have signed a nonbinding agreement in principle ("Nonbinding Agreement") to provide for a global settlement of a number of issues outstanding between them, including, among other things,
settlement of the arbitration described below. Implementation of the Nonbinding Agreement is subject to negotiation and signing of definitive agreements and certain other conditions. OSG does not
admit and continues vigorously to deny any triggering of charter extension, any breach of contract, and any wrongdoing whatsoever in connection with its dealings with AMSC, and the Nonbinding
Agreement does not change that or contain any admission or acknowledgment of liability or wrongdoing. The Nonbinding Agreement provides for the dismissal with prejudice of all the claims in the
arbitration, without any payment by OSG of any of AMSC's costs, and contains a number of provisions materially altering the prior agreements between the parties. No assurance can be given that we, OSG
and AMSC will enter into definitive agreements and satisfy the required conditions to implement the Nonbinding Agreement.

If
the Nonbinding Agreement is not implemented, the arbitration will continue. The background of the arbitration is that, on October 25, 2007, AMSC informed us and OSG that AMSC was exercising
its alleged right to extend the bareboat charters for an additional five year period, according to AMSC's calculation (which OSG disputes), as a result of OSG's order of the three ATBs from Bender. At
that time, AMSC also claimed that both we and OSG lost our rights in the separate and independent provision to reduce the fixed terms of the bareboat charters to three years (or one year for the
charters in effect for two or more years) if Aker Philadelphia Shipyard Inc. ("APSI") contracts to build product carriers or ocean going tank barges for third parties.

We
and OSG dispute AMSC's claims because, among other reasons, we and OSG believe that AMSC waived, contracted away, and is otherwise stopped from asserting, its right under its agreement with respect
to the order for the tank barges and further that AMSC violated its agreement with OSG to use its best efforts to negotiate in good faith and agree upon the documentation of the clear agreement
concerning ATBs contained in an agreement with AMSC.

On
January 11, 2008, AMSC sent to OSG and us a notice demanding arbitration of AMSC's claims against OSG and us. We (along with OSG) denied AMSC's claims in the arbitration and brought a
counterclaim against AMSC concerning its October 2007 position with respect to our right to reduce the bareboat charter terms of the vessels should APSI contract to build product carriers or ocean
going tank barges for third parties.

The
parties appointed an arbitration panel, finished discovery and deposed potential witnesses for the arbitration hearing. The arbitration panel held hearings on the merits in November 2008. The
parties have postponed further hearings pending implementation of the Nonbinding Agreement.

A
five year extension of the initial term of the bareboat charters would lengthen the period we required to charter these vessels. This mandatory extension could have an adverse effect on us because
it removes our option to decide if it is advantageous to us to charter each vessel for the five year extension period, the quantification of such adverse effect being dependent upon market conditions
during such five year period. Furthermore, permitting AMSC to compete against usbased on the argument, which AMSC has made and which we dispute, that we has lost our rights in the
separate and independent provision to reduce the fixed terms of the bareboat charters to three years (or one year for charters in effect for two or more years) if APSI contracts to build product
carriers or ocean going tank barges for third partiescould have an adverse effect on us, the quantification of such adverse effect being dependent upon market conditions during the
relevant period. No assurances can be given that our positions with respect to AMSC's claims will be upheld in the arbitration.

On
October 14, 2008, AMSC notified OSG that AMSC was reversing the building sequence of two vessels, one for a product carrier contractually obligated to be delivered on or before
September 19, 2009 to be named the Overseas Cascade, which AMSC has agreed may be converted to a shuttle tanker, and the other for a product carrier

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contractually
obligated to be delivered to OSG on or before January 18, 2010 to be named the Overseas Martinez, which OSG does not have the right to convert to a shuttle tanker. We and OSG
dispute AMSC's ability to make this switch in hulls and delivery dates without OSG's consent, and immediately objected to AMSC's action.

On
October 21, 2008, OSG requested that the arbitration panel that is deciding the merits of the dispute described above also decide expeditiously the merits of the dispute concerning the
change in delivery dates of the Overseas Cascade and Overseas Martinez to avoid or reduce any harm to OSG or its customers from AMSC's unilateral change in delivery dates. The panel agreed to do so
following a decision on the foregoing dispute. No assurance can be given that our and OSG's position that AMSC can not amend the delivery dates of these two vessels without OSG's consent will be
upheld in the arbitration.

Our ability to acquire additional newbuild product carriers may be limited.

While
we have a commercial relationship with AMSC and Aker Philadelphia Shipyard, Inc. ("APSI") through our bareboat charter of newbuild product carriers from AMSC, no assurance can be given
that we or OSG will continue such relationship with AMSC or APSI. If the relationship with AMSC ends, our ability to acquire additional Jones Act compliant newbuild product carriers (other than the
newbuild product carriers that have been agreed to be transferred to us and those that we have the option to acquire) on commercially attractive terms may be adversely affected because there is a
limited number of U.S. shipyards that are capable of constructing product carriers. Such a result could have an adverse effect on our ability to grow our business.

Our debt levels may limit our flexibility to obtain additional financing and to pursue other business opportunities.

Our
level of debt could have important consequences for us, including the following:

Our
ability to service our debt will depend upon, among other things, our future financial and operating performance, which will, in turn, be affected by prevailing economic conditions and financial,
business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take
actions such as reducing distributions, reducing or delaying our acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity
capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

When our credit facilities mature, we may not be able to refinance or replace it.

When
our senior secured revolving credit facility matures, we may need to refinance it and may not be able to do so on favorable terms or at all. If we are able to refinance maturing indebtedness, the
terms of any refinancing or alternate credit arrangements may contain terms and covenants that restrict our financial and operating flexibility.

Our secured term loans and our senior secured revolving credit facility contain restrictive covenants, which may limit our business and financing
activities.

The
covenants in our secured term loans and our senior secured revolving credit facility and any future credit or loan agreement could adversely affect our ability to finance future operations or
capital needs or to engage, expand or pursue our business activities. For example, our senior secured revolving credit facility requires the consent of our lenders or limits our ability to, among
other things:

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Our ability to comply with the covenants in our secured term loans and our senior secured revolving credit facility may be affected by events beyond our control including
economic, financial and industry conditions. If economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we breach any of the covenants, all or a significant
portion of our obligations may become immediately due and payable and our lenders' commitment to make further loans to us may terminate. We may not have or be able to obtain sufficient funds to make
these accelerated payments. For more information regarding our financing arrangements, please read "Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Sources of Capital."

Decreases in U.S. refining activity, particularly in the Gulf Coast region, could adversely affect our ability to grow our fleet, revenues and
profitability.

The
demand for our services is heavily influenced by the level of refinery capacity in the United States, particularly in the Gulf Coast region. Any decline in refining capacity on the Gulf Coast,
even on a temporary basis, may significantly reduce the demand for waterborne movements of refined petroleum products. For example, following Hurricanes Katrina and Rita in 2005, movements of refined
petroleum products from the Gulf Coast were significantly curtailed in 2005 and 2006, with repairs to hurricane-damaged Gulf Coast refineries being completed in late 2006. In 2009, we see proposed
refinery expansions being delayed or not completed. While we expect that these refinery expansions will increase demand for waterborne transportation of refined petroleum products and we intend to
acquire additional product carriers and barges to meet this expected increase in demand if refining capacity is not expanded or decreases from current levels, demand for our vessels could decrease,
which could affect our ability to grow our fleet, revenues and profitability.

Delays or cost overruns in deliveries of newbuild product carriers (including failure to deliver new vessels) will affect our ability to grow and could
harm our operating results.

We
are scheduled to take delivery between 2009 and early 2010 of three newbuild product carriers that we have agreed to bareboat charter from AMSC and to acquire from OSG the right to bareboat charter
from AMSC up to two newbuild product carriers and up to two newbuild shuttle tankers, which are scheduled for delivery between late 2009 and early 2011.

We
also have options to purchase from OSG up to six newbuild ATBs, which were to be constructed by Bender Shipyard & Repair Co. OSG and Bender are negotiating to terminate these
contracts and OSG intends to complete construction of two newbuild ATBs at alternative shipyards. See the next risk factor related to Bender. The delivery of the two vessels have been significantly
delayed and the expected revenues from these vessels may be delayed or eliminated.

Delivery
of any of our vessels could be delayed or canceled or experience cost overruns due to:

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Significant
delays and cost overruns could materially increase our expected contract commitments, which would have an adverse effect on our revenues, borrowing capacity and results of operations.
Furthermore, delays would result in vessels being out-of-service for extended periods of time, and therefore not earning revenue, which could have a material adverse effect on
our financial condition and results of operations. Our remedies for losses resulting from shipyards' failure to comply with their contractual commitments may be limited by the relevant contracts,
including by liquidated damages provisions. If a U.S. shipyard fails to deliver a contracted vessel, our investment may be supported only by our liens on the work in progress, which may result in a
loss of part or all of our investment.

Bender Shipbuilding & Repair Co., Inc.'s ("Bender") inability to deliver and incurrence of cost overruns in constructing new vessels
has adversely affected us and OSG.

During
the fourth quarter of 2008 and in early 2009, we and OSG became increasingly concerned about Bender's ability to deliver the six ATBs and two tugs that we and OSG agreed to purchase from Bender
in accordance with the terms of the construction agreements for such vessels including as a result of Bender's lack of performance under such agreements and its lack of liquidity and poor financial
condition. Contracted delivery dates for certain vessels have been significantly delayed from the original contract delivery dates and, in 2009, Bender requested substantial price increases on all the
contracted vessels. As a result, we and OSG began negotiations with Bender to end the contractual agreements. We and OSG intend to complete two of the six ATBs and two tugboats at alternative yards.
We and OSG continue to pursue negotiations with Bender regarding the termination of our contracts. The outcome of the negotiations is uncertain and no assurance can be given that a settlement will be
reached and implemented or that Bender's liquidity position and financial condition will not significantly worsen. Should these matters not be resolved to the satisfaction of OSG and us, we may have
to take an impairment charge. The book value of the two tugs was $25.4 million at December 31, 2008. See Note N to our consolidated financial statements set forth in
Item 8.

We are subject to certain credit risks with respect to its counterparties on contracts and failure of such counterparties to meet their obligations could
cause us to suffer losses on such contracts, decreasing revenues and earnings

We
charter our vessels to other parties, who pay us a daily rate of hire. We also enter into Contracts of Affreightment ("COAs") and Voyage Charters. As we increase the portion of our revenues from
time charters, such action increases our reliance on the ability of time charterers to pay charter hire, especially when spot market rates are less than previously agreed upon time charter rates.
Historically, we have not experienced any material problem collecting charter hire but the global economic recession that commenced in 2008 may affect charterers more severely than the prior
recessions that have occurred. In addition, we enter into derivative contracts such as interest rate swaps. All of
these contracts subject us to counterparty credit risk. As a result, we are subject to credit risks at various levels, including with charterers or cargo interests. If the counterparties fail to meet
their obligations, we could suffer losses on such contracts which would decrease revenues and earnings.

Drydocking of our vessels may require substantial expenditures and may result in the vessels being off-hire for significant periods of time,
which could affect our ability to make cash distributions.

Each
of our vessels undergoes scheduled and, on occasion, unscheduled shipyard maintenance. The U.S. Coast Guard requires our vessels to be drydocked for inspection and maintenance twice every five
years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage or for capital improvements. Because costs for drydocking our fleet are difficult to estimate
and may be higher than we currently anticipate, we may not have sufficient available cash to pay the minimum quarterly distribution in full. In addition, vessels in drydock will not generate any
income, which will reduce our revenue and cash available to make distributions on our units.

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In
addition, the time when a vessel is out of service for maintenance is determined by a number of factors including regulatory deadlines, market conditions, shipyard availability and customer
requirements. Because U.S. shipyards have limited availability for drydocking a vessel, they may not have the capacity to perform drydock maintenance on our vessels at the times required, particularly
in the event of an unscheduled drydock due to accident. This may require us to have the work performed at an overseas shipyard and result in the vessel being off-hire for a longer period
of time.

We have high levels of fixed costs that will be incurred regardless of our level of business activity.

Our
business has high fixed costs that continue even if our vessels are not in service. In addition, low utilization due to reduced demand or other causes or a significant decrease in charter rates
could have a significant negative effect on our operating results and financial condition.

Operating costs and capital expenses will increase as our vessels age

In
general, capital expenditures and other costs necessary for maintaining a vessel in good operating condition increase as the age of the vessel increases. Accordingly, it is likely that the
operating costs of our older vessels will increase. In addition, changes in governmental regulations and compliance with Classification Society standards may require us to make additional expenditures
for new equipment. In order to add such equipment, we may be required to take our vessels out of service. There can be no assurance that market conditions will justify such expenditures or enable us
to operate our older vessels profitably during the remainder of their economic lives.

We may not be able to renew time charters when they expire or obtain new time charters.

Of
our product carriers and barges currently employed under time charters or other term contracts, the time of firm employment on five expires within the next 12 months. There can be no
assurance that any of our existing time charters will be renewed or renewed at favorable rates. In addition, if the time charters for five of our product carriers that we have agreed to bareboat
charter from subsidiaries of AMSC are not renewed or are not renewed at favorable rates and we cannot obtain new time charters at favorable rates or the market for such product carriers is otherwise
unfavorable, we may decide not to extend the bareboat charters for such product carriers. In that event, we would return any such vessel and may be required to repay the balance of the DPO liability
upon delivery of such vessel. Please read "BusinessBareboat Charters from AMSC of Our NewbuildsAMSC's Debt and Deferred Principal Obligation."

An increase in the supply of Jones Act vessels without an increase in demand for such vessels could cause charter rates to decline, which could have a
material adverse effect on our revenues and profitability.

The
supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels. As of December 31, 2008, the Jones Act product carrier and barge
order book consisted of firm orders for 26 vessels over 16,000 dwt. No assurance can be given that the order book will not increase further in proportion to the existing fleet. If the number of
newbuild vessels delivered exceeds the number of vessels being scrapped, capacity will increase. In addition, any retrofitting of existing product carriers and barges may result in additional capacity
that the market will not be able to absorb at the anticipated demand levels. If supply increases and demand does not, the charter rates for our vessels could decline significantly.

We may be unable to make or realize expected benefits from acquisitions and implementing our growth strategy through acquisitions may harm our business,
financial condition and operating results.

Our
growth strategy is based upon the expansion of our fleet. Our ability to grow our fleet depends upon a number of factors, many of which we cannot control. These factors include our ability to:

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Any
acquisition of a vessel or business may not be profitable and may not generate returns sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that
may harm our business, financial condition and operating results, including the risks that we may:

We depend on OSG and its affiliates to assist us in operating and expanding our business.

Pursuant
to a management agreement between us and OSG's subsidiary, OSG Ship Management, Inc. ("OSGM"), OSGM will provide us with significant commercial and technical management services
(including the commercial and technical management of our vessels, vessel maintenance, crewing, purchasing, insurance and shipyard supervision). Please read "Certain Relationships and Related
TransactionsManagement Agreement" for a description of this agreement. In addition, pursuant to an administrative services agreement between us and OSGM, OSGM will provide us with
significant administrative, financial and other support services. Please read "Certain Relationships and Related TransactionsAdministrative Services Agreement" for a description of this
agreement. Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance by OSGM of these services and our business will be harmed if
OSGM fails to perform these services satisfactorily, cancels either of these agreements or stops providing these services. We may also contract with OSG for the construction of newbuilds for our fleet
and to arrange the construction-related financing.

Our
ability to enter into new charters and expand our customer relationships will depend largely on our ability to use advantageously our relationship with OSG and its reputation and relationships in
the shipping industry, including with
customers, shipyards and suppliers. If OSG suffers material damage to its reputation or relationships, it may harm our ability to:

Our growth depends on our ability to compete successfully against other shipping companies to expand relationships with existing customers and obtain new
customers.

While
longer-term time charters have the potential to provide income at pre-determined rates over the duration of the charters, the competition for such charters is intense and
obtaining such charters generally requires a lengthy and time consuming screening and bidding process that may extend for months. In addition to the quality, age and

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suitability
of the vessel, longer-term time charters tend to be awarded based upon a variety of factors relating to the vessel operator, including the operator's:

We derive our revenues from certain major customers and the loss of any of these customers or time charters with any of them could result in a significant
loss of revenues and cash flow.

During
the three years ended December 31, 2008, we derived revenues from certain major customers, each one representing more than 10% of revenues. In 2008, revenues from four customers
aggregated 46% of total revenues.
At any given time in the future, the cash reserves of our customers may be diminished or exhausted and we cannot assure you that the customers will be able to make charter payments to us. If our
customers are unable to make charter payments to us, our results of operations and financial condition will be materially adversely affected. In addition, we could lose a charterer or the benefits of
a time charter because of disagreements with a customer or if a customer exercises specific limited rights to terminate a charter. The loss of any of our customers or time charter with them, or a
decline in payments under our charters, could have a material adverse effect on our business, results of operations and financial condition and our ability to pay cash distributions.

A decrease in the demand for our lightering services resulting from the deepening of the Delaware River or conditions affecting the Delaware Bay
refineries could adversely affect our business and results of operations.

We
perform lightering services for inbound crude-oil tankers carrying crude oil up the Delaware River to refineries in the Delaware Bay. Shipping revenues for the lightering operations
constituted 15.5%, or $44.3 million, of shipping revenues for the year ended December 31, 2008 and 7.9%, or $16.8 million, of our shipping revenues for the year ended
December 31, 2007. Legislation approved by Congress in 1992 authorized the Army Corps of Engineers to deepen the Delaware River between the river's mouth and the port of Philadelphia. For
various reasons, including opposition from environmental groups and funding difficulties, the dredging project has not begun. If this project is funded, the required environmental permits are obtained
and the refineries dredge their private channels, it would significantly reduce our lightering business by allowing arriving crude-oil tankers to proceed up the river with larger loads. In
addition, our lightering business would be adversely affected if any of the Delaware Bay refineries ceased or scaled back its operations.

Certain potential customers will not use vessels older than a specified age, even if they have been recently rebuilt.

All
of our existing tug-barge units were originally constructed more than 25 years ago. While all of these tug-barge units were rebuilt and double-hulled since 1998 and
are "in-class," meaning the vessel has been certified by a classification society as being built and maintained in accordance with the rules of that classification society and complies
with the applicable rules and regulations of the vessel's country of registry and applicable international conventions, some potential customers have stated that they will not charter vessels that are
more than 20 years old, even if they have been rebuilt. Although there has to date been no material difference in time charter rates earned by a vessel of a specified age and a rebuilt vessel
of the same age measured from the date of rebuilding, no assurance can be given that most customers will continue to view rebuilt vessels as comparable to newbuild vessels. If more

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customers
differentiate between rebuilt and newbuild vessels, time charter rates for our rebuilt ATBs will likely be adversely affected.

The U.S. flag shipping industry is unpredictable, which may lead to lower charter hire rates and lower vessel values.

The
nature, timing and degree of changes in U.S. flag shipping industry conditions are unpredictable and may adversely affect the values of our vessels and may result in significant fluctuations in
the amount of charter hire we earn, which could result in significant fluctuations in our quarterly results. Charter rates and vessels values may fluctuate over time due to changes in the demand for
U.S. flag product carriers and barges.

The
factors that influence the demand for U.S. flag product carriers and barges include:

Decreased utilization of our vessels due to bad weather could have a material adverse effect on our operating results and financial condition.

Unpredictable
weather patterns tend to disrupt vessel scheduling and supplies of refined petroleum products and our vessels and their cargoes are at risk of being damaged or lost because of bad
weather. In addition, adverse weather conditions can cause delays in the delivery of newbuilds and in transporting cargoes. Under our spot voyage charters, we bear the risk of delays due to weather
conditions.

A decrease in the cost of importing refined petroleum products could cause demand for U.S. flag product carrier and barge capacity and charter rates to
decline, which would decrease our revenues and our ability to pay cash distributions on our units.

The
demand for U.S. flag product carriers and barges is influenced by the cost of importing refined petroleum products. Historically, charter rates for vessels qualified to participate in the U.S.
coastwise trade under the Jones Act have been higher than charter rates for foreign flag vessels. This is due to the higher construction and operating costs of U.S. flag vessels under the Jones Act
requirements that such vessels must be built in the United States and manned by U.S. crews. This has made it less expensive for certain areas of the United States that are underserved by pipelines or
which lack local refining capacity, such as in the Northeast, to import refined petroleum products carried aboard foreign flag vessels than to obtain them from U.S. refineries. If the cost of
importing refined petroleum products decreases to the extent that it becomes less expensive to import refined petroleum products to other regions of the East Coast and the West Coast than producing
such products in the United States and transporting them on U.S. flag vessels, demand for our product carriers and barges and the charter rates for them could decrease.

Our
business would be adversely affected if we failed to comply with the Jones Act provisions on coastwise trade. We are subject to the Jones Act and other federal laws that restrict maritime cargo
transportation between points in the United States only to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens (or owned and operated by
other entities meeting U.S. citizenship requirements to own vessels operating in the U.S. coastwise trade and, in the case of limited partnerships, where the general partner meets U.S. citizenship
requirements) and manned by U.S. crews. We are also responsible for monitoring the ownership of our common units and other partnership interests to ensure compliance with the Jones Act. If we do not
comply with these restrictions, we would be prohibited from operating our vessels in the U.S. coastwise trade and, under certain circumstances, we would be deemed to have undertaken an unapproved
foreign transfer resulting

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in
severe penalties, including permanent loss of U.S. coastwise trading rights for our vessels, fines or forfeiture of vessels.

We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing
business.

Increasingly
stringent federal, state and local laws and regulations governing worker health and safety, insurance requirements and the manning, construction, operation and transfer of vessels
significantly affect our operations. Many aspects of the marine transportation industry are subject to extensive governmental regulation by the U.S. Coast Guard, the Department of Transportation, the
Department of Homeland Security, the Environmental Protection Agency, the National Transportation Safety Board, the U.S. Customs Service and the U.S. Maritime Administration, as well as regulation by
private industry organizations, such as the American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel
accidents and recommend improved safety standards. The U.S. Coast Guard is authorized to inspect vessels at will.

Our
operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental
protection. In order to maintain compliance with environmental laws and regulations, we incur, and expect to continue to incur, substantial costs in meeting maintenance and inspection requirements,
developing and implementing emergency preparedness procedures and obtaining insurance coverage or other required evidence of financial ability sufficient to address pollution incidents. Environmental
requirements can also:

If
we fail to comply with applicable environmental laws or regulations, such non-compliance could result in substantial civil or criminal fines or penalties and other sanctions, including
in certain instances, seizure or detention of our vessels.

In
addition, some environmental laws impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability even if we are neither
negligent nor at fault. Under OPA 90, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic
zone around the United States. In addition, an oil spill or other release of hazardous substances could result in significant liability, including fines, penalties, criminal liability and costs for
natural resource damages under other federal and state laws, third party personal injury or property damage claims or other civil actions. The potential for oil spills or other releases could increase
as we increase the size of our fleet. Most states bordering on a navigable waterway have also enacted legislation providing for potentially unlimited liability for the discharge of pollutants within
their waters. For more information, please read "BusinessRegulation."

We
believe that regulation of the shipping industry will continue to become more stringent and more expensive for us and our competitors. In addition, a serious marine incident occurring in U.S.
waters that results in significant oil pollution could result in additional legislation or regulation. Future environmental requirements may be adopted that could limit our ability to operate or
require us to incur substantial additional costs.

Marine transportation is inherently risky and an incident involving significant loss of environmental contamination by any of our vessels could harm our
reputation and business.

Our
vessels and their cargoes are at risk of being damaged or lost because of events such as:

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An
accident involving any of our vessels could result in any of the following:

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.

The
operation of vessels that carry crude oil or refined petroleum products is inherently risky. Although we carry insurance to protect against most of the accident-related risks involved in the
conduct of our business, risks may arise for which we are not adequately insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our
operations. Any particular claim may not be paid by our insurance and any claims covered by insurance would be subject to deductibles, the aggregate amount of which could be material. Any uninsured or
underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to
maintain certification with applicable maritime self-regulatory organizations. Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to obtain a
replacement ship in a timely manner in the event of a loss.

In
addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future. In the past, new and stricter environmental regulations have led to higher costs
for insurance covering environmental damage or pollution and new regulations could lead to similar increases, or even make this type of insurance unavailable. Changes in the insurance markets
attributable to terrorist attacks may also make certain types of insurance more difficult to obtain. The insurance that may be available to us in the future may be significantly more expensive than
our existing coverage.

Certain
of our insurance coverage is maintained through mutual protection and indemnity associations and, as a member of such associations, we may be required to make additional payments over and
above budgeted premiums if member claims exceed the reserves of the association. We may be subject to calls or premiums in amounts based not only on our own claim records, but also the claim records
of all other members of protection and indemnity associations through which we obtain insurance coverage for tort liability. Our payment of these calls could result in significant additional expenses.

Increased competition from pipelines could result in reduced profitability.

We
compete with pipelines that carry refined petroleum products. Long-haul transportation of refined petroleum products is generally less costly by pipeline than by vessel. The
construction of new pipelines to carry refined petroleum products into the markets we serve, including pipeline segments that connect with existing pipelines, the expansion of existing pipelines and
the conversion of pipelines that do not currently carry refined products, could adversely affect our ability to compete in particular locations. For example, the long haul pipeline that delivers
refined product from Houston to El Paso has resulted in a reduction in the number of long haul movements to the West Coast from the Gulf of Mexico. In addition, a previous proposal to build a refined
petroleum products pipeline through the Gulf of Mexico from Mississippi to Tampa, Florida was abandoned in 2006, the construction of any such pipeline in the future could decrease demand for our
product carriers and barges and cause our charter rates to decline.

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An increase in the price of fuel may adversely affect our business and results of operations.

The
cost of fuel for our vessels is a significant component of our voyage expenses under our voyage charters and we have recently experienced significant increases in the cost of fuel used in our
operations. While we have been able to pass a portion of these increases on to our customers pursuant to the terms of our charters, there can be no assurances that we will be able to pass on any
future increases in fuel prices. If fuel prices continue to increase and we are not able to pass such increases on to our customers, our business, results of operations, financial condition and
ability to make cash distributions may be adversely affected.

Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur
a loss.

Vessel
values for our fleet can fluctuate substantially over time due to a number of different factors, including:

Our
inability to dispose of a vessel at a certain value could result in a loss on its sale. Declining vessel values could adversely affect our liquidity by limiting our ability to raise cash by
arranging debt secured by our vessels or refinancing such debt. Declining vessel values could also result in a breach of loan covenants or trigger events of default under relevant financing agreements
that require us to maintain certain loan-to-value ratios. In such instances, if we are unable to pledge additional collateral to offset the decline in vessel values, our
lenders could accelerate our debt and foreclose on our vessels pledged as collateral for the loans.

Maritime claimants could arrest 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 that vessel for unsatisfied debts, claims or damages. In many
jurisdictions, a maritime lien holder may enforce its lien 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 whatever amount may be required to have the arrest lifted.

The U.S. government could requisition our vessels during a period of war or emergency without adequate compensation.

The
U.S. government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its owner. Requisition for
hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although
governments may elect to requisition vessels in other circumstances. Although
we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our
vessels may negatively impact our revenues.

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The global economic recession and constraints on capital availability that commenced in 2008 adversely affects the tanker industry and our business

The
current global economic recession and constraints on capital have adversely affected the financial condition of entities throughout the world, including certain of our customers, joint ventures,
financial lenders and suppliers, including shipyards from whom we have contracted to purchase vessels. Those entities that suffer a material adverse impact on their financial condition may be unable
to comply with their contractual commitments to us which, in turn, could have an adverse impact on us. While we seek to monitor the financial condition of such entities, the availability and accuracy
of information about the financial condition of such entities may be limited and the actions that we may take to reduce possible losses resulting from the failure of such entities to comply with their
contractual obligations may be restricted.

Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

Terrorist
attacks may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the Middle East may lead to
additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute further to economic instability and disruption of oil and
petroleum production and distribution, which could in turn result in reduced demand for our services.

In
addition, oil and petroleum facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily
injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport oil and petroleum to or from certain locations.
Terrorist attacks, war or other events beyond our control that adversely affect the distribution, production or transportation of oil or petroleum to be shipped by us could entitle our customers to
terminate the charters for our vessels, which would harm our cash flow and our business.

Terrorist
attacks, or the perception that oil and petroleum facilities and carriers are potential terrorist targets, could materially and adversely affect expansion of oil and petroleum infrastructure
and the continued supply of oil and petroleum to the United States and other countries. Concern that oil and petroleum facilities may be targeted for attack by terrorists has contributed to
significant community and environmental resistance to the construction of a number of oil and petroleum facilities, primarily in North America. If a terrorist incident involving an oil and petroleum
facility or carrier did occur, the incident may adversely affect construction of additional oil and petroleum facilities in the United States and other countries or the temporary or permanent closing
of various oil and petroleum facilities currently in operation.

In
addition, heightened awareness of security needs after the terrorist attacks of September 11, 2001 has caused the U.S. Coast Guard, the International Maritime Organization and the states and
local ports to adopt heightened security procedures relating to ports and vessels. Complying with these procedures, as well as the implementation of security plans for our vessels required by the
Maritime Transportation Security Act of 2002, have increased our costs of security.

We depend on key personnel of OSGM for the success of our business and some of those persons face conflicts in the allocation of their time to our
business.

We
depend on the services of our senior management team and other key personnel of OSGM. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or key
employees if their services were no longer available. In addition, OSGM may not be able to hire vessel personnel meeting its standards if we expand our fleet. As a result of the planned expansion of
our fleet through the construction of new vessels, OSGM may also need to hire additional key technical, support and other qualified personnel to ensure that construction is completed timely and on
budget. If OSGM is unsuccessful in attracting such personnel, it could have a material adverse effect on our business, results of operations and financial condition.

In
addition, our senior management and many of the other key personnel of OSGM are not required to work full-time on our affairs and also work for affiliates of our general partner,
including OSG. The affiliates of our general partner conduct substantial businesses and activities of their own in which we have no economic interest. As a result, these individuals may face conflicts
regarding the allocation of their time between our business and OSG's business, resulting in these employees spending less time in managing our business and affairs than they do currently.

