UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
20-F


(Mark
One)


[ 
 ]      
 REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g)


OF THE SECURITIES
EXCHANGE ACT OF 1934




OR




[X]                   ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES
EXCHANGE ACT OF 1934





For
      the fiscal year ended
            December
      31, 2007




OR




[   ]              TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d)


OF THE SECURITIES
EXCHANGE ACT OF 1934




OR





[   ]    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF


THE SECURITIES EXCHANGE ACT OF 1934





Date
      of event requiring this shell company report





For
      the transition period fromCommission
      file number
            0-22704KNIGHTSBRIDGE
      TANKERS LIMITED(Exact
      name of Registrant as specified in its charter)KNIGHTSBRIDGE
      TANKERS LIMITED(Translation
      of Registrant’s name into English)Bermuda(Jurisdiction
      of incorporation or organization)Par-la-Ville
      Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda(Address
      of principal executive offices)Georgina
      Sousa, (1) 441 295 3494, Par-la-Ville Place, 14 Par-la-Ville Road,
      Hamilton, HM 08, Bermuda(Name,
      Telephone, E-mail and/or Facsimile number and Address of Company Contact
      Person )








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





Title
      of each class
            
            Name
      of each exchangeCommon
      Shares,  $0.01 Par Value
            
            NASDAQ
      National Market








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





None(Title
      of Class)








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





Common
      Shares,  $0.01 Par Value(Title
      of Class)





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





17,100,000
      Common Shares, $0.01 Par Value






Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.[    ]
      Yes     [ X] NoIf
      this report is an annual or transition report, indicate by check mark if
      the registrant is not required to file reports pursuant to Section 13 or
      15(d) of the Securities Exchange Act of 1934.[    ]
      Yes     [ X] NoNote
      – Checking the box above will not relieve any registrant required to file
      reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 from their obligations under those Sections.
                
                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.[ X]
      Yes    [    ] NoIndicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of
      “accelerated filer and large accelerated filer” in Rule 12b-2 of the
      Exchange Act. (Check one):
                
                Large
      accelerated filer
      [    ]                 
             Accelerated filer 
      [  X  ]                            Non-accelerated
      filer [   ]Indicate
      by check mark which financial statement the registrant has elected to
      follow:[    ]
      Item 17   [ X ] Item 18Indicate
      by check mark which basis of accounting the registrant has used to prepare
      the financial statements included in this filing:
                
                U.S.
      GAAP x                                 International
      Financial Reporting Standards o                     Other
      oIf
      this is an annual report, indicate by check mark whether the registrant is
      a shell company (as defined in Rule 12b-2 of the Exchange
      Act).[    ]
      Yes     [ X ]
No
  (i)


INDEX
TO REPORT ON FORM 20-F








PAGEPART
      IItem
      1.
            Identity
      of Directors, Senior Management and Advisers ............................
            1Item
      2.
            Offer
      Statistics and Expected Timetable .............................................
            1Item
      3.
            Key
      Information........................................................................
            1Item
      4.
            Information
      on the Company...........................................................
            10Item
      4A.
            Unresolved
      Staff Comments...........................................................
            24Item
      5.
            Operating
      and Financial Review and Prospects......................................
            24Item
      6.
            Directors,
      Senior Management and Employees......................................
            32Item
      7.
            Major
      Shareholders and Related Party Transactions................................
            35Item
      8.
            Financial
      Information...................................................................
            35Item
      9.
            The
      Offer and Listing...................................................................
            36Item
      10.
            Additional
      Information..................................................................
            37Item
      11.
            Quantitative
      and Qualitative Disclosures about Market Risk.........................
            42Item
      12.
            Description
      of Securities other than Equity Securities................................
            42PART
      IIItem
      13.
            Defaults,
      Dividend Arrearages and Delinquencies....................................
            43Item
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds................................................................................
            43Item
      15.
            Controls
      and Procedures...............................................................
            43Item
      16A.
            Audit
      Committee Financial Expert.....................................................
            44Item
      16B.
            Code
      of Ethics..........................................................................
            44Item
      16C.
            Principal
      Accountant Fees and Services..............................................
            44Item
      16D.
            Exemptions
      from the Listing Standards for Audit Committees......................
            45Item
      16E.
            Purchase
      of Equity Securities by the Issuer and Affiliated
      Purchasers..............
            45PART
      IIIItem
      17.
            Financial
      Statements....................................................................
            46Item
      18.
            Financial
      Statements....................................................................
            46Item
      19.
            Exhibits..................................................................................
            46








(ii)








CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS





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





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





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





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





(iii)





PART
I





ITEM
1.                      IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS





Not
Applicable





ITEM
2.                      OFFER
STATISTICS AND EXPECTED TIMETABLE





Not
Applicable





ITEM
3.                      KEY
INFORMATION





Throughout
this report, the “Company,” “Knightsbridge,” “we,” “us” and “our” all refer to
Knightsbridge Tankers Limited and its subsidiaries. We use the term deadweight
ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons,
each of which is equivalent to 1,000 kilograms, refers to the maximum weight of
cargo and supplies that a vessel can carry. Unless otherwise indicated, all
references to “USD,”“US$” and “$” in this report are to, and amounts are
presented in, U.S. dollars.





A.
SELECTED FINANCIAL DATA





The
selected consolidated income statement data of Knightsbridge Tankers Limited and
its subsidiaries, with respect to the fiscal years ended December 31, 2007, 2006
and 2005, and the selected consolidated balance sheet data of the Company with
respect to December 31, 2007 and 2006 have been derived from the Company's
Consolidated Financial Statements included herein and should be read in
conjunction with such statements and the notes thereto.  The selected
consolidated income statement data with respect to the fiscal years ended
December 31, 2004 and 2003 and the selected consolidated balance sheet data with
respect December 31, 2005, 2004 and 2003 have been derived from consolidated
financial statements of the Company not included herein. The following table
should also be read in conjunction with Item 5 “Operating and Financial Review
and Prospects” and the Company's Consolidated Financial Statements and Notes
thereto included herein.





Fiscal
      year ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands of $, except shares, per share data and ratios)Income
      Statement Data:Total
      operating revenues
            
            
            88,160
            
            
            
            105,728
            
            
            
            100,179
            
            
            
            135,695
            
            
            
            75,246Total
      operating expenses
            
            
            46,913
            
            
            
            54,463
            
            
            
            51,778
            
            
            
            42,441
            
            
            
            18,457Net
      operating income
            
            
            90,366
            
            
            
            51,265
            
            
            
            48,401
            
            
            
            93,254
            
            
            
            56,789Net
      income
            
            
            84,836
            
            
            
            45,717
            
            
            
            43,967
            
            
            
            85,839
            
            
            
            47,461Earnings
      per common share-
      basic and diluted
            
            
            4.96
            
            
            
            2.67
            
            
            
            2.57
            
            
            
            5.02
            
            
            
            2.78Cash
      dividend declared per share
            
            
            2.50
            
            
            
            3.60
            
            
            
            4.55
            
            
            
            4.55
            
            
            
            2.74Balance
      Sheet Data (at end of year):Cash
      and cash equivalents
            
            
            82,143
            
            
            
            8,538
            
            
            
            12,634
            
            
            
            31,653
            
            
            
            6,312Restricted
      cash
            
            
            10,000
            
            
            
            10,000
            
            
            
            10,000
            
            
            
            10,000
            
            
            
            -Newbuildings
            
            
            33,459
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Vessels,
      net
            
            
            201,072
            
            
            
            267,949
            
            
            
            285,070
            
            
            
            301,500
            
            
            
            -Vessels
      under capital lease, net
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            319,408Total
      assets
            
            
            342,166
            
            
            
            301,499
            
            
            
            323,159
            
            
            
            365,554
            
            
            
            348,443Credit
      facilities and current portion of long-term debt
            
            
            8,960
            
            
            
            11,211
            
            
            
            11,200
            
            
            
            11,309
            
            
            
            8,400Long-term
      debt
            
            
            103,040
            
            
            
            98,000
            
            
            
            109,200
            
            
            
            120,400
            
            
            
            116,997Share
      capital
            
            
            171
            
            
            
            171
            
            
            
            171
            
            
            
            171
            
            
            
            171Stockholders’
      equity
            
            
            221,276
            
            
            
            179,190
            
            
            
            195,033
            
            
            
            228,871
            
            
            
            215,527Common
      shares outstanding
            
            
            17,100,000
            
            
            
            17,100,000
            
            
            
            17,100,000
            
            
            
            17,100,000
            
            
            
            17,100,000





1








Other
      Financial Data:Equity
      to assets ratio (percentage) (1)
            
            
            64.7
            %
            
            
            59.4
            %
            
            
            60.4
            %
            
            
            62.6
            %
            
            
            61.9
            %Debt
      to equity ratio (2)
            
            
            0.5
            
            
            
            0.6
            
            
            
            0.6
            
            
            
            0.6
            
            
            
            0.6Price
      earnings ratio (3)
            
            
            4.9
            
            
            
            8.9
            
            
            
            9.4
            
            
            
            6.7
            
            
            
            4.5Time
      charter equivalent revenue (4)
            
            
            75,288
            
            
            
            85,713
            
            
            
            83,720
            
            
            
            121,455
            
            
            
            75,246





1.
            Equity
      to assets ratio is calculated as total stockholders’ equity divided by
      total assets.


2.
            Debt
      to equity ratio is calculated as total interest bearing current and
      long-term liabilities, including obligations under capital leases, divided
      by stockholders’ equity.


3.
            Price
      earnings ratio is calculated using the year end share price divided by
      basic earnings per share.


4.
            A
      reconciliation of time charter equivalent revenues to total operating
      revenues as reflected in the consolidated statements of operation is as
      follows:





2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands of $)Total
      operating revenues
            
            
            88,160
            
            
            
            105,728
            
            
            
            100,179
            
            
            
            135,695
            
            
            
            75,246Less:
      Voyage expense
            
            
            (12,872
            )
            
            
            (20,015
            )
            
            
            (16,459
            )
            
            
            (14,240
            )
            
            
            -Time
      charter equivalent revenue
            
            
            75,288
            
            
            
            85,713
            
            
            
            83,720
            
            
            
            121,455
            
            
            
            75,246





In 2003,
no voyage expenses were incurred due to the bareboat charters with Shell
International. The charters ended during 2003.




Our
vessels may operate under time charters, bareboat charters, voyage charters,
pool arrangements and contracts of affreightment, or COAs. Under a time charter,
the charterer pays substantially all of the vessel voyage costs which are
primarily fuel and port charges. Under a bareboat charter the charterer pays
substantially all of the vessel voyage and operating costs which are primarily
crewing and insurance costs. Under a voyage charter, the vessel owner pays such
costs. Under contracts of affreightment, the owner carries an agreed upon
quantity of cargo over a specified route and time period. Accordingly, charter
income from a voyage charter would be greater than that from an equally
profitable time charter to take account of the owner’s payment of vessel voyage
costs, and charter income from a bareboat charter would be lower than that from
an equally profitable time charter, to take account of the charterer’s payment
of vessel operating costs. In order to compare vessels trading under different
types of charters, it is standard industry practice to measure the revenue
performance of a vessel in terms of time charter equivalent revenue, or TCE.
Total TCE is the sum of time charter, voyage charter and bareboat charter
revenues, less voyage expenses. Total TCE, which is not covered by generally
accepted accounting principles, or GAAP, provides more meaningful information to
us than total operating revenues, the most directly comparable GAAP measure.
Average daily TCEs are also widely used by investors and analysts in the tanker
shipping industry for comparing financial performance between companies and to
industry averages. In order to calculate the daily TCE figures disclosed in Item
5, TCEs for bareboat charters include an allowance for estimated operating costs
that would be paid by us under an equivalently profitable time charter. Other
companies may calculate TCE using a different method.







B.
CAPITALIZATION AND INDEBTEDNESS





Not
Applicable





C.
REASONS FOR THE OFFER AND USE OF PROCEEDS





Not
Applicable








2


D.
RISK FACTORS





We are
engaged primarily in transporting crude oil and oil products and expect, with
the acquisition of two Capesize bulk carriers in 2009, to operate in the dry
bulk market. The following summarizes some of the risks that may materially
affect our business, financial condition or results of operations.





Risks
Related to Our Industry




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




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





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





●
            demand
      for oil and products;


●
            global
      and regional economic and political
conditions;


●
            changes
      in oil production and refining
capacity;


●
            environmental
      and other regulatory developments;


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


●
            changes
      in seaborne and other transportation
patterns.





The
factors that influence the supply of tanker capacity include:





●
            the
      number of newbuilding deliveries;


●
            the
      scrapping rate of older vessels;


●
            port
      or canal congestion;


●
            vessel
      casualties;


●
            price
      of steel;


●
            potential
      conversion of vessels to alternative
use;


●
            the
      number of vessels that are out of service;
and


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





The
international tanker industry has experienced historically high charter rates
and vessel values in the recent past and there can be no assurance that these
historically high charter rates and vessel values will be sustained





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





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





The
demand for our very large crude carrier, or VLCC, oil tankers derives primarily
from demand for Arabian Gulf and West African crude oil, along with crude oil
from the former Soviet Union, or the FSU, which, in turn, primarily depends on
the economies of the world's industrial countries and competition from
alternative energy sources.  A wide range of economic, social and
other factors can significantly affect the strength of the world's industrial
economies and their demand for Arabian Gulf crude oil.  One such
factor is the price of worldwide crude oil.  The world's oil markets
have experienced high levels of volatility in the last 25 years.  If
oil prices were to rise dramatically, the economies of the world's industrial
countries may experience a significant downturn.


3





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





·
            increased
      crude oil production from other
areas;


·
            increased
      refining capacity in the Arabian Gulf
area;


·
            increased
      use of existing and future crude oil pipelines in the Arabian Gulf
      area;


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


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


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





An
increase in the supply of vessel capacity without an increase in demand for
vessel capacity would likely cause charter rates and vessel values to decline,
which could have a material adverse effect on our results of operations and
financial condition




The
supply of vessels generally increases with deliveries of new vessels and
decreases with the scrapping of older vessels, conversion of vessels to other
uses, such as floating production and storage facilities, and loss of tonnage as
a result of casualties. Currently there is significant newbuilding activity with
respect to virtually all sizes and classes of vessels. If the amount of tonnage
delivered exceeds the number of vessels being scrapped, vessel capacity will
increase. If the supply of vessel capacity increases and the demand for vessel
capacity does not, the charter rates paid for our vessels as well as the value
of our vessels could materially decline. Such a decline in charter rates and
vessel values would likely have an adverse effect on our revenues and
profitability.




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




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


·
            a
      marine disaster;


·
            piracy;


·
            environmental
      accidents;


·
            cargo
      and property losses or damage; and


·
            business
      interruptions caused by mechanical failure, human error, war, terrorism,
      piracy, political action in various countries, labor strikes, or adverse
      weather conditions.





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




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




Our
operations are affected by extensive and changing international, national, state
and local laws, regulations, treaties, conventions and standards in force in
international waters, the jurisdictions in which our tankers and other vessels
operate and the country or countries in which such vessels are registered,
including those governing the management and disposal of hazardous substances
and wastes, the cleanup of oil spills and other contamination, air emissions,
and water discharges and ballast water management.  These regulations
include the U.S. Oil Pollution Act of 1990, or OPA, the International Convention
on Civil Liability for Oil Pollution Damage of 1969, or CLC; International
Convention for the Prevention of Pollution from Ships, the IMO International
Convention for the Safety of Life at Sea of 1974, or SOLAS, the International
Convention on Load Lines of 1966, and the U.S. Marine Transportation Security
Act of 2002.  In addition, vessel classification societies also impose
significant safety and other requirements on our vessels.  In
complying with current and future environmental requirements, vessel owners and
operators may also incur significant additional costs in meeting new maintenance
and inspection requirements, in developing contingency arrangements for
potential spills and in obtaining insurance coverage.  Government
regulation of vessels, particularly in the areas of safety and environmental
requirements, can be expected to become stricter in the future and require us to
incur significant capital expenditures on our vessels to keep them in
compliance, or even to scrap or sell certain vessels altogether.





4








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





Under
local, national and foreign laws, as well as international treaties and
conventions, we could incur material liabilities, including cleanup obligations,
natural resource damages and third-party claims for personal injury or property
damages, in the event that there is a release of petroleum or other hazardous
substances from our vessels or otherwise in connection with our current or
historic operations.  We could also incur substantial penalties, fines
and other civil or criminal sanctions, including in certain instances seizure or
detention of our vessels, as a result of violations of or liabilities under
environmental laws, regulations and other requirements.





For
example, OPA affects all vessel owners shipping oil to, from or within the
United States.  OPA allows for potentially unlimited liability without
regard to fault for owners, operators and bareboat charterers of vessels for oil
pollution in United States waters.  Similarly, CLC, which has been
adopted by most countries outside of the United States, imposes liability for
oil pollution in international waters.  OPA expressly permits
individual states to impose their own liability regimes with regard to hazardous
materials and oil pollution incidents occurring within their
boundaries.  Coastal states in the United States have enacted
pollution prevention liability and response laws, many providing for unlimited
liability.




Maritime
claimants could arrest our tankers, which could have a material adverse effect
on our results of operations and financial condition




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 a significant amount of money to
have the arrest lifted.





In
addition, in some jurisdictions, such as South Africa, under the “sister ship”
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant's maritime lien and any “associated” vessel, which is any vessel
owned or controlled by the same owner.  Claimants could try to assert
“sister ship” liability against one vessel in our fleet for claims relating to
another of our ships.




Governments
could requisition our vessels during a period of war or emergency, which could
have a material adverse effect on our results of operations and financial
condition




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




Risks
Related to Our Business




Our
revenues experience seasonal variations that may affect our income





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





5





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




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





●
            general
      economic and market conditions affecting the shipping
      industry;


●
            competition
      from other shipping companies;


●
            types
      and sizes of vessels;


●
            other
      modes of transportation;


●
            cost
      of newbuildings;


●
            shipyard
      capacity;


●
            governmental
      or other regulations;


●
            age
      of vessels;


●
            prevailing
      level of charter rates; and


●
            technological
      advances.





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





We
operate in the highly competitive international tanker market and we may not be
able to effectively compete which would negatively affect our results of
operations




The
operation of tanker vessels and transportation of crude and petroleum products
and the other businesses in which we operate are extremely
competitive.  Competition arises primarily from other tanker owners,
including major oil companies as well as independent tanker companies, some of
whom have substantially greater resources than we do.  Competition for
the transportation of oil and oil products can be intense and depends on price,
location, size, age, condition and the acceptability of the tanker and its
operators to the charterers.  We compete with other tanker owners,
including major oil companies as well as independent tanker companies for
charterers.  Due in part to the fragmented tanker market, competitors
with greater resources could enter and operate larger fleets through
acquisitions or consolidations and may be able to offer better prices and
fleets, which could result in our achieving lower revenues from our VLCC oil
tankers.





We receive a portion of our
charterhire revenue from a limited number of customers including Frontline
Ltd.




We will
derive a significant portion of our revenues from two charters with Frontline
Ltd, or Frontline, a Bermuda corporation.  If we were to lose one or
both of our charters with Frontline, or any of our other customers, we may be
unable to find a suitable replacement charter for the related vessel on terms as
favorable to us as under our current charters. The loss of any of our customers
could have a material adverse effect on our revenues and results of
operations.