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Risks Related to Our Common Units

Following the establishment of cash reserves and payment of fees and expenses, including payments to our general partner, we may not have sufficient cash
from operations to enable us to pay the minimum quarterly distribution on our common units.

Following
the establishment of cash reserves and the payment of fees and expenses, including payments to our general partner, we may not have sufficient cash available each quarter to pay the minimum
quarterly distribution of $0.375 per common unit. The amount of cash we can distribute on our common units principally depends upon the amount of cash we generate from our operations, which may
fluctuate from quarter to quarter based on risks inherent in our business, including, among other things:

The
actual amount of cash we will have available for distribution will also depend on other factors, some of which are beyond our control, such as:

The
amount of cash we generate from our operations may differ materially from our profit or loss for the period, which will be affected by non-cash items. As a result of this and the other
factors mentioned above, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.

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OSG controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its
affiliates, including OSG, have conflicts of interest with us and limited fiduciary duties, and may favor their own interests to your detriment.

OSG
owns a 77.1% interest in us, including a 2% interest through our general partner, which OSG owns and controls. Although our general partner has a fiduciary duty to manage us in a manner beneficial
to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to its owner, OSG. Furthermore, all of the
officers of our general partner and four of the directors of our general partner are officers of OSG or its affiliates and, as such, they have fiduciary duties to OSG that may cause them to pursue
business strategies that favor OSG or which otherwise are not in the best interests of us or our unitholders. Therefore, conflicts of interest may arise between OSG and its affiliates, including our
general partner and its officers, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner and its affiliates may favor their own
interests over the interests of our unitholders. These conflicts include, among others, the following:

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OSG
and its affiliates may engage in competition with us. Pursuant to the omnibus agreement entered into between us and OSG, OSG and its controlled affiliates (other than us, our general partner and
our subsidiaries) will agree not to engage in or acquire or invest in any business that provides marine transportation or distribution services in connection with the transportation of crude oil and
refined petroleum products by water between points in the United States to which the United States coastwise laws apply, to the extent such business generates qualifying income for federal income tax
purposes. The omnibus agreement, however, contains significant exceptions that may allow OSG or any of its controlled affiliates to compete with us, which could harm our business. Please read "Certain
Relationships and Related TransactionsOmnibus AgreementNoncompetition."

We do not have 100% ownership of some of our operating assets and may need the consent of third parties to take certain actions, which may prevent us from
operating or dealing with those assets as we deem them appropriate or necessary.

We
do not have 100% ownership of some of our operating assets, such as the product carriers we bareboat charter from AMSC and our economic interests in Alaska Tanker Company, LLC. By not having
complete ownership of these and other assets, we may need to obtain prior consent of third parties to take certain commercial actions. If we are unable to obtain such consents on commercially
reasonable and satisfactory terms, our ability to operate or deal with those assets may be adversely affected.

Our partnership agreement limits our general partner's fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions
taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our
partnership agreement contains provisions that reduce the fiduciary standards to which our general partner would otherwise be held by Delaware law. For example, our partnership agreement:

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Cost reimbursements payable to our general partner and its affiliates, which will be determined by our general partner, will be substantial and will
reduce our cash available for distribution to you.

Prior
to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf, including a portion of the compensation of our
directors and officers who are employees of OSG for the time they spend on partnership matters, which will be determined by our general partner. These expenses will include all costs incurred by our
general partner and its affiliates in providing certain commercial and technical management services and administrative, financial and other support services to us and certain of our subsidiaries,
including services rendered to us pursuant to the agreements described below under "Certain Relationships and Related Party TransactionsManagement Agreement" and Certain Relationships and
Related Party TransactionsAdministrative Services Agreement." The reimbursement of expenses to our general partner and its affiliates could adversely affect our ability to pay cash
distributions to you. In addition, under Delaware partnership law, our general partner has unlimited liability for our obligations, such as our debts and environmental liabilities, except for our
contractual obligations that are expressly made without recourse to our general partner. To the extent our general partner incurs obligations on our behalf, we are obligated to reimburse or indemnify
it. If we are unable or unwilling to reimburse or indemnify our general partner, our general partner may take actions to cause us to make payments of these obligations and liabilities. Any such
payments could reduce the amount of cash otherwise available for distribution to our unitholders.

Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors, which could reduce the price at
which the common units will trade.

Unlike
the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions
regarding our business. Unitholders did not elect our general partner or its board of directors and will have no right to elect our general partner or its board of directors on an annual or any other
continuing basis. The board of directors of our general partner, including the independent directors, is chosen by OSG. Furthermore, if unitholders are dissatisfied with the performance of our general
partner, their ability to remove our general partner is limited. As a result of these limitations in the rights of our unitholders, the price at which the common units will trade could be diminished
because of the absence or reduction of a takeover premium in the trading price.

Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

The
vote of the holders of at least 662/3% of all outstanding common and subordinated units voting together as a single class is required to remove our general partner. OSG owns 77.1%
of our common units and subordinated units. Therefore, unitholders will be unable initially to remove our general partner without its consent because our general partner and its affiliates will own
sufficient units to prevent its removal.

Also,
if our general partner is removed without "cause" during the subordination period and units held by our general partner and OSG are not voted in favor of that removal, all remaining subordinated
units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. The removal of our general partner under these circumstances would
adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain
distribution and performance targets. "Cause" is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment
finding our general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. "Cause" does not include most cases of alleged poor management of the
business, so the removal of our general partner because of the

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unitholders'
dissatisfaction with our general partner's performance in managing our partnership will most likely result in the termination of the subordination period and the conversion of all
subordinated units to common units.

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

Our
partnership agreement restricts unitholders' voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general
partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter. The partnership
agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the ability of the
unitholders to influence the manner or direction of management.

The control of our general partner may be transferred to a third party without unitholder consent.

Our
general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders, so long as the
third party satisfies the citizenship requirements of the Jones Act. In addition, our partnership agreement does not restrict the ability of OSG or any subsequent member of our general partner from
transferring all or a portion of its membership interests in our general partner to a third party as long as the citizenship requirements of the Jones Act are satisfied. In the event of any such
transfer, the new member or members of our general partner would be in a position to replace the board of directors and officers of our general partner with their own designees and thereby influence
the decisions taken by the board of directors and officers.

We may issue additional equity securities without unitholders' approval, which would dilute the ownership interests.

Our
general partner, without the approval of our unitholders, may cause us to issue an unlimited number of additional units or other equity securities, subject to any limitations imposed by the New
York Stock Exchange. The issuance by us of additional common units or other equity securities may have the following effects:

OSG may sell units in the public or private markets, which may have adverse effects on the price of our common units.

OSG
holds 8,000,435 common units and 15,000,000 subordinated units, representing a 75.1% limited partner interest in us. All of the subordinated units will convert into common units at the end of the
subordination period, which could occur as early as the first business day after September 30, 2010, and all of the subordinated units may convert into common units earlier than such date if
additional tests are satisfied. OSG may, from time to time, sell all or a portion of its common units or subordinated units in the public or private markets. Sales of any of these units, or the
anticipation of such sales, could lower the market price of our common units and may make it more difficult for us to sell our equity securities in the future at a time and at a price that we deem
appropriate.

We
have granted registration rights to our general partner and its affiliates, including OSG, and their assignees. These registration rights continue for two years following any withdrawal or removal
of our general partner. These unitholders have the right, subject to some conditions, to require us to file registration statements covering any of our common, subordinated or other equity securities
owned by them or to include those securities in registration

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statements
that we may file for ourselves or our unitholders. By exercising their registration rights and selling a large number of common units or other securities, these unitholders could cause the
price of our common units to decline.

We have a holding company structure in which our subsidiaries conduct our operations and own our operating assets, which may affect our ability to make
distributions to you.

We
have a holding company structure and our operating subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than our ownership interests
in our subsidiaries and our equity investments. As a result, our ability to make distributions on our common units depends on the performance of our subsidiaries and our equity investments and their
ability to distribute funds to us. The ability of our subsidiaries and joint ventures to make distributions to us may be restricted by, among other things, the provisions of existing and future
indebtedness, applicable state partnership and limited liability company laws and other laws and regulations. If we are unable to obtain the funds necessary to make distributions on our common units,
we may be required to adopt one or more alternatives, such as borrowing funds to make distributions on our common units. We cannot assure our unit holders that we would be able to borrow funds to make
distributions on our common units.

Our partnership agreement currently limits the ownership of our partnership interests by individuals or entities that are not U.S. citizens. This
restriction could limit the liquidity of our common units.

In
order to ensure compliance with Jones Act citizenship requirements, the board of directors of our general partner has adopted a requirement that at least 85% of the interests in our partnership
must be held by U.S. citizens. This requirement may have an adverse impact on the liquidity or market value of our common units because holders will be unable to sell units to non-U.S.
citizens. Any purported transfer of common units in violation of these provisions will be ineffective to transfer the common units or any voting, dividend or other rights associated with them.

In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

Our
partnership agreement requires our general partner to deduct cash reserves from our operating surplus that it determines are necessary to fund our future operating expenditures. These reserves
will affect the amount of cash available for distribution to our unitholders. Our general partner may establish reserves for distributions on the subordinated units, but only if those reserves will
not prevent us from distributing the full minimum quarterly distribution, plus any arrearages, on the common units for the following four quarters. Our partnership agreement requires our general
partner each quarter to deduct from operating surplus estimated maintenance capital expenditures, as opposed to actual expenditures, which could reduce the amount of available cash for distribution.
The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by the board of directors of our general partner at least once a year, provided
that any change must be
approved by the conflicts committee. In addition, see above "Risks Inherent in Our BusinessWe must make substantial capital expenditures to maintain the operating capacity of our fleet,
which will reduce our cash available for distribution. In addition, our general partner is required to deduct estimated maintenance capital expenditures from operating surplus each quarter, which may
result in less cash available to unitholders than if actual maintenance capital expenditures were deducted."

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price and is not required to obtain
a fairness opinion in connection with the exercise of its call right.

If
at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not less than their then-current market price as determined in accordance with our partnership agreement. Our general partner may
assign this right to any of its affiliates or to us. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You
may also incur a tax liability upon a sale of your units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon
exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our
general partner exercised its limited call right, the effect would be to take us private

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and,
if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934.

OSG
owns common units representing a 26.1% limited partner interest in us, together with 15,000,000 subordinated units representing an additional 49% limited partnership interest in us. At the end of
the subordination period, assuming no additional issuances of common units, and conversion of our subordinated units into common units, OSG will own common units representing a 75.1% limited partner
interest in us. Our general partner and its affiliates may own enough of our common units to enable our general partner to exercise its call right.

Our general partner may elect to cause us to issue Class B units and general partner units to it in connection with a resetting of the target
distribution levels related to our general partner's incentive distribution rights, without the approval of the conflicts committee of our general partner or our unitholders. This could result in
lower distributions to our common unitholders.

Our
general partner has the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48%) for each
of the prior four consecutive quarters,
to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by our general partner,
the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset election (we
refer to this amount as the "reset minimum quarterly distribution") and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset
minimum quarterly distribution amount.

In
connection with resetting these target distribution levels, our general partner will be entitled to receive a number of Class B units and general partner units. The Class B units will
be entitled to the same cash distributions per unit as our common units and will be convertible into an equal number of common units. The number of Class B units to be issued will be equal to
the number of units whose aggregate quarterly cash distributions equaled the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters. The
number of general partner units to be issued will be an amount that will maintain our general partner's ownership interest immediately prior to the reset election. We anticipate that our general
partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such
conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or may be expected to experience, declines in the cash distributions
it receives related to its incentive distribution rights and may therefore desire to be issued our Class B units rather than retain the right to receive incentive distributions based on the
initial target distribution levels. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received
had we not issued new Class B units and general partner units to our general partner in connection with resetting the target distribution levels related to our general partner's incentive
distribution rights.

If we make distributions out of capital surplus, as opposed to operating surplus, such distributions will constitute a return of capital and will result
in a reduction in the minimum quarterly distribution and the target distribution levels.

Our
partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price, which is a return of capital. The initial offering price less any distributions of
capital surplus per unit is referred to as the "unrecovered capital." Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be
reduced in the same proportion as the corresponding reduction in the unrecovered capital per unit, which would adversely affect the amount of distributions you would receive. Because distributions of
capital surplus will reduce the minimum quarterly distribution, after any of these distributions it may be easier for our general partner to receive incentive distributions and for the subordinated
units to convert into common units. However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages. We do not anticipate that we will make any distributions from capital surplus.

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Unitholders may not have limited liability if a court finds that unitholder action constitutes control of our business.

As
a limited partner in a partnership organized under Delaware law, you could be held liable for our obligations to the same extent as a general partner if a court or government agency determined
that:

Our
general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the
partnership that are expressly made without recourse to our general partner. In addition, the limitations on the liability of holders of limited partner interests for the obligations of a limited
partnership have not been clearly established in some other jurisdictions in which we do business.

We can borrow money to pay distributions, which would reduce the amount of borrowing capacity available to operate our business.

Our
partnership agreement will allow us to make working capital borrowings to pay distributions. Accordingly, we can make distributions on all our units even though cash generated by our operations
may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the amount of working capital borrowings available for operating our business.
For more information, please read "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Sources of CapitalSenior Secured
Revolving Credit Facility."

Restrictions in our debt agreements will limit our ability to pay distributions upon the occurrence of certain events.

Our
senior secured revolving credit facility and our secured term loans limit our ability to pay distributions upon the occurrence of the following events, among others:

Any
subsequent refinancing of our current debt or any new debt could have similar restrictions.

Increases in interest rates may cause the market price of our common units to decline.

An
increase in interest rates may cause a corresponding decline in demand for equity investments in general and in particular for yield-based equity investments such as our common units. Any such
increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to
decline.

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Unitholders may have liability to repay distributions that were wrongfully distributed to them.

Under
some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. We may not make a distribution to you if the distribution would cause our liabilities to
exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew
at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Purchasers of units who become limited partners are liable for the
obligations of the transferring limited partner to make contributions to the partnership that are known to the purchaser at the time it became a limited partner and for unknown obligations if the
liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership
are not counted for purposes of determining whether a distribution is permitted.

Tax Risks

Our tax treatment depends on our status as a partnership for federal income tax purposes and not being subject to entity-level taxation by states. If the
IRS was to treat us as a corporation or if we were to become subject to entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced.

The
anticipated after-tax benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested, and do
not plan to request, a ruling from the IRS on this matter.

If
we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%. Distributions to you
would generally be taxed again as corporate distributions and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our
cash available for distribution to you would be substantially reduced. Treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax
return to you, likely causing a substantial reduction in the value of the common units.

Current
law may change, causing us to be treated as a corporation for federal income tax purposes or otherwise subjecting us to entity-level taxation. For example, due to widespread state budget
deficits in recent years, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income tax, franchise tax or other forms of
taxation. If any state were to impose a tax upon us as an entity, the cash available for distribution to you would be reduced. Our partnership agreement provides that if a law is enacted or existing
law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, then the
minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on us.

Our tax treatment depends upon our being eligible for the "Qualifying Income Exception".

Section 7704
of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying
Income Exception," exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income." Qualifying income includes
income and gains derived from the transportation, storage and processing of crude oil, natural gas and products thereof. Other types of qualifying income include interest (other than from a financial
business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying
income. Less than 8% of our gross income was not qualifying income for the year ended December 31, 2008. This estimate could change from time to time throughout a given year.

No
ruling has been or will be sought from the IRS and the IRS has made no determination as to our status for federal income tax purposes or whether our operations generate "qualifying income" under
Section 7704 of the Internal Revenue Code.

If
we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, we will be treated
as if we had transferred all of our assets, subject to liabilities, to a newly formed corporation on the first day of the year in which we fail to meet the

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Qualifying
Income Exception, in return for stock in that corporation, and then distributed that stock to the unitholders in liquidation of their interests in us. This contribution and liquidation
should be tax-free to unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis of our assets at that time. Thereafter, we would be treated as a
corporation for federal income tax purposes.

If
we were taxable as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise (for example, due to widespread state budget deficits,
several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation), our items of income, gain, loss and
deduction would be reflected only on our tax return rather than being passed through to the unitholders and our net income would be taxed to us at corporate rates. In addition, any distribution made
to a unitholder would be treated as either taxable dividend income, to the extent of our current or accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable return of
capital, to the extent of the unitholder's tax basis in his common units, or taxable capital gain, after the unitholder's tax basis in his common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a unitholder's cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the units.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or
administrative changes and differing interpretations, possibly on a retroactive basis.

The
present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial
interpretation at any time. For example, in response to certain recent developments, members of Congress are considering substantive changes to the definition of qualifying income under
Section 7704(d) of the Internal Revenue Code. It is possible that these efforts could result in changes to the existing U.S. tax laws that affect publicly traded partnerships, including us. Any
modification to the U.S. federal income tax laws and interpretations thereof may or may not be applied retroactively. We are unable to predict whether any of these changes, or other proposals, will
ultimately be enacted. Any such changes could negatively affect the value of an investment in our common units.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely affected and the costs of any contest will
be borne by our unitholders and our general partner.

We
have not requested any ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from the positions we take and it
may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the
IRS may materially and adversely affect the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS will result in a reduction in cash
available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner.

You
will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us. You will be required to pay federal income taxes and, in some cases, state and
local income taxes on your share of our taxable income, whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income
or even equal to the actual tax liability that result from your share of our taxable income.

Tax
gain or loss on the disposition of our common units could be different than expected. If you sell your common units, you will recognize gain or loss equal to the difference between the amount
realized and your tax basis in those common units. Prior distributions to you in excess of the total net taxable income you were allocated for a common unit, which decreased your tax basis in that
common unit, will, in effect, become taxable income to you if the common unit is sold at a price greater than your tax basis in that common unit, even if the price you receive is less than your
original cost. A substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income to you due to potential recapture items, including depreciation
recapture.

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Tax-exempt entities and foreign persons face unique tax issues from owning common units that may result in adverse tax consequences to them.

Investment
in common units by tax-exempt entities, such as individual retirement accounts ("IRAs") and non-U.S. persons raises issues unique to them. For example, virtually all
of our income allocated to organizations exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions
to non-U.S. persons will be reduced by
withholding taxes at the highest applicable effective tax rate and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our
taxable income.

We will treat each purchaser of units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which
could adversely affect the value of the common units.

Because
we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury regulations. A
successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your
sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns.

You will likely be subject to state and local taxes and return filing requirements as a result of investing in our common units.

In
addition to federal income taxes, you will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are
imposed by the various jurisdictions in which we do business or own property even if you do not live in these jurisdictions. You will likely be required to file state and local income tax returns and
pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially conduct
business in Florida, which does not impose an individual income tax. We may own property or conduct business in other states or foreign countries in the future. It is your responsibility to file all
of your federal, state and local tax returns.

The sale or exchange of 50% or more of our capital and profits interests during any 12-month period will result in the termination of our
partnership for federal income tax purposes.

We
will be considered to have terminated our status as a partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits
within a 12-month period. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could result in a deferral of depreciation deductions
allowable in computing our taxable income.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At December 31, 2008, we owned or operated (including newbuilds) an aggregate of twenty-one vessels. See tables presented under Item 1. Additional
information about our fleet is set forth on our website, www.osgamerica.com.

ITEM 3. LEGAL PROCEEDINGS

We are party to routine, marine related claims, lawsuits and labor arbitrations arising in the ordinary course of our business. The claims made in connection with our marine
operations are covered by insurance, subject to applicable policy deductibles that are not material as to any type of insurance coverage. We provide on a current basis for amounts we expect to pay.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SECURITYHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market price of Common Units, Distributions and Related Unit Holder Matters

Our common units are listed on the New York Stock Exchange under the symbol "OSP". As of February 28, 2009, there were 15,004,500 million common units,
representing an aggregate 50% limited partner interest in us, which were held by 8 holders of record representing, as of the most recent date for which information is available, approximately 2,800
beneficial holders. The following table shows, for the period indicated, the high and low sales prices of our common units, as reported on the New York Stock Exchange, and the amount of cash
distribution declared per common unit:

2007

High

Low

Cash
Distribution(1)Fourth Quarter

$
19.45

$
15.49

$
0.18752008First Quarter

$
18.12

$
11.50

$
0.375Second Quarter

$
15.46

$
13.25

$
0.375Third Quarter

$
14.15

$
8.73

$
0.375Fourth Quarter

$
8.92

$
3.16

$
0.375


The aggregate amount of distributions declared in January 2009 for the year ended 2008 on common units, subordinated units and general partner units totaled
$11.5 million.

Securities Authorized for Issuance Under Equity Compensation Plans

EQUITY COMPENSATION PLAN INFORMATION

Plan Category

Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights(a)

Weighted Average
Exercise Price of
Outstanding
Options,
Warrants and Rights(b)

Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(excluding Securities
reflected in
column (a))(c)Equity compensation plans approved by security holders








Equity compensation plans not approved by security holders








245,500Total








245,500


For a description of this equity compensation plan please read Note L to Item 8Financial Statements.

Cash Distribution Policy

Within approximately 45 days after the end of each quarter, we will distribute all of our available cash (as defined below) to unitholders of record on the applicable
record date. We define available cash as, for each fiscal quarter, all

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cash
on hand at the end of the quarter (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own):

Subordination Period

General.

During
the subordination period, which we define below, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum
quarterly distribution of $0.375 per quarter, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available
cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood
that during the subordination period there will be available cash from operating surplus for distribution to the holders of the common units.

Definition of Subordination Period.

Except
as described below under "Early Termination of Subordination Period," the subordination period will extend until the first day of any quarter, beginning after September 30, 2010, that
each of the following tests are met:

If
the unitholders remove our general partner without cause, the subordination period may end before September 30, 2010.

Early Termination of Subordination Period.

The
subordination period will be automatically terminated and the subordinated units will convert into common units on a one-for-one basis if the following tests are met:

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For
purposes of determining whether sufficient adjusted operating surplus has been generated under these conversion tests, the conflicts committee may adjust adjusted operating surplus upwards or
downwards if it determines in good faith that the estimated amount of maintenance capital expenditures used in the determination of operating surplus was materially incorrect, based on circumstances
prevailing at the time of the original determination of that estimate.

Incentive Distribution Rights

Incentive distribution rights are the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus after the minimum quarterly
distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general
partner interest, subject to restrictions in the partnership agreement.

If
for any quarter we have distributed available cash from operating surplus:

then,
we will distribute any additional available cash from operating surplus for that quarter between the unitholders and our general partner in the following manner:

In
each case, the amount of the first target distribution, the second target distribution and the third target distribution set forth above is exclusive of any distributions to common unitholders made
to eliminate any cumulative arrearages in payment of the minimum quarterly distribution. The percentage interests set forth above assume that our general partner maintains its 2% general partner
interest and has not transferred the incentive distribution rights and we do not issue additional classes of equity securities.

ITEM 6. SELECTED FINANCIAL DATA

The following unaudited selected financial data for the year ended December 31, 2008, the periods November 15 through December 31, 2007 and January 1
through November 14, 2007 and for the year ended December 31, 2006 and at December 31, 2008 and 2007, are derived from the audited financial statements set forth in Item 8,
which have been audited by Ernst & Young LLP, independent registered certified public accounting firm. The unaudited selected financial data for the years ended December 31, 2005
and 2004 and at December 31, 2005, are derived from audited financial statements not appearing in this Annual Report, which have also been audited by Ernst & Young LLP. The
unaudited selected financial data at December 31, 2004 are derived from unaudited financial statements not appearing in this Annual Report.

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Table of Contents

Year Ended December 31,In thousands, except net income per unit and operating data

2004 (1)

2005

2006

January 1
through
November 14,
2007

November 15
through
December 31,
2007

Year Ended
December 31,
2008Income Statement Data:Shipping revenues

$
31,799

$
49,840

$
88,852

$
182,871

$
31,136

$
286,323Operating expensesVoyage expenses(2)


366


3,055


10,592


26,670


4,666


40,639Vessel expenses(3)


12,077


19,550


34,430


71,407


11,398


98,534Charter hire expenses











10,205


3,469


45,283Depreciation and amortization


10,811


14,553


21,592


40,765


7,001


52,040General and administrative


3,542


4,246


7,942


18,564


2,899


20,725Goodwill impairment

















62,874Loss on impairment of vessel

















21,102Loss on charter termination





2,486











Total operating expenses


26,796


43,890


74,556


167,611


29,433


341,197Income/(loss) from vessel operations


5,003


5,950


14,296


15,260


1,703


(54,874
)Equity in income of affiliated companies


7,097


8,066


6,811


3,192


2,551


5,344Operating income/(loss)


12,100


14,016


21,107


18,452


4,254


(49,530
)Other income/(expense)


2


1


9


(8
)

17


335Interest expense


(9,224
)

(10,685
)

(12,612
)

(10,835
)

(665
)

(5,311
)Income/(loss) before federal income taxes


2,878


3,332


8,504


7,609


3,606


(54,506
)Provision for federal income taxes


(1,007
)

(1,325
)

(768
)

(2,048
)




Net income/(loss)

$
1,871

$
2,007

$
7,736

$
5,561

$
3,606

$
(54,506
)Net income/(loss) per unit (basic and diluted)













$
0.12

$
(1.78
)Balance Sheet Data:Vessels(4)

$
70,932

$
132,160

$
418,702

$


$
426,693

$
405,772Total assets

$
85,521

$
149,134

$
610,957

$


$
651,112

$
574,561Total debt(5)

$
219,766

$
272,927

$
660,929

$


$
89,465

$
91,753Stockholder's equity

$
(155,133
)
$
(152,026
)
$
(144,290
)
$


$


$
Partners' capital

$


$


$


$


$
540,697

$
442,946Cash Flow Data:Net cash provided by/(used in):Operating activities

$
7,141

$
19,800

$
13,299

$
28,715

$
(402
)
$
74,756Investing activities

$
(43,012
)
$
(74,116
)
$
(345,483
)
$
(41,113
)
$
(3,643
)
$
(42,440
)Financing activities

$
35,799

$
54,261

$
332,399

$
12,416

$
7,127

$
(25,167
)Other Financial Data:Time charter equivalent revenue

$
31,433

$
46,785

$
78,260

$
156,201

$
26,470

$
245,684EBITDA

$
22,913

$
28,570

$
42,708

$
59,209

$
11,272

$
2,845Capital expenditures:Expenditures for vessels and equipment

$
43,012

$
74,116

$
4,623

$
41,113

$
3,643

$
42,440Expenditures for drydocking

$
2,739

$
115

$
5,835

$
16,874

$
533

$
23,197Operating Data:Total capacity days


1,232


1,662


2,501


5,508


892


7,362Revenue days


1,193


1,639


2,368


4,748


771


7,132Drydock days


37


4


108


659


93


375Repair days


2


19


25


84


16


87


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Table of Contents

Non-U.S. GAAP Financial Measures

Consistent
with general practice in the shipping industry, we use time charter equivalent (TCE) revenues, which represent shipping revenues less voyage expenses, as a measure to compare revenues
generated from voyage charters to revenues generated from time charters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with
shipping revenues, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their
financial performance.

The
following table reconciles TCE revenues to shipping revenues.

Year Ended December 31,

January 1
through
November 14,
2007

November 15
through
December 31,
2007

Year Ended
December 31,
2008In thousands

2004

2005

2006TCE revenues

$
31,433

$
46,785

$
78,260

$
156,201

$
26,470

$
245,684Voyage expenses


366


3,055


10,592


26,670


4,666


40,639Shipping revenues

$
31,799

$
49,840

$
88,852

$
182,871

$
31,136

$
286,323


EBITDA represents net income plus interest expense, provision for income taxes, depreciation and amortization expense. EBITDA is presented to provide investors
with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods.

EBITDA
assists our management and investors by increasing the comparability of our fundamental performance from period to period and against the fundamental performance of other companies in our
industry that provide EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest expense, taxes, depreciation
or amortization, which items may significantly affect net income between periods and are affected by various and possibly changing financing methods, capital structure and historical cost basis. We
believe that including EBITDA as a financial and operating measure benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our
ongoing financial and operational strength and health in assessing whether to continue to hold common units.

EBITDA
allows us to assess the ability of assets to generate cash sufficient to service debt, make distributions and undertake capital expenditures. By eliminating the cash flow effect resulting from
our existing capitalization and other items such as drydocking expenditures and working capital changes (which may vary significantly from period to period), EBITDA provides a consistent measure of
our ability to generate cash over the long term. Management uses this information as a significant factor in determining (a) our proper capitalization (including assessing how much debt to
incur and whether changes to the capitalization should be made) and (b) whether to undertake material capital expenditures and how to finance them, all in light of existing cash distribution
commitments to unitholders. Use of EBITDA as a liquidity measure also permits investors to assess our fundamental ability to generate cash sufficient to meet cash needs, including distributions on our
common units.

EBITDA
should not be considered a substitute for net income or cash flow from operating activities and other operations or cash flow statement data prepared in accordance with U.S. GAAP or as a
measure of profitability or liquidity. While EBITDA is frequently used as a measure of operating results and performance, it is not necessarily comparable to other similar titled captions of other
companies due to differences in methods of calculation.

The
following table reconciles net income/(loss) to EBITDA.

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Year Ended December 31,

January 1
through
November 14,
2007

November 15
through
December 31,
2007

Year Ended
December 31,
2008In thousands

2004

2005

2006Net income/(loss)

$
1,871

$
2,007

$
7,736

$
5,561

$
3,606

$
(54,506
)Provision for federal income taxes


1,007


1,325


768


2,048





Interest expense


9,224


10,685


12,612


10,835


665


5,311Depreciation and amortization


10,811


14,553


21,592


40,765


7,001


52,040EBITDA

$
22,913

$
28,570

$
42,708

$
59,209

$
11,272

$
2,845


The following table reconciles net cash provided by operating activities to EBITDA.