Our
revenues may be adversely affected if we do not successfully employ our
tankers




Currently,
all four of our tankers are contractually committed to time charters, with the
remaining terms of these charters expiring on dates between 2009 and 2012.
Although these time charters generally provide reliable revenues, they also
limit the portion of our fleet available for spot market voyages during an
upswing in the tanker industry cycle, when spot market voyages might be more
profitable. We also cannot assure you that we will be able to successfully
employ our tankers in the future or renew our existing charters at rates
sufficient to allow us to operate our business profitably or meet our
obligations. A decline in charter or spot rates or a failure to successfully
charter our
tankers could have a material adverse effect on our business, financial
condition, results of operation and ability to pay
dividends.





6





Delays
or defaults by the shipyard in the construction of our new vessels could
increase our expenses and diminish our net income and cash flows





We have
entered into newbuilding contracts for the construction of two Capesize bulk
carriers with Daehan Shipbuilding Co. Ltd in the Republic of
Korea.  We have also entered into related long-term time charters for
employment of these vessels upon their expected delivery in 2009. The
newbuilding projects are subject to the risk of delay or defaults by the
shipyard caused by, among other things, the financial condition of the shipyard,
unforeseen quality or engineering problems, work stoppages, weather
interference, unanticipated cost increases, delays in receipt of necessary
equipment, and inability to obtain the requisite permits or approvals. In
accordance with industry practice, in the event the shipyard is unable or
unwilling to deliver the vessels, we may not have substantial remedies. In
addition, if the delivery of any of the newbuildings is cancelled or
significantly delayed, we might be unable to perform under the related long-term
time charters, which may be cancelled. Failure to construct or deliver the ships
by the shipyard or any significant delays could increase our expenses and result
in cancellation of the related long-term time charters diminishing our net
income and cash flows.





We
have no history of operating dry bulk carriers and we may not be able to enter,
or effectively manage our entry into dry bulk market, which could negatively
impact our results of operations, financial condition and our ability to pay
dividend




We have
entered into newbuilding contracts for the construction of two Capesize bulk
carriers and expect to take delivery of these in 2009.  Acquisition
and management of these vessels will impose significant responsibilities on our
management and staff.  We do not have any experience transporting dry
bulk products nor do we have any history of operating or competing in that
business.  As we have no history of operating dry bulk carriers, it is
difficult to predict our needs when entering into the dry bulk
market.  We will also have to market our services to a new customer
base so that we can provide continued deployment of our vessels.  We
may not be successful in executing our growth plans and may incur significant
expenses and losses in connection with our future line of business which could
negatively impact our results of operations, financial condition and our ability
to pay dividends.




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




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




We
may not be able to renew time charters when they expire or enter into new time
charters for newbuildings




Currently,
all of our vessels are employed on time charters. We have also entered into
long-term charters for the employment of our two Capesize bulk carriers upon
their expected delivery in 2009. There can be no assurance that any of our
existing time charters will be renewed or that we will be successful in entering
into new time charters on the newbuildings that will be delivered to the Company
or if renewed or entered into, that they will be at favorable rates. If, upon
expiration of the existing time charters or delivery of newbuildings, we are
unable to obtain time charters or voyage charters at desirable rates, the
Company’s profitability may be adversely affected.





Rising
fuel prices may adversely affect our profits




Fuel is a
significant, if not the largest, operating expense for many of our shipping
operations when our vessels are not under time charter. The price and supply of
fuel is unpredictable and fluctuates based on events outside our control,
including geopolitical developments, supply and demand for oil and gas, actions
by OPEC and other oil and gas producers, war and unrest in oil producing
countries and regions, regional production patterns and environmental concerns.
As a result, an increase in the price of fuel may adversely affect our
profitability.





7








Our
vessels may suffer damage and we may face unexpected drydocking costs, which
could affect our cash flow and financial condition




If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and can be substantial. We may
have to pay drydocking costs that our insurance does not cover. The inactivity
of these vessels while they are being repaired and repositioned, as well as the
actual cost of these repairs, would decrease our earnings. In addition, space at
drydocking facilities is sometimes limited and not all drydocking facilities are
conveniently located. We may be unable to find space at a suitable drydocking
facility or we may be forced to move to a drydocking facility that is not
conveniently located to our vessels’ positions. The loss of earnings while our
vessels are forced to wait for space or to relocate to drydocking facilities
that are farther away from the routes on which our vessels trade would decrease
our earnings.





Incurrence
of expenses or liabilities may reduce or eliminate distributions




Our
policy is to make distributions to shareholders based on the Company's earnings
and cash flow. The amount and timing of dividends will depend on the Company's
earnings, financial condition, cash position, Bermuda law affecting the payment
of distributions and other factors. However, we could incur other expenses or
contingent liabilities that would reduce or eliminate the cash available for
distribution by us as dividends. Our loan agreement prohibits the declaration
and payment of dividends if we are in default under such loan
agreement.  In addition, the declaration and payment of dividends is
subject at all times to the discretion of our Board.  We cannot assure
you that we will pay dividends.




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




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





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




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




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




We
may not be able to finance our newbuilding program





As of
December 31, 2007 we had outstanding commitments of approximately $129.6 million
with respect to our contracted newbuildings. We intend to fund this from
existing cash resources and new bank financing, which may contain terms and
covenants that restrict our financial and operating flexibility. Our liquidity
position will be adversely impacted if we are unable to attract bank financing
for our newbuilding program.





8





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





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




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




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





Because
we are a foreign corporation, you may not have the same rights that a
shareholder in a U.S. corporation may have




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





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




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




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




Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as us and our
subsidiaries, that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States, may be subject to a 4%
United States federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code and
the applicable Treasury Regulations recently promulgated
thereunder.





We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we will take this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption and
thereby become subject to United States federal income tax on our United States
source income. Therefore, we can give no assurances on our
tax-exempt status or that of any of our subsidiaries.







9


If we or our subsidiaries
are not entitled to exemption under Section 883 of the code for any taxable
year, we or our subsidiaries could be subject for those years to an effective 4%
United States federal income tax on the gross shipping
income these companies derive during the year that are attributable to the
transport or cargoes to or from the United States.  The imposition of
this tax would have a negative effect on our business and would result in
decreased earnings available for distribution to our shareholders.





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





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





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





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





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




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











ITEM
4. INFORMATION ON THE COMPANY





A.  HISTORY
AND DEVELOPMENT OF THE COMPANY





Knightsbridge
Tankers Limited was incorporated in Bermuda on September 18, 1996. The Company's
registered and principal executive offices are located at Par-la-Ville Place, 14
Par-la-Ville Road, Hamilton, HM 08, Bermuda, and its telephone number is +1
(441) 295-0182. References herein to the Company include the Company and all of
its subsidiaries, unless otherwise indicated. The Company was incorporated for
the purpose of the acquisition, disposition, ownership, leasing and chartering
of, through wholly-owned subsidiaries (the “Original Subsidiaries”), five very
large crude oil carriers (the “Vessels”). The Company used the net proceeds of
its initial public offering and bank debt to fund the purchase by the Original
Subsidiaries of the Vessels. Upon their purchase from their previous owners on
February 27, 1997 until March 2004, the Company chartered its Vessels to Shell
International on long-term bareboat charters (the “Charters”). The term of each
of these Charters was a minimum of seven years, with options for Shell
International to extend the period for each Vessel's Charter. Shell
International did not extend the bareboat charters for any of the
Vessels.  Consequently, the Charters expired for all five Vessels, in
accordance with their terms, during March 2004 and the Vessels were redelivered
to the Company.







10


Following the redelivery,
the Company entered into a five year time charter, due to expire in 2009, for
one of its vessels while two of the Company's vessels were time chartered for a
period of three years, which expired in May 2007. The Company entered into four
and five year time charter agreements with Frontline, a Bermuda based publicly
listed tanker owner and operator, to replace the charters which expired in May
2007. The Company's remaining two vessels had been trading on the spot market
and from April 2005, participated in a pooling arrangement with Frontline.
During March 2007, the pooling arrangement with Frontline was terminated, and
the Company commenced a three year time charter for one of the vessels leaving
one vessel trading in the spot market. The Vessel trading in the spot market was
sold in December 2007. We currently own and operate four Vessels, all of which
are employed on time charters.





In May
2007, the Company agreed to purchase two newbuilding contracts each for the
construction of a Capesize bulk carrier with a cargo-carrying capacity of
approximately 170,000 dwt. The ships are being built by Daehan Shipbuilding Co
Ltd in the Republic of Korea and are due for delivery in 2009. The Company has
secured employment for both of the newbuildings under five year time charters
commencing upon their respective deliveries.








B.  BUSINESS
OVERVIEW





We are an
international tanker company and our primary business activity is currently the
international seaborne transportation of crude oil. Our current fleet consists
of four double-hull VLCCs, one of which was built in 1996 and three of which
were built in 1995. Each of the Vessels is owned by a subsidiary and has
been named and flagged in the Marshall Islands and is currently deployed on time
charters operating worldwide.  In addition to the VLCCs, the Company has
contracted to acquire two Capesize bulk carriers currently under construction.
The Company expects to take delivery of these vessels in 2009 and employ them
under five-year time charters. The following chart provides information on
the deployment of our Vessels and the newbuildings as of December 31,
2007:




Vessel Name
              Type
              Employment
              Expiration DateCamden
              VLCC
              Time
      charter
              March,
      2009Mayfair
              VLCC
              Time
      charter
              March,
      2010Hampstead
              VLCC
              Time charter
              May, 2012Kensington
              VLCC
              Time charter
              May, 2011Belgravia
      (1)
              Capesize
              Time
      charter
              5
      years (2)Battersea
      (1)
              Capesize
              Time
      charter
              5
      years (2)
  (1)  Vessel
under construction for delivery in 2009


(2)  Commencing
upon the vessel’s delivery.





Strategy





Our
strategy is to maintain our position as an operator and charterer of VLCC oil
tankers with flexibility to adjust our exposure to the tanker market depending
on existing factors such as charter rates, newbuilding costs, vessel resale and
scrap values and vessel operating expenses resulting from, among other things,
changes in the supply of and demand for tanker capacity. We may adjust our
exposure through time charters, bareboat charters, sale and leasebacks, straight
sales and purchases of vessels, newbuilding contracts and acquisitions. We also
intend to limit our exposure to the tanker market by expanding our activities in
shipping transportation to sectors other than oil transportation. The Company
has contracted to acquire two Capesize bulk carriers, currently under
construction, and upon their delivery in 2009, they will operate in the dry
bulk market. The Company believes that the dry bulk market has good underlying
dynamics with a strong growth in the main commodity trades (coal and iron ore)
and approximately 40% of the dry bulk fleet greater than 20,000 dwt is older
than 20 years. We believe that expanding into the dry bulk market will be
incremental to the Company’s long-term earning per share and dividend
capacity.




Our goal
is to generate competitive returns for our shareholders with quarterly dividend
payments. The level of dividend will be guided by present earnings, market
prospects, current capital expenditure programs as well as investment
opportunities.




11


Management
Structure




The
Company has four tanker vessels of which two are currently on time charters
which expire in 2009 and 2010. The remaining two tanker vessels have been
chartered to a subsidiary of Frontline on four and five year time charter
agreements. The terms of these charters were negotiated on an arm's length basis
in 2006 and reflect the prevailing market terms at the time. Two of the
Company's subsidiaries have ordered capesize bulk vessels at Daehan Shipbuilding
Co. Ltd. in Korea. The construction process is expected to commence in August
2008. The vessels are expected to be delivered in 2009. To the extent these
vessels are not delivered within the deadline set by the charter, the charterer
will have the right to cancel the charter. The Company's board of directors (the
“Board”) decided, at the incorporation of the Company, to contract the
day-to-day management services of the Company and its subsidiaries, rather than
to establish a proprietary management organization. This policy was based on the
availability of such services in the market on terms which are more cost
efficient to the Company than the alternative. The Board has not seen any reason
to change this policy since it was formulated. All of the management services
contracted in by the Company and its subsidiaries are subject to the Board's or,
as the case may be, the board of the relevant subsidiary's, sole right to
determine the overall objectives and policies of the Company and its
subsidiaries. Further, all matters of material importance to or of an
extraordinary nature in respect of the business of the Company and its
subsidiaries shall be decided by the Board.







General
Management Agreement




The
Company and its subsidiaries are provided with general administrative services
by ICB Shipping (Bermuda) Limited (the “Manager) on the terms set forth in a
management agreement dated February 12, 1997, as subsequently amended by an
amendment no. 1 thereto dated March 1,  2004 (the “Management
Agreement”). The Manager is a wholly owned subsidiary of Frontline. The Manager
subcontracts all the services delivered to the Company and its subsidiaries to
Frontline Management (Bermuda) Limited, another wholly owned subsidiary of
Frontline. The fee payable to the Manager pursuant to the terms of the
Management Agreement was $1.15 million in 2007. The Company and its subsidiaries
are responsible for paying all administrative expenses incurred from third
parties such as audit, legal and other professional fees, registration fees and
directors' and officers' fees and expenses. The Board regularly benchmark the
fee due to the Manager and believes that the fee level (and other terms of the
Management Agreement) are substantially similar to those that can be obtained in
the market. The Company may terminate the Management Agreement at any time upon
30 days notice to the Manager provided such termination has been approved by the
affirmative vote of shareholders holding at least 66 2/3 per cent of the
Company's outstanding common shares in a shareholders meeting. The Company may,
furthermore, terminate the Management Agreement subject to five business days
prior written notice to the Manager in the event:




●
            of
      a material breach of the terms thereof by the Manager occurs and remains
      unremedied for 30 days; ●
              any
      material consent, authorization, license, approval or similar requirement
      for the Manager's activities as such is modified, terminated, revoked or
      expires;
 ●
              the
      Manager becomes subject to an insolvency
  event;
 ●
              it
      becomes unlawful for the Manager to perform the services to be provided
      there under; or
 ●
              the
      Manager ceases to be a wholly owned subsidiary of
      Frontline.








The
Manager may terminate the Management Agreement upon 10 business days notice in
the event the Company undergoes “a change of control” (which shall mean the
election of a director to the Board who is not recommended by the then current
Board). The Management Agreement terminates automatically in 2012 unless earlier
terminated as per the above. The Board believes that, in the case of any
termination of the Management Agreement, the Company and its subsidiaries can
obtain an appropriate alternative arrangement for its management requirements
although there can be no assurance that such alternative arrangement would not
cause the Company to incur additional expenses.





The
Company has agreed with the Manager and Frontline Management (Bermuda) Ltd that,
during 2008, the Management Agreement shall be novated and restated directly
between the Company and its subsidiaries as service recipients and Frontline
Management (Bermuda) Ltd as service provider.




12


Technical
Management of vessel





Technical
Management is provided by ship mangers subcontracted by the Manager to oversee
the technical elements of running the vessels.




Building
Supervision – Newbuildings




The
Company's subsidiaries, KTL Belgravia I Inc. and KTL Belgravia II Inc., have
entered into building supervision agreements with Frontline Management (Bermuda)
Ltd (the “Building Supervisor”) setting forth the terms upon which the Building
Supervisor shall supervise the construction of their respective newbuildings at
Daehan Shipbuilding Co. Ltd. on their behalf.  The fee payable to the
Building Supervisor has been agreed at $40,110 per month, commencing in the
month in which the construction process commences. Each party to these
agreements can terminate the same subject to one month's written notice to the
other party.




Commercial
Management of Newbuildings




KTL
Belgravia I Inc. and KTL Belgravia II Inc. and Golden Ocean Management AS (the
“Commercial Manager”) have negotiated the terms of a commercial management
agreement in respect of the Company’s dry bulk newbuildings. These services
shall commence on delivery of the newbuildings and shall, subject to the overall
authority of the boards of the two subsidiaries, include the authority to
charter out the newbuildings. The remuneration of the Commercial Manager shall
be 1.25 % of all gross freights earned by the vessels. The agreement can be
terminated by either party thereto subject to one month's written notice. The
Commercial Manager is a wholly owned subsidiary of Golden Ocean Group Limited.,
a Bermuda company listed on the Oslo Stock Exchange.




Seasonality





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




Competition





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










13


Environmental
Regulation and Other Regulations








Government
regulations and laws significantly affect the ownership and operation of our
tankers.  We are subject to various international conventions, laws
and regulations in force in the countries in which our vessels may operate or
are registered.





Our
tankers are subject to both scheduled and unscheduled inspections by a variety
of government, quasi-governmental and private organizations, each of which may
have unique requirements.  These organizations include the local port
authorities, national authorities, harbor masters or equivalent, classification
societies, flag state and charterers, particularly terminal operators and oil
companies.  Some of these entities require us to obtain permits,
licenses and certificates for the operation of our tankers.  Our
failure to maintain necessary permits or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of the vessels
in our fleet.





We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all tankers and may accelerate the scrapping of older
vessels throughout the industry.  Increasing environmental concerns
have created a demand for tankers that conform to the stricter environmental
standards.  We are required to maintain operating standards for all of
our vessels emphasizing operational safety, quality maintenance, continuous
training of our officers and crews and compliance with applicable local,
national and international environmental laws and regulations.  We
believe that the operation of our vessels will be in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations; however, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our
tankers.  In addition, a future serious marine incident that results
in significant oil pollution or otherwise causes significant adverse
environmental impact could result in additional legislation or regulation that
could negatively affect our profitability.





International
Maritime Organization





The
International Maritime Organization, or IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments, or the MARPOL Convention. The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. These
regulations, which have been implemented in many jurisdictions in which our
vessels operate, provide, in part, that:





●
            25-year
      old tankers must be of double hull construction or of a mid-deck design
      with double-sided construction,
unless:




(1)
            they
      have wing tanks or double-bottom spaces not used for the carriage of oil
      which cover at least 30% of the length of the cargo tank section of the
      hull or bottom; or




(2)
            they
      are capable of hydrostatically balanced loading (loading less cargo into a
      tanker so that in the event of a breach of the hull, water flows into the
      tanker, displacing oil upwards instead of into the
  sea);




●
            30-year
      old tankers must be of double hull construction or mid-deck design with
      double-sided construction; and




●
            all
      tankers will be subject to enhanced
inspections.




Also,
under IMO regulations, a tanker must be of double hull construction or a
mid-deck design with double-sided construction or be of another approved design
ensuring the same level of protection against oil pollution if the
tanker:




●
            is
      the subject of a contract for a major conversion or original construction
      on or after July 6, 1993;




●
            commences
      a major conversion or has its keel laid on or after January 6, 1994;
      or




●
            completes
      a major conversion or is a newbuilding delivered on or after July 6,
      1996.









14


Our vessels are also
subject to regulatory requirements, including the phase-out of single hull
tankers, imposed by the IMO. Effective September 2002, the IMO accelerated
its existing timetable for the phase-out of single hull oil tankers. Atthat
time, these regulations required the phase-out of most single hull oil tankers
by 2015 or earlier, depending on the age of the tanker and whether it has
segregated ballast tanks. We do not currently own any single hull
vessels.