Year Ended December 31,

January 1
through
November 14,
2007

November 15
through
December 31,
2007

Year Ended
December 31,
2008In thousands

2004

2005

2006Net cash provided by operating activities

$
7,141

$
19,800

$
13,299

$
28,715

$
(402
)
$
74,756Payments for drydocking


2,739


115


5,835


16,874


533


23,197Interest expense


9,224


10,685


12,612


10,835


665


5,311Undistributed earnings from affiliated companies


(405
)

838


(1,021
)

(3,618
)

2,551


(400
)Goodwill impairment

















(62,874
)Loss on impairment of vessel

















(21,102
)Changes in operating assets and liabilities (except for taxes)


844


(5,219
)

6,732


3,406


8,050


(14,202
)Federal income taxes


4,066


2,040


4,924


3,325





Other


(696
)

311


327


(328
)

(125
)

(1,841
)EBITDA

$
22,913

$
28,570

$
42,708

$
59,209

$
11,272

$
2,845


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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the historical consolidated financial condition and results of operations of OSG America L.P. and, prior to our November 15, 2007
initial public offering, of our predecessor company, and should be read in conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this report.

Overview

We are the largest operator, based on barrel-carrying capacity, of U.S. flag vessels transporting refined petroleum products. We were formed by Overseas Shipholding
Group, Inc., a market leader in providing global energy transportation services. We plan to use the expertise, customer base and reputation of OSG to expand our marine transportation service.

On
November 15, 2007, upon completion of our initial public offering, OSG contributed to us entities owning or operating a fleet of ten product carriers, seven articulated tug barges ("ATBs")
and one conventional tug/barge unit, with an aggregate carrying capacity of approximately 4.9 million barrels. OSG also contributed to us a 37.5% ownership interest in Alaska Tanker
Company, LLC, a joint venture that transports crude oil from Alaska to the continental United States and which employed a fleet of five crude-oil tankers at that time. OSG owns a
77.1% interest in us, including a 2% interest through our general partner, which OSG owns and controls. Our membership interests in our operating subsidiaries represent our only
cash-generating assets.

Our
market is protected from direct foreign competition by the Merchant Marine Act of 1920 ("Jones Act"), which mandates that all vessels transporting cargo between U.S. ports must be built in the
United States, registered under the U.S. flag, manned by U.S. crews and owned and operated by U.S. organized companies that are controlled and at least 75% owned by U.S. citizens. Nineteen of the
twenty-one vessels in our operating fleet at December 31, 2008 are operated in the U.S. coastwise trade in accordance with the Jones Act and all of our future scheduled newbuild
deliveries will qualify to operate under the Jones Act.

Demand
for our services is driven primarily by demand for refined petroleum products in the areas in which we operate. We generate revenue by charging customers for the transportation and distribution
of their products utilizing our tank vessels and tugboats. These services are generally provided under the following four basic types of contractual relationships:

In
addition, a variation of a voyage charter is known as a "consecutive voyage charter." Under this arrangement, consecutive voyages are performed for a specified period of time.

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The
table below illustrates the primary distinctions among these types of contracts:

Time Charter

Contract of
Affreightment

Voyage
Charter(1)

Bareboat
CharterTypical contract length

One year or more

One year or more

Single voyage

Two years or moreRate basis

Daily

Per barrel

Varies

DailyVoyage expenses(2)

Customer pays

We pay

We pay

Customer paysVessel operating expenses(2)

We pay

We pay

We pay

Customer paysIdle time

Customer pays as
long as vessel is
available for
operations

Customer does not pay

Customer does not pay

Customer pays


For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period. Although contracts of
affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less
than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period.

One
of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include commissions, fuel, port charges, pilot fees,
tank cleaning costs, canal tolls and cargo handling operations. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the vessel operator, pay the voyage expenses, we typically
pass these expenses on to our customers by charging higher rates under the contract or, in certain cases, re-billing such expenses to them. As a result, although voyage revenue from
different types of contracts may vary, the net revenue that remains after subtracting voyage expenses, which we call net voyage revenue, is comparable across the different types of contracts.
Therefore, we principally use TCE revenue, which is net voyage revenue, rather than voyage revenue, when comparing performance between different periods. Since TCE revenue is a non-GAAP
measurement, it is reconciled to the nearest GAAP measurement, voyage revenue, under "Results of Operations" below.

OverviewOSG America Predecessor

For the period January 1 through November 14, 2007 and the year ended December 31, 2006, the combined financial statements presented herein have been carved
out of the consolidated financial statements of OSG. Our financial position, results of operations and cash flows reflected in our combined financial statements are not indicative of those that would
have been achieved had we operated as an independent stand-alone entity for all periods presented or of future results.

To
the extent that assets, liabilities, revenues and expenses relate to the OSG America Predecessor ("Predecessor"), they have been identified and carved out of OSG for inclusion in our combined
financial statements. OSG's other assets, liabilities, revenues and expenses that do not relate to the vessel interests are not included in our combined financial statements. In addition, the
preparation of our combined carve-out financial statements required the allocation of certain expenses where these items were not identifiable as related to OSG America Predecessor.

General
and administrative expenses, consisting primarily of salaries and other employee related costs, office rent, legal and professional fees and travel and entertainment expenses were allocated
based on the total number of vessels (weighted by operating days) in the respective fleets of OSG America Predecessor and OSG for each of the above periods presented. Management believes that the
allocation of general and administrative expenses was based on a reasonable method.

All
of the companies included in the Predecessor combined carve-out financial statements have been included in the OSG consolidated group for U.S. income tax purposes for periods through
November 14, 2007. The Predecessor financial statements have been prepared on the basis that OSG was responsible for all taxes related to periods prior

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to
January 1, 2002. The provisions for income taxes in the Predecessor's combined financial statements have been determined on a separate-return basis for all periods presented.

Definitions

In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that
influence our results of operations:

AR ratesAmerican Tanker Rate Schedule commonly referred to as "AR rates" in the industry is published by the Association of Ship Brokers and
Agents (USA) Inc. as a rate reference for shipping companies, brokers and their customers engaged in the bulk shipping of oil in the coastwise trade. AR is a list of calculated (or flat) rates
for specific voyage itineraries for a standard vessel, as defined. AR allows the agreed revenue per day for any voyage to be expressed as "AR 100" which means the rate as calculated and published by
the Association.
Thus, a negotiated rate of 50% above the flat rate would, therefore, be quoted as "AR 150" whereas 50% below the flat rate would be quoted as "AR 50" eliminating the use of plus or minus symbols
during the negotiations. Included in this flat rate are defined voyage assumptions, a round trip voyage, allowed laytime for cargo operations, fuel prices and consumption, and estimated port charges
for the entire voyage.

Articulated tug bargeATB is the abbreviation for Articulated Tug Barge, which is a tug-barge combination system capable of
operating on the high seas, coastwise and further inland. It combines a normal barge, with a bow resembling that of a ship, but having a deep indent at the stern to accommodate the bow of a tug. The
fit is such that the resulting combination behaves almost like a single vessel at sea as well as while maneuvering.

Capacity daysTotal capacity days are equal to the number of calendar days in the period multiplied by the total number of vessels operating
or in drydock during that period.

Deadweight tons or dwtDwt is the abbreviation for deadweight tons, representing principally the cargo carrying capacity of a vessel, but
including the weight of consumables such as fuel, lube oil, drinking water and stores.

Depreciation and amortizationWe incur expenses related to the depreciation of the historical cost of our fleet and the amortization of
expenditures for drydockings. The aggregate number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures. Depreciation and
amortization is determined as follows:

Double hullHull construction design in which a vessel has an inner and an outer side and bottom separated by void space, usually two meters
in width.

Drydocking daysDrydocking days are days designated for the cleaning, positioning, inspection and survey of vessels, and resulting maintenance
work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels' qualification to work in the U.S. coastwise trade. Drydocking days also include unscheduled
instances where vessels may have to be drydocked in the event of accidents or other unforeseen damage.

General and administrative expensesGeneral and administrative expenses consist of employment costs for shore side staff and cost of
facilities, as well as legal and professional fees, audit, travel and entertainment and other administrative costs.

LighteringThe process of off-loading crude oil or petroleum products from deeply laden inbound tankers into smaller tankers
and/or barges.

OffhireThe time during which a vessel is not available for service.

Revenue daysRevenue days are the number of calendar days less offhire days for drydock, repairs and layup.

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Shipping revenueShipping revenue includes revenue from time charters, contracts of affreightment, consecutive voyage charters and spot
charters. Voyage revenue is impacted by changes in utilization rates and by the mix of business among the types of contracts described in the preceding sentence.

Time charter equivalentTime charter equivalent ("TCE") revenues are voyage revenues less voyage expenses. TCE serves as an industry standard
for measuring and managing fleet revenue and comparing results between geographical regions and among competitors.

Vessel operating expensesWe pay the vessel operating expenses regardless of whether we are operating under a time charter, contract of
affreightment, consecutive voyage charter or spot charter. The most significant direct vessel operating expenses are crewing costs, vessel maintenance, lubricants, stores and spares and marine
insurance.

Voyage expensesVoyage expenses include items such as commissions, fuel, port charges, pilot fees, tank cleaning costs, canal tolls and other
costs which are unique to a particular voyage. These costs can vary significantly depending on the voyage trade route. Depending on the form of contract, either we or our customer is responsible for
these expenses. Typically, our freight rates are higher when we pay voyage expenses. Our contracts of affreightment and consecutive voyage charters generally contain escalation clauses whereby certain
cost increases, including labor and fuel, can be passed on to our customers.

Acquisition of Maritrans Inc.

On November 28, 2006, OSG acquired Maritrans Inc. ("Maritrans"), a leading U.S. flag crude oil and petroleum product shipping company that owned and operated one
of the largest fleets of double-hulled vessels serving the East Coast and Gulf Coast trades. The operating results of certain wholly owned subsidiaries of Maritrans, which were carved out of the
consolidated financial statements of Maritrans, have been included in our financial statements commencing November 29, 2006. The Maritrans' fleet consisted of seven ATBs, one of which had been
in the process of being double-hulled, one conventional tug/barge unit and two product carriers, all operating under the U.S. flag.

Future Business

We have entered into agreements with OSG Ship Management, Inc. ("OSGM") for the provision of technical and commercial management of our vessels and for administrative and
accounting services. These agreements were effective November 15, 2007.

In
June 2005, OSG signed agreements to bareboat charter-in ten Jones Act Product Tankers to be constructed by Aker Philadelphia Shipyard, Inc. ("APSI"). The order was increased to 12 ships in October
2007. Agreements for eight of such vessels are included in the Partnership. Following construction, APSI will sell the vessels to leasing subsidiaries of AMSC, which will charter the eight vessels to
us for initial terms of five or seven years. We have extension options for the lives of the vessels. The charters provide for profit sharing with the owners of the vessels when revenues earned by such
vessels exceed amounts defined in the charters. Five of these vessels have delivered from the shipyard as follows:

Vessel

Delivery DateOverseas Houston


February 2007Overseas Long Beach


June 2007Overseas Los Angeles


November 2007Overseas New York


April 2008Overseas Texas City


September 2008


The Overseas Boston delivered on February 19, 2009. The remaining two vessels that we have committed to bareboat charter are scheduled to be delivered from the shipyard between
mid 2009 and early 2010.

AMSC
and OSG have signed a nonbinding agreement in principle ("Nonbinding Agreement") to provide for a global settlement of a number of outstanding issues between them, including, among other things,
settlement of the arbitration described herein. See risk factors related to AMSC in Item 1A. Implementation of the Nonbinding Agreement is subject to negotiation and signing of definitive
agreements and certain other conditions. The
Nonbinding Agreement contains a number of provisions materially altering the prior agreements between the parties. No assurance can be given that we, OSG and AMSC will enter into definitive agreements
and satisfy the required conditions to implement the Nonbinding Agreement.

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We
have options to purchase from OSG up to two ATBs scheduled for delivery between 2009 and 2010. The delivery dates of these ATBs have been significantly delayed. See risk factors related to Bender
in Item 1A. We also have options to acquire from OSG the right to bareboat charter up to four of the remaining newbuild vessels to be constructed by Aker Philadelphia Shipyard Inc.,
scheduled for delivery between late 2009 and early 2011.

On
June 25, 2008, the Partnership purchased theOverseas New Orleansand theOverseas Philadelphia,each of which had been previously operated under capital leases, for a total of $30.9 million. This acquisition was funded with borrowings under our senior secured revolving credit facility.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), which require us to make
estimates in the application of our accounting policies based on the best assumptions, judgments and opinions of management. The following is a discussion of the accounting policies that involve a
high degree of judgment and the methods of their application. For a complete description of all of our material accounting policies, see Note B to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

We generate a portion of our shipping revenues from voyage charters. A voyage charter agreement with a customer consists of sailing to the load port (the positioning leg),
loading the cargo, sailing to the discharge port and discharging the cargo. The charter agreement requires the relevant vessel to proceed to the port or place as ordered by charterer in accordance
with the contract. The vessel is, therefore, employed from the time it receives a contract until the last discharge point and a contract is not cancellable in the positioning leg, provided we fulfill
our contractual commitment. We generally enter into a charter agreement with a customer for the vessel's next voyage prior to the time of discharge for its previous voyage. Two methods are used in the
shipping industry to account for voyage charter revenue: (1) recognition of revenue ratably over the estimated length of each voyage, and (2) recognition of revenue following completion
of a voyage. Recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues. Under each method, voyages may be
calculated on either a load-to-load or discharge-to-discharge basis. In applying the revenue recognition method, we believe that the
discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. Since, at the time of
discharge, management generally knows the next load port and the expected discharge port, the discharge-to-discharge
calculation of voyage revenues can be estimated with a greater degree of accuracy. We do not begin recognizing voyage revenue until a charter has been agreed to by us and the customer, even if the
vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

Revenues
from time charters and bareboat charters are accounted for as operating leases and are thus recognized ratably over the rental periods of such charters, as service is performed. We do not
recognize time charter revenues for vessels during periods that those vessels are off hire.

Vessel Lives

The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less depreciation calculated using an estimated useful life of
25 years from the date that such vessel was originally delivered from the shipyard or 20 years from the date our ATBs were rebuilt. Effective January 1, 2008, we effected a change
in estimate related to the estimated scrap rate for substantially all of our barges and tankers from $150 per lightweight ton to $300 per lightweight ton. The resulting increase in salvage value
reduced depreciation by approximately $2.3 million for the year ending December 31, 2008. The assumptions used in the determination of estimated salvage value took into account then
current scrap prices, which were in excess of $700 per lightweight ton, the historic pattern of scrap rates over the four years ended December 31, 2007, which ranged from $250 to over $500 per
lightweight ton, estimated changes in future market demand for scrap steel and estimated future demand for vessels. As of December 31, 2008, the average age for our fleet ranges from
11 years to 12 years. The industry standard for determining the economic life-span for tankers is 25 years. The steel scrap price forecast to determine vessel salvage
value is therefore based on economic assumptions and conditions that will exist over a forward looking 10 to 15 year timeframe from today given the current age of our fleet. The strength of the
world's economic growth will vary during this timeframe from periods of global recession and low commodity price levels to

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periods
of varied economic growth where steel prices will be determined by industrial production, financing and credit availability for projects and Government sponsored infrastructure investments
throughout the world. We reviewed steel plate prices in Asia and North America from January 2000 through December 2007 that showed a more than doubling of steel plate prices within this timeframe.
Actual scrap prices were consistently priced at over $300 per lightweight ton from January 2004 through June 2008. Scrap values declined below $300 per lightweight ton towards the end of 2008, due to
turmoil in the financial markets, which caused a general decline in vessel values. The scrap market also experienced a period with very little activity as scrappers were unable to obtain letters of
credit, which caused further downward pressure on prices. At the moment, the weak freight markets, especially in dry bulk carriers, have resulted in owners scrapping more vessels and scrapping them
earlier in their lives. We expect scrapping levels to remain high during 2009 and 2010, considering owners' rate expectations and the phase out of single hull tankers in 2010, and therefore consider
it likely that scrap prices will remain low over this period with even further downward pressure from current levels. We also took into consideration that commodity prices have historically increased
over extended time horizons and believe that it is reasonable to forecast that steel scrap prices will increase over time as economic activity increase from today's level. We believes that $300 per
lightweight ton is a reasonable estimate of future scrap prices, taking into consideration the cyclicality of the nature of future demand for scrap steel. Although we believe 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.

On
June 25, 2008, the Partnership purchased theOverseas New Orleansand theOverseas Philadelphia,each of which had been previously operated under capital leases. The useful lives of these vessels was determined based on their OPA retirement dates. In the third quarter of 2008, we effected a
change in estimate related to the useful lives of our two remaining single hull tankers and extended their useful lives to match their OPA retirement dates. As a result, depreciation expense decreased
by approximately $1.7 million for the year ended December 31, 2008.

Vessel Impairment

The carrying values of our vessels may not represent the 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. We record impairment losses only when events occur that cause us to
believe that the future cash flows for any individual vessel will be less than its carrying value. The carrying amounts of vessels held and used 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
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 since
separately identifiable cash flow information for each vessel is available.

In
developing estimates of future cash flows, we 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.

During
the third quarter of 2008, we decided to forego the scheduled drydocking of one of our older product carriers which is a requirement for her to continue in operations. The vessel therefore
ceased operating during the fourth quarter of 2008 and was placed in lay-up pending her sale. Accordingly, we recorded aggregated charges of $21.1 million to write down the carrying
amount of this vessel to her estimated net fair value as of December 31, 2008 and have classified this vessel as held for sale at December 31, 2008.

In
early 2009, we and OSG began negotiations with Bender Shipbuilding & Repair Co., Inc. ("Bender") to end the agreements covering the six ATBs and two tug boats associated with our expansion
plans due to Bender's lack of performance under such agreements and its lack of liquidity and poor financial condition. Contracted delivery dates for certain vessels have been significantly delayed
from the original contract delivery dates and, in 2009, Bender requested substantial price increases on all the contracted vessels. We and OSG intend to complete two of the six ATBs and the two tug
boats at alternative shipyards.

We
reviewed the two tug boats which are included in "Vessels" in our Consolidated Balance Sheet for impairment based upon the information that was known to us as of December 31, 2008. No
impairment was recorded at December 31, 2008.

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Goodwill and Intangibles

We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill.
Goodwill arose from the acquisition of Maritrans in November 2006. Our intangible assets, consisting of customer relationships, are being amortized. Future operating performance will be affected by
the amortization of intangible assets. Goodwill is not amortized, but reviewed for impairment. The allocation of the purchase price of acquired companies requires management to make significant
estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows.

We
test the goodwill related to our reporting unit for impairment at least annually, or more frequently if impairment indicators arise in accordance with the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," by comparing our estimated fair value with our net book value. Considering the decline in our unit price and the general
weakening of the economic outlook and the decline in the financial and banking sectors, we performed an impairment test as of September 30, 2008 and an annual impairment test as of
October 1, 2008. No impairment of goodwill was recorded at September 30, 2008 or October 1, 2008.

In
the fourth quarter of 2008, the economic downturn resulted in a number of market-related events that are expected to negatively impact our operations in the near and medium-term. Lower
demand for refined petroleum products in North America has resulted in a number of major refining companies reducing capacity throughout the Gulf of Mexico. The reduction in planned refining expansion
projects reduces future volumes of clean products that had been forecast to move on Jones Act tankers. Recessionary forces are also now expected to result in unfavorable changes in trading patterns,
as refiners shift to higher margin low sulfur diesel for export, resulting in an adverse impact on tonne-mile demand in the Jones Act market and associated rates. As a result of this
deterioration in the forward supply/demand balance of the Jones Act market and the reduction in our newbuilding program, we reduced our estimates of future cash flows to measure fair value and,
accordingly, recorded an impairment charge of $62.9 million, representing the full value of the goodwill in the fourth quarter ended December 31, 2008. We derive the fair value of our
reporting unit primarily based on discounted cash flow models. The process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant
judgment with respect to estimates of future cash flows expected to be generated and the appropriate discount rate to value these cash flows. The discounted cash flow models incorporate revenue
assumptions based on actual existing contracts and historical utilization rates for vessels not under contract. The related costs and expenses are consistent with our historical levels to support
revenue growth. The weighted average cost of capital reflects the risks associated with the underlying cash flows taking into consideration both the industry and general economic conditions at the
time of testing.

Our
intangible assets, which consist of long-term customer relationships acquired as part of the purchase of Maritrans by OSG in November 2006, are being amortized on a straight line basis
over 20 years. Amortization expense of intangible assets for the year ended December 31, 2008 was $4.6 million, for the period November 15, 2007 through December 31,
2007 was $0.6 million, for the period January 1, 2007 through November 14, 2007 was $4.0 million and for the year ended December 31, 2006 was $0.4 million.

Drydocking

Within the shipping industry, there are two methods that are used to account for drydockings: (1) capitalize drydocking costs as incurred (deferral method) and amortize
such costs over the period to the next scheduled drydocking, and (2) expense drydocking costs as incurred. Since drydocking cycles typically extend over two and a half years or longer, we
believe that the deferral method better matches revenues and expenses than the expense-as-incurred method.

Newly Issued Accounting Standards

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations"
("FAS 141R"). FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree and the goodwill acquired. FAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of
the business combination. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first

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annual
reporting period beginning on or after December 15, 2008. An entity may not apply FAS 141R before that date.

In
December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51" ("FAS 160"). FAS 160 establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and
the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. FAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. This statement is required to be applied prospectively as of the beginning of the fiscal year in which it initially applied, except for the
presentation and disclosure requirements, which must be applied retrospectively for all periods presented.

In
March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an
amendment of Statement of Financial Accounting Standards No. 133" ("FAS 161"). FAS 161 requires qualitative disclosures about an entity's objectives and strategies for using
derivatives and quantitative disclosures about how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 is
effective for fiscal years, and interim periods within those fiscal years beginning after November 15, 2008, with early application allowed. FAS 161 allows but does not require
comparative disclosures for earlier periods at initial adoption.

In
March 2008, the Emerging Issues Task Force reached a consensus on EITF 07-4, "Application of the Two-Class Method under FASB Statement No. 128, Earnings per
Share, to Master Limited Partnerships." EITF 07-4 requires master limited partnerships with incentive distribution rights ("IDRs"), to measure earnings per unit as it relates to
IDRs consistent with the two-class method of measuring earnings per unit. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years.

Industry Overview

The table below shows the daily TCE rates that prevailed in markets in which our vessels operated for the periods indicated. It is important to note that the spot market is
quoted in AR rates because the conversion of AR rates to the following TCE rates required us to make certain assumptions as to brokerage commissions, port time, port costs, speed and fuel consumption,
all of which will vary in actual usage. In each case, the rates may differ from the actual TCE rates achieved by us in the period indicated because of the timing and length of voyages and the portion
of revenue generated from long-term charters.

U.S. Flag Jones Act Vessels

Average Spot Market TCE Rates  Jones Act Product Carriers and Articulated Tug Barges (ATBs)

Q1 2008

Q2 2008

Q3 2008

Q4 2008

2008

2007

200645,000 dwt Product Carriers

$
51,000

$
38,900

$
39,700

$
51,400

$
45,000

$
56,100

$
54,80030,000 dwt ATBs

$
31,500

$
21,400

$
23,900

$
31,600

$
27,100

$
36,400

$
35,300


Jones Act Product Carrier and ATB rates in 2008 were approximately 20% and 26%, respectively, lower than 2007 levels. The lower rates primarily reflected higher bunker prices and a
reduction in gasoline volumes available for seaborne transportation as refinery utilization levels declined in response to lower gasoline demand in the U.S.

The
Delaware Bay lightering business transported an average of 241,000 barrels per day ("b/d") during 2008, a 7% decline compared with 2007, primarily reflecting a decline in throughput at U.S. East
Coast refineries.

Rates
for Jones Act Product Carriers and ATBs in the first quarter of 2008 were about 25% below those in the first quarter of 2007. Lower first quarter of 2008 rates reflected a reduction in product
shipments as U.S. Gulf Coast refinery utilization rates declined from 87.4% during the first quarter of 2007 to 82.9% in the first quarter of 2008.

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The
Delaware Bay lightering business transported an average of 249,000 b/d during the quarter, which was 3% below the first quarter of 2007 as refineries underwent planned maintenance work.

Rates
for Jones Act Product Carriers and ATBs in the second quarter of 2008 were 31% and 42%, respectively, below those in the second quarter of 2007. Lower second quarter of 2008 rates reflected a
decline in U.S. Gulf Coast refinery utilization rates from 89.3% in the second quarter of 2007 to 86.7% in the second quarter of 2008, as well as significantly higher bunker costs that could not be
passed on to customers in the spot market. The Delaware Bay lightering business transported an average of 257,000 b/d during the second quarter, which was 7% below the second quarter of 2007 as a
result of lower refinery utilization rates on the U.S. East Coast.

Rates
for Jones Act Product Carriers and ATBs in the third quarter of 2008 were 22% and 28%, respectively, below those in the third quarter of 2007. Lower third quarter of 2008 rates were primarily
due to hurricanes that hit the U.S. Gulf Coast refining infrastructure in September 2008. These hurricanes caused a significant reduction in Gulf Coast
refinery utilization rates from 90.6% in the third quarter of 2007 to 76.6% in the third quarter of 2008. This reduced gasoline output at the Gulf Coast refineries by approximately 1.2 million
b/d from pre-hurricane levels, which, in turn, resulted in reduced gasoline shipments to Florida. The Delaware Bay lightering business transported an average of 238,000 b/d during the
quarter, which was approximately the same level as in the third quarter of 2007.

Rates
for Jones Act Product Carriers and ATBs in the fourth quarter of 2008 were 1% and 6%, respectively, below those in the fourth quarter of 2007. Lower fourth quarter of 2008 rates were due to the
general reduction in product demand levels. The Delaware Bay lightering business transported an average of 219,000 b/d during the fourth quarter, which was 17% below the fourth quarter of 2007 as the
result of maintenance activities on customer refineries and repairs on one of the vessels employed in the lightering trade.

As
of December 31, 2008, the total Jones Act Product Carrier fleet of tankers, ATBs and ITBs (Integrated Tug Barges) consisted of 65 vessels (2.5 million dwt), an increase of four
vessels from December 31, 2007. There were six deliveries (four newbuilds and two converted vessels) and two scrappings during 2008. The Jones Act Product Carrier orderbook for deliveries
scheduled through 2013 consisted of 26 tankers and barges in the 160,000 to 420,000 barrel size range. These additions will be offset by 14 tankers that will reach their OPA phase out dates during the
same timeframe. After 2012, there are an additional seven vessels that will reach their OPA retirement dates and should be scrapped and another nine double hull tankers that will face likely
commercial obsolescence and be retired upon reaching 35 years of service.

Freight
rates remain highly sensitive to an over supply in spot tonnage, severe weather and geopolitical and economic events. Spot market tonnage has increased due to redeliveries of older, non double
hull vessels in response to the on time deliveries of the first five product carriers from AMSC. Additionally, hurricanes in the Gulf of Mexico could have a pronounced effect on freight rates for both
crude oil and product movements depending on the extent to which upstream and downstream facilities are affected.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Time Charter Equivalent Revenues

The following table reconciles TCE revenues to shipping revenues, as reported in the consolidated statements of operations:

Year Ended
December 31,In thousands

2008

2007TCE revenues

$
245,684

$
182,671Voyage expenses


40,639


31,336Shipping revenues

$
286,323

$
214,007


Consistent with general practice in the shipping industry, we use TCE revenues, which represent shipping revenues less voyage expenses, as a measure to compare
revenues generated from voyage charters to revenues generated from time charters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction
with shipping revenues, the most directly comparable U.S. GAAP measure, because it assists
management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance.

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The following table provides information with respect to average daily TCE rates earned and revenue days for the years ended December 31, 2008 and 2007:

Year Ended
December 31,2008

2007Revenue Days:Jones Act ATBs


3,061


2,273Jones Act Product Carriers


3,403


2,528Non-Jones Act Product Carriers


668


7187,132


5,519Average Daily TCE Rates:Jones Act ATBs

$
31,518

$
28,787Jones Act Product Carriers

$
35,619

$
36,292Non-Jones Act Product Carriers

$
41,891

$
35,504


Effective April 1, 2008, we entered into time charter agreements with OSG for the charter-in of the M300/Libertyand theOSG 400/OSG
Constitution, which are two ATBs working in the Delaware Bay lightering
business, at fixed daily rates. The charter-in agreements assigned the contracts of affreightment on these two ATBs to us. On October 10, 2008, the Partnership converted the time
charter agreement with OSG on theOSG 400/OSG Constitutionto a bareboat charter agreement. The bareboat charter commenced with the completion of the OSG
Constitution'sshipyard period in November of 2008. The term of the bareboat charter ends simultaneously with the completion of the unit's lightering
service, which is expected to occur in the second quarter of 2010. In December 2008, theM300/Liberty'stime charter agreement with OSG ended.

TCE
revenues increased $63.0 million, or 35%, from $182.7 million for the year ended December 31, 2007 to $245.7 million for the year ended December 31, 2008. The
increase in TCE revenues resulted primarily from a net increase of 1,613 revenue days for the year ended December 31, 2008 compared with the same period in 2007. These additional days were
attributable primarily to the delivery of the AMSC tankers, discussed in Future Business above, which added 936 revenue days to the year ended December 31, 2008 compared with the same period in
2007. In the year ended December 31, 2007, the bargeOSG 243was in the shipyard being rebuilt to a double hull configuration. Her return to
service added 198 revenue days to the year ended December 31, 2008 compared with the year ended December 31, 2007. The addition of the M300/Libertyand theOSG 400/OSG
Constitutioncharter contracts, discussed above, added 382 revenue days to
the year ended December 31, 2008 compared with the same period in 2007.

Vessel Expenses

The following table provides information with respect to average daily vessel expenses and operating days, which exclude time chartered-in vessels, for the years
ended December 31, 2008 and 2007:

Year Ended
December 31,2008

2007Operating Days:Jones Act ATBs


2,967


2,920Jones Act Product Carriers


3,663


2,750Non-Jones Act Product Carriers


732


7307,362


6,400Average Daily Vessel Expenses:Jones Act ATBs

$
8,605

$
8,604Jones Act Product Carriers

$
17,238

$
17,132Non-Jones Act Product Carriers

$
13,473

$
14,475


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Vessel expenses increased $15.7 million, or 19%, from $82.8 million for the year ended December 31, 2007 to $98.5 million for the
year ended December 31, 2008. The increase in vessel expenses resulted primarily from a net increase of 962 operating days for the year ended December 31, 2008. This was attributable
primarily to the delivery of the AMSC tankers, discussed in Future Business above, that added 906 operating days to the year ended December 31, 2008 compared with the same period in 2007.
Operating days also increased from the addition of theOSG 400/OSG Constitutionbareboat charter contracts, which added 39 days to the year ended
December 31, 2008.