Under
regulation 13G, the flag state may allow for some newer single hull ships
registered in its country that conform to certain technical specifications to
continue operating until the 25th anniversary of their delivery. Any port state,
however, may deny entry of those single hull tankers that are allowed to operate
until their 25th anniversary to ports or offshore terminals. These regulations
have been adopted by over 150 nations, including many of the jurisdictions in
which our tankers operate.





As a
result of the oil spill in November 2002 relating to the loss of the MT
Prestige, which was owned by a company not affiliated with us, in
December 2003, the Marine Environmental Protection Committee of the IMO, or
MEPC, adopted an amendment to the MARPOL Convention, which became effective in
April 2005. The amendment revised an existing regulation 13G accelerating the
phase-out of single hull oil tankers and adopted a new regulation 13H on the
prevention of oil pollution from oil tankers when carrying heavy grade oil.
Under the revised regulation, single hull oil tankers were required to be phased
out no later than April 5, 2005 or the anniversary of the date of delivery of
the ship on the date or in the year specified in the following
table:





Category
      of Oil Tankers
              
              Date
      or Year for Phase OutCategory 1 -
      oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy
      diesel oil or lubricating oil as cargo, and of 30,000 dwt and above
      carrying other oils, which do not comply with the requirements for
      protectively located segregated ballast tanks
              
              April
      5, 2005 for ships delivered on April 5, 1982 or earlier; or
                2005
      for ships delivered after April 5, 1982Category 2 -
      oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy
      diesel oil or lubricating oil as cargo, and of 30,000 dwt and above
      carrying other oils, which do comply with the protectively located
      segregated ballast tank requirements
                
                and
                
                Category 3 -
      oil tankers of 5,000 dwt and above but less than the tonnage specified for
      Category 1 and 2 tankers.
              
              April
      5, 2005 for ships delivered on April 5, 1977 or earlier
                2005
      for ships delivered after April 5, 1977 but before January 1,
      1978
                2006
      for ships delivered in 1978 and 1979
                2007
      for ships delivered in 1980 and 1981
                2008
      for ships delivered in 1982
                2009
      for ships delivered in 1983
                2010
      for ships delivered in 1984 or
later
  Under the
revised regulations, a flag state may permit continued operation of certain
Category 2 or 3 tankers beyond their phase in accordance with the above
schedule. Under regulation 13G, the flag state may allow for some newer single
hull oil tankers registered in its country that conform to certain technical
specifications to continue operating until the earlier of the anniversary of the
date of delivery of the vessel in 2015 or the 25th anniversary of their
delivery.  Under regulations 13G and 13H, as described below, certain
Category 2 and 3 tankers fitted only with double bottoms or double sides may be
allowed by the flag state to continue operations until their 25th
anniversary of delivery. Any port state, however, may deny entry of those single
hull oil tankers that are allowed to operate under any of the flag state
exemptions.





The MEPC
in October 2004, adopted a unified interpretation to regulation 13G that
clarified the date of delivery for  tankers that have been
converted.  Under the interpretation, where an oil tanker has
undergone a major conversion that has resulted in the replacement of the
fore-body, including the entire cargo carrying section, the major conversion
completion date of the oil tanker shall be deemed to be the date of delivery of
the ship, provided that:




15





●
            the
      oil tanker conversion was completed before July 6,
  1996;




●
            the
      conversion included the replacement of the entire cargo section and
      fore-body and the tanker complies with all the relevant provisions of
      MARPOL Convention applicable at the date of completion of the major
      conversion; and




●
            the
      original delivery date of the oil tanker will apply when considering the
      15 years of age threshold relating to the first technical specifications
      survey to be completed in accordance with MARPOL Convention.




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




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




●
            crude
      oils having a density at 15oC higher than 900 kg/m3;




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




●
            bitumen,
      tar and their emulsions.




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





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





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





Revised
Annex I to the MARPOL Convention entered into force in January
2007.  Revised Annex I incorporates various amendments adopted since
the MARPOL Convention entered into force in 1983, including the amendments to
regulation 13G (regulation 20 in the revised Annex) and regulation 13H
(regulation 21 in the revised Annex).  Revised Annex I also impose
construction requirements for oil tankers delivered on or after January 1,
2010.  A further amendment to revised Annex I includes an amendment to
the definition of heavy grade oil that will broaden the scope of regulation 21.
On August 1, 2007, regulation 12A (an amendment to Annex I) came into force
requiring oil fuel tanks to be located inside the double hull in all ships with
an aggregate oil fuel capacity of 600 m3 and
above, which are delivered on or after August 1, 2010 including ships for which
the building contract is entered into on or after August 1, 2007, or in the
absence of a contract, which keel is laid on or after February 1,
2008.





Air
Emissions




In
September 1997, the IMO adopted Annex VI to the International Convention
for the Prevention of Pollution from Ships to address air pollution from ships.
Annex VI was ratified in May 2004, and became effective May 19, 2005. Annex VI
sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and
prohibits deliberate emissions of ozone depleting substances, such as
chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content
of fuel oil and allows for special areas to be established with more stringent
controls on sulfur emissions. We believe that all our vessels are currently
compliant in all material respects with these regulations.





16





Additional
or new conventions, laws and regulations may be adopted that could adversely
affect our business, cash flows, results of operations and financial
condition.





In
February 2007, the United States proposed a series of amendments to Annex VI
regarding particulate matter, NOx and SOx emission standards.  The
proposed emission program would reduce air pollution from ships by establishing
a new tier of performance-based standards for diesel engines on all vessels and
stringent emission requirements for ships that operate in coastal areas with
air-quality problems. If these amendments are implemented, we may incur costs to
comply with the proposed standards.





Recent
scientific studies have suggested that emissions of certain gases, commonly
referred to as “greenhouse gases,” may be contributing to warming of the Earth’s
atmosphere.  According to the IMO’s study of greenhouse gases
emissions from the global shipping fleet, greenhouse emissions from ships are
predicted to rise by 38% to 72% due to increased bunker consumption by 2020 if
corrective measures are not implemented.  Any passage of climate
control legislation or other regulatory initiatives by the IMO or individual
countries where we operate that restrict emissions of greenhouse gases could
require us to make significant financial expenditures we cannot predict with
certainty at this time.





Safety
Requirements




The IMO
has also adopted the International Convention for the Safety of Life at Sea, or
SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.





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





The ISM
Code requires that vessel ship manager or operators obtain a safety management
certificate for each vessel they operate. This certificate evidences compliance
by a vessel’s management with the ISM code requirements for a safety management
system. No vessel can obtain a safety management certificate unless its manager
has been awarded a document of compliance, issued by each flag state, under the
ISM Code. The appointed ship managers have obtained documents of compliance for
their offices and safety management certificates for all of our vessels for
which the certificates are required by the IMO.





Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. The U.S. Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in U.S. and European
Union ports, as the case may be.





The IMO
has negotiated international conventions that impose liability for oil pollution
in international waters and a signatory’s territorial waters. Additional or new
conventions, laws and regulations may be adopted which could limit our ability
to do business and which could have a material adverse effect on our business
and results of operations.





Ballast
Water Requirements




The IMO
adopted an International Convention for the Control and Management of Ships’
Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention’s implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with mandatory concentration limits. The BWM Convention will
not enter into force until 12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world’s merchant shipping.





17





The flag
state, as defined by the United Nations Convention on Law of the Sea, has
overall responsibility for the implementation and enforcement of international
maritime regulations for all ships granted the right to fly its flag. The
“Shipping Industry Guidelines on Flag State Performance” evaluates flag states
based on factors such as sufficiency of infrastructure, ratification of
international maritime treaties, implementation and enforcement of international
maritime regulations, supervision of surveys, casualty investigations and
participation at IMO meetings. Our vessels are flagged in the Marshall Islands.
Marshall Islands-flagged vessels generally receive a good assessment in the
shipping industry.





Oil
Pollution Liability




Although
the United States is not a party to these conventions, many countries have
ratified and follow the liability plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended in 2000, or the CLC. Under this convention and depending on whether the
country in which the damage results is a party to the 1992 Protocol to the CLC,
a vessel’s registered owner is strictly liable for pollution damage caused in
the territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses.  The limits on liability
outlined in the 1992 Protocol use the International Monetary Fund currency unit
of Special Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that
became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross
tons (a unit of measurement for the total enclosed spaces within a vessel),
liability will be limited to approximately 4.51 million SDR plus 631 SDR for
each additional gross ton over 5,000. For vessels of over 140,000 gross tons,
liability will be limited to 89.77 million SDR.  The exchange rate
between SDRs and U.S. dollars was 0.613863 SDR per U.S. dollar on March 20,
2008. As the convention calculates liability in terms of a basket of currencies,
these figures are based on currency exchange rates on March 13, 2007. The right
to limit liability is forfeited under the CLC where the spill is caused by
the owner’s actual fault and under the 1992 Protocol where the spill is caused
by the owner’s intentional or reckless conduct. Vessels trading to states that
are parties to these conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the International Convention on
Civil Liability for Oil Pollution Damage has not been adopted, various
legislative schemes or common law govern, and liability is imposed either on the
basis of fault or in a manner similar to that convention. We believe that our
P&I insurance will cover the liability under the plan adopted by the
IMO.





United
States





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





Under
OPA, vessel owners, operators and bareboat charterers are responsible parties
who are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from oil spills
from their vessels. These other damages are defined broadly to
include:





●
            natural
      resource damages and related assessment
costs;




●
            real
      and personal property damages;




●
            net
      loss of taxes, royalties, rents, profits or earnings capacity;




●
            net
      cost of public services necessitated by a spill response, such as
      protection from fire, safety or health hazards; and




●
            loss
      of subsistence use of natural resources.