Charter Hire Expenses

Charter hire expenses increased $31.6 million, or 231%, from $13.7 million for the year ended December 31, 2007 to $45.3 million for the year ended
December 31, 2008. The deliveries of the AMSC tankers, discussed in Future Business above, added 906 days of charter hire expense to the year ended December 31, 2008. In addition,
we recognized $6.9 million of charter hire expense for the year ended December 31, 2008 as a result of the time charter-in of theM300/Liberty, OSG
400/OSG Constitution,and the short term charter-in of a tub/barge unit to cover for theOSG 400during her repairs.

Depreciation and Amortization

Depreciation and amortization expense increased $4.3 million, or 9%, from $47.8 million for the year ended December 31, 2007 to $52.1 million for the
year ended December 31, 2008. The increase was primarily due to additional vessels entering the fleet in 2008 and the amortization of capitalized drydock costs incurred on vessels in the former
Maritrans fleet that drydocked for the first time since the November 2006 acquisition, partially offset by a decrease of approximately $4.0 million as a result of the change in salvage value of
the vessels and the extension of the useful lives of our remaining single hull tankers to match their OPA retirement dates in connection with the purchase of theOverseas New
Orleansand theOverseas Philadelphia. Depreciation and amortization includes $4.6 million in each of the years ended
December 31, 2008 and 2007 related to the amortization of intangibles resulting from the acquisition of Maritrans.

General and Administrative Expenses

General and administrative expenses decreased $0.8 million, or 3%, from $21.5 million for the year ended December 31, 2007 to $20.7 million for the
year ended December 31, 2008. General and administrative expenses for the year ended December 31, 2008 and the period November 15, 2007 to December 31, 2007 reflect actual
expenses incurred. Prior to November 14, 2007, general and administrative expenses were allocated based on our fleet's proportionate share of OSG's total ship-operating (calendar)
days. For the period January 1 to November 14, 2007, ship-operating days were 5,058 days. Management believes these allocations reasonably present the financial
position, results of operations and cash flows of OSG America Predecessor for the periods presented.

Equity in Income of Affiliated Companies

On a quarterly basis, we recognize our share of the estimated incentive charter hire that has been deemed earned through the reporting date that is not reversible subsequent
thereto. ATC fully distributes its net income for each year by making a distribution in the first quarter of the following year. The portion of incentive hire that is based on annual targets is not
recognized until the fourth quarter when deemed earned. Equity in income of affiliated companies decreased by $0.4 million, or 7%, from $5.7 million for the year ended
December 31, 2007 to $5.3 million for the year ended December 31, 2008. The decrease was attributable to a decrease in the incentive hire rate earned by ATC in the year ended
December 31, 2008 compared with the same period in 2007.

Interest Expense, other

Interest expense on third party obligations increased $0.2 million, or 5%, from $5.1 million for the year ended December 31, 2007 to $5.3 million for
the year ended December 31, 2008. A decrease in interest expense incurred with respect to secured term loans due to normal amortization was offset by interest incurred on borrowings under the
senior secured revolving credit facility totaling $1.4 million for the year ended December 31, 2008. Interest expense for year ended December 31, 2008 is net of
$1.1 million interest capitalized in connection with vessel construction, compared with $1.5 million interest capitalized in 2007. In June 2008, we purchased the Overseas New Orleansand theOverseas Philadelphia,which had been previously operated under capital leases,
for a total of $30.9 million. This acquisition was funded with borrowings under the senior secured revolving credit facility and reduced interest expense in periods subsequent to
June 30, 2008.

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Provision for Federal Income Taxes

The income tax provisions for the period January 1, 2007 through November 14, 2007 was based on the pre-tax results determined on a separate-return
basis. In 2006, OSG made an election under the
American Jobs Creation Act of 2004, effective for years commencing with 2005, to have its qualifying U.S. flag operations taxed under a new tonnage tax regime rather than under the usual U.S.
corporate income tax regime. As a result of that election, our taxable income for U.S. income tax purposes with respect to the eligible U.S. flag vessels does not include income from qualifying
shipping activities in U.S. foreign trade (i.e., transportation between the U.S. and foreign ports or between foreign ports).

As
a result of our initial public offering, as a partnership, we are not a taxable entity and will incur no federal income tax liability. Instead, each unitholder will be required to take into account
his or her share of items of income, gain, loss, and deduction of the partnership in completing his federal income tax liability without regard to whether corresponding cash distributions are received
from the partnership by him.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Time Charter Equivalent Revenues

The following table reconciles TCE revenues to shipping revenues, as reported in the consolidated statements of operations:

Year Ended
December 31,In thousands

2007

2006TCE revenues

$
182,671

$
78,260Voyage expenses


31,336


10,592Shipping revenues

$
214,007

$
88,852


The following table provides information with respect to average daily TCE rates earned and revenue days for the years ended December 31, 2007 and 2006:

Year Ended
December 31,2007

2006Revenue Days:Jones Act ATBs


2,273


216Jones Act Product Carriers


2,528


1,432Non-Jones Act Product Carriers


718


7205,519


2,368Average Daily TCE Rates:Jones Act ATBs

$
28,787

$
25,139Jones Act Product Carriers

$
36,292

$
33,431Non-Jones Act Product Carriers

$
35,504

$
34,661


TCE revenues increased $104.4 million, or 133%, from $78.3 million for the year ended December 31, 2006 to $182.7 million for the
year ended December 31, 2007. The increase in TCE revenues resulted primarily from an increase in revenue days of 3,151 in the year ended December 31, 2007, compared with the same 2006
period. These additional days were attributable to the acquisition of Maritrans, which accounted for 2,655 of the additional revenue days in 2007. In addition, we took delivery of the Overseas Houston, Overseas Long
Beachand theOverseas Los Angelesin February, June and November 2007,
respectively. At the time of the Maritrans acquisition, the ATBOSG 242was in a shipyard being double-hulled and later completed on April 5, 2007.
On February 20, 2007, a second ATB, theM211, was taken out of service and entered the shipyard to be doubled hulled. She returned to service in
the second quarter of 2008.

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Vessel Expenses

The following table provides information with respect to average daily vessel expenses and operating days for the years ended December 31, 2007 and 2006:

Year Ended
December 31,2007

2006Operating Days:Jones Act ATBs


2,920


249Jones Act Product Carriers


2,750


1,522Non-Jones Act Product Carriers


730


7306,400


2,501Average Daily Vessel Expenses:Jones Act ATBs

$
8,604

$
6,355Jones Act Product Carriers

$
17,132

$
14,589Non-Jones Act Product Carriers

$
14,475

$
14,586


Vessel expenses increased $48.4 million, or 141%, from $34.4 million for the year ended December 31, 2006 to $82.8 million for the
year ended December 31, 2007. The increase in expenses and operating days was principally the result of the inclusion of the Maritrans fleet, which added $34.7 million to vessel expenses
and 3,339 operating days in the 2007 period, and to the delivery of three bareboat chartered-in vessels in 2007. In addition, the charter on theOverseas Galena
Baywas converted from a bareboat charter to a bareboat charter with operating expense reimbursement in July 2006, which increased vessel expenses and TCE revenues by comparable
amounts.

Charter Hire Expenses

Charter hire expenses were $13.7 million for the year ended December 31, 2007. TheOverseas Houston, Overseas Long
BeachandOverseas Los Angeleswere delivered from the shipyard in February, June and November 2007, respectively and operated for
325 days, 189 days and 46 days in 2007.

Depreciation and Amortization

Depreciation and amortization expense increased $26.2 million, or 121%, from $21.6 million for the year ended December 31, 2006 to $47.8 million for
the year ended December 31, 2007. These increases were primarily due to an increase in the operating fleet as a result of the acquisition of Maritrans, which added $20.8 million of
depreciation expense. Depreciation and amortization for the years ended December 31, 2007 and 2006 includes $4.6 million and $0.4 million, respectively, related to the
amortization of intangibles resulting from the acquisition of Maritrans.

General and Administrative Expenses

General and administrative expenses increased $13.5 million, or 170%, from $7.9 million for the year ended December 31, 2006 to $21.5 million for the
year ended December 31, 2007. Prior to November 14, 2007, general and administrative expenses were allocated based on our fleet's proportionate share of OSG's total
ship-operating (calendar) days. For the years ended December 31, 2007 and 2006, ship-operating days were 6,400 days and 2,501 days, respectively.
Management believes these allocations reasonably presented the financial position, results of operations and cash flows of OSG America Predecessor for the periods presented. General and administrative
expenses for the period November 15, 2007 to December 31, 2007 reflected actual expenses incurred.

Equity in Income of Affiliated Companies

Equity in income of affiliated companies decreased by $1.1 million, or 16%, from $6.8 million for the year ended December 31, 2006 to $5.7 million
for the year ended December 31, 2007. These decreases were attributable to a reduction in the number of vessels operated by ATC and a decrease in the incentive hire rate earned by ATC in 2007
compared with 2006.

Interest Expense, other

Interest expense on third party obligations increased $1.0 million, or 25%, from $4.1 million for the year ended December 31, 2006 to $5.1 million
for the year ended December 31, 2007. As a result of the acquisition of Maritrans,

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we
assumed $55.6 million of secured term loans. The net interest expense incurred with respect to these term loans amounted to $3.1 million for the year ended December 31, 2007.
Interest expense for year ended December 31, 2007 is net of $1.5 million capitalized in connection with vessel construction.

Provision for Federal Income Taxes

As a result of our initial public offering, as a partnership, we are not a taxable entity and will incur no federal income tax liability. The income tax provisions for the
period January 1, 2007 through November 14, 2007 and the year ended December 31, 2006 were based on the pre-tax results determined on a separate-return basis. The
changes in the tax provisions for the period ended November 14, 2007 compared with the 2006 period were primarily attributable to the acquisition of the Maritrans fleet.

As
a result of OSG's election under the American Jobs Creation Act of 2004, our taxable income for U.S. income tax purposes with respect to the eligible U.S. flag vessels does not include income from
qualifying shipping activities in U.S. foreign trade (i.e., transportation between the U.S. and foreign ports or between foreign ports).

EBITDA

EBITDA represents net income plus interest expense, provision for income taxes and depreciation and amortization expense. EBITDA is presented to provide investors with
meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods.

EBITDA
assists our management and investors by increasing the comparability of our fundamental performance from period to period and against the fundamental performance of other companies in our
industry that provide EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest expense, taxes, depreciation
or amortization, which items may significantly affect net income between periods and are affected by various and possibly changing financing methods, capital structure and historical cost basis. We
believe that including EBITDA as a financial and operating measure benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our
ongoing financial and operational strength and health in assessing whether to continue to hold common units.

EBITDA
allows us to assess the ability of assets to generate cash sufficient to service debt, make distributions and undertake capital expenditures. By eliminating the cash flow effect resulting from
our existing capitalization and other items such as drydocking expenditures and working capital changes (which may vary significantly from period to period), EBITDA provides a consistent measure of
our ability to generate cash over the long term. Management uses this information as a significant factor in determining (a) our proper capitalization (including assessing how much debt to
incur and whether changes to the capitalization should be made) and (b) whether to undertake material capital expenditures and how to finance them, all in light of existing cash distribution
commitments to unitholders. Use of EBITDA as a liquidity measure also permits investors to assess our fundamental ability to generate cash sufficient to meet cash needs, including distributions on our
common units.

EBITDA
should not be considered as a substitute for net income or cash flow from operating activities and other operations or cash flow statement data prepared in accordance with U.S. GAAP or as a
measure of profitability or liquidity. While EBITDA is frequently used as a measure of operating results and performance, it is not necessarily comparable to other similarly titled captions of other
companies due to differences in methods of calculation.

The
following table reconciles net (loss)/income to EBITDA:

Year Ended December 31,In thousands

2008

2007

2006Net (loss)/income

$
(54,506
)
$
9,167

$
7,736Provision for federal income taxes





2,048


768Interest expense


5,311


11,500


12,612Depreciation and amortization


52,040


47,766


21,592EBITDA

$
2,845

$
70,481

$
42,708


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                                        67

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Table of Contents

The following table reconciles net cash provided by operating activities to EBITDA:

Year Ended December 31,In thousands

2008

2007

2006Net cash provided by operating activities

$
74,756

$
28,313

$
13,299Payments for drydocking


23,197


17,407


5,835Interest expense


5,311


11,500


12,612Undistributed earnings from affiliated companies


(400
)

(1,067
)

(1,021
)Goodwill impairment


(62,874
)




Loss on impairment of vessel


(21,102
)




Changes in operating assets and liabilities (except for taxes)


(14,202
)

11,456


6,732Federal income taxes





3,325


4,924Other


(1,841
)

(453
)

327EBITDA

$
2,845

$
70,481

$
42,708


Liquidity and Sources of Capital

Working capital at December 31, 2008 was $5.3 million compared with $15.0 million at December 31, 2007 and a working capital deficiency of
$5.1 million at December 31, 2006. We operate in a capital intensive industry. In addition to distributions on our partnership units, our primary liquidity requirements relate to our
operating expenses, including payments under our management and administrative services agreements, drydocking expenditures, payments of interest and principal under our secured credit facility and
lease obligations. Our long-term liquidity needs primarily relate to capital expenditures for the purchase or construction of vessels.

The
amount of available cash we need to pay the minimum quarterly distributions for four quarters on our common units, subordinated units and general partner interest is $45.9 million. There is
no guarantee that we will pay the minimum quarterly distribution on our common and subordinated units in any quarter and we will be prohibited from making any distributions to unitholders if it would
cause an event of default, or an event of default exists, under our credit agreement.

We
anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations. We believe that cash flows from operations and bank borrowings from
our senior secured revolving credit agreement referred to below will be sufficient to meet our existing short-term liquidity needs for the next 12 months.

In
November 2007, we entered into a $200 million five-year senior secured revolving credit facility. Borrowings under this facility bear interest at a rate based on LIBOR. The
facility may be extended by 24 months subject to approval by lenders. As of December 31, 2008, $45.0 million was outstanding under the facility.

We
were in compliance with all of the financial covenants contained in our debt agreements as of December 31, 2008. The senior secured revolving credit facility prevents us from declaring or
making distributions if any event of default, as defined in the senior secured revolving credit agreement, exists or would result from such payments. In addition, the senior secured revolving credit
facility imposes certain operating restrictions and requires us to adhere to certain minimum financial covenants. Our failure to comply with any of the covenants in the agreements could result in a
default, which would permit lenders to accelerate the maturity of the debt and to foreclose upon collateral securing the debt. Under those circumstances, we might not have sufficient funds or other
resources to satisfy our remaining obligations.

Cash Flows

Operating cash flowsNet cash flow provided by operating activities was $74.7 million, $28.3 million and $13.3 million
for the years ended December 31, 2008, 2007 and 2006, respectively. The increase of $46.4 million in 2008 was primarily attributable to higher operating earnings before the
non-cash losses on goodwill impairment and a vessel impairment, a decrease in receivables and higher payables and accrued expenses. These increases were partially offset by an increase in
payments for drydocking of $5.8 million for the year ended December 31, 2008 compared with the same period in 2007.

The
increase of $15.0 million from 2006 to 2007 was primarily attributable to the Maritrans acquisition which added 10 vessels to our fleet. Income from vessel operations for the year ended
December 31, 2007 increased $2.7 million

68                                        
                                          
                               OSG America L.P.

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Table of Contents

over
2006 and depreciation and amortization increased by $26.2 million primarily as a result of the Maritrans acquisition. These increases were partially offset by an increase of
$11.6 million in payments for drydocking.

Net
cash flow from operating activities depends upon the timing and amount of drydocking expenditures, repairs and maintenance activity, vessel additions and dispositions, changes in interest rates,
fluctuations in working capital balances and spot market freight rates. The number of vessel drydockings tends to vary from year to year.

Investing cash flowsNet cash used in investing activities was $42.4 million, $44.8 million and $345.5 million for the
years ended December 31, 2008, 2007 and 2006, respectively. Investing activities for the year ended December 31, 2008 related primarily to the purchase of the Overseas PhiladelphiaandOverseas New Orleans, progress payments for the two new tugs under construction
and the double hulling of theOSG 243. Investing activities in 2007 related primarily to costs that were incurred double-hulling two barges. During 2006,
investing activities related primarily to the acquisition by OSG of Maritrans on November 28, 2006 for $340.9 million.

Financing cash flowsNet cash (used in)/provided by financing activities was ($25.2) million, $19.5 million and $332.4 million
for the years ended December 31, 2008, 2007 and 2006, respectively. During the year ended December 31, 2008, net proceeds under the senior secured revolving credit facility were
$45.0 million. Repayments of debt totaling $33.1 million represent regularly scheduled installments under secured term loans and the repayment of capital lease obligations in connection
with the purchase of theOverseas New Orleansand theOverseas Philadelphiain June 2008. We also paid
$40.2 million in distributions in 2008. Repayments of debt in 2006 and 2007 represent regularly scheduled installments under existing capital lease obligations and secured term loans.

Ongoing Capital Expenditures

Marine transportation of crude oil and refined petroleum products is a capital-intensive business, which requires significant investment to maintain an efficient fleet and stay
in regulatory compliance.

Over
the next three years, we estimate that we will spend approximately $10 to $20 million per year for drydocking and classification society surveys. We drydock our vessels twice in every
five-year period and, as our fleet matures and expands, our drydocking expenses will likely increase. Ongoing costs for compliance with environmental regulations are primarily included as
part of our drydocking and classification society survey costs or are a component of our operating expenses. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen
damage. Periodically, we also incur expenditures to acquire or construct additional product carriers and barges and/or to upgrade or double hull vessels in order to comply with statutory regulations.
We are not aware of any regulatory changes or environmental liabilities that will have a material impact on our current or future operations.

We
believe that our cash flow from charters-out will be sufficient to cover the interest and principal payments under our debt agreements, amounts due under the administrative services and
management agreements, other general and administrative expenses and other working capital requirements for the short and medium term. To the extent we pursue other vessel acquisitions, we expect to
finance any such commitments from existing long-term credit facilities and additional long-term debt as required. The amounts of working capital and cash generated from
operations that may, in the future, be utilized to finance vessel commitments are dependent on the rates at which we can charter our vessels. Such charter rates are volatile.

Because
we distribute all of our available cash, we may not grow as fast as companies that reinvest their available cash. We expect that we will rely upon external financing sources, including bank
borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash
distribution policy will significantly impair our ability to grow. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of
distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may affect the available cash that we have
to distribute on each unit. Our partnership agreement does not limit our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional debt by us
or our operating subsidiaries would result in increased interest expense, which in turn may also affect the available cash that we have to distribute to our unitholders.

2008 Annual
Report                                        
                                          
                                          
                                        69

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Table of Contents

Aggregate Contractual Obligations

A summary of our long-term contractual obligations as of December 31, 2008 follows:

In thousands

2009

2010

2011

2012

2013

Beyond
2013

TotalLong-term debt(1)

$
7,360

$
7,364

$
7,363

$
52,200

$
18,574

$
16,465

$
109,326Operating lease obligations (chartered-in vessels)(2)


51,791


61,539


64,331


64,306


64,225


86,061


392,253Operating lease obligations with OSG (chartered-in vessels)(3)


4,152

















4,152Construction installments(4)


17,690


9,070














26,760Total

$
80,993

$
77,973

$
71,694

$
116,506

$
82,799

$
102,526

$
532,491


Senior Secured Revolving Credit Facility

On November 15, 2007, OSG America Operating Company LLC, a wholly owned subsidiary of us, entered into a $200,000,000 senior secured revolving credit facility with
ING Bank N.V. and DnB NOR Bank ASA. As of December 31, 2008, $45.0 million was outstanding under this facility, at an average interest rate of 2.08%. The amount available under
this facility at December 31, 2008 was $155 million.

Borrowings
under the senior secured revolving credit facility are due and payable five years after the date that the facility agreement was signed (the "closing date"), subject to a
24-month extension period which may be requested by us on or after the second anniversary of the closing date and which may be approved by the lenders. Drawings under the facility will be
available on a revolving basis until the earlier of one month prior to the applicable maturity date or the date on which the facility is permanently reduced to zero and the lenders are no longer
required to make advances.

Borrowings
under the senior secured revolving credit facility are secured by, among other things, first preferred mortgages on certain owned vessels and are guaranteed by us.

OSG
America Operating Company LLC may, at its option, prepay all loans under our senior secured revolving credit facility at any time without penalty (other than customary LIBOR breakage
costs). The outstanding loans under the senior secured revolving credit facility bear interest at a rate equal to LIBOR plus a margin (70 basis points per year until the fifth anniversary of the
closing date and, if the extension option is exercised, 75 basis points per year thereafter).

The
senior secured revolving credit facility prevents us from declaring dividends or making distributions if any event of default, as defined in the senior secured revolving credit agreement, exists
or would result from such payments. In addition, the senior secured revolving credit facility requires us to adhere to certain financial covenants. We were in compliance with all of the financial
covenants contained in the debt agreements as of December 31, 2008.

Interest Rate Risk

We are exposed to the impact of interest rate changes primarily through our unhedged floating-rate borrowings. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability to service our debt. From time to time, we may use interest rate swaps to reduce our exposure to market risk from changes
in interest rates. The principal objective of these contracts would be to minimize the risks and costs associated with our floating-rate debt. As of December 31, 2008,
long-term debt except for the $45.0 million drawn on the senior secured revolving credit facility, consisted of fixed-rate secured term loans. As of December 31,
2008,

70                                        
                                          
                               OSG America L.P.

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Table of Contents

forward
start interest rate swaps effectively convert our interest rate exposure on $30.0 million of our senior secured revolving credit facility from a floating rated based on LIBOR to a fixed
rate of 4.35%.

We
intend to invest our cash in financial instruments with maturities of less than three months within the parameters of our investment policy and guidelines.

We
use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows. Changes in the fair value of interest rate swaps are either offset against the fair value of assets
or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of an interest rate swap change in fair value is
immediately recognized in income. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts.

The
following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the tables
present principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the tables present notional amounts and weighted average interest rates by
contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts.

Principal (Notional) Amount (dollars in millions) by Expected Maturity and Average Interest (Swap) Rate

At December 31, 2008

2009

2010

2011

2012

2013

Beyond
2013

Total

Fair Value at
Dec. 31, 2008LiabilitiesLong-term debt, including current portion:Fixed rate

$
3.0

$
3.2

$
3.4

$
3.6

$
17.2

$
16.4

$
46.8

$
35.3Average interest rate


5.9
%

5.9
%

5.9
%

5.9
%

5.7
%

6.2
%




Variable rate










$
45.0







$
45.0

$
42.0Average spread over LIBOR











0.7
%










Interest Rate SwapsPay fixed/receive variable*










$
30.0







$
30.0

$
(2.8
)Average pay rate











4.4
%













*  LIBOR

Foreign Currency Risk

The shipping industry's functional currency is the U.S. dollar. All of our revenues and most of our operating costs are in U.S. dollars.

Off Balance Sheet Arrangements

We do not currently have any liabilities, contingent or otherwise, that we consider to be off balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7.

2008 Annual
Report                                        
                                          
                                          
                                        71

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Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS



OSG America L.P. Consolidated and Predecessor Combined Carve-Out Financial Statements

PageConsolidated Balance Sheets at December 31, 2008 and 2007


73Consolidated Statements of Operations for the year ended December 31, 2008 and the period
November 15, 2007 to December 31, 2007, and Predecessor Combined Carve-Out Statements of Operations for the period January 1, 2007 to November 14, 2007 and the year ended December 31, 2006


74Consolidated Statements of Cash Flows for the year ended December 31, 2008 and the period
November 15, 2007 to December 31, 2007, and Predecessor Combined Carve-Out Statements of Cash Flows for the period January 1, 2007 to November 14, 2007 and the year ended December 31, 2006


75Consolidated Statements of Changes in Partners' Capital for the year ended December 31, 2008, and the
period November 15, 2007 to December 31, 2007, and Predecessor Combined Carve-Out Statements of Changes in Stockholder's Equity for the period January 1, 2007 to November 14, 2007 and the year ended December 31,
2006


76Notes to Consolidated and Predecessor Combined Carve-Out Financial Statements


77Report of Independent Registered Public Accounting Firm


93Report of Independent Registered Public Accounting Firm


94


72                                        
                                          
                               OSG America L.P.

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Table of Contents

OSG AMERICA L.P.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS

As of December 31, 2008

As of December 31, 2007ASSETSCurrent Assets:Cash and cash equivalents

$
10,529

$
3,380Voyage receivables, including unbilled of $6,186 and $4,107


18,900


26,263Other receivables


4,129


7,146Inventory


1,855


2,997Prepaid expenses and other current assets


4,770


3,961Total current assets


40,183


43,747Vessels, less accumulated depreciation


404,462


405,447Vessels under capital leases, less accumulated amortization





21,246Vessel held for sale


1,310


Deferred drydock expenditures, net


26,536


16,177Investment in Alaska Tanker Company, LLC


5,382


5,782Intangible assets, less accumulated amortization


82,417


87,017Goodwill





62,874Other assets


14,271


8,822Total assets

$
574,561

$
651,112LIABILITIES AND PARTNERS' CAPITALCurrent Liabilities:Accounts payable and accrued expenses

$
19,282

$
19,522Accounts payable to affiliated companies


12,586


Current portion of debt


3,007


2,834Current obligations under capital leases





6,375Total current liabilities


34,875


28,731Long-term debt, less current portion


88,746


46,753Obligations under capital leases





23,846Advances from affiliated companies





9,657Other non-current liabilities


7,994


1,428Total liabilities


131,615


110,415Partners' Capital


442,946


540,697Total liabilities and partners' capital

$
574,561

$
651,112


See notes to consolidated financial statements.

2008 Annual
Report                                        
                                          
                                          
                                        73

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Table of Contents

OSG AMERICA L.P.
CONSOLIDATED AND PREDECESSOR COMBINED CARVE-OUT
STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS

Successor
Year ended
December 31,
2008

Successor
November 15 -
December 31,
2007

Predecessor
January 1 -
November 14,
2007

Predecessor
Year ended
December 31,
2006Shipping Revenues:Time and bareboat charter revenues (including $20,784 from OSG for the year ended December 31, 2008)

$
158,224

$
17,094

$
91,517

$
49,189Voyage charter revenues


128,099


14,042


91,354


39,663286,323


31,136


182,871


88,852Operating Expenses:Voyage expenses


40,639


4,666


26,670


10,592Vessel expenses


98,534


11,398


71,407


34,430Charter hire expenses (including $6,858 to OSG for the year ended December 31, 2008)


45,283


3,469


10,205


Depreciation and amortization


52,040


7,001


40,765


21,592General and administrative allocated from OSGM


20,725


2,899





General and administrative allocated from Overseas Shipholding Group, Inc.








18,564


7,942Goodwill impairment


62,874








Loss on impairment of vessel


21,102








Total operating expenses


341,197


29,433


167,611


74,556(Loss)/income from vessel operations


(54,874
)

1,703


15,260


14,296Equity in income of affiliated companies


5,344


2,551


3,192


6,811Operating (loss)/income


(49,530
)

4,254


18,452


21,107Other income /(expense)


335


17


(8
)

9(49,195
)

4,271


18,444


21,116Interest expense to a wholly-owned subsidiary of Overseas Shipholding Group, Inc.








6,426


8,535Interest expense, other


5,311


665


4,409


4,077(Loss)/income before federal income taxes


(54,506
)

3,606


7,609


8,504Provision for federal income taxes








2,048


768Net (loss)/income

$
(54,506
)
$
3,606

$
5,561

$
7,736General partner's interest in net (loss)/income

$
(1,090
)
$
72Limited partner's interest:Net (loss)/income

$
(53,416
)
$
3,534Net (loss)/income per unitbasic and diluted

$
(1.78
)
$
0.12Cash distribution declared and paid per unit

$
1.3125


Weighted average units outstandingbasic and diluted


30,002,680


30,002,250Basic and diluted net income per share







$
285.20

$
2,434.93Shares used in computing basic and diluted net income per share








19,500


3,177


See notes to consolidated financial statements.

74                                        
                                          
                               OSG America L.P.

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Table of Contents

OSG AMERICA L.P.
CONSOLIDATED AND PREDECESSOR COMBINED CARVE-OUT
STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS

Successor
Year Ended
December 31,
2008

Successor
November 15 -
December 31,
2007

Predecessor
January 1 -
November 14,
2007

Predecessor
Year Ended
December 31,
2006Cash Flows from Operating Activities:Net (loss)/income

$
(54,506
)
$
3,606

$
5,561

$
7,736Items included in net income not affecting cash flows:Depreciation and amortization


52,040


7,001


40,765


21,592Goodwill impairment


62,874








Loss on impairment of vessel


21,102








Provision/(credit) for deferred federal income taxes








3,162


(1,153
)Decrease/(increase) in undistributed earnings of affiliated companies, net of distributions


400


(2,551
)

3,618


1,021Othernet


1,841


125


328


(327
)Payments for drydocking


(23,197
)

(533
)

(16,874
)

(5,835
)Changes in operating assets and liabilities:Decrease/(increase) in receivables


10,380


(2,684
)

(10,235
)

(533
)Decrease/(increase) in other current assets


333


(2,071
)

(1,662
)

(26
)Decrease in accrued federal income taxes








(4,439
)

(3,003
)Increase/(decrease) in accounts payable, accrued expenses and other liabilities


3,489


(3,295
)

8,491


(6,173
)Net cash provided by/(used in) operating activities


74,756


(402
)

28,715


13,299Cash Flows from Investing Activities:Expenditures for vessels


(42,440
)

(3,643
)

(41,113
)

(4,623
)Acquisition of Maritrans











(340,860
)Net cash used in investing activities


(42,440
)

(3,643
)

(41,113
)

(345,483
)Cash Flows from Financing Activities:Capital contribution by OSG








103


Net proceeds from borrowings under revolving credit facility


45,000








Payments on debt and obligations under capital leases


(33,055
)

(1,327
)

(10,808
)

(5,938
)Proceeds from issuance of common units pursuant to initial public offering





129,256





Payment of proceeds to affiliated companies for liabilities owed





(129,256
)




Cash distributions paid


(40,182
)







Payments for initial public offering transaction costs


(241
)







Payments for deferred financing costs


(143
)

(1,203
)




Changes in advances from affiliates


3,454


9,657


23,121


338,337Net cash (used in)/provided by financing activities


(25,167
)

7,127


12,416


332,399Net increase in cash and cash equivalents


7,149


3,082


18


215Cash and cash equivalents at beginning of period


3,380


298


280


65Cash and cash equivalents at end of period

$
10,529

$
3,380

$
298

$
280Supplemental schedule of noncash financing activities:Issuance of units to OSG pursuant to initial public offering




$
397,029





Issuance of general partner interest to OSG America LLC pursuant to initial public offering




$
10,804





Loans and non-interest bearing advances contributed to capital by OSG







$
675,715





See notes to consolidated financial statements.

2008 Annual
Report                                        
                                          
                                          
                                        75

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Table of Contents

OSG AMERICA L.P.
CONSOLIDATED AND PREDECESSOR COMBINED CARVE-OUT
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL / STOCKHOLDER'S EQUITY
DOLLARS AND UNITS IN THOUSANDS

Common Stock

Additional
Paid-in
CapitalAccumulated
DeficitShares

Amount

TotalBalance at December 31, 2005


1,500

$
201

$
1,299

$
(153,526
)
$
(152,026
)Issuance of stock


18,000











Net income











7,736


7,736Balance at December 31, 2006


19,500

$
201

$
1,299

$
(145,790
)
$
(144,290
)Capital contribution by OSG








103





103Net income











5,561


5,561Capital contribution of advances from affiliated companies








675,715





675,715Balance at November 14, 2007


19,500

$
201

$
677,117

$
(140,229
)
$
537,089




Limited PartnersCommon Units

Subordinated Units



Accumulated
Other
Comprehensive
Income/(Loss)General
PartnerUnits

Amount

Units

Amount

TotalBalance at November 15, 2007




$





$


$


$


$
Issuance of common units pursuant to initial public offering


7,500


129,256














129,256Issuance of units to Overseas Shipholding Group, Inc. pursuant to initial public offering


7,500


132,343


15,000


264,686








397,029Issuance of general partner interest to OSG America LLC pursuant to initial public offering














10,804





10,804Issuance and amortization of restricted units awards


2


2














2Net income





1,767





1,767


72





3,606Balance at December 31, 2007


15,002

$
263,368


15,000

$
266,453

$
10,876

$


$
540,697Net loss





(26,708
)




(26,708
)

(1,090
)




(54,506
)Effect of derivative instruments

















(2,837
)

(2,837
)Comprehensive loss




















(57,343
)Costs associated with issuance of units pursuant to initial public offering





(241
)













(241
)Issuance and amortization of restricted units awards


2


15














15Distributions to members





(19,691
)




(19,687
)

(804
)




(40,182
)Balance at December 31, 2008


15,004

$
216,743


15,000

$
220,058

$
8,982

$
(2,837
)
$
442,946


See notes to consolidated financial statements.

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Notes to Consolidated and Predecessor Combined Carve-Out Financial Statements:

NOTE AORGANIZATION

OSG America L.P., a Delaware limited partnership (the "Partnership"), was formed on May 14, 2007 to ultimately own a 100% interest in OSG America
Operating LLC (the "Operating Company"). The Partnership's general partner, OSG America LLC (the "General Partner"), is a wholly owned subsidiary of Overseas Shipholding
Group, Inc. ("OSG"), a publicly traded company incorporated in Delaware. The Partnership obtained the foregoing assets in connection with the initial public offering of its common units, which
was consummated on November 15, 2007.

At
or prior to completion of the offering, the following transactions occurred:

In
addition, at or prior to completion of the offering, the Partnership entered into the following agreements:

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NOTE BSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Description of BusinessOSG America L.P. is engaged in providing marine transportation services through the
ownership and operation of a fleet of tankers and ATBs. Of the twenty-one vessels in the operating fleet, nineteen operate in the Jones Act trade and two operate in the international
market under the U.S. flag while participating in the Maritime Security Program. These two tankers are not eligible for Jones Act trading because they were not built in the United States. The
management of OSG America L.P. has determined that it operates in one segment. In addition, OSG America L.P. owns a 37.5% ownership interest in a joint venture, Alaska Tanker
Company, LLC.

The
accompanying consolidated and predecessor combined carve-out financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The consolidated
financial statements include the assets and liabilities of the Partnership and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation. Investments in 50% or less owned affiliated companies, in which the Partnership exercises significant influence, but is not the primary beneficiary, are accounted for by the equity
method.

For
the year ended December 31, 2007, the predecessor combined carve-out financial statements are for the period January 1, 2007 through November 14, 2007, and the
consolidated financial statements of the Partnership and its wholly owned subsidiaries are for the 47 day period from November 15, 2007 through December 31, 2007 during which the
Partnership operated as an independent company. For the period from January 1, 2007 through November 14, 2007 and for the year ended December 31, 2006, the predecessor combined
carve-out financial statements presented herein have been carved out of the financial statements of OSG using specific identification. In the preparation of these predecessor
carve-out financial statements, general and administrative expenses were not identifiable as relating to the vessels. General and administrative expenses, consisting primarily of salaries
and other employee related costs, office rent, legal and professional fees, and travel and entertainment were allocated based on the Partnership's proportionate share of OSG's total
ship-operating days for each of the periods presented. Management believes these allocations reasonably present the financial position, results of operations and cash flows of OSG America
Predecessor. However, the predecessor combined carve-out statements of financial position, operations and cash flow may not be indicative of those that would have been realized had OSG
America Predecessor operated as an independent stand-alone entity for the periods presented. Had OSG America Predecessor operated as an independent stand-alone entity, its results could have differed
significantly from those presented herein.

Cash and Cash EquivalentsInterest-bearing deposits that are highly liquid investments and have a maturity of three months or less when
purchased are included in cash and cash equivalents.

InventoryInventory consists of fuel and is stated at cost determined on a first-in, first-out basis.

VesselsVessels are recorded at cost and are depreciated to their estimated salvage value on the straight-line basis over the
lives of the vessels, generally ranging from 20 to 25 years. Each vessel's salvage value is equal to the product of its lightweight tonnage and an estimated scrap rate. Effective
January 1, 2008, the Partnership effected a change in estimate related to the estimated scrap rate for substantially all of its vessels from $150 per lightweight ton to $300 per lightweight
ton. The resulting increase in salvage value has been applied prospectively and reduced depreciation expenses by $2,328,000 for the year ended December 31, 2008 and increased basic and diluted
net income per unit by $0.08. Accumulated depreciation was $85,819,000 and $59,568,000 at December 31, 2008 and 2007, respectively.

On
June 25, 2008, the Partnership purchased theOverseas New Orleansand theOverseas Philadelphia,each of which had been previously operated under
capital leases. The useful lives of these vessels were determined based on their OPA retirement dates. In the third quarter of
2008, the Partnership effected a change in estimate related to the useful lives of its two remaining single hull tankers and extended their useful lives to match their OPA retirement dates. As a
result, depreciation expense was reduced by approximately $1,727,000 for the year ended December 31, 2008 and increased basic and diluted net income per unit by $0.06.

Interest
costs are capitalized to vessels during the period that vessels are under construction. Interest capitalized aggregated $1,138,000 for the year ended December 31, 2008, $204,000 for
the period November 15 through

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December 31,
2007, $1,320,000 for the period January 1 through November 14, 2007 and $167,000 for the year ended December 31, 2006.

Deferred Drydock ExpendituresExpenditures incurred during a drydocking are deferred and amortized on the straight-line basis over
the period until the next scheduled drydocking, generally two and a half years. The Partnership only includes in deferred drydocking costs those direct costs that are incurred as part of the
drydocking to meet regulatory requirements, or are expenditures that either add economic life to the vessel, increase the vessel's earnings capacity or improve the vessel's efficiency. Direct costs
included shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as
incurred. Drydocking activity for the year ended December 31, 2008, the period November 15 through December 31, 2007, the period January 1 through November 14, 2007
and the year ended December 31, 2006 is summarized as follows:

In thousands

Successor
Year Ended
December 31, 2008

Successor
November 15
through
December 31, 2007

Predecessor
January 1, 2007
through
November 14, 2007

Predecessor
Year Ended
December 31, 2006Balance at beginning of period

$
16,177

$
16,946

$
4,212

$
1,761Payments for drydocking


23,197


533


16,874


5,835Subtotal


39,374


17,479


21,086


7,596Drydock amortization


(12,838
)

(1,302
)

(4,140
)

(3,384
)Balance at end of period

$
26,536

$
16,177

$
16,946

$
4,212


Vessels under Capital LeasesIn June 2008, the Partnership purchased theOverseas New Orleansand theOverseas Philadelphia,which had been previously accounted for as capital leases. Amortization of capital leases was
computed by the straight-line method over 22 years, representing the term of the leases. Accumulated amortization was $80,414,000 at December 31, 2007.

Impairment of Long-Lived AssetsThe carrying amounts of long-lived assets held and used by the Partnership are
reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset 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 asset and its eventual disposition is less than the asset's carrying amount.
This assessment is made at the individual vessel level since separately identifiable cash flow information for each vessel is available. The amount of an impairment charge, if any, would be determined
using discounted cash flows.

Goodwill and Intangible AssetsGoodwill and indefinite lived intangible assets acquired in a business combination are not amortized but are
reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with estimable useful lives are amortized over their estimated useful lives. The Partnership's
intangible assets consist of long-term customer relationships acquired as part of the purchase of Maritrans, Inc. The long-term customer relationships are being
amortized on a straight-line basis over 20 years. Accumulated amortization at December 31, 2008 and 2007 was $9,583,000 and $4,983,000, respectively. Amortization expense of
intangible assets for the year ended December 31, 2008 was $4,600,000, for the period November 15, 2007 through December 31, 2007 was $594,000, for the period January 1,
2007 through November 14, 2007 was $4,006,000 and for the year ended December 31, 2006 was $383,000.

The
Partnership tests the goodwill of the reporting unit for impairment at least annually, or more frequently if impairment indicators arise in accordance with the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," by comparing the Partnership's estimated fair value with its net book value. Considering the decline in the Partnership's
unit price and the general weakening of the economic outlook and the decline in the financial and banking sectors, the Partnership performed an impairment test as of September 30, 2008, an
annual impairment test as of October 1, 2008, and an impairment test as of December 31, 2008. In the fourth quarter of 2008, the economic downturn resulted in a number of market-related
events that are expected to negatively impact the Partnership's operations in the near and medium-term. Lower demand for refined petroleum products in North America has resulted in a
number of major refining companies reducing capital expenditures and deferring and/or eliminating projects that would have increased production capacity throughout the

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Gulf
of Mexico. The reduction in planned refining expansion projects reduces future volumes of clean products that had been forecast to move on Jones Act tankers. Recessionary forces are also now
expected to result in unfavorable changes in trading patterns, as refiners shift to higher margin low sulfur diesel for export, resulting in an adverse impact on tonne-mile demand in the
Jones Act market and associated rates. As a result of this deterioration in the forward supply/demand balance of the Jones Act market and the reduction in the Partnership's newbuilding program, the
Partnership reduced its estimates of future cash flows to measure fair value and, accordingly, recorded an impairment charge of $62,874,000 representing the full value of the goodwill related to the
Partnership in the fourth quarter ended December 31, 2008

Deferred Financing CostsFinance charges incurred in the arrangement of debt are deferred and amortized to interest expense on a
straight-line basis over the life of the related debt. Deferred financing charges of $984,000 and $1,172,000 are included in other assets at December 31, 2008 and 2007,
respectively. Amortization for the year ended December 31, 2008 amounted to $331,000 and $31,000 for the period November 15 through December 31, 2007.

Revenue and Expense RecognitionRevenues from time charters and bareboat charters are accounted for as operating leases and are thus
recognized ratably over the rental periods of such charters, as service is performed. 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. The Partnership does not begin recognizing voyage revenue until a charter has been agreed to by both the Partnership and
the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

Under
voyage charters, expenses such as fuel, port charges, canal tolls and cargo handling operations are paid by the Partnership whereas, under time and bareboat charters, such voyage costs generally
are paid by the Partnership's customers.

Significant CustomersDuring the three years ended December 31 2008, the Partnership derived revenues from certain major customers,
each one representing more than 10% of revenues. In 2008, revenues from four customers aggregated 46% of our total revenues. In 2007 and 2006, revenues from four customers aggregated 46% and 62%,
respectively, of total revenues. The Partnership does not necessarily derive 10% or more of its total revenues from the same group of customers each year.

DerivativesStatement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("FAS 133") requires the Partnership to recognize all derivatives on the balance sheet at fair value. Derivatives that are not effective hedges must be adjusted to fair value through earnings.
If the derivative is an effective hedge, depending on the nature of the hedge, a change in the fair value of the derivative is either offset against the change in fair value of the hedged item (fair
value hedge), or recognized in other comprehensive income/(loss) and is reclassified into earnings in the same period or periods during which the hedge transaction affects earnings (cash flow hedge).
The ineffective portion (that is, the change in fair value of the derivative that does not offset the change in fair value of the hedged item) of an effective hedge and the full amount of derivative
instruments that do not qualify for hedge accounting are immediately recognized in earnings.

The
Partnership uses interest rate swaps for the management of interest rate risk exposure. The interest rate swaps effectively convert a portion of the Partnership's debt from a floating to a fixed
rate and are designated and qualify as cash flow hedges. For those interest rate swaps for which all the critical terms match, no ineffectiveness is assumed nor recorded in earnings throughout the
duration of the swap unless any of the critical terms of either the hedge instrument, or hedged item change, or if there have been any adverse developments regarding counterparty risk. The Partnership
will in such cases, determine the amount of ineffectiveness that must be recorded in earnings and will further assess whether the hedging relationship is expected to continue to be highly effective.
The interest rate swaps that qualify for cash flow hedge accounting treatment but do not have matched terms, are measured for ineffectiveness at every reporting period with the amount of
ineffectiveness being recorded in earnings. At December 31, 2008 no ineffectiveness gains or losses have been recorded in earnings relative to the Partnership's interest rate swaps that qualify
as hedges. Any gain or loss realized upon the early termination of an interest rate swap is recognized as an adjustment of interest expense over the shorter of the remaining term of the swap or the
hedged debt.

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Income TaxesAll of the companies included in the Predecessor combined carve-out financial statements were included in the OSG
consolidated group for U.S. income tax purposes for periods through November 14, 2007. The OSG America Predecessor's financial statements have been prepared on the basis that OSG was
responsible for all taxes for the periods prior to January 1, 2002. The provisions for income taxes in the Predecessor combined carve-out financial statements have been determined
on a separate-return basis for all periods presented. Deferred tax assets and liabilities were recognized for the expected tax consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts. Valuation allowances were recorded, when appropriate, to reduce deferred tax assets when it was more likely than not that a tax benefit would not be realized by
OSG America Predecessor. Current income taxes were provided on income reported for financial statement purposes adjusted for transactions that do not enter into the computations of income tax payable.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes". This interpretation clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This
interpretation was effective for fiscal years beginning after December 15, 2006. We adopted this standard effective January 1, 2007. The adoption of this standard did not have a material
impact on our financial condition, results of operations and cash flows.

The
Partnership is not a taxable entity and does not incur a federal income tax liability. Instead, each partner of a partnership is required to take into account his share of items of income, gain,
loss and deduction of the partnership in computing his federal income tax liability, regardless of whether cash distributions are made to him by the partnership. Distributions by a partnership to a
partner are generally not taxable to the partner unless the amount of cash distributed exceeds the partner's adjusted basis in his partnership interest.

The
Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying Income Exception," exists
with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income". Qualifying income includes income and gains derived from
the transportation, storage and processing of crude oil, natural gas and products thereof. For the year ended December 31, 2008 and the period November 15 through December 31,
2007, at least 90% of the Partnership's current gross income constituted qualifying income, and the Partnership will be classified as a partnership and the operating company will be disregarded as an
entity separate from the Partnership for federal income tax purposes.

Partners' CapitalOn November 8, 2007, OSG announced the pricing of the initial public offering of 7,500,000 common units representing
limited partner interests in the Partnership at $19.00 per unit. Net proceeds after deducting fees on the transaction were $129,256,000, which were used to satisfy the obligation of the Partnership to
reimburse OSG for capital expenditures incurred in the 24 months prior to the offering to improve the assets contributed to the Partnership by OSG, as partial consideration for that
contribution. Immediately after the pubic offering, the common units issued to the public represented a 24.5% limited partner interest in the Partnership. OSG America LLC, a wholly owned
subsidiary of OSG, is the sole general partner of the partnership and had a 2% general partner interest, and other subsidiaries of OSG held a 73.5% limited partnership interest. As a result, OSG
effectively owned 75.5% of the Partnership. On October 10, 2008, OSG purchased 500,435 of the Partnership's common units based on an unsolicited inquiry from a unitholder. OSG owned a 77.1%
interest in the Partnership at December 31, 2008.

Stockholder's EquityAt December 31, 2006, the wholly owned subsidiaries included in the Predecessor combined carve-out
financial statements had authorized capital of 6,500 common registered shares (1,300 shares were issued and outstanding) with $1.00 par value; 2,000 common registered shares (200 shares were issued
and outstanding) with no par value; and, in connection with the November 28, 2006 acquisition of Maritrans, 18,000 common shares with a par value of $.01 per share, all of which were issued and
outstanding at December 31, 2006. The stockholder's equity was exchanged for common and subordinated units of the Partnership in connection with the initial public offering.

Unit-Based CompensationThe Partnership has adopted a long-term incentive plan that permits the granting of awards to
directors and employees in the form of restricted units and unit options. The Partnership recognizes

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compensation
cost for the restricted units on a straight-line basis over the vesting periods of the awards, which is three years. No unit options have been granted.

Net Income per UnitBasic net income per unit is determined by dividing net income, after deducting the amount of net income allocated to the
general partner interest, by the weighted average number of units outstanding during the period. Diluted net income per unit is calculated in the same manner as basic net income per unit, except that
the weighted average number of outstanding units is increased to include the dilutive effect of restricted units granted under the Partnership's long-term incentive plan. There was no
change in the weighted average units outstanding for diluted net income per unit for the year ended December 31, 2008 or the period November 15 through December 31, 2007.

As
required by Emerging Issues Task Force Issue No. 03-06, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share"
("EITF 03-6"), the general partner's interest in net income is calculated as if all net income for the period was distributed according to the terms of the partnership agreement,
regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available
cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after provision for certain cash requirements. Unlike available cash, net income is
affected by non-cash items, such as depreciation and amortization.

As
described in Note A above, the general partner's incentive distribution rights entitle it to receive an increasing percentage of distributions when the quarterly cash distribution exceeds
$0.43125 per unit. For purposes of EITF 03-6, the Partnership must calculate the general partner's share of net income under the assumption that such net income was distributable.
Since net income did not exceed $0.43125 per unit for the year ended December 31, 2008 or the period November 15, 2007 through December 31, 2007, the Partnership did not use any
increased percentages in calculating the general partner's interest in net income.

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Newly Issued Accounting StandardsIn December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 141 (revised 2007), "Business Combinations" ("FAS 141R"). FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. FAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the business combination. FAS 141R applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.

In
December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51" ("FAS 160"). FAS 160 establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and
the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. FAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. This statement is required to be applied prospectively as
of the beginning of the fiscal year in
which it initially applied, except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented.

In
March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an
amendment of Statement of Financial Accounting Standards No. 133" ("FAS 161"). FAS 161 requires qualitative disclosures about an entity's objectives and strategies for using
derivatives and quantitative disclosures about how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 is
effective for fiscal years,

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Table of Contents

and
interim periods within those fiscal years beginning after November 15, 2008, with early application allowed. FAS 161 allows but does not require comparative disclosures for earlier
periods at initial adoption.

In
March 2008, the Emerging Issues Task Force reached a consensus on EITF 07-4, "Application of the Two-Class Method under FASB Statement No. 128, Earnings per
Share, to Master Limited Partnerships." EITF 07-4 requires master limited partnerships with incentive distribution rights ("IDRs"), to measure earnings per unit as it relates to
IDRs consistent with the two-class method of measuring earnings per unit. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years.

NOTE CACQUISITION OF MARITRANS

On November 28, 2006, OSG acquired Maritrans, a leading U.S. flag crude oil and petroleum product shipping company that owned and operated one of the largest fleets of
double hull vessels serving the U.S. East Coast and Gulf Coast trades. The operating results of certain wholly owned subsidiaries of Maritrans, which were carved out of the consolidated financial
statements of Maritrans, have been included in the Partnership's combined financial statements commencing November 29, 2006. The Maritrans fleet consisted of seven ATBs, one of which was in the
process of being double hulled, one conventional tug barge and two tankers, all operating under the U.S. flag.

The
following table summarizes the final allocation of the purchase price to the fair value of the Maritrans assets and liabilities. The final allocation of the purchase price resulted in a decrease
to goodwill of $2,038,000 in 2007:

In thousandsAssets:Current assets, including receivables

$
16,227Vessels


303,995Intangible assets subject to amortization


92,000Goodwill


62,874Total assets


475,096Liabilities:Current liabilities, including current installments of long-term debt


14,976Long-term debt


51,427Deferred federal income taxes and other liabilities


68,112Total liabilities assumed


134,515Net assets acquired (cash consideration)

$
340,581


The following unaudited pro forma financial information reflects the results of the Maritrans acquisition as if it had occurred at the beginning of the 2006
period presented after giving effect to purchase accounting adjustments:

In thousands, except per share amounts

Year Ended
December 31, 2006Pro forma shipping revenues

$
190,654Pro forma net income


11,305Pro forma per share amounts:Basic and diluted net income per share

$
579.73Average shares outstanding during the period presented


19,500


The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the
acquisition actually taken place on the dates indicated. These results do not reflect any synergies that might be achieved from the combined operations.

In
the fourth quarter of 2008, the Partnership recorded an impairment charge of $62,874,000 representing the full value of goodwill. See Note B for a discussion of goodwill impairment.

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NOTE DALASKA TANKER COMPANY, LLC

In the first quarter of 1999, OSG, BP Oil Shipping Company USA, Inc. ("BP") and Keystone Alaska, LLC formed Alaska Tanker Company, LLC ("ATC") to manage the
vessels carrying Alaskan crude oil for BP. ATC, 37.5% of which is now owned by the Partnership, provides marine transportation services in the environmentally sensitive Alaskan crude oil trade. Each
member of ATC is entitled to receive its respective share of any incentive charter hire payable by BP to ATC. The Partnership is not the primary beneficiary (as defined in FASB Interpretation 46(R)
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.51") with regard to ATC and accounts for its 37.5% interest in ATC according to the equity method.

A
condensed summary of the assets and liabilities of ATC follows:

As of December 31,In thousands

2008

2007Current assets

$
31,065

$
31,726Noncurrent assets


466


926Total assets

$
31,531

$
32,652Current liabilities

$
27,225

$
29,028Noncurrent liabilities


7,197


6,611Members' equity


100


100Accumulated other comprehensive loss


(2,991
)

(3,087
)Total liabilities and members' equity

$
31,531

$
32,652


The balance in accumulated other comprehensive loss relates to the adoption of Statement of Financial Accounting Standards No. 158, "Employers' Accounting
for Defined Benefit Pension and other Postretirement Plansan amendment to FASB Statement Nos. 87, 88, 106 and 132(R)". This amount is amortized and recorded on ATC's statement of
operations and will be reimbursed by BP as set forth in the time charter agreements.

A
condensed summary of the results of operations of ATC follows:

Year Ended December 31,In thousands

2008

2007

2006Time charter equivalent revenues

$
140,418

$
144,628

$
139,160Ship operating and other expenses


(126,161
)

(129,312
)

(121,000
)Income from vessel operationsnet income

$
14,257

$
15,316

$
18,160


NOTE EDERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class if financial instrument:

Cash and cash equivalentsThe carrying amounts reported in the consolidated balance sheets for interest-bearing deposits approximate their
fair value.

Debt, including capital leasesThe fair values of the Partnership's fixed rate debt are estimated using discounted cash flow analyses, based
on the rates currently available for debt with similar terms and remaining maturities.

Interest rate swapsThe fair value of interest rate swaps is the estimated amount that the Partnership would receive or pay to terminate the
swaps at the reporting date.

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The
estimated fair values of the Partnership's financial instruments, other than derivatives, follow:

As of December 31,2008

2007In thousands

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
ValueFinancial assets/(liabilities)Cash and cash equivalents

$
10,529

$
10,529

$
3,380

$
3,380Debt, including capital lease obligations


(91,753
)

(77,267
)

(79,808
)

(78,471
)




As of December 31, 2008, the Partnership is a party to floating-to-fixed interest rate swaps, which are being accounted for as cash flow hedges,
with major financial institutions covering notional amounts aggregating $30,000,000 pursuant to which it pays fixed rates averaging 4.35% and receives floating rates based on the three-month London
interbank offered rate ("LIBOR") (approximately 1.4% at December 31, 2008). These agreements contain no leverage features and mature in December 2012. As of December 31, 2008, the
Partnership has recorded a liability of $2,837,000 related to the fair values of these swaps.



The following table presents the fair values for liabilities measured on a recurring basis as of December 31, 2008:

In thousands
Description

Fair Value

Level 2:
Significant other
observable inputsLiabilities:Interest rate swaps

$
2,837

$
2,837


The following table summarizes the fair values of items measured at fair value on a nonrecurring basis for the year ended December 31, 2008:

In thousands
Description

Level 3:
Significant
unobservable inputs

Fair Value

Total LossesAssets:Vessel impairmentVessel held for sale

$
1,310
(1)
$
1,310

$
(21,102
)Goodwill impairment

$

(2)
$


$
(62,874
)


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Table of Contents

NOTE FACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

As of December 31,In thousands

2008

2007Trade payables

$
2,430

$
3,359Fuel accruals


1,983


3,544Charter revenues received in advance


6,983


3,074Drydock accrual





2,523Insurance premiums


2,796


2,253Payroll and benefits


869


1,003Customs and duty


3,048


1,174Interest expense


327


311Other


846


2,281$
19,282

$
19,522


NOTE GADVANCES FROM AFFILIATES

Advances from affiliated companies represent the funding of operating expenses pursuant to the Partnership's management and administrative agreements with OSGM and are non
interest bearing. These advances are repaid monthly.

Note HLONG-TERM DEBT

Debt consists of the following:

As of
December 31,In thousands

2008

20075.5% to 6.3% fixed rate secured term loans, due through 2014

$
46,753

$
49,587Senior secured revolving credit facility


45,000


91,753


49,587Less current portion


(3,007
)

(2,834
)Long-term portion

$
88,746

$
46,753


The weighted average effective interest rate for debt outstanding at December 31, 2008 and 2007 was 5.0% and 6.0%, respectively. Such rates take into
consideration related interest rate swaps. The weighted average effective interest rate for debt outstanding at December 31, 2008 not taking into consideration the interest rate swaps was 4.1%.

On
November 15, 2007, OSG America Operating Company LLC, a wholly owned subsidiary of us, entered into a $200,000,000 senior secured revolving credit facility with ING Bank N.V.
and DnB NOR Bank ASA. As of December 31, 2008, $45,000,000 was outstanding under this facility, at an average interest rate of 2.08%. The amount available under this facility at
December 31, 2008 was $155,000,000.

Borrowings
under the senior secured revolving credit facility are due and payable five years after the date that the facility agreement was signed (the "closing date"), subject to a
24-month extension period which may be requested by the Partnership on or after the second anniversary of the closing date and which may be approved by the lenders. Drawings under the
facility will be available on a revolving basis until the earlier of one month prior to the applicable maturity date or the date on which the facility is permanently reduced to zero and the lenders
are no longer required to make advances.

Borrowings
under the senior secured revolving credit facility are secured by, among other things, first preferred mortgages on certain owned vessels and are guaranteed by the Partnership.

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OSG
America Operating Company LLC may, at its option, prepay all loans under our senior secured revolving credit facility at any time without penalty (other than customary LIBOR breakage
costs). The outstanding loans under the senior secured revolving credit facility bear interest at a rate equal to LIBOR plus a margin (70 basis points per year until the fifth anniversary of the
closing date and, if the extension option is exercised, 75 basis points per year thereafter).

The
senior secured revolving credit facility prevents the Partnership from declaring dividends or making distributions if any event of default, as defined in the senior secured revolving credit
agreement, exists or would result from such payments. In addition, the senior secured revolving credit facility requires the Partnership to adhere to certain financial covenants. The Partnership was
in compliance with all of the financial covenants contained in the debt agreements as of December 31, 2008.

On
June 25, 2008, the Partnership purchased theOverseas New Orleansand theOverseas Philadelphia,each of which had been previously operated under capital leases, for a total of $30,923,000. This acquisition was funded with borrowings under the senior secured revolving credit facility.

As
of December 31, 2008, approximately 16.8% of the net book value of the Partnership's vessels is pledged as collateral under secured term loans.

The
aggregate annual principal payments required to be made on debt are as follows:

In thousands

As of
December 31,
20082009

$
3,0072010


3,1912011


3,3852012


48,5912013


17,199Thereafter


16,380Total

$
91,753


Interest paid, excluding loans to affiliates and capitalized interest, amounted to $4,954,000 for the year ended December 31, 2008, $439,000 for the
period from November 15 through December 31, 2007, $4,595,000 for the period from January 1 through November 14, 2007 and $3,877,000 for the year ended December 31,
2006.

Note ITAXES

All current and deferred tax liabilities were contributed to capital by OSG immediately prior to the Partnership's initial public offering.

In
2006, OSG made an election under the American Jobs Creation Act of 2004, effective for years commencing with 2005, to have its qualifying U.S. flag operations taxed under a new tonnage tax regime
rather than under the usual U.S. corporate income tax regime. As a result of that election, the Predecessor's taxable income for U.S. income tax purposes with respect to the eligible U.S. flag vessels
did not include income from qualifying shipping activities in U.S. foreign trade (i.e., transportation between the U.S. and foreign ports or between foreign ports).