OPA
previously limited the liability of responsible parties to the greater of $1,200
per gross ton or $10.0 million per tanker that is over 3,000 gross tons (subject
to possible adjustment for inflation). Amendments to OPA signed into law in July
2006 increased these limits on the liability of responsible parties to the
greater of $1,900 per gross ton or $16.0 million per double hull tanker that is
over 3,000 gross tons.  The act specifically permits individual states
to impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries, and some states have enacted legislation
providing for unlimited liability for discharge of pollutants within their
waters. In some cases, states which have enacted this type of legislation have
not yet issued implementing regulations defining tanker owners’ responsibilities
under these laws. CERCLA, which applies to owners and operators of vessels,
contains a similar liability regime and provides for cleanup, removal and
natural resource damages. Liability under CERCLA is limited to the greater of
$300 per gross ton or $5.0 million.





18







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





OPA
requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their potential strict liability under the act. The U.S. Coast Guard has enacted
regulations requiring evidence of financial responsibility in the amount of
$1,500 per gross ton for tankers, coupling the former OPA limitation on
liability of $1,200 per gross ton with the CERCLA liability limit of $300 per
gross ton. The U.S. Coast Guard has indicated that it expects to adopt
regulations requiring evidence of financial responsibility in amounts that
reflect the higher limits of liability imposed by the July 2006 amendments to
OPA, as described above.  Under the regulations, evidence of financial
responsibility may be demonstrated by insurance, surety bond, self-insurance or
guaranty. Under OPA regulations, an owner or operator of more than one tanker is
required to demonstrate evidence of financial responsibility for the entire
fleet in an amount equal only to the financial responsibility requirement of the
tanker having the greatest maximum strict liability under OPA and CERCLA. We
have provided such evidence and received certificates of financial
responsibility from the U.S. Coast Guard for each of our vessels required to
have one.





We insure
each of our vessels with pollution liability insurance in the maximum
commercially available amount of $1.0 billion. A catastrophic spill could exceed
the insurance coverage available, which could have a material adverse effect on
our business.





Under
OPA, with certain limited exceptions, all newly-built or converted vessels
operating in U.S. waters must be built with double hulls, and existing vessels
that do not comply with the double hull requirement will be prohibited from
trading in U.S. waters over a 20-year period (1995-2015) based on size, age and
place of discharge, unless retrofitted with double hulls. Notwithstanding the
prohibition to trade schedule, the act currently permits existing single hull
and double-sided tankers to operate until the year 2015 if their operations
within U.S. waters are limited to discharging at the Louisiana Offshore Oil Port
or off-loading by lightering within authorized lightering zones more than 60
miles off-shore. Lightering is the process by which vessels at sea off-load
their cargo to smaller vessels for ultimate delivery to the discharge
port.





All of
our vessels are of double hull construction.





Owners or
operators of tankers operating in the waters of the United States must file
vessel response plans with the U.S. Coast Guard, and their tankers are required
to operate in compliance with their U.S. Coast Guard approved plans. These
response plans must, among other things:





●
            address
      a worst case scenario and identify and ensure, through contract or other
      approved means, the availability of necessary private response resources
      to respond to a worst case
discharge;




●
            describe
      crew training and drills; and




●
            identify
      a qualified individual with full authority to implement removal
      actions.




We have
obtained vessel response plans approved by the U.S. Coast Guard for our vessels
operating in the waters of the United States. In addition, the U.S. Coast Guard
has announced it intends to propose similar regulations requiring certain
vessels to prepare response plans for the release of hazardous
substances.





In
addition, the Clean Water Act prohibits the discharge of oil or hazardous
substances in 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 OPA and CERCLA, discussed
above.  The Environmental Protection Agency, or EPA, has exempted the
discharge of ballast water and other substances incidental to the normal
operation of vessels in U.S. ports from





19





Clean
Water Act permitting requirements.  However, on March 31, 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
directing EPA to develop a system for regulating all discharges from vessels by
that date.  EPA filed a notice of appeal of this decision and, if
EPA’s appeals are unsuccessful and the exemption is repealed, we may be subject
to Clean Water Act permit requirements that could include ballast water
treatment obligations that could increase the cost of operating in the United
States.  For example, this could require the installation of equipment
on our vessels to treat ballast water before it is discharged or the
implementation of other port facility disposal arrangements or procedures at
potentially substantial cost, and/or otherwise restrict our vessels from
entering waters.





On June
21, 2007, the EPA provided notice of its intention to develop a permit program
for discharge of ballast water incidental to the normal operations of vessels
and solicited comments.




In
addition, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for
removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than U.S. federal
law.





The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires EPA, to promulgate standards applicable to emissions
of volatile organic compounds and other air contaminants. Our vessels are
subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas.  Our vessels that operate in such port areas
with restricted cargoes are equipped with vapor recovery systems that satisfy
these requirements.  The CAA also requires states to draft State
Implementation Plans, or SIPs, designed to attain national health-based air
quality standards in primarily major metropolitan and/or industrial areas.
Several SIPs regulate emissions resulting from vessel loading and unloading
operations by requiring the installation of vapor control equipment. As
indicated above, our vessels operating in covered port areas are already
equipped with vapor recovery systems that satisfy these requirements. Although a
risk exists that new regulations could require significant capital expenditures
and otherwise increase our costs, based on the regulations that have been
proposed to date, we believe that no material capital expenditures beyond those
currently contemplated and no material increase in costs are likely to be
required.





The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports.  The United States
Coast Guard adopted regulations under NISA in July 2004 that impose mandatory
ballast water management practices for all vessels equipped with ballast water
tanks entering U.S. waters.  These requirements can be met by
performing mid-ocean ballast exchange, by retaining ballast water on board the
ship, or by using environmentally sound alternative ballast water management
methods approved by the United States Coast Guard. (However, mid-ocean ballast
exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or
vessels engaged in the foreign export of Alaskan North Slope crude oil.)
Mid-ocean ballast exchange is the primary method for compliance with the United
States Coast Guard regulations, since holding ballast water can prevent ships
from performing cargo operations upon arrival in the United States, and
alternative methods are still under development. Vessels that are unable to
conduct mid-ocean ballast exchange due to voyage or safety concerns may
discharge minimum amounts of ballast water (in areas other than the Great Lakes
and the Hudson River), provided that they comply with recordkeeping requirements
and document the reasons they could not follow the required ballast water
management requirements. The United States Coast Guard is developing a proposal
to establish ballast water discharge standards, which could set maximum
acceptable discharge limits for various invasive species, and/or lead to
requirements for active treatment of ballast water.





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 U.S. Resource Conservation and Recovery Act, or RCRA, or
comparable state, local or foreign requirements. In addition, 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 may still be held liable for clean up costs under applicable
laws.





20





Other
Regulations




European
Union




In July
2003, in response to the MT
Prestige oil spill in November 2002, the European Union adopted
legislation that prohibits all single hull tankers from entering into its ports
or offshore terminals by 2010. The European Union has also banned all single
hull tankers carrying heavy grades of oil from entering or leaving its ports or
offshore terminals or anchoring in areas under its jurisdiction. Commencing in
2005, certain single hull tankers above 15 years of age will also be restricted
from entering or leaving European Union ports or offshore terminals and
anchoring in areas under European Union jurisdiction. The European Union has
also adopted legislation that would: (1) ban manifestly sub-standard vessels
(defined as those over 15 years old that have been detained by port authorities
at least twice in a six month period) from European waters and create an
obligation of port states to inspect vessels posing a high risk to maritime
safety or the marine environment; and (2) provide the European Union with
greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent societies. The
sinking of the MT Prestige and resulting oil spill in November 2002 has led to
the adoption of other environmental regulations by certain European Union
nations, which could adversely affect the remaining useful lives of all of our
vessels and our ability to generate income from them. It is impossible to
predict what legislation or additional regulations, if any, may be promulgated
by the European Union or any other country or authority.





In 2005,
the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships.  The directive could result in criminal liability for
pollution from vessels in waters of European countries that adopt implementing
legislation.  Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.





Vessel
Security Regulations





Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a new chapter
of the convention dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, most of which are contained in the
International Ship and Port Facility Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must attain an
International Ship Security Certificate, or ISSC from a recognized security
organization approved by the vessel’s flag state. Among the various requirements
are:





●
            on-board
      installation of automatic identification systems to provide a means for
      the automatic transmission of safety-related information from among
      similarly equipped ships and shore stations, including information on a
      ship’s identity, position, course, speed and navigational
      status;




●
            on-board
      installation of ship security alert systems, which do not sound on the
      vessel but only alerts the authorities on
shore;




●
            the
      development of vessel security
plans;




●
            ship
      identification number to be permanently marked on a vessel’s
      hull;




●
            a
      continuous synopsis record kept onboard showing a vessel’s history
      including, name of the ship and of the state whose flag the ship is
      entitled to fly, the date on which the ship was registered with that
      state, the ship’s identification number, the port at which the ship is
      registered and the name of the registered owner(s) and their registered
      address; and




●
            compliance
      with flag state security certification
  requirements.




The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid ISSC attesting to the vessel’s compliance
with SOLAS security requirements and the ISPS Code. We have implemented the
various security measures addressed by MTSA, SOLAS and the ISPS Code, and our
fleet is in compliance with applicable security requirements.





21








Inspection
by Classification Societies





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





The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.





For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:





●
            Annual Surveys. For
      seagoing ships, annual surveys are conducted for the hull and the
      machinery, including the electrical plant and where applicable for special
      equipment classed, at intervals of 12 months from the date of
      commencement of the class period indicated in the
    certificate.





●
            Intermediate Surveys.
      Extended annual surveys are referred to as intermediate surveys and
      typically are conducted two and one-half years after commissioning and
      each class renewal. Intermediate surveys may be carried out on the
      occasion of the second or third annual
survey.