The
components of the Predecessor's provisions for federal income taxes follow:

In thousands

January 1 through
November 14,
2007

Year Ended
December 31,
2006Current

$
(1,114
)
$
1,921Deferred


3,162


(1,153
)$
2,048

$
768


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Reconciliations of the Predecessor's actual federal income tax rate attributable to pretax income and the U.S. statutory income tax rate follow:

In thousands

January 1 through
November 14,
2007

Year Ended
December 31,
2006Actual federal income tax provision rate


26.9
%

9.0
%Adjustments:Tonnage tax exclusion


26.5
%

27.6
%Amortization of intangibles


(18.4
)%

(1.6
)%U.S. statutory income tax provision rate


35.0
%

35.0
%


Note JACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

At December 31, 2008, unrealized losses on derivative instruments entered into in 2008 of $2,837,000 are the only component of accumulated other comprehensive
income/(loss).

During
the year ended December 31, 2008, the Partnership recorded reclassification adjustments of $19,000 to net income for amounts included in interest expense. At December 31, 2008,
the Partnership expects that it will reclassify $718,000 of net losses on derivative instruments from accumulated other comprehensive income/(loss) to earnings during the next twelve months due to the
payment of interest associated with floating rate debt.

Note KLEASES

Charters-in:

As of December 31, 2008, the Partnership had commitments to charter-in eight vessels from subsidiaries of American Shipping Company ("AMSC") and to bareboat
charter-in one vessel from OSG, all of which are, or will be, accounted for as operating leases. Effective upon the completion of the OSG Constitution's shipyard period in the fourth
quarter of 2008, theOSG Constitution/OSG 400's time charter agreement with OSG converted to a bareboat charter agreement.

The
future minimum commitments and related number of operating days under the operating leases are as follows:

Bareboat
Charters:

As of December 31, 2008Dollars in thousands

Amount

Operating Days2009

$
51,791


2,3782010


61,539


2,7872011


64,331


2,9202012


64,306


2,9282013


64,225


2,920Thereafter


86,061


2,308Total

$
392,253


16,241


Bareboat charters from OSG:

As of December 31, 2008Dollars in thousands

Amount

Operating Days2009

$4,152


361Total

$4,152


361


In June 2005, OSG signed agreements to bareboat charter in ten Jones Act Product Tankers to be constructed by Aker Philadelphia Shipyard, Inc. ("APSI").
The order was increased to 12 ships in October 2007. Agreements for eight of such vessels are included in the Partnership. Following construction, APSI will sell the vessels to leasing

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subsidiaries
of AMSC, which will charter the eight vessels to the Partnership for initial terms of five or seven years. The Partnership has extension options for the lives of the vessels. The charters
provide for profit sharing with the owners of the vessels when revenues earned by such vessels exceed amounts defined in the charters. Five of these vessels have delivered from the shipyard as
follows:

Vessel

Delivery DateOverseas Houston

February 2007Overseas Long Beach

June 2007Overseas Los Angeles

November 2007Overseas New York

April 2008Overseas Texas City

September 2008


The Overseas Boston delivered on February 19, 2009. The remaining two vessels are scheduled to be delivered from the shipyard between mid 2009 and early
2010. The bareboat charters will commence upon delivery of the vessels.

In
early 2009, AMSC and OSG signed a nonbinding agreement in principle ("Nonbinding Agreement") to provide for a global settlement of a number of outstanding issues between them, including, among
other things, settlement of the arbitration. Implementation of the Nonbinding Agreement is subject to negotiation and signing of definitive agreements and certain other conditions. The Nonbinding
Agreement contains a number of provisions materially altering the prior agreements between the parties. No assurance can be given that the Partnership, OSG and AMSC will enter into definitive
agreements and satisfy the required conditions to implement the Nonbinding Agreement.

Charters-out:

The future minimum revenues, before reduction for brokerage commissions, expected to be received on noncancelable time charters and the related revenue days (revenue days
represent calendar days less days vessels are not available for employment due to repairs, drydock or lay-up) are as follows:

As of December 31, 2008Dollars in thousands

Amount

Operating Days2009

$
172,334


4,3042010


136,094


3,0112011


108,546


2,2072012


63,199


1,2982013


41,751


874Thereafter


24,393


519Total

$
546,317


12,213


Time charters to OSG:

As of December 31, 2008Dollars in thousands

Amount

Operating Days2009


41,997


1,402Total

$
41,997


1,402


Revenues from a time charter are generally not received when a vessel is off-hire, which includes time required for normal periodic maintenance of
the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance
that such estimate will be reflective of the actual off-hire in the future. The scheduled future minimum revenues should not be construed to reflect total shipping revenues for any of the
periods.

Note LLONG-TERM INCENTIVE PLAN

In 2007, the Board of Directors of the general partner of the Partnership adopted the OSG America L.P. 2007 Omnibus Incentive Compensation Plan (the "Plan") for directors
and employees of the Partnership and its affiliates. The Plan currently permits the grant of awards covering an aggregate of 250,000 common units in the form of unit

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options,
unit appreciation rights, restricted units, unsecured and unfunded restricted unit awards, performance units, cash incentive awards and other equity-based or equity-related awards. The Plan
is administered by the Board of Directors of the general partner of the Partnership. The Board of Directors, in its discretion, may terminate the Plan at any time and also reserves the right to alter
or amend the Plan from time to time, including increasing the number of common units with respect to which awards may be granted subject to unitholder approval as required by the New York Stock
Exchange. No change in any outstanding grant may be made, however, which would materially impair the rights of any participant without the consent of such participant.

Unit
and total compensation expense for the year ended December 31, 2008 and the period of November 15 through December 31, 2007 were not material to the Partnership's Statement
of Operations. As of December 31, 2008, there was $41,000 of unamortized compensation cost related to non-vested restricted units, which is expected to be recognized over a
remaining weighted-average vesting period of 1.7 years.

A
summary of the status of the Partnership's restricted unit awards as of December 31, 2008 and of changes in restricted units outstanding under the Partnership's long-term
incentive plan for the year ended December 31, 2008 and for the period of November 15 through December 31, 2007 follows:

Number of
units

Weighted-
Average Grant
Date Fair Value
per UnitNonvested restricted unit awards outstanding at November 15, 2007



$
Units granted

2,250

$
19.00Units vested



$
Nonvested restricted unit awards outstanding at December 31, 2007

2,250

$
19.00Units granted

2,250

$
6.87Units vested

(750)

$
(19.00
)Nonvested restricted unit awards outstanding at December 31, 2008

3,750

$
11.72


Note MPENSION PLANS

The Partnership makes contributions to jointly managed (company and union) multi-employer pension plans covering seagoing personnel. The Employee Retirement Income Security Act
of 1974 requires employers who are contributors to U.S. multi-employer plans to continue funding their allocable share of each plan's unfunded vested benefits in the event of withdrawal from or
termination of such plans. Certain other seagoing personnel are covered under a defined contribution plan, the cost of which is funded as incurred. The costs of these plans were $1,015,000 for the
year ended December 31, 2008, $211,000 for the period November 15 through December 31, 2007, $779,000 for the period January 1 through November 14, 2007, and
$761,000 for the year ended December 31, 2006.

Note NVESSELS

In early 2009, the Partnership and OSG began negotiations with Bender Shipbuilding & Repair Co. Inc. ("Bender") to end the agreements covering the six ATBs
and two tug boats associated with the Partnership's expansion plans due to Bender's lack of performance under such agreements and its lack of liquidity and poor financial condition. Contracted
delivery dates for certain vessels have been significantly delayed from the original contract delivery dates and, in 2009, Bender requested substantial price increases on all the contracted vessels.
The Partnership and OSG intend to complete two of the six ATBs and the two tug boats at alternative shipyards.

Under
the terms of the proposed settlement, which is still in the process of negotiation, Bender would transfer ownership of the vessels to OSG or the Partnership in their current state of completion
in consideration for which OSG or the Partnership would, among other things (1) pay and/or reimburse Bender for the costs associated with positioning the units for transportation to the
alternative shipyards and certain other material and labor costs related to construction of the units and (2) assume certain specified obligations related to construction of the units, which
amounts referred to in clauses (1) and (2) above total in the aggregate approximately $5 million to $10 million for the Partnership. The outcome of the negotiations is uncertain
and no assurance can be given that a settlement will be reached and implemented.

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At
December 31, 2008 the Partnership reviewed the two tug boats which are included in "Vessels" in our Consolidated Balance Sheet for impairment based upon the information that was known to the
Partnership as of December 31, 2008. No impairment was recorded at December 31, 2008. At December 31, 2008, the net book value of the two tugs under construction was $25,417,000.

As
of December 31, 2008, the Partnership had remaining commitments of $26,760,000 on non-cancelable contracts for the construction of two tugs (to be delivered in 2010). We expect these
commitments to be funded from existing cash on hand, borrowings under our revolving credit facility or additional long-term debt as required.

Note OIMPAIRMENT OF VESSEL

During the third quarter of 2008, the Partnership decided to forego the scheduled drydocking of one of the older product carriers which is a requirement for her to continue in
operations. The vessel ceased operations and was placed in lay-up during the fourth quarter of 2008 pending her sale. Accordingly, the Partnership recorded a charge of $19,319,000 in the
third quarter of 2008 and $1,783,000 in the fourth quarter of 2008 to write down her carrying amount to her estimated net fair value as of December 31, 2008. This vessel has been classified as
held for sale at December 31, 2008.

Note PRELATED PARTY TRANSACTIONS

Effective April 1, 2008, the Partnership entered into time charter agreements with OSG to charter-out five vessels, three of which were employed by the
Partnership in the spot market (two ATBs, theOSG Columbia/OSG 242and theOSG Independence/OSG 243, and one
product carrier, theOverseas New Orleans)and two product carriers (theOverseas Philadelphiaand Overseas Puget
Sound) upon the completion of their current time charters in 2009. All five of these charter-out agreements are at fixed daily
rates for terms commencing either on April 1, 2008 or upon the expiry of such vessel's then current charter and ending on or about December 31, 2009. Management believes that the fixed
daily rates in the charter-out agreements are at rates that approximate existing market rates.

Effective
April 1, 2008, the Partnership entered into time charter agreements with OSG for the charter-in of theLiberty/M300and the OSG Constitution/OSG 400,
which are two ATBs working in the Delaware Bay lightering business, at fixed daily rates. The agreement assigned the charter
contracts on these two ATBs to the Partnership. On October 10, 2008, the Partnership converted the time charter agreement with OSG on theOSG Constitution/OSG
400to a bareboat charter agreement. The bareboat charter commenced with the completion of theOSG
Constitution'sshipyard period in November of 2008. The term of the bareboat charter ends simultaneously with the completion of the unit's lightering service, which is expected
to occur in 2009. In December 2008, theLiberty/M300'stime charter agreement with OSG ended.

Note QSUBSEQUENT EVENTS

On January 23, 2009, the Board of Directors of OSG America LLC, declared a quarterly distribution to all unitholders in the amount of $0.375 per unit for the three
months ended December 31, 2008. The distribution of approximately $11,500,000 was paid on February 12, 2009 to unitholders of record on February 3, 2009.

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Table of Contents

Note RQUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Quarter ended Dec. 31,Results of Operations
(in thousands, except per share and per unit amounts)

Quarter
ended
March 31,

Quarter
ended
June 30,

Quarter
ended
Sept. 30,

Oct. 1
through
Nov. 14,

Nov. 15
through
Dec. 31,

Combined2008Shipping revenues

$
63,032

$
72,228

$
74,212







$
76,851Income/(loss) from vessel operations


4,375


5,429


(9,617
)







(55,061
)Net income/(loss)


3,765


4,925


(9,698
)







(53,498
)Basic net income/(loss) per unit

$
0.12

$
0.16

$
(0.32
)






$
(1.75
)Diluted net income/(loss) per unit

$
0.12

$
0.16

$
(0.32
)






$
(1.75
)2007Shipping revenues

$
49,734

$
49,366

$
55,784

$
27,987

$
31,136

$
59,123Income from vessel operations


7,980


4,579


1,446


1,255


1,703


2,958Net income/(loss)


4,203


2,674


(1,577
)

261


3,606


3,867Basic net income/(loss) per share

$
215.52

$
137.12

$
(80.83
)
$
13.38





Diluted net income/(loss) per share

$
215.52

$
137.12

$
(80.83
)
$
13.38





Basic net income per unit













$
0.12


Diluted net income per unit













$
0.12





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Unitholders of OSG America L.P.

We
have audited the accompanying consolidated balance sheet of OSG America L.P. as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in
partners' capital, and cash flows for the year ended December 31, 2008 and the period from November 15, 2007 to December 31, 2007, and the OSG America L.P. predecessor
combined carve-out statement of operations, changes in stockholder's equity, and cash flows for the period from January 1, 2007 to November 14, 2007 and for the year ended
December 31, 2006. OSG America L.P. and OSG America L.P. predecessor collectively are referred to hereinafter as "Partnership". These financial statements are the responsibility
of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Alaska Tanker Company, LLC (a joint venture in
which the
Partnership has a 37.5% interest) as of December 31, 2008 and 2007 and for the three years ended December 31, 2008 have been audited by other auditors whose report has been furnished to
us, and our opinion on the consolidated and predecessor combined carve-out financial statements, insofar as it relates to the amounts included for Alaska Tanker Company, LLC, is
based solely on the report of the other auditors. In the consolidated financial statements and the predecessor combined carve-out financial statements, the Partnership's investment in
Alaska Tanker Company, LLC is stated at $5,382,000 and $5,782,000 at December 31, 2008 and 2007, respectively, and the Partnership's equity in income of Alaska Tanker Company, LLC
is stated at $5,344,000 for the period ended December 31, 2008, $2,551,000 for the period from November 15, 2007 to December 31, 2007, $3,192,000 for the period from
January 1, 2007 to November 14, 2007 and $6,811,000 for the year ended December 31, 2006, respectively.

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 audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, based on our audits and the report of the other auditors, the consolidated and the predecessor combined carve-out financial statements referred to above present fairly, in
all material respects, the financial position of OSG America L.P. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the period ended
December 31, 2008 and for the period from November 15, 2007 to December 31, 2007 and the results of operations and cash flows for OSG America L.P. predecessor for the
period from January 1, 2007 to November 14, 2007 and for the year ended December 31, 2006 in conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), OSG America L.P.'s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 4, 2009 expressed an unqualified opinion thereon.

/s/
Ernst & Young

Certified
Public Accountants
Tampa, Florida
March 4, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Unitholders of OSG America

We
have audited OSG America L.P.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). OSG America L.P.'s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Controls over Financial
Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

In
our opinion, OSG America L.P. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2008 and 2007 of OSG
America L.P. and the related consolidated statements of operations, changes in partners' capital, and cash flows for the year ended December 31, 2008 and the period from
November 15, 2007 to December 31, 2007, and the OSG America L.P. predecessor combined carve-out statements of operations, changes in stockholder's equity, and cash
flows for the period from January 1, 2007 to November 14, 2007 and for the year ended December 31, 2006 and our report dated March 4, 2009 expressed an unqualified opinion
thereon.

/s/
Ernst & Young

Certified
Public Accountants
Tampa, Florida
March 4, 2009

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MANAGEMENT'S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

To
the Unitholders of OSG America L.P.

In
accordance with Rule 13a-15(f) of the Securities Exchange Act of 1934, the management of OSG America L.P. and its subsidiaries (the "Partnership") is responsible for the
establishment and maintenance of adequate internal controls over financial reporting for the Partnership. 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. The
Partnership's system of 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 Partnership; (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 Partnership are being made only in accordance with authorizations of
management and directors of the Partnership; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Partnership's assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Partnership's internal controls over financial
reporting as of December 31, 2008 based on the provisions of Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). Based on our assessment, management determined that the Partnership's internal controls over financial reporting was effective as of December 31, 2008 based on the criteria in
Internal ControlIntegrated Framework issued by COSO.

Ernst &
Young LLP, the Partnership's independent registered certified public accounting firm, who audited the financial statements included in the Annual Report, has audited and reported
on the Partnership's internal controls over financial reporting as of December 31, 2008 as stated in their report which appears elsewhere in this Annual Report.

Date:
March 6, 2009

OSG America L.P.By:

/s/ MYLES R. ITKIN Myles R. Itkin Principal Executive Officer and DirectorBy:

/s/ HENRY P. FLINTER Myles R. Itkin Principal Financial Officer,
Principal Accounting Officer and Director


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INDEPENDENT AUDITORS' REPORT

The
Members
Alaska Tanker Company, LLC:

We
have audited the accompanying balance sheets of Alaska Tanker Company, LLC (a Delaware limited liability company) as of December 31, 2008 and 2007, and the related statements of
operations, members' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2008. 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 audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes 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 audits provide a reasonable basis for our opinion.

As
discussed in note 8 to the financial statements, the Company adopted the recognition and disclosure provisions and the measurement provisions of Statement of Financial Accounting Standards
No. 158,Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106 and
132(R), as of December 31, 2007.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alaska Tanker Company, LLC as of December 31, 2008 and 2007
and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with U.S. generally accepted accounting
principles

/s/ KPMG LLP


February 25, 2009

96                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC  BALANCE SHEETS

As of December 31,2008

2007ASSETSCurrent Assets:Cash

$
8,118,600

$
4,590,735Due from members:BP Oil


22,695,940


26,560,187Other receivables


42,503


21,097Prepaid expenses


208,093


553,646Total current assets


31,065,136


31,725,665Long-term assets:Other assets (note 7)


465,507


926,218Total assets

$
31,530,643

$
32,651,883LIABILITIES AND MEMBERS' DEFICITCurrent Liabilities:Accounts payable

$
3,176,614

$
3,499,882Accrued expenses (note 4)


9,791,080


10,212,011Accrued dividend to members


14,256,912


15,316,393Total current liabilities


27,224,606


29,028,286Long-term liabilities:Other liabilities (note 8)


7,196,958


6,610,981Total long-term liabilities


7,196,958


6,610,981Total liabilities


34,421,564


35,639,267Commitments and contingencies (notes 3 and 5)MEMBERS' DEFICIT:Members' equity


100,000


100,000Accumulated other comprehensive loss


(2,990,921
)

(3,087,384
)Members' deficit


(2,890,921
)

(2,987,384
)Total liabilities and members' deficit

$
31,530,643

$
32,651,883


See accompanying notes to financial statements.

2008 Annual
Report                                        
                                          
                                          
                                        97

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Table of Contents

ALASKA TANKER COMPANY, LLC  STATEMENTS OF OPERATIONS

Years ended December 31,2008

2007

2006Revenues

$
139,601,849

$
143,565,531

$
136,287,792Non-time charter revenues


816,364


1,062,497


2,871,765Total revenues


140,418,213


144,628,028


139,159,557Cost of operations:Payroll


27,117,785


31,634,274


30,899,151Consumables


3,179,161


3,639,972


3,218,657Insurance, net


1,677,841


1,298,750


1,699,149Vessel repairs


9,119,675


13,159,701


6,247,026Drydock and customs








7,083,307Fuel


45,268,521


41,465,437


39,427,153Port charges


18,215,859


18,017,692


15,190,016Other


2,796,138


4,303,433


3,774,272New build expenses (projects outside warranty)


8,604,690


4,003,536


1,180,093Total cost of operations


115,979,670


117,522,795


108,718,824Administrative costs


9,365,267


10,726,343


8,988,573Non-time charter expenses


816,364


1,062,497


2,871,765Severance costs








420,572Net income

$
14,256,912

$
15,316,393

$
18,159,823Dividend declared to members

$
14,256,912

$
15,316,393

$
18,159,823


See accompanying notes to financial statements.

98                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC  STATEMENTS OF MEMBERS' EQUITY (DEFICIT)  Years ended December 31, 2008, 2007, and 2006

OSG

Keystone

BP Oil

Members'
equity

Accumulated
other
comprehensive
loss

Members'
equity
(deficit)Balance, December 31, 2005

$
37,500

$
37,500

$
25,000

$
100,000

$


$
100,000Net income


6,809,934


6,809,934


4,539,955


18,159,823





18,159,823Dividend declared to members


(6,809,934
)

(6,809,934
)

(4,539,955
)

(18,159,823
)




(18,159,823
)Balance, December 31, 2006


37,500


37,500


25,000


100,000





100,000Net income


5,743,647


5,743,647


3,829,099


15,316,393





15,316,393Dividend declared to members


(5,743,647
)

(5,743,647
)

(3,829,099
)

(15,316,393
)




(15,316,393
)Effect of adoption of provisions of SFAS No. 158














(3,087,384
)(A)

(3,087,384
)Balance, December 31, 2007


37,500


37,500


25,000


100,000


(3,087,384
)

(2,987,384
)Net income


5,346,342


5,346,342


3,564,228


14,256,912





14,256,912Dividend declared to members


(5,346,342
)

(5,346,342
)

(3,564,228
)

(14,256,912
)




(14,256,912
)Employee benefit plans:Actuarial loss














(1,719,480
)

(1,719,480
)Prior service credit














1,815,943


1,815,943Balance, December 31, 2008

$
37,500

$
37,500

$
25,000

$
100,000

$
(2,990,921
)
$
(2,890,921
)


See accompanying notes to financial statements.

2007 Annual
Report                                        
                                          
                                          
                                        99

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Table of Contents

ALASKA TANKER COMPANY, LLC  STATEMENTS OF CASH FLOWS

Years ended December 31,2008

2007

2006Cash flows from operating activities:Net income

$
14,256,912

$
15,316,393

$
18,159,823Adjustments to reconcile net income to net cash provided by operating activities:Change in:Due from members and other receivables


3,842,841


2,662,868


4,413,239Prepaid expenses


345,553


106,778


(224,141
)Other assets


460,711


(160,011
)

(184,326
)Accounts payable


(323,268
)

(2,760,062
)

4,594,766Accrued expenses


(420,931
)

695,604


(1,406,385
)Other liabilities


682,440


758,760


789,585Net cash provided by operating activities


18,844,258


16,620,330


26,142,561Cash flows from financing activities:Decrease in checks outstanding in excess of cash deposits








(2,356,361
)Payment of dividend to members


(15,316,393
)

(18,159,823
)

(20,884,366
)Net cash used in financing activities


(15,316,393
)

(18,159,823
)

(23,240,727
)Net change in cash


3,527,865


(1,539,493
)

2,901,834Cash, beginning of year


4,590,735


6,130,228


3,228,394Cash, end of year

$
8,118,600

$
4,590,735

$
6,130,228Supplemental disclosure of cash flow information:Noncash items:Dividends declared

$
14,256,912

$
15,316,393

$
18,159,823Adoption of SFAS No. 158





3,087,384





See accompanying notes to financial statements.

100                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC        Notes to Financial Statements        December 31, 2008 and 2007

(1)   ORGANIZATION AND PURPOSE

Alaska Tanker Company, LLC (ATC or the Company) was organized effective March 30, 1999 as a limited liability company in the state of Delaware for the purpose of
chartering and operating vessels for the transportation of Alaskan produced crude oil to destinations designated by vessel charterers and to provide tonnage planning and ship scheduling services to
such vessel charterers.

The
members of the Company and their respective ownership interests are BP Oil Shipping Company USA, Inc. (BP Oil), which owns 25.0%, Keystone Alaska, LLC (Keystone), which owns 37.5%
and OSG America, LP (OSG), which owns 37.5%. The ownership interest held by OSG was previously held by Overseas Shipholding Group, Inc. until November 15, 2007, when the
membership interest was transferred to OSG as part of its initial public offering. Total capital contributions of $100,000 were made upon formation of ATC and each member contributed its percentage of
initial contribution based on their proportionate ownership.

The
term of the Company shall be perpetual unless dissolved or terminated by the members pursuant to the limited liability company agreement (Agreement). Disposition of a member's interest can be made
only in accordance with
the Agreement, which provides, among other things, that any member who wants to dispose of its membership interest (other than to an affiliate of the member) must (i) obtain approval of all of
the other members; (ii) receive a bona fide offer to purchase its membership interest from a third party, (iii) offer to the other members to sell its membership interest on the same
terms as the offer from the third party.

Pursuant
to the Agreement, each member has agreed it will not resign, retire, or withdraw from the Company, except that BP Oil may withdraw as a member from the Company without cause, upon at least
120 days prior notice to the other members. The withdrawal of BP Oil will not affect the time charters (note 3) with BP Oil and the associated guarantees or other contractual
relationships then in place.

Income,
loss, and distributions are allocated among the members in accordance with their sharing ratios in effect at the time (currently BP Oil 25.0%, Keystone 37.5%, and OSG 37.5%).

The
management of the Company is vested in the member committee, which is composed of three representatives, one from each of the members of the Company. The representatives of Keystone and OSG have
one and one half (11/2) votes each and the representative of BP Oil has one (1) vote. The member committee may delegate and has delegated certain operating responsibilities and
authority to employees of the Company.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Significant items subject to such estimates and assumptions include valuation allowances for receivable, assets and liabilities related to employee benefits and certain accrued
liabilities. Actual results could differ from those estimates.

Revenue
is recorded pursuant to time charters (note 3) as expenses are incurred and incentive hire is earned. As discussed in note 3, payments under bareboat charters are not recorded by
the Company in the accompanying
financial statements as an expense nor is the corresponding revenue recorded. Revenue earned prior to the signing of the time charters is included in non-time charter revenues in the
statements of operations.

2008 Annual
Report                                        
                                          
                                          
                                        101

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

Predelivery
expenses represent amounts paid by ATC on behalf of BP Oil to prepare new vessels for operation. These amounts include the procurement of spare parts, stocking the ship with consumables,
certain payroll expenses, and other costs incurred prior to the ship being ready to carry crude oil and crew members. These amounts are reimbursed by BP Oil and are included in non-time
charter expenses in the statements of operations.

The
Company is taxed as a partnership, accordingly, all income taxes are the responsibility of the members.

Cash
includes cash in banks and cash held onboard vessels in Master Cash Accounts.

Prepaid
expenses include primarily prepaid payroll and insurance costs at December 31, 2008 and 2007.

All
expenditures for furniture, fixtures and equipment are reimbursed by BP Oil. Accordingly, the net carrying value of furniture, fixtures and equipment is zero as of December 31, 2008 and
2007, respectively. As part of the formation of ATC, BP Oil provided approximately $853,000 of furniture, fixtures and equipment to the Company for use in the administration of its operations. The
Company has been provided the furniture, fixtures and equipment from BP Oil for no charge. Additionally, certain equipment is being leased by the Company under operating leases (note 5).

The
Company incurs certain expenses upon receipt of new vessels to ensure they meet all safety criteria established by the Company. These expenses are subject to approval by BP Oil prior to being
incurred and are separately recorded for financial reporting purposes.

In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159,The Fair Value Option for Financial
Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115(SFAS 159). SFAS 159 provides entities with an option to
measure many financial instruments and certain other items at fair value. Under SFAS 159, unrealized gains and losses on items for which the fair value option has been elected are reported in
earnings at each reporting period. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on
January 1, 2008 and elected not to record any financial instruments at fair value not previously required to be measured at fair value. Accordingly, the adoption of SFAS 159 did not have
an impact on the financial statements.

In
December 2008, the FASB issued FASB Staff Position FAS 132(R)-1,Employers' Disclosures about Postretirement Benefit Plan Assets.
FSP FAS 132(R)-1 provides guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 also
includes a technical amendment to FASB Statement No. 132(R), effective immediately, which requires nonpublic entities to disclose net periodic benefit cost for each annual period for which a
statement of income is presented. The Company has disclosed net periodic benefit cost in note 8. The disclosures about plan assets required by FSP
FAS 132(R)-1 must be provided for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of the FSP on its disclosures.

Certain
prior year amounts have been reclassified to conform to the current year presentation.

102                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

(3)   CHARTER OPERATIONS

ATC was formed to operate vessels that were chartered to BP Oil in the Alaskan crude oil trade. As of December 31, 2008, there were four remaining bareboat charters. A
bareboat charter is a charter in which the owner leases an unmanned ship for a long period at a rate that covers any depreciation and a nominal return. The charterer mans, procures all supplies and
provisions, insures, maintains, and repairs the vessel, and pays for all operating expenses.

The
Company in turn charters the vessels under time charters to BP Oil. A time charter is a form of charter where the bareboat charterer leases the vessel and crew to the time charterer for a
stipulated period of time. The charterer pays for the vessels' fuel and port charges in addition to the time charter hire.

Each
of the Company's bareboat charters has a corresponding time charter with BP Oil covering identical periods. The time charters contain a basic charter hire payment, which is the same as the
charter hire payment required by the corresponding bareboat charter. ATC, as allowed by the time charters, has assigned the bareboat charter hire payments to be made directly by BP Oil to the
shipowners or other person as designated by the shipowner. In addition, if a bareboat charter is terminated by the Company, the termination payment required under the bareboat charter will be paid by
BP Oil pursuant to the corresponding time charter. The time charters also include supplemental charter hire payments, which consist primarily of reimbursement of the Company's operating expenses. In
addition, as discussed below, the time charters contain a provision for an incentive hire payment. The maximum incentive hire payment available per vessel for the year ended December 31, 2008
is $2,232,790 (adjusted annually by the consumer price index).

As
ATC is merely an operator of the vessels under the time charters, the accompanying financial statements reflect only the operating expenses for the vessels and administration costs as well as the
revenues from BP Oil to fund those operations plus the incentive hire. BP Oil is responsible for paying all operating costs incurred by ATC. Total bareboat charter payments made directly by BP Oil to
the shipowners, or others as designated, and not reflected in
the accompanying financial statements for the years ended December 31, 2008, 2007 and 2006 were approximately $88,360,000, $90,162,000 and $96,510,000, respectively.

The
bareboat and time charter periods are the same for each individual vessel and expire on varying dates through 2023.

As
noted above, the time charters between ATC and BP Oil make provisions for the payment of incentive hire payments. These payments are made upon meeting certain performance measure parameters as
contractually defined in the time charter. The performance targets and assessment of achievement are agreed upon annually by the member committee. For the years ended December 31, 2008, 2007
and 2006, the Company achieved incentive hire payments totaling $14,256,912, $15,316,393 and $18,159,823, respectively, which are included in revenues in the statements of operations. The amount is
shared by the members of the Company based upon their sharing ratios and is shown as dividends to members in the accompanying financial statements. Included in the 2008 incentive hire is $3,092,962,
related to vessels that were taken out of service in 2006 and 2007.