●
            Class Renewal Surveys.
      Class renewal surveys, also known as special surveys, are carried out for
      the ship’s hull, machinery, including the electrical plant and for any
      special equipment classed, at the intervals indicated by the character of
      classification for the hull. At the special survey the vessel is
      thoroughly examined, including audio-gauging to determine the thickness of
      the steel structures. Should the thickness be found to be less than class
      requirements, the classification society would prescribe steel renewals.
      The classification society may grant a one year grace period for
      completion of the special survey. Substantial amounts of money may have to
      be spent for steel renewals to pass a special survey if the vessel
      experiences excessive wear and tear. In lieu of the special survey every
      four or five years, depending on whether a grace period was granted, a
      ship owner has the option of arranging with the classification society for
      the vessel’s hull or machinery to be on a continuous survey cycle, in
      which every part of the vessel would be surveyed within a five year cycle.
      At an owner’s application, the surveys required for class renewal may be
      split according to an agreed schedule to extend over the entire period of
      class. This process is referred to as continuous class
      renewal.





All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.





Our
vessels, which are less than 15 years old are drydocked every 60 months, while
vessels which are more than 15 years old aredrydocked every 30 to
36 months for inspection of the underwater parts and for repairs related to
inspections. If any defects are found, the classification surveyor will issue a
recommendation which must be rectified by the ship owner within
prescribed time limits.




Most insuranceunderwriters make it a condition for
insurance coverage that a vessel be certified as “in-class” by a classification
society which is a member of the International Association of Classification
Societies. All our vessels are certified as being “in-class” by Det Norske
Veritas. All new and secondhand vessels that we purchase must be certified prior
to their deliveryunder our standard purchase contracts and memoranda of
agreement. If the vessel is not certified on the scheduled date of closing, we
have no obligation to take delivery of the vessel.





In
addition to the classification inspections, many of our customers regularly
inspect our vessels as a precondition to chartering them for voyages. We believe
that our well-maintained, high-quality vessels provide us with a competitive
advantage in the current environment of increasing regulation and customer
emphasis on quality.





22








Risk
of loss and insurance




Our
business is affected by a number of risks, including mechanical failure of the
vessels, collisions, property loss to the vessels, cargo loss or damage and
business interruption due to political circumstances in foreign countries,
hostilities and labor strikes. In addition, the operation of any ocean-going
vessel is subject to the inherent possibility of catastrophic marine disaster,
including oil spills and other environmental mishaps, and the liabilities
arising from owning and operating vessels in international
trade.  OPA, which imposes virtually unlimited liability upon owners,
operators and demise charterers of any vessel trading in the United States
exclusive economic zone for certain oil pollution accidents in the United
States, has made liability insurance more expensive for ship owners and
operators trading in the United States market.
  Our
Manager is responsible for arranging the insurance of our vessels in line with
standard industry practice. In accordance with that practice, we maintain marine
hull and machinery and war risks insurance, which include the risk of actual or
constructive total loss, and protection and indemnity insurance with mutual
assurance associations. From time to time we carry insurance covering the loss
of hire resulting from marine casualties in respect of some of our vessels.
Currently, the amount of coverage for liability for pollution, spillage and
leakage available to us on commercially reasonable terms through protection and
indemnity associations and providers of excess coverage is $1.05 billion per
vessel per occurrence. Protection and indemnity associations are mutual marine
indemnity associations formed by shipowners to provide protection from large
financial loss to one member by contribution towards that loss by all
members.
  We
believe that our current insurance coverage is adequate to protect us against
the accident-related risks involved  in the conduct of our business
and that we maintain appropriate levels of environmental damage and pollution
insurance coverage, consistent with standard industry practice. However, there
is no assurance 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.








23





C.  ORGANIZATIONAL
STRUCTURE





See
Exhibit 8.1 for a list of our principle subsidiaries.





D.  PROPERTY,
PLANT AND EQUIPMENT





We
operate a modern fleet of four tankers and have contracts to acquire two
Capesize bulk carriers under construction. The name, dwt, flag and date of
original delivery from the Builder's yard are set forth below.





Vessel
      name
              Type
              Approx.
      dwt
              Flag
              Year
      BuiltCamden
              VLCC
              298,000
              Marshall
      Islands
              1995Mayfair
              VLCC
              298,000
              Marshall
      Islands
              1995Kensington
              VLCC
              298,000
              Marshall
      Islands
              1995Hampstead
              VLCC
              298,000
              Marshall
      Islands
              1996Belgravia
              Capesize
              170,500
              Marshall
      Islands
              under
      constructionBattersea
              Capesize
              170,500
              Marshall
      Islands
              under
      construction
  The
Vessels are of double hull construction designed for enhanced safety and
reliability.





Other
than its interests in the vessels and the newbuilding contracts, the Company has
no interest in any other property.





ITEM
4A. UNRESOLVED STAFF COMMENTS





None








ITEM
5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS





Overview





The
following discussion should be read in conjunction with Item 3 “Selected
Financial Data” and the Company’s audited Consolidated Financial Statements and
Notes thereto included herein.





In
February 1997, the Company's five Original Subsidiaries each purchased one VLCC.
From their purchase in February 1997 until March 2004, the Company chartered the
Vessels to Shell International on long-term bareboat charters (the “Charters”).
The Charters expired for all five Vessels, in accordance with their terms, in
March 2004 and the Vessels were redelivered to the Company and subsequently
chartered out on time and spot markets





The
Company’s vessels are currently operating under the following time charter
agreements:





Time
      Charter Terms
            Length
      of Charter
            Expiration
      dateHampstead
            $37,750
      per day plus profit share*
            5
      year
            May,
      2012Kensington
            $37,750
      per day plus profit share*
            4
      year
            May,
      2011Camden
            $31,000
      per day
            5
      year
            March,
      2009Mayfair
            $45,000
      per day
            3
      year
            March,
      2010




* Profit
share is calculated and settled on a quarterly basis for earnings in excess of
$37,750 per vessel per day calculated by reference to the Baltic International
Trading Route (BITR) Index.




In
addition, the Company has secured time charter agreements for its two
newbuildings, which are currently under construction for $40,000 and $53,000 per
day. The length of both charters are five years and are due to commence upon
delivery in 2009.








24





Market
Overview and Trend Information





In the
beginning of 2007, the daily TCE was approximately $47,000 per day for VLCCs.
The VLCC segment strengthened in the first quarter of 2007 from weakness at the
end of 2006. A strike at Lavera, France, in late March delayed a large number of
Suezmaxes from discharging their respective cargoes which caused Suezmax
earnings to spike. VLCC earnings increased but not to the same extent as the
Suezmaxes. Ultimately the earnings for both VLCCs and Suezmaxes gradually
declined throughout the second and third quarters of 2007 The primary reasons
for the decline can be attributed to reduced global oil production in the summer
months, the price structure on oil turning from contango to backwardation, which
initiated a significant draw on crude stocks worldwide. Volatility, a trademark
of the VLCC segment, disappeared until the sharp increase in VLCC rates in mid
November.





The sharp
increase in VLCC rates was created in part by the discounting of crude prices by
Saudi Aramco in late November to mainly U.S. refiners. This resulted in the
increased demand for VLCCs between the last week in November and the third week
in December and had the effect of upsetting the balance of supply and demand in
the owners’ favor, which resulted in increased rates which shipowners
successfully exploited. Additionally, the market was not hurt by the December
oil spill caused by a Chinese owned single hull vessel off the coast of South
Korea. Another important factor, which contributed to the increase in rates
was the joint decision by several major owners to reduce laden and ballast
speeds in order to save bunkers and reduce costs. In a low demand market, when
bunkers cost as much as an additional $50,000 per day, the reduction of speed
from 15 to 12 knots saved an estimated $20,000 per day and reduced the overall
”market capacity” by approximately 10%.





The
increased number of VLCCs marked for conversions also contributed to the
increase in rates. At the end of 2007, it is estimated that somewhere between 10
and 15 units had been removed from the market, reducing single hull availability
in locations such as the Arabian Gulf.





Vessels
have, in connection with the increased rates and volatility towards the end of
the year been fixed on more speculative short term time charters than we have
seen in the past. According to Clarkson’s, the average TCE for the year was
approximately $57,000 per day for a double hulled VLCC.





The
current trend is for oil majors to avoid employing single hull tonnage when
transporting persistent oils because non-single hull vessels are less likely to
be inspected. Oil traders with crude or fuel oil cargoes often require double
hull tonnage in order to have full flexibility regarding cargo delivery. Thus,
single hull ships are no longer able to trade to their full capacity compared to
the double hull vessels. This implies a further gap in the already existing “two
tier market” between the double and the single hull vessels.





Bunker
prices followed the price fluctuations in the oil market closely in 2007 with
Fujairah’s lowest bunker quote for the year set early January at $256 per metric
ton and the high set in early November at $513 per metric ton. The average
bunker price in 2007 was estimated to be approximately $374 per metric
ton.





It was
reported by the International Energy Agency, or IEA, in March 2008 that average
OPEC oil production, including Iraq but not Angola, was approximately 29.1
million barrels per day during 2007, a 0.7 million barrel per day decrease from
2006. Saudi Arabia and Venezuela contributed the most to the reduced crude oil
production by approximately 0.65 million barrels per day while Iran and Iraq
offset this to a certain degree with increased production by approximately 0.26
million barrels per day. The balance stems from minor changes in all remaining
OPEC countries. On December 1, 2007, the Republic of Ecuador became the
thirteenth member of OPEC and thereby rejoined the Organization after an absence
of a decade and a half. The inclusion of the Republic of Ecuador could
strengthen the capability of OPEC in fulfilling its objectives and help to
further stabilize the market.





OPEC-12
and Iraq are expected to reach a production capacity of 35.8 million barrels per
day in 2008 according to IEA. Production could therefore accelerate in 2008 as
capacity at the start of the year was at 32 million barrels per day. The growth
is expected to be heavily skewed towards Saudi Arabia, Nigeria and UAE together
accounting for approximately 75% of the net increase.