ATC
does not own any vessels nor does it have any options to acquire vessels under the bareboat charter.

2008 Annual
Report                                        
                                          
                                          
                                        103

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

(4)   ACCRUED EXPENSES

Accrued expenses consist of the following at December 31, 2008 and 2007:

2008

2007Salaries and wages

$
1,339,379


2,054,204Drydock and vessel repairs


3,177,926


2,200,229Voyage expenses


1,441,768


878,061Administrative expenses


2,378,352


2,769,738Retirement and medical plans


415,453


481,893Other


1,038,202


1,827,886Total

$
9,791,080


10,212,011


Included
in drydock and vessel repairs are customs charges totaling approximately $1,500,000 at December 31, 2008 and 2007.

(5)   COMMITMENTS AND CONTINGENCIES

The
Company leases certain office space, equipment and vehicles under noncancelable operating lease agreements. The lease terms vary as do the Company's renewal options. Expenses related to the leases
totaled approximately $360,000, $353,000 and $456,000 for the years ended December 31, 2008, 2007 and 2006, respectively. Future annual lease payments are summarized as follows:

Year ending December 31:2009

$
337,7632010


302,3412011


304,4422012


311,0082013


320,023Thereafter


189,242$
1,764,819


The
Company is currently a party to various claims and legal proceedings. If management believes that a loss arising from these matters is probable and can reasonably be estimated, it records the
amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes
available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate
outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the Company's financial position or overall trends in results of operations. However, litigation
is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position
and results of operations of the period in which the ruling occurs, or future periods.

(6)   401(K) PLAN

The Company has a defined contribution plan with 401(k) provisions covering all full-time employees other than those subject to collective bargaining with a union
and independent contractors. Employees become eligible upon completion of one year of employment, 1,000 hours of service and age 21. Eligible employees may contribute in increments of 1% of
eligible compensation, depending on their eligibility, subject to certain Internal Revenue Service

104                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

(IRS)
imposed limitations. The Company will match each dollar of employee savings with $0.75 up to a maximum of 6% of eligible compensation. The Company may, in its sole discretion, change the
percentage of its contribution on a prospective basis. The employee contributions are always 100% vested. In 2005, the Company's contributions were vested upon completion of five years of service.
Effective January 1, 2006, Company contributions to the 401(k) plan are vested upon the completion of three years of service. For the years ended December 31, 2008, 2007 and 2006, the
Company contributed approximately $170,000, $168,000 and $158,000, respectively.

(7)   FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157,Fair Value Measurements, for its
financial assets and liabilities. The adoption of this portion of SFAS No. 157 did not have any effect on the Company's financial position or results of operations and the Company does not
expect the adoption of the provisions of SFAS No. 157 related to nonfinancial assets and liabilities to have an effect on its financial position or results of operations.

Various
inputs are used in determining the fair value of our financial assets and liabilities and are summarized into three broad categories:

The
inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following
are the disclosures related to the Company's financial assets pursuant to SFAS No. 157 as of December 31, 2008:

Fair value

Input levelStable value fund

$
465,507

Level 2


(8)   RETIREMENT PLANS

The Company offers a defined benefit plan and a postretirement benefit plan for its employees.

(a)  Adoption of SFAS No. 158

In
September 2006, the FASB issued SFAS No. 158,Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB
Statements No. 87, 88, 106 and 132(R)(SFAS No. 158), which requires employers to fully recognize the funded status of single-employer defined benefit pension,
retiree healthcare and other postretirement plans in their financial statements, recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net periodic costs, measure defined benefit plan assets and obligations as of the date of the Company's fiscal
year-end statement of financial position, and disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal
year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirement of SFAS No. 158 to recognize the funded
status of a benefit plan and the disclosure requirements were effective as of December 31, 2007. The Company has historically used a December 31 measurement date. The Company adopted
SFAS No. 158 in the fiscal year ended December 31, 2007, and the adoption of this accounting pronouncement resulted in $3,087,384 in accumulated other comprehensive loss in members'
equity (deficit), a $9,606 decrease in total assets and a $3,077,778 increase in total liabilities to record unamortized losses related to the postretirement

2008 Annual
Report                                        
                                          
                                          
                                        105

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

benefit
plan. These losses occurred due to the reduction in the discount rate in prior years and the increase in benefits that arise when participants meet the eligibility requirements. These
unamortized losses will be reclassified to the statement of operations over the estimated remaining years to retirement of the participants.

This
accounting change does not allow retroactive application.

The
following is the incremental effect of applying SFAS No. 158 on individual line items in the balance sheet at December 31, 2007.

Before application
of SFAS. No. 158

Adjustments

After application of
SFAS. No. 158Other assets, net

$
935,824


(9,606
)

926,218Total assets


32,906,206


(9,606
)

32,896,600Other liabilities, net


3,533,203


3,077,778


6,610,981Total liabilities


32,806,206


3,077,778


35,883,984Accumulated other
comprehensive loss





(3,087,384
)

(3,087,384
)Total members' equity (deficit)


100,000


(3,087,384
)

(2,987,384
)


The
Company maintained a noncontributory defined benefit pension plan (the Plan) for substantially all of its employees. The Company terminated the Plan effective December 31, 2005 subject to
IRS approval. As a result, any benefit credits that otherwise would have been earned after 2005 were eliminated. This resulted in a plan curtailment and the unrecognized prior service cost being fully
amortized at December 31, 2005. During 2008, the Company received approval from the IRS to terminate the Plan and all participants received their vested balance. As a result, there was no
liability recorded at December 31, 2008. Investments totaling approximately $466,000 remained in the Plan after the distributions were made. These amounts were transferred to the capital
accumulation plan and will be utilized to reduce future employer contributions.

Employees
became eligible to participate in the Plan upon completion of one year of employment. The Company's funding policy was to contribute the net periodic pension cost accrued each year, to the
extent it falls between the minimum required and maximum tax deductible contribution for the year. The Company's annual pension contribution was based on independent actuarial computations.

Additionally,
the Company maintained a supplemental noncontributory defined benefit pension plan (Supplemental Plan). Together with the Plan, the Supplemental Plan provided benefits for certain
employees who exceed allowable amounts under the Plan. The Plan was terminated as of December 31, 2005, and a curtailment and settlement resulted. Any remaining benefits were transferred to a
supplemental capital appreciation plan.

The
following are the amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost.

2008

2007Net loss

$



9,606$



9,606


106                                        
                                          
                               OSG America L.P.

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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

Amounts recognized in accumulated other comprehensive loss are as follows:

2008

2007Net gain recognized

$
(9,606
)

Adjustment to initially apply SFAS No.158:Net loss





9,606$
(9,606
)

9,606


The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.

The
following is a breakdown of certain aggregate components of the Plan at December 31, 2008 and 2007 (measurement date of the Plan is December 31):

2008

2007Projected benefit obligation

$



(4,938,802
)Fair value of plan assets





5,865,020Funded status

$



926,218Accumulated benefit obligation

$



(4,938,802
)


Amounts recognized in the balance sheets at December 31 are as follows:

2008

2007Noncurrent assets

$



926,218Accumulated other comprehensive income





9,606Net amount recognized

$



935,824


The weighted average assumptions used to determine the benefit obligation at December 31, 2007 are as follows:

2007Discount rate


6.00
%Rate of increase in future compensation levels





The Plan was terminated in 2008 and all participants received their benefits prior to year-end thus there are no assumptions used for
December 31, 2008.

The
following is a breakdown of aggregate pension benefits for the years ended December 31, 2008, 2007 and 2006:

2008

2007

2006Pension benefit (cost)

$
(452,736
)

160,011


184,326Employer contribution








Benefits paid


(4,392,603
)

(243,944
)

(2,014,292
)


The weighted average assumptions used to determine the net benefit (cost) for the years ended December 31, 2008, 2007 and 2006 are as follows:

2008

2007

2006Discount rate


6.00
%

6.00
%

5.75
%Expected long-term rate of return on plan assets


8.00


8.00


8.00Rate of increase in future compensation levels











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Table of Contents

ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

Plan Assets

The Plan's assets were invested to maximize returns and minimize risk to the participants in the Plan. This strategy also involved monitoring investment allocations to ensure
appropriate diversification of assets and performance. The Company had established targeted asset allocations for the Plan. These targets do not represent strict requirements, but are intended as
general guidelines. The targeted allocation percentages are: fixed income 60% and equities 40%. During 2008, the investments were liquidated to cash and participants received their benefits under the
Plan. The excess funds remaining were transferred to the capital appreciation plan to be used to reduce future employer contributions.

The
Plan's asset allocation at December 31, 2008 and 2007, by asset category is as follows:

Plan assets at December 312008

2007Mutual fundsequities



%

51
%Mutual fundsfixed income





15U.S. government securities





9Interest-bearing cash





25Total



%

100
%


Cash Flows

The Company expects to contribute $0 to the Plan in 2009 as the Plan is terminated.

The
Plan's assets were distributed to participants upon IRS and Pension Benefit Guarantee Corporation approval of the Plan's termination. Benefit payments were made as terminated employees requested
payouts prior to the final distribution. During 2008, benefits of approximately $4,393,000 were paid.

(c) Postretirement Plan

The
Company has a postretirement medical and life insurance plan (the Postretirement Plan) that provides benefits to shore-based employees and nonunion licensed deck officers at least 55 years
of age with 10 years or more of service, as defined.

During
2008, the Postretirement Plan was amended to eliminate the healthcare coverage for Medicare retirees, and instead, participants will be provided a monthly allowance to purchase a supplemental
Medicare option as defined in the Postretirement Plan. This resulted in the credit to prior service costs. Additionally, the mortality table for determining the accumulated benefit obligation was
changed to the RP2000 table projected to 2009 by Scale AA, combined for annuitants and nonannuitants and blended 50% male and 50% female, which resulted in a large increase in the net actuarial loss.

The
following are the amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost:

2008

2007Net actuarial loss

$
4,577,932


2,848,846Net prior service (credit) cost


(1,587,011
)

228,932$
2,990,921


3,077,778


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ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

Amounts recognized in accumulated other comprehensive loss are as follows:

2008

2007Actuarial loss

$
1,729,086


Net prior service


(1,815,943
)

Adjustment to initially apply SFAS No.158:Net actuarial loss





2,848,846Net prior service cost





228,932$
(86,857
)

3,077,778


The estimated net loss that will be amortized from accumulated other comprehensive loss into net actuarial losses and net prior service credit over the next
fiscal year is $439,498 and $(120,373), respectively.

The
following is a breakdown of certain aggregate components of the Postretirement Plan at December 31, 2008 and 2007 (measurement date of the Postretirement Plan is December 31):

2008

2007Projected benefit obligation

$
(7,396,182
)

(6,803,364
)Fair value of plan assets





Funded status

$
(7,396,182
)

(6,803,364
)Accumulated benefit obligation

$
(7,396,182
)

(6,803,364
)


Amounts recognized in the balance sheets at December 31 as follows:

2008

2007Current liabilities

$
(199,224
)

(192,383
)Noncurrent liabilities


(7,196,958
)

(6,610,981
)Accumulated other comprehensive income


2,990,921


3,077,778Net amount recognized

$
(4,405,261
)

(3,725,586
)


Unrecognized prior service costs are attributed to participants qualified to be participants in prior plans sponsored by the members of the Company.

The
following is a breakdown of postretirement benefits for the years ended December 31, 2008, 2007 and 2006:

2008

2007

2006Net periodic benefit cost

$
936,803


1,005,842


1,044,059Employer and employee contributions


284,948


237,065


212,469Benefits paid


257,128


206,263


185,910




2008

2007Discount rate


5.75
%

6.00
%


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ALASKA TANKER COMPANY, LLC

Notes to Financial Statements (Continued)

December 31, 2008 and 2007

The weighted average assumptions used to determine the net benefit cost for the years ended December 31, 2008, 2007 and 2006 are as follows:

2008

2007

2006Discount rate


6.00
%

6.00
%

5.75
%


The Company determines the discount rate based on Moody's Aa bonds.

Healthcare
cost trend rates for 2008 was 9%, decreasing yearly by 1% to 5% in 2015. A 1% increase in the assumed healthcare cost trend would increase the benefit cost by $102,870 and the benefit
obligation by $171,232. A 1% decrease in the assumed healthcare cost trend would reduce the benefit cost by $82,283 and the benefit obligation by $157,944.

Cash Flows

The
Company expects to make benefit payments of approximately $199,000 to the Postretirement Plan in 2009.

The
following benefit payments, which reflect expected future services, as appropriate, are expected to be paid by the Postretirement Plan:

2009

$
199,2242010


223,1452011


249,5792012


281,5232013


306,4352014 - 2017


1,907,925


(9)   RELATED-PARTY TRANSACTIONS

The Company's revenues are derived primarily from time charter hire revenues received from BP Oil. For the years ended December 31, 2008, 2007 and 2006, BP Oil billed the
Company approximately $4,114,832, $10,981,000 and
$461,000, respectively, for bunker fuel and $1,210,676, $1,091,000 and $236,000, respectively, for technical and engineering services, consumable lube products, vetting inspections, and
lay-up services.

The
Company received accounting and administrative support from Keystone Shipping (KS), an affiliate of Keystone through September 30, 2006. KS charged the Company, on a monthly basis, for the
services provided at agreed-upon billing rates. For the years ended December 31, 2008, 2007 and 2006, KS billed the Company approximately $0, $14,000 and $387,000, respectively, for
services provided.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

As
of the end of the period covered by this Annual Report on Form 10-K, an evaluation was performed under the supervision and with the participation of the Company's management,
including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, the Company's management, including the CEO and
CFO, concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports the Company files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and
(ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There have been no material
changes in the Company's internal controls or in other factors that could materially affect these controls during the period covered by this Annual Report.

Management's
report on internal controls over financial reporting, which appears elsewhere in this Annual Report, is incorporated herein by reference.

ITEM 9B. OTHER INFORMATION

None

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

OSG America LLC, as the general partner of OSG America L.P., manages our operations and activities. Unitholders are not entitled to elect the directors of our
general partner or directly or indirectly participate in our management or operation.

Because
we are a limited partnership, the listing standards of the New York Stock Exchange do not require our general partner to have a majority of independent directors or a nominating/corporate
governance or compensation committee.

We
are managed and operated by the directors and officers of our general partner. All of our operating personnel are employees of an affiliate of our general partner. The President of our general
partner, Myles Itkin, allocates his time between managing our business and affairs and the business and affairs of OSG. Mr. Itkin is Executive Vice President, Chief Financial Officer and
Treasurer of OSG. The amount of time Mr. Itkin allocates between our business and the businesses of OSG varies from time to time depending on various circumstances and needs of the businesses,
such as the relative levels of strategic activities of the businesses.

Officers
of our general partner and those individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other
business interests of OSG. Our general partner intends to seek to cause it officers to devote as much time to the management of our business and affairs as is necessary for the proper conduct of our
business and affairs.

The
following table provides information regarding the directors and executive officers of our general partner. Directors are elected for one-year terms.

Name

Age

PositionMorten Arntzen


53

Chairman of the BoardMyles R. Itkin


61

President, Chief Executive Officer and DirectorHenry P. Flinter


44

Chief Financial Officer and DirectorRobert E. Johnston


61

DirectorKathleen C. Haines


54

DirectorJames G. Dolphin


41

DirectorSteven T. Benz


57

Director


Morten Arntzenis Chairman of the Board of Directors of our general partner and has served as such since the inception of our general
partner in May 2007. Mr. Arntzen has also served as President, Chief Executive Officer and a Director of OSG since January 2004. Prior to joining OSG, Mr. Arntzen was employed in various
capacities by American Marine Advisors, Inc. (AMA), a U.S. based merchant banking firm specializing in the maritime industry, from 1997 to 2004, most recently serving as Chief Executive
Officer. Mr. Arntzen is a director of Royal Caribbean Cruises Ltd.

Myles R. Itkinis President, Chief Executive Officer and a Director of our general partner. Mr. Itkin has served as a Director since the inception
of our general partner in May 2007. Mr. Itkin has served as Chief Executive Officer since January 2009. Prior to then, Mr. Itkin served as Chief Financial Officer. Mr. Itkin has
also served since 2006 as Executive Vice President of OSG (Senior Vice President from 1995 through 2006) and since 1995 as Chief Financial Officer and Treasurer of OSG. Mr. Itkin is a director
of Danaos Corporation.

Henry P. Flinteris Chief Financial Officer and a Director of our general partner and has served as such since January 2009. Prior to joining OSG
America L.P., Mr. Flinter served since 2005 as Vice President Corporate Finance of OSG Ship Management and from 2002 to 2005 served as Vice President, Accounting of OSG Ship Management.

Robert E. Johnstonis a Director of our general partner and has served as such since the inception of our general partner in May 2007. Mr. Johnston
served as Senior Vice President and Head of U.S. Flag Strategic Business Unit of OSG since January 2009. Mr. Johnston served from September 2005 through January 2009 as Senior Vice
President

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and
Head of Shipping Operations of OSG, with responsibility for all technical management of OSG's international flag and U.S. flag fleets. For more than five years prior to September 2005, Capt.
Johnston served as Senior Vice President and Chief Commercial Officer of OSG.

Kathleen C. Hainesis a Director and chairs our audit committee and serves on our conflicts committee and our corporate governance committees.
Ms. Haines is a financial consultant and served as Chief Executive Officer of the transition company created following the sale of OMI Corporation (OMI), a $2.2 billion (assets)
U.S.-based international shipping company from 2007 through May 2008. Ms. Haines served as Senior Vice President, Chief Financial Officer and Treasurer of OMI for more than five years prior to
2007.

James G. Dolphinis a Director and chairs our conflicts committee and serves on our corporate governance committee and audit committee. Mr. Dolphin
is Managing Director and President of AMA Capital Partners LLC (AMA), a New York based boutique merchant bank focused on the transportation industry. Mr. Dolphin concentrates on mergers
and acquisitions and strategic advisory work at AMA and also serves on the investment committees of the firm's private equity funds. He was involved in the creation of Oceania Cruises and served on
its board, audit committee and executive committee for four years until its sale to the private equity firm Apollo. Prior to joining AMA, Mr. Dolphin was a Principal in the management
consulting firm Booz Allen Hamilton, leading the global maritime practice.

Steven T. Benzis a Director and chairs our corporate governance committee and serves on our conflicts committee and audit committee. Mr. Benz is
Chief Executive Officer and President of Marine Spill Response Corporation (MSRC) a $450 million (assets) not-for-profit environmental company dedicated to the cleanup
of petroleum and chemical spills by marine transportation companies.

Meetings and Committees of the Board of Directors

Meetings

OSG America LLC's board of directors ("BOD") met six times during fiscal 2008.

Audit Committee

OSG America LLC has a standing Audit Committee consisting of Ms. Haines (Chairman) and Messrs. Benz and Dolphin. The Audit Committee met five times in 2008.
The Audit Committee is required to meet four times annually. The members of the Audit Committee must be independent. The board of directors of OSG America LLC has determined that all members of
the Audit Committee are independent within the meaning of the listing standards of the New York Stock Exchange and the applicable rules of the Securities and Exchange Commission. In addition, the
board of directors of OSG America LLC has determined that all members of the Audit Committee are financially literate and that Ms. Haines is an audit committee financial expert within
the meaning of the rules of the Securities and Exchange Commission. The members of the Audit Committee are appointed annually by the BOD.

The
BOD has adopted a formal charter under which the Audit Committee operates. The charter governs the duties, responsibilities and conduct of the Audit Committee.

The
primary responsibilities of the Audit Committee are to assist the BOD in overseeing (1) the quality and integrity of our financial statements and the financial reporting process,
(2) compliance with legal and regulatory requirements, (3) the qualifications, independence and performance of our independent registered public accounting firm, and (4) the
effectiveness of our internal audit function and adequacy of our internal controls. The Audit Committee has the sole authority to appoint, retain and terminate our independent registered public
accounting firm, which reports directly to the Audit Committee.

The
Audit Committee has established procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters and the
confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

Corporate Governance Committee

OSG America LLC has a standing Corporate Governance Committee consisting of Messrs. Benz (Chairman) and Dolphin and Ms. Haines. The Corporate Governance
Committee did not meet in 2008 and is not required to meet annually.

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The
BOD has adopted a formal charter under which the Corporate Governance Committee operates. The charter governs the duties, responsibilities and conduct of the Corporate Governance Committee.

The
Corporate Governance Committee, among other tasks, (1) makes recommendations to the BOD as to the size of the BOD and the composition of its committees, (2) oversees the evaluation
of the BOD and its committees, (3) develops, recommends to the BOD, reviews and updates the corporate governance principles, policies and practices and independence standards and monitor
compliance, (4) oversees director compensation and administers the OSG America L.P. 2007 Omnibus Incentive Compensation Plan, and (5) shapes the corporate governance of the
Partnership.

Conflicts Committee

OSG America LLC has a standing Conflicts Committee consisting of Messrs. Dolphin (Chairman) and Benz and Ms. Haines. The Conflicts Committee met twice in
2008 and is not required to meet annually.

The
BOD has adopted a formal charter under which the Conflicts Committee operates. The charter governs the duties, responsibilities and conduct of the Conflicts Committee.

The
Conflicts Committee reviews specific matters that the BOD believes may involve conflicts of interest and takes such other action as may be required under the terms of our partnership agreement.

Director Independence

For information on director independence, please read "Item 13. Certain Relationships and Related Transactions, and Director Independence."

Policies and Procedures for Approval of Related Person Transactions

The Conflicts Committee is responsible for reviewing and approving any related person transaction.

Code of Business Conduct and Ethics

The BOD has adopted a code of business conduct and ethics which is an extension of the Code of Business Conduct and Ethics of our affiliate, OSG for all employees, officers and
directors of OSP and all employees of OSG and its affiliates who provide services to OSP. If any amendments are made to the code or if OSG America LLC grants any waiver, including any implicit
waiver, from a provision of the code that the SEC or the New York Stock Exchange ("NYSE") requires us to disclose, we will disclose the nature of such amendment or waiver on our website or in a
current report on Form 8-K.

Corporate Governance Guidelines

The BOD has adopted corporate governance guidelines in accordance with the rules of the New York Stock Exchange.

Availability of Corporate Governance Documents

Copies of the board committee charters, code of business conduct and ethics and corporate governance guidelines are available, without charge, on our website at
www.osgamerica.com and in print, free of charge, upon written request to the Investor Relations, OSG America L.P., Two Harbour Place, 302 Knights Run Avenue, Suite 1200, Tampa, FL 33602.

Executive Sessions of the Board of Directors

Messrs. Benz and Dolphin and Ms. Haines, who are non-management directors of OSG America LLC, meet at regularly scheduled executive sessions
without management. These meetings are chaired by a lead director.

Communications with Independent Directors

Persons wishing to communicate with our non-management directors may do so by writing to them at OSG America L.P., c/o Board of Directors, Two Harbour Place,
302 Knights Run Avenue, Suite 1200, Tampa, FL 33602.

Reimbursement of Expenses of Our General Partner

Our general partner does not receive any management fee or other compensation for managing us. Our general partner and its other affiliates are reimbursed for expenses incurred
on our behalf. These expenses include all

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expenses
necessary or appropriate for the conduct of our business and allocable to us, as determined by our general partner.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Officers, directors and greater than 10% unitholders are required by SEC regulations to furnish us
with copies of all Section 16(a) forms.

Based
solely on our review of the copies of such forms we received, or representations from certain reporting persons that no Form 4s were required for those persons, we believe that during the
fiscal year ended December 31, 2008, all of our officers, directors, and greater than 10% beneficial owners complied on a timely basis with all applicable filing requirements under
Section 16(a) of the Securities Exchange Act of 1934.

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REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2008

Management has primary responsibility for maintaining effective internal control over financial reporting, for assessing the effectiveness of internal control over financial
reporting and for preparation of the consolidated financial statements of the Partnership. The Partnership's independent registered public accounting firm is responsible for performing an independent
audit of the Partnership's consolidated financial statements in accordance with auditing standards generally accepted in the United States. The Audit Committee's responsibility is to monitor and
oversee this process on behalf of the Board of Directors. The Board has adopted a written Audit Committee Charter which is posted on the Partnership's website at www.osgamerica.com.

In
fulfilling its oversight responsibilities, the Audit Committee has met and held discussions with management and the Partnership's independent registered public accounting firm concerning the
quality of the accounting principles, the reasonableness of significant judgments and the adequacy of disclosures in the financial statements. Management represented to the Audit Committee that the
Partnership's consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Audit Committee reviewed and discussed the
consolidated financial statements with management and the Partnership's independent registered public accounting firm. The Audit Committee further discussed with the Partnership's independent
registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended. The Audit Committee met five
times during 2008. The members of the Audit Committee are considered to be independent because they satisfy the independent requirements for Board of Directors members prescribed by the NYSE listing
standards and Rule 10A-3 under the 1934 Act.

The
Partnership's independent registered certified public accounting firm also provided to the Audit Committee the written disclosures and letter required by Rule 3526 of the Public Company
Oversight Board, as amended, and the Audit Committee discussed with the independent registered public accounting firm their independence and considered the compatibility of nonaudit services with the
registered public accounting firm's independence.

The
Committee also reviewed management's report on its assessment of the effectiveness of the Partnership's internal control over financial reporting and the Partnership's independent registered
public accounting firm's report on the effectiveness of the Partnership's internal control over financial reporting.

Based
upon the Audit Committee's discussions with management and the Partnership's independent registered certified public accounting firm, the Audit Committee's review of the representations of
management, the certifications of the Partnership's chief executive officer and chief financial officer which are required by the Securities and Exchange Commission and the Sarbanes-Oxley Act of 2002,
and the report and letter of the independent registered public accounting firm provided to the Audit Committee, the Audit Committee recommended to the Board of Directors (and the Board of Directors
approved) that the audited consolidated financial statements referred to above be included in the Partnership's Annual Report on Form 10-K for the year ended December 31,
2008 for filing with the SEC.

Audit Committee:Kathleen C. Haines, Chairman
Steven T. Benz
James G. Dolphin


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ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

We and our general partner were formed in May 2007. Because our Chairman, Mr. Arntzen, our President and Chief Executive Officer, Mr. Itkin and our Chief Financial
Officer, Mr. Flinter, are employees of OSG or OSG Ship Management, Inc., their compensation is set and paid by OSG or OSG Ship Management, Inc., we reimburse OSG for time they
spend on partnership matters. Officers and employees of our general partner or its affiliates participate in employee benefit plans and arrangements sponsored by OSG, our general partner, or their
affiliates, including plans that may be established in the future.

Compensation of Directors

Officers of our general partner or OSG who also serve as directors of our general partner do not receive additional compensation for their service as directors. Each
non-management director receives compensation for attending meetings of the board of directors, as well as committee meetings. Non-management directors receive a director fee
of $30,000 per year as well as a grant of 750 common units, which vest ratably over three years. Members of the audit, conflicts and corporate governance committees each receive a committee fee of
$5,000 per year per committee, and the chair of each of these committees receives an additional fee of $5,000 per year for serving in that role. In addition, each director is reimbursed for
out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director is fully indemnified by us for actions associated with being
a director

The
following table sets forth a summary of the compensation paid to non-employee directors in 2008:

Name

Fees Earned or
Paid in Cash ($)(1)

Unit
Awards ($)(2)

Total ($)Steven T. Benz

$
50,000

$
5,040

$
55,040James G. Dolphin

$
50,000

$
5,040

$
55,040Kathleen C. Haines

$
50,000

$
5,040

$
55,040


Long Term Incentive Plan

In 2007, the board of directors of our general partner adopted the OSG America L.P. 2007 Omnibus Incentive Compensation Plan (the "Plan"), pursuant to which directors,
officers, employees and consultants of ours and our affiliates, including OSG and our general partner, who perform services for us are eligible to receive awards based on, or related to, our common
units ("units").

The
Plan is administered by the board of directors of our general partner (the "Board"), who also interprets the Plan and establishes rules and regulations for its administration. The Board may
designate a committee thereof to administer the Plan and to establish rules and regulations for its administration. The Plan limits the aggregate number of units that may be delivered pursuant to
awards to 250,000 units.

The
Plan permits the grant of various types of awards as determined by the Board in its sole discretion, including options, unit appreciation rights, restricted units, restricted unit awards,
performance units, cash incentive awards and any other equity-based or equity-related awards. The Board has full power and authority to determine when and to whom awards will be granted and the
amount, form of payment and other terms and conditions of each award, consistent with the terms of the Plan. Awards may vary between individuals, between classes of individuals, by year or on any
other basis the Board determines to be appropriate. Awards may be granted in tandem with other awards, and will be evidenced by specific award agreements. The Board may amend or waive the terms and
conditions, or accelerate exercisability, of any outstanding award, except that any amendment or waiver that would materially and adversely impair the rights of any holder of an outstanding award will
require the consent of the holder.

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Under
the Plan, the Board is permitted and authorized to make awards that are denominated or payable in, valued by reference to, or otherwise based on or related to our units, including the following:

Unit Options.The holder of an option is entitled to purchase a number of units in the future at a specified exercise price per unit (which
will not be less than the fair market value of a unit on the date of grant of the option, unless otherwise provided) in such a manner and subject to such terms and conditions as shall be determined by
the Board. The units subject to each option generally vest in one or more installments over a specified period of service measured from the grant date of the option. Except as otherwise provided by
the award agreement, options vest with respect to one-third of the units on each of the first three anniversaries of the date of grant. Options will not be exercisable after the tenth
anniversary of the date of grant.

Unit Appreciation Rights.A unit appreciation right is an award that, upon exercise, entitles the holder to receive all or part of the excess
of the fair market value of a unit on the exercise date over the exercise price established for the unit appreciation right. The exercise price per unit of unit appreciation right will not be less
than the fair market value of a unit on the date of grant of the unit appreciation right, unless otherwise provided. Such excess may be paid in units, cash, other property or a combination thereof, as
determined by the Board in its discretion. Unit appreciation rights vest and become exercisable in accordance with a vesting schedule established by the Board.

Restricted Units and RUAs.A restricted unit is a unit that vests over a period of time and that during such time is subject to forfeiture.
An RUA represents an unfunded and unsecured promise to deliver units, cash, other property or a combination thereof in accordance with the terms of the applicable award agreement. In general,
restricted units and RUAs may not be sold, assigned, transferred, pledged or otherwise encumbered. The Board determines the period over which restricted units (and distributions related to such
restricted units) and RUAs granted to eligible persons will vest and may, for example, base its determination upon the achievement of specified financial objectives.

Performance Units.Performance units give participants the right to receive payments in units, cash, other property or a combination thereof
based solely upon the achievement of certain performance goals during a specified performance period. Subject to the terms of the Plan, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any performance award granted, the amount of any payment or transfer to be made pursuant to any performance award and any other terms and
conditions of any performance award is determined by the Board.

Unit Grants.Units may be granted that vest in the grantee immediately upon issuance, subject to any terms and conditions as may be
determined by the Board and any limitations under the Plan.

Cash Incentive Awards.A cash incentive award is an award payable to a participant in cash upon the attainment of performance goals
established by the Board.

Subject
to any applicable law, government regulation and the rules of the New York Stock Exchange, the Board has the right at any time to amend, modify or terminate the Plan, or any part of the Plan,
from time to time, without
unitholder approval; provided, however, that unitholder approval shall be required for any amendment that would, subject to certain exceptions:

No
modification, amendment or termination of the Plan may be made that would materially and adversely affect the rights of any participant that has been granted awards under the Plan, without the
consent of such participant, unless otherwise provided by the Board in the applicable award agreement.

In
addition, the Board may at any time amend or terminate any outstanding award without approval of a participant; provided, however, that no such amendment or termination may be made that would
materially and adversely impair the rights of any participant or holder of any award, without the consent of the participant or holder.

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Any
units subject to any award that expires or is terminated, cancelled or forfeited without the delivery of units will be available for future awards under the Plan. The units issuable under the Plan
may be units issued by us, acquired by us on the open market, acquired by us from any other person, or a combination of the foregoing.

The
Board may make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or non-recurring events affecting us or our affiliates. In
addition, unless otherwise provided for in the applicable award agreement, in the event of a change of control (unless provision is made in connection with the change of control for the assumption or
substitution of outstanding awards), all outstanding awards shall immediately vest and be deemed exercisable and all restrictions shall lapse as of immediately prior to such change of control. The
acceleration of vesting in the event of a change in control may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of us.

Unless
earlier discontinued or terminated by the Board, the Plan will expire on the tenth anniversary of its date of adoption. No awards may be made after that date. However, unless otherwise
expressly provided in an applicable award agreement, any award granted under the Plan prior to expiration may extend beyond the end of such period through the award's normal expiration date.

Our
executive officers did not receive long-term incentive plan rewards in 2008.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITYHOLDER MATTERS

The following table sets forth the beneficial ownership of units of OSG America Partners L.P. as of December 31, 2008 held by beneficial owners of 5% or more of
the units, by each of the directors and executive officers of our general partner, and by all directors and executive officers of our general partner as a group. The address for all beneficial owners
is 666 Third Avenue, 5th Floor, New York, New York 10017, except for Mr. Flinter and Mr. Johnston, whose address is Two Harbour Place, 302 Knights Run Avenue, Suite 1200,
Tampa, Florida 33602.

Name of Beneficial Owner

Common
Units

% of
Common
Units

Subordinated
Units

% of
Subordinated
Units

% of
Total
Common
and
Subordinated
UnitsOverseas Shipholding Group, Inc.(1)(2)


8,000,435

53.3


15,000,000

100.0

76.7%Kayne Anderson Capital Advisors, L.P.


1,353,723

9.02


0

*

*Morten Arntzen


0

*


0

*

*Myles R. Itkin


0

*


0

*

*Henry P. Flinter


6,859

*


0

*

*Robert E. Johnston


11,168

*


0

*

*Kathleen C. Haines


2,400

*


0

*

*James G. Dolphin


11,500

*


0

*

*Steven T. Benz


8,900

*


0

*

*All executive officers and directors as a group (7 persons)(3)


40,827

*


0

*

*


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The following table sets forth, as of February 28, 2009, the number of shares of common stock of OSG, the ultimate parent company of our general partner,
owned by each of the directors and executive officers of our general partner and all directors and executive officers of our general partner as a group.

Name of Beneficial Owner

Shares of
Common Stock

% of
Common StockMorten Arntzen(1)

382,204

1.4Myles R. Itkin(2)

70,610

*Henry P. Flinter(3)

10,710

*Robert E. Johnston(4)

61,583

*Kathleen C. Haines

0

0.0James G. Dolphin

0

0.0Steven T. Benz

0

0.0All executive officers, directors and director nominees as a group (7 persons)

525,107

1.9


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

OSG, the owner of our general partner, owns 8,000,435 common units and 15,000,000 subordinated units, representing a 75.1% limited partner interest in us. In addition, our
general partner, a wholly owned subsidiary of OSG, owns a 2% general partner interest in us and all of the incentive distribution rights.

Distributions and Payments to our General Partner and Its Affiliates

We generally distribute 98% to unitholders (including OSG, the owner of our general partner and the holder of 8,000,435 common units and 15,000,000 subordinated units) and make
the remaining 2% to our general partner. If distributions exceed the $0.375 per unit minimum quarterly distribution and other higher target levels, our general
partner, as the holder of the incentive distribution rights, is entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target level. We refer to the
rights to the increasing distribution as "incentive distribution rights". Please read "Cash Distribution PolicyIncentive Distribution Rights" in Item 5 of this report. Assuming we
have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, but no distributions in excess of the full minimum quarterly
distribution, our general partner would receive an annual distribution of approximately $0.9 million on its 2% general partner interest and OSG would receive an annual distribution of
approximately $34.5 million on its common units and subordinated units.

Our
general partner does not receive a management fee or other compensation for the management of our partnership. Our general partner and its other affiliates are entitled to reimbursement for all
direct and indirect expenses they incur on our behalf. In addition, we and certain of our operating subsidiaries (and any of our future operating subsidiaries may) pay fees to certain subsidiaries of
OSG for strategic consulting, advisory, ship management, technical and administrative services. Our general partner will determine the amount of these reimbursable expenses and will negotiate these
fees. These reimbursed expenses totaled approximately $20.7 million for the year ended December 31, 2008.

If
our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common
units, in each case for an amount equal to the fair market value of those interests.

Upon
our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions according to their respective capital account balances.

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Omnibus Agreement

Upon the completion of our initial public offering, we entered into an omnibus agreement with OSG and our general partner. The following discussion describes provisions of the
omnibus agreement.

Noncompetition

Under the omnibus agreement, OSG agrees, and will cause its controlled affiliates (other than us, our general partner and our subsidiaries) to agree, not to engage in or acquire
or invest in any business that provides marine transportation, distribution and logistics services in connection with the transportation of crude oil and refined petroleum products by water between
points in the United States to which the U.S. coastwise laws apply, to the
extent such business generates qualifying income for federal income tax purposes. This restriction will not prevent OSG or any of its controlled affiliates (other than us and our subsidiaries) from:

If
OSG or any of its controlled affiliates (other than us or our subsidiaries) owns, operates or charters Jones Act product carriers and barges pursuant to any of the exceptions described above, it
may not subsequently expand that portion of its business other than pursuant to those exceptions.

If
OSG or its affiliates no longer control our general partner or there is a change of control of OSG, our general partner or OSG, respectively, may terminate the noncompetition provisions of the
omnibus agreement.

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Options to Acquire Additional Jones Act Vessels

Under the omnibus agreement, OSG granted to us options to purchase up to two newbuild articulated tug barges (ATBs) that were scheduled for delivery from Bender between 2009 and
2010 and to acquire from OSG the right to bareboat charter up to two newbuild product carriers and up to two newbuild shuttle tankers from AMSC, scheduled for delivery between late 2009 and early
2011. The options with respect to the purchase of ATBs and the rights to bareboat charter newbuild product carriers will be exercisable prior to the first anniversary of the delivery of each vessel.
The exercise of any of the options will be subject to the negotiation of the terms and conditions of transfer and the purchase price.

The
purchase price would be determined according to a process in which, within 45 days after our notification that we wish to exercise the option, OSG would propose to our general partner the
terms on which it would be willing to transfer the relevant vessel(s) to us. Within 45 days after receiving OSG's proposed terms, we would propose a purchase price, which may be any combination
of cash and outstanding partnership units for the vessel(s). If we and OSG cannot agree on a purchase price after negotiating in good faith for 50 days, then we and OSG will negotiate in good
faith for a further 10-day period to agree on a cash-only purchase price for the vessel(s). If we and OSG cannot agree on a cash only purchase price after negotiating in good
faith for 10 days, OSG would have the right to seek an alternative purchaser willing to pay at least 101% of the purchase price we proposed. If an alternative transaction on such terms has not
been consummated within six months, we would have the right for 45 days to purchase the vessel(s) at the price we originally proposed.

To
fund the exercise of an option, we would be required to use cash from operations, incur borrowings or raise capital through the sale of debt or additional equity securities. Our ability to obtain
bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, as well as by adverse market conditions.
Incurring additional debt may significantly increase our interest expense and financial leverage and issuing additional equity securities may result in significant unitholder dilution and would
increase the aggregate amount of cash required to meet our minimum quarterly distribution to unitholders.

Rights of First Offer on Jones Act Vessels

Under the omnibus agreement, we granted to OSG a right of first offer on any proposed sale, transfer or other disposition of any of our Jones Act product carriers and barges
owned, operated or chartered by us or any of our subsidiaries, whether or not such vessels were acquired pursuant to the terms of the omnibus agreement or otherwise. Likewise, OSG agreed to grant a
similar right of first offer to us for any Jones Act product carriers and barges it or its subsidiaries (other than us or our subsidiaries) might own from time to time. These rights of first offer
will not apply to a sale, transfer or other disposition of vessels between any affiliated subsidiaries, or pursuant to the terms of any charter or other agreement with a charter party.

Prior
to engaging in any negotiation regarding any vessel disposition we or OSG, as the case may be, will deliver a written notice to the other party setting forth the material terms and conditions of
the proposed transaction. During the 60-day period after the delivery of such notice, we and OSG will negotiate in good faith to reach an agreement on the transaction. If we do not reach
an agreement within such 60-day period, we or OSG, as the case may be, will be able within the next 180 days to sell, transfer or dispose of the vessel to a third party (or to agree
in writing to undertake such transaction with a third party) on terms generally no less favorable to us or OSG, as the case may be, than those offered pursuant to the written notice.

If
OSG or its affiliates no longer control our general partner or there is a change of control of OSG, our general partner or OSG, respectively, may terminate these rights of first offer provisions of
the omnibus agreement.

Indemnification

Under the omnibus agreement, OSG indemnifies us for a period of five years after our initial public offering against certain environmental and toxic tort liabilities to the
extent arising prior to the completion date of our initial public
offering and relating to our assets and liabilities as of the completion of our initial public offering. Liabilities resulting from a change in law after the completion of this offering are excluded
from the environmental indemnity.

OSG
will also indemnify us for liabilities related to certain:

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There
is an aggregate cap of $10 million on the amount of indemnity coverage provided by OSG for environmental and toxic tort liabilities. With certain limited exceptions, no claim may be made
under the environmental indemnity unless the aggregate dollar amount of all claims exceeds $500,000, in which case OSG is liable for claims only to the extent such aggregate amount exceeds $500,000.

Amendments

The omnibus agreement may not be amended without the prior approval of the conflicts committee of the board of directors of our general partner if the proposed amendment will,
in the reasonable discretion of our general partner, adversely affect holders of our common units.

Management Agreement

We entered into a management agreement with OSG Ship Management, Inc. ("OSGM"), pursuant to which OSGM provides certain commercial and technical management services to us
in respect of the vessels in our fleet. In the event that we purchase or bareboat charter additional vessels, OSGM will also extend the commercial and technical management services provided pursuant
to the management agreement to those additional vessels. These services will be provided in a commercially reasonable manner in accordance with customary ship management practice and under our
direction. OSGM will provide these services to us directly but may subcontract for certain of these services with other entities, including other OSG subsidiaries.

The
management services include, among other things:

We
pay a fee to OSGM for such services that represent the reimbursement of the reasonable cost of any direct and indirect expenses it incurs in providing such services, plus an amount equal to four
percent of the payroll cost of all the crew who serve on the vessels that are subject to the management agreement.

Under
the management agreement, neither we nor OSGM is liable for failure to perform any of our or its obligations, respectively, under the management agreement by reason of any cause beyond our or
its reasonable control.

In
addition, OSGM has no liability for any loss arising in the course of the performance of the commercial and technical management services under the management agreement unless and to the extent
that such loss is proved to have resulted solely from the gross negligence or willful default of OSGM or its employees, agents or subcontractors, in which case (except where such loss resulted from
OSGM's intentional personal act or omission, or recklessly and with knowledge that such loss would probably result) OSGM's liability will be limited for each incident or series of related incidents.

We
have also agreed, under the management agreement, to indemnify OSGM and its employees, agents and subcontractors against all actions which may be brought against them in connection with their
performance of the management agreement and against and in respect of all costs and expenses they may suffer or incur due to

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defending
or settling such action, provided however that such indemnity excludes any or all losses which may be caused by or due to the gross negligence or willful default of OSGM or its employees,
agents or subcontractors.

Administrative Services Agreement

We entered into an administrative services agreement with OSGM, pursuant to which OSGM provides certain administrative management services to us, unless the provision of those
services by OSGM would materially interfere with OSG's operations.

The
administrative services include:

We
reimburse OSGM for reasonable costs and expenses incurred in connection with the provision of these services within 15 days after OSGM submits to us an invoice for such costs and expenses,
together with any supporting detail that may be reasonably required.

Under
the administrative services agreement, we have agreed to indemnify OSGM and its employees against all actions which may be brought against them under the administrative services agreement
including, without limitation, all actions brought under the environmental laws of any jurisdiction, and against and in respect of all costs and expenses they may suffer or incur due to defending or
settling such actions; provided, however, that such indemnity excludes any or all losses which may be caused by or due to the fraud, gross negligence or willful misconduct of OSGM or its employees or
agents.

Indemnification Agreements

We entered into indemnification agreements with each officer and director of our general partner. Each of these agreements, subject to certain limitations, require us to
indemnify each indemnitee to the fullest extent permitted by our partnership agreement. This means, among other things, that we must indemnify the indemnitee against expenses (including attorneys'
fees and related disbursements) actually and reasonably incurred in connection with, and judgments, penalties, fines and amounts paid in settlement of an action, suit, claim or proceeding arising out
of the fact that such person is or was an officer or director of our general partner, or is or was serving at our general partner's request as a director, officer, employee or agent of another entity
if such person meets the standard of conduct provided in our partnership agreement. Also as permitted under our partnership agreement, the indemnification agreements require us to advance expenses in
defending such an action, provided that the indemnitee undertakes to repay any amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified by us. We will also
make each indemnitee whole for taxes imposed on the indemnification payments and for costs in any action to establish such person's right to indemnification, whether or not wholly successful.

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Agreements Governing Bareboat Charters from AMSC

We, OSG and AMSC have entered into, or will enter into, various agreements governing the operation of the Jones Act product carriers and shuttle tankers, in respect of which OSG
has granted us options to acquire the right to bareboat charter from AMSC, in the event we do not exercise those options. See "BusinessBareboat Charters from AMSC of Our
NewbuildsProfit Sharing" and "BusinessBareboat Charters from AMSC of Our NewbuildsPooling Agreement."

Affiliate Charter Agreements

Effective April 1, 2008, the Partnership entered into time charter agreements with OSG to charter-out five vessels, three of which were employed by the
Partnership in the spot market (two ATBs, theOSG Columbia/OSG 242and theOSG Independence/OSG 243, and one
product carrier, theOverseas New Orleans)and two product carriers (theOverseas Philadelphiaand Overseas Puget
Sound) upon the completion of their current time charters in 2009. All five of these charter-out agreements are at fixed daily
rates for terms commencing either on April 1, 2008 or upon the expiry of such vessel's then current charter and ending on or about December 31, 2009. Management believes that the fixed
daily rates in the charter-out agreements are at rates that approximate existing market rates.

Effective
April 1, 2008, the Partnership entered into time charter agreements with OSG for the charter-in of theLiberty/M300and the OSG Constitution/OSG 400,
which are two ATBs working in the Delaware Bay lightering business, at fixed daily rates. The agreement assigned the charter
contracts on these two ATBs to the Partnership. On October 10, 2008, the Partnership converted the time charter agreement with OSG on theOSG Constitution/OSG
400to a bareboat charter agreement. The bareboat charter commenced with the completion of theOSG Constitution'sshipyard period
in November of 2008. The term of the bareboat charter ends simultaneously with the completion of the unit's lightering service, which is expected to occur in 2010. In December 2008, the Liberty/M300'stime charter agreement with OSG ended.

Director Independence

Under our Corporate Governance Guidelines, which incorporate the standards established by the New York Stock Exchange (NYSE), the BOD must consist of at least three independent
directors. As determined by the BOD, three of the seven members of the BOD have been determined to be independent under the Corporate Governance Guidelines because no relationship was identified that
would automatically bar them from being characterized as independent, and any relationships identified were not so material as to impair their independence. The BOD annually reviews relationships that
directors may have with the Partnership to make a determination of whether there are any material relationships that would preclude a director from being independent.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit FeesAudit fees incurred by the Partnership to Ernst & Young LLP for professional services rendered for the audit of the
Partnership's annual financial statements and internal controls for the year ended December 31, 2008, the review of the financial statements included in the Partnership's
Forms 10-Q filed in 2008, as well as those services that only the independent registered public accounting firm reasonably could have provided and services associated with documents
filed with the SEC in 2008 and other documents issued in connection with securities offerings, were $530,000. Audit fees incurred by the Partnership to Ernst & Young LLP for professional
services rendered for the audit of the Partnership's annual financial statements for the year ended December 31, 2007 as well as those services that only the independent registered public
accounting firm reasonably could have provided and services associated with documents filed with the SEC in 2007 and documents used in connection with the securities offering were $382,000.

Audit-Related FeesDuring 2008 and 2007, no services were performed by, or fees incurred to, Ernst & Young LLP other than as
described above.

All Other FeesDuring 2008 and 2007, no services were performed by, or fees incurred to, Ernst & Young LLP other than as
described above.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1)

The following consolidated financial statements of the Partnership are filed in response to Item 8.Reports of Independent Registered Public Accounting Firm.Consolidated Balance Sheets at December 31, 2008 and 2007.Consolidated Statements of Operations for the year ended December 31, 2008 and the period November 15, 2007 to December 31, 2007 and Predecessor Combined Carve-Out Statements of Operations for the
period January 1, 2007 to November 14, 2007 and the year ended December 31, 2006.Consolidated Statements of Cash Flows for the year ended December 31, 2008 and the period November 15, 2007 to December 31, 2007 and Predecessor Combined Carve-Out Statements of Cash Flows for the
period January 1, 2007 to November 14, 2007 and the year ended December 31, 2006.Consolidated Statements of Changes in Partners' Capital for the for the year ended December 31, 2008 and the period November 15, 2007 to December 31, 2007 and Predecessor Combined Carve-Out Statements
of Changes in Stockholders' Equity for the period January 1, 2007 to November 14, 2007 and the year ended December 31, 2006.Notes to Consolidated and Predecessor Combined Carve-Out Financial Statements.(a)(2)

Schedules of the Partnership have been omitted since they are not applicable or are not required.(a)(3)

The following exhibits are included in response to Item 15(c):1.1

Underwriting Agreement dated as of November 8, 2007 by and between OSG America LLC, OSG Bulk Ships, Inc., OSGAMLP One Percent Interest Corporation, OSG Ship Management, Inc., and Overseas
Shipholding Group, Inc, and the Underwriters party thereto (filed as Exhibit 1.1 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).3.1

Amended and Restated Certificate of Limited Partnership of OSG America L.P. dated August 9, 2007 (incorporated by reference to Exhibit 3.1 to the Partnership's Registration Statement on Form S-1
(Registration No. 333-145341), as filed on August 10, 2007 and amended thereafter (the "Registration Statement")).3.2

Amended and Restated Agreement of Limited Partnership of OSG America L.P. dated as of November 15, 2007 (filed as Exhibit 3.2 to the Registrant's Current Report on Form 10-Q for the quarter ended
September 30, 2007 and incorporated herein by reference).3.3

Certificate of Formation of OSG America LLC dated May 14, 2007 (incorporated by reference to Exhibit 3.3 to the Registration Statement).3.4

Amended and Restated Limited Liability Company Agreement of OSG America LLC dated as of November 15, 2007 (filed as Exhibit 3.4 to the Registrant's Current Report on Form 10-Q for the quarter
ended September 30, 2007 and incorporated herein by reference).10.1

Senior Secured Revolving Credit Facility Agreement dated as of November 15, 2007 among OSG America Operating Company LLC, the Registrant, the other subsidiaries of the Registrant party thereto as guarantors,
 the lenders party thereto, ING Bank N.V., London Branch as facility agent, security trustee and issuing lender and ING Bank N.V., London Branch and DnB NOR Bank ASA as mandated lead arrangers and bookrunners (filed as Exhibit 10.1 to
the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).


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10.2

Amended and Restated Contribution, Conveyance and Assumption Agreement dated as of November 15, 2007 among OSG Bulk Ships, Inc., OSG Ship Management, Inc., OSGAMLP One Percent Interest Corporation, OSG
America LLC, the Registrant and OSG America Operating Company LLC (filed as Exhibit 10.2 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by
reference).10.3

Omnibus Agreement dated as of November 15, 2007 among Overseas Shipholding Group, Inc., OSG America LLC and the Registrant (filed as Exhibit 10.3 to the Registrant's Current Report on
Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).10.4

Management Agreement dated as of November 15, 2007 among OSG Ship Management, Inc., the Registrant and the subsidiaries of the Registrant party thereto (filed as Exhibit 10.4 to the Registrant's
Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).10.5

Administrative Services Agreement dated as of November 15, 2007 between OSG Ship Management, Inc. and the Registrant (filed as Exhibit 10.5 to the Registrant's Current Report on Form 10-Q for the
quarter ended September 30, 2007 and incorporated herein by reference).*10.6.1

Director and Officer Indemnity AgreementMorten Arntzen dated May 14, 2007 (filed as Exhibit 10.6.1 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007
and incorporated herein by reference).*10.6.2**

Director and Officer Indemnity AgreementHenry P. Flinter dated January 20, 2009*10.6.3

Director and Officer Indemnity AgreementMyles R. Itkin dated May 14, 2007 (filed as Exhibit 10.6.3 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007
and incorporated herein by reference).*10.6.4

Director and Officer Indemnity AgreementRobert E. Johnston dated May 14, 2007 (filed as Exhibit 10.6.4 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.6.5

Director and Officer Indemnity AgreementKathleen C. Haines dated November 9, 2007 (filed as Exhibit 10.6.5 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.6.6

Director and Officer Indemnity AgreementJames G. Dolphin dated November 9, 2007 (filed as Exhibit 10.6.6 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.6.7

Director and Officer Indemnity AgreementSteven T. Benz dated November 9, 2007 (filed as Exhibit 10.6.7 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.7

OSG America L.P. 2007 Omnibus Incentive Compensation Plan (filed as Exhibit 10.7 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by
reference).10.8

Time Charter dated April 1, 2008 (filed as Exhibit 10.8 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.9

Time Charter dated April 1, 2008 (filed as Exhibit 10.9 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.10

Time Charter dated April 29, 2008 (filed as Exhibit 10.10 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.11

Time Charter dated April 29, 2008 (filed as Exhibit 10.11 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).


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10.12

Time Charter dated May 10, 2008 (filed as Exhibit 10.12 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.13

Time Charter dated May 10, 2008 (filed as Exhibit 10.13 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.14

Time Charter dated May 1, 2008 (filed as Exhibit 10.14 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).**10.15

Bareboat Charter dated November 22, 2008**21

List of subsidiaries of the registrant.**23

Consent of Independent Registered Certified Public Accounting Firm of the registrant.**23.1

Consent of Independent Registered Public Accounting FirmKPMG**31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.**31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.**32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.NOTE:

Instruments authorizing long-term debt of the Registrant and its subsidiaries, where the amounts authorized thereunder do not exceed 10% of total assets of the Registrant on a consolidated basis, are not being filed
herewith. The Registrant agrees to furnish a copy of each such instrument to the Commission upon request.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

OSG AMERICA L.P.
by OSG America LLC, its general partner/s/ MYLES R. ITKIN Myles R. Itkin
President, Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:

Name

Date/s/ MORTEN ARNTZEN Morten Arntzen
Chairman of the Board

March 6, 2009/s/ MYLES R. ITKIN Myles R. Itkin
Principal Executive Officer and Director

March 6, 2009/s/ HENRY P. FLINTER Henry P. Flinter
Principal Financial Officer,
Principal Accounting Officer and Director

March 6, 2009/s/ ROBERT E. JOHNSTON Robert E. Johnston
Director

March 6, 2009/s/ KATHLEEN C. HAINES Kathleen C. Haines
Director

March 6, 2009/s/ JAMES G. DOLPHIN James G. Dolphin
Director

March 6, 2009/s/ STEVEN T. BENZ Steven T. Benz
Director

March 6, 2009


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EXHIBIT INDEX

1.1

Underwriting Agreement dated as of November 8, 2007 by and between OSG America LLC, OSG Bulk Ships, Inc., OSGAMLP One Percent Interest Corporation, OSG Ship Management, Inc., and Overseas Shipholding
Group, Inc, and the Underwriters party thereto (filed as Exhibit 1.1 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).3.1

Amended and Restated Certificate of Limited Partnership of OSG America L.P. dated August 9, 2007 (incorporated by reference to Exhibit 3.1 to the Partnership's Registration Statement on Form S-1
(Registration No. 333-145341), as filed on August 10, 2007 and amended thereafter (the "Registration Statement")).3.2

Amended and Restated Agreement of Limited Partnership of OSG America L.P. dated as of November 15, 2007 (filed as Exhibit 3.2 to the Registrant's Current Report on Form 10-Q for the quarter ended
September 30, 2007 and incorporated herein by reference).3.3

Certificate of Formation of OSG America LLC dated May 14, 2007 (incorporated by reference to Exhibit 3.3 to the Registration Statement).3.4

Amended and Restated Limited Liability Company Agreement of OSG America LLC dated as of November 15, 2007 (filed as Exhibit 3.4 to the Registrant's Current Report on Form 10-Q for the quarter
ended September 30, 2007 and incorporated herein by reference).10.1

Senior Secured Revolving Credit Facility Agreement dated as of November 15, 2007 among OSG America Operating Company LLC, the Registrant, the other subsidiaries of the Registrant party thereto as guarantors,
 the lenders party thereto, ING Bank N.V., London Branch as facility agent, security trustee and issuing lender and ING Bank N.V., London Branch and DnB NOR Bank ASA as mandated lead arrangers and bookrunners (filed as Exhibit 10.1 to
the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).10.2

Amended and Restated Contribution, Conveyance and Assumption Agreement dated as of November 15, 2007 among OSG Bulk Ships, Inc., OSG Ship Management, Inc., OSGAMLP One Percent Interest Corporation, OSG
America LLC, the Registrant and OSG America Operating Company LLC (filed as Exhibit 10.2 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by
reference).10.3

Omnibus Agreement dated as of November 15, 2007 among Overseas Shipholding Group, Inc., OSG America LLC and the Registrant (filed as Exhibit 10.3 to the Registrant's Current Report on
Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).10.4

Management Agreement dated as of November 15, 2007 among OSG Ship Management, Inc., the Registrant and the subsidiaries of the Registrant party thereto (filed as Exhibit 10.4 to the Registrant's
Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference).10.5

Administrative Services Agreement dated as of November 15, 2007 between OSG Ship Management, Inc. and the Registrant (filed as Exhibit 10.5 to the Registrant's Current Report on Form 10-Q for the
quarter ended September 30, 2007 and incorporated herein by reference).*10.6.1

Director and Officer Indemnity AgreementMorten Arntzen dated May 14, 2007 (filed as Exhibit 10.6.1 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007
and incorporated herein by reference).*10.6.2**

Director and Officer Indemnity AgreementHenry P. Flinter dated January 20, 2009*10.6.3

Director and Officer Indemnity AgreementMyles R. Itkin dated May 14, 2007 (filed as Exhibit 10.6.3 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007
and incorporated herein by reference).


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                               OSG America L.P.

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Table of Contents

*10.6.4

Director and Officer Indemnity AgreementRobert E. Johnston dated May 14, 2007 (filed as Exhibit 10.6.4 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007
and incorporated herein by reference).*10.6.5

Director and Officer Indemnity AgreementKathleen C. Haines dated November 9, 2007 (filed as Exhibit 10.6.5 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.6.6

Director and Officer Indemnity AgreementJames G. Dolphin dated November 9, 2007 (filed as Exhibit 10.6.6 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.6.7

Director and Officer Indemnity AgreementSteven T. Benz dated November 9, 2007 (filed as Exhibit 10.6.7 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30,
2007 and incorporated herein by reference).*10.7

OSG America L.P. 2007 Omnibus Incentive Compensation Plan (filed as Exhibit 10.7 to the Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by
reference).10.8

Time Charter dated April 1, 2008 (filed as Exhibit 10.8 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.9

Time Charter dated April 1, 2008 (filed as Exhibit 10.9 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.10

Time Charter dated April 29, 2008 (filed as Exhibit 10.10 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.11

Time Charter dated April 29, 2008 (filed as Exhibit 10.11 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.12

Time Charter dated May 10, 2008 (filed as Exhibit 10.12 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.13

Time Charter dated May 10, 2008 (filed as Exhibit 10.13 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).10.14

Time Charter dated May 1, 2008 (filed as Exhibit 10.14 to the Registrant's Current Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).**10.15

Bareboat Charter dated November 22, 2008**21

List of subsidiaries of the registrant.**23

Consent of Independent Registered Public Accounting Firm of the registrant.**23.1

Consent of Independent Registered Public Accounting FirmKPMG**31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.**31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.**32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.NOTE:

Instruments authorizing long-term debt of the Registrant and its subsidiaries, where the amounts authorized thereunder do not exceed 10% of total assets of the Registrant on a consolidated basis, are not being filed
herewith. The Registrant agrees to furnish a copy of each such instrument to the Commission upon request.


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2008 Annual
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                                        131

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