The IEA
further estimates that the average world oil demand was 85.8 million barrels per
day in 2007, a 1.1% increase from 2006. For 2008, a 2.0% or 1.7 million barrels
per day growth is forecasted in world oil demand with China, Latin America and
the Middle East as the main drivers.





25





The
International Monetary Fund, or IMF, expects global growth to moderate to 4.1%
in 2008, 0.8 % lower than in 2007, according to their February 2008 update. In
the United States, growth is expected to come down to 1.5% this year, from 2.2%
in 2007. Growth is also expected to ease in Europe, Japan and in emerging
markets and developing countries. China’s growth is projected to remain rapid in
2008, albeit a little below the torrid pace in 2007 of 11.4%.





The total
VLCC fleet increased by 1.9% in 2007 to 489 vessels with a total of 28 new
vessels delivered to owners during 2007 with 28 new orders made. The total order
book amounted to 176 vessels at the end of the year, which represented
approximately 36% of the existing fleet.





Industry
sources expect 40 VLCCs to be delivered from shipyards during 2008.





We
believe it is likely that more tankers will be either converted or scrapped
compared to recent years. Frontline estimates that approximately 40 VLCCs will
be converted for non-trading purposes in 2008, approximately 90% to VLOC and the
balance to FSO/FPSO. It is also likely that parts of the order book will be
delayed as a function of the uncertainty of the delivery schedule for several
yards due to financing issues. It is expected that these elements together will
cushion the fleet growth.





Critical
Accounting Policies and Estimates





The
preparation of our financial statements in accordance with accounting principles
generally accepted in the United States requires that management make estimates
and assumptions affecting the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The following is a discussion of the accounting policies
applied by us that are considered to involve a higher degree of judgment in
their application. See Note 2 to our audited Consolidated Financial Statements
included herein for details of all of our significant accounting
policies.





Revenue
Recognition




Revenues
are generated from freight billings, time charter and bareboat charter hires.
Time charter and bareboat charter revenues are recorded over the term of the
charter as service is provided. Under a voyage charter the revenues and
associated voyage costs are recognized ratably over the estimated duration of
the voyage, which is measured from completion of discharge to completion of
discharge. Voyage revenues and expenses are recognized ratably over the
estimated length of each voyage and, therefore, are allocated between reporting
periods based on the relative transit time in each period. The impact of
recognizing voyage expenses ratably over the length of each voyage is not
materially different on a quarterly and annual basis from a method of
recognizing such costs as incurred. Probable losses on voyages are accrued in
full at the time such losses can be estimated. Amounts receivable from
profit sharing arrangements are accrued based on the time charter
equivalent rates achieved through vessel deployment over the preceding quarter
in the market for certain key routes and are not contingent on the performance
of the Company. Each quarterly settlement is final and does not get carried
forward to the next quarter. There is no consideration of future performance in
the recording of profit sharing revenue.





Vessels,
Depreciation and Impairment




Management
estimates the useful life of the Company's Vessels to be 25 years. This is
a common life expectancy applied in the shipping industry. If the estimated
economic useful life is incorrect, or circumstances change and the estimated
economic useful life has to be revised, an impairment loss could result in
future periods and/or annual depreciation expense could be increased. Our
Vessels are reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Factors we consider
important that could affect recoverability and trigger impairment include
significant underperformance relative to expected operating results, new
regulations that change the estimated useful economic lives of our Vessels and
significant negative industry or economic trends.  In assessing the
recoverability of the Vessels' carrying amounts when an indicator of impairment
is present, we must make assumptions regarding estimated future cash flows.
These assumptions include assumptions about the spot market rates for Vessels,
the revenues the Vessel could earn under time charter, voyage charter or
bareboat charter, the operating costs of our Vessels and the estimated economic
useful life of our Vessels. In making these assumptions, the Company refers to
historical trends and performance as well as any known future factors. If our
review indicates impairment, an impairment charge is recognized based on the
difference between carrying value and fair value. Fair value is typically
established using an average of three independent valuations.





26








Factors
Affecting Our Results





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





●
            the
      earnings of our vessels in the charter
market;




●
            the
      delivery of newbuildings in 2009;




●
            the
      earnings from the sale of assets;




●
            vessel
      operating expenses;




●
            administrative
      expenses;




●
            depreciation;
      and




●
            interest
      expense.







Operating
costs are the direct costs associated with running a vessel and include crew
costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils
and insurance. We bear the operating costs for our vessels which operate under
time charter.





Administrative
expenses are composed of general corporate overhead expenses, including audit
fees, directors’ fees and expenses, registrar fees, investor relations and
publication expenses, legal and professional fees and other general
administrative expenses.





Depreciation,
or the periodic cost charged to our income for the reduction in usefulness and
long-term value of our vessels, is also related to the number of vessels we own.
We depreciate the cost of our vessels, less their estimated residual value, over
their estimated useful life on a straight-line basis.





Interest
expense depends on our overall borrowing levels and will change with prevailing
interest rates, although the effect of these changes may be reduced by interest
rate swaps or other derivative instruments. At December 31, 2007, all of our
debt was floating rate debt. We may enter into interest rate swap arrangements
if we believe it is advantageous to do so.





Inflation




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




Results
of Operations





Year
ended December 31, 2007 compared with year ended December 31, 2006





Operating
revenues





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            ChangeTime
      charter revenues
            
            
            53,814
            
            
            
            42,445
            
            
            
            26.8
            %Voyage
      charter revenues
            
            
            34,346
            
            
            
            63,283
            
            
            
            (45.7
            )%Total
      operating revenues
            
            
            88,160
            
            
            
            105,728
            
            
            
            (16.6
            )%








27





Time
charter revenues have increased primarily due to one vessel switching to a time
charter from the spot market during the first quarter of 2007.





Voyage
charter revenues have decreased due to the lower market in 2007 compared to
2006. We had two vessels operating in the spot market during 2006 at average TCE
rates of approximately $63,000 and $60,000 compared with rates of approximately
$52,000 and $46,000 for 2007. In addition, one of the vessels operating in the
spot market switched to a time charter in the first quarter of
2007.





Operating
expenses





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            ChangeVoyage
      expenses and commission
            
            
            12,872
            
            
            
            20,015
            
            
            
            (35.7
            )%Ship
      operating expenses
            
            
            15,544
            
            
            
            15,835
            
            
            
            (1.8
            )%Administrative
      expenses
            
            
            1,481
            
            
            
            1,492
            
            
            
            (0.7
            )%Depreciation
            
            
            17,016
            
            
            
            17,121
            
            
            
            (0.6
            )%Total
      operating expenses
            
            
            46,913
            
            
            
            54,463
            
            
            
            (13.8
            )%





91.9%
(2006: 93.3%) of voyage expenses and commission relate to the two vessels that
operated in the spot market. The decrease in voyage expenses and commission in
2007 is due primarily to the switch by one vessel in the first quarter of 2007
from the spot market to time charter.





The
decrease in ship operating expenses in 2007 is a result of lower repairs and
maintenance work compared with 2006. No vessels drydocked during 2007.
Drydocking costs in 2006 were $0.6 million. This decrease was largely offset by
an increase in operating expenses due to increased crew costs.





Gain
on sale of assets





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            ChangeGain
      on sale of assets
            
            
            49,119
            
            
            
            -
            
            
            
            -





The gain
on sale of assets in 2007 relates to the sale of the VLCC Chelsea in December
2007, which was sold for net proceeds of $99.0 million.





Interest
income and expenses





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            ChangeInterest
      income
            
            
            1,026
            
            
            
            1,383
            
            
            
            (25.8
            )%Interest
      expense
            
            
            (6,373
            )
            
            
            (6,881
            )
            
            
            (7.4
            )%Net
      interest expense
            
            
            (5,347
            )
            
            
            (5,498
            )
            
            
            (2.7
            )%





The
decrease in interest income during 2007 is a result of lower interest rates
received on short term deposits.





Interest
expense consists of interest paid in relation to the $140.0 million loan
facility and the amortization of deferred financing charges incurred in
connection with the debt. The decrease in interest expense in 2007 is primarily
due to the decrease in the three month LIBOR since the beginning of the year
from 5.4% to 5.2% and the lower principal amount outstanding. The interest
expense on the newbuilding financing of $1.0 million has been capitalized (2006:
nil).





Year
ended December 31, 2006 compared with year ended December 31, 2005





Operating
revenues





(in
      thousands of $)
            
            2006
            
            
            2005
            
            
            ChangeTime
      charter revenues
            
            
            42,445
            
            
            
            42,325
            
            
            
            (0.3
            )%Voyage
      charter revenues
            
            
            63,283
            
            
            
            57,854
            
            
            
            9.4
            %Total
      operating revenues
            
            
            105,728
            
            
            
            100,179
            
            
            
            5.5
            %








28





The
increase in total operating revenues was a result of higher voyage charter
revenues in 2006 while time charter revenues were stable. Voyage charter
revenues are generated from our vessels trading on the spot market in 2006 and
2005; these vessels participated in a pooling arrangement with two similar
vessels since the second quarter of 2005. Under the pooling agreement revenues
and voyage expenses of the vessels operating in pooling arrangements are pooled
and the resulting net pool revenues, calculated on a time charter equivalent
basis, are allocated to the pool participants according to an agreed
formula.  Pool revenues of $63.1 million are included in voyage
charter revenues for the year ended December 31, 2006 (2005: $36.8
million).  Subsequent to the year end this arrangement was terminated
and only one vessel continues to trade in the spot market.





Operating
expenses





(in
      thousands of $)
            
            2006
            
            
            2005
            
            
            ChangeVoyage
      expenses and commission
            
            
            20,015
            
            
            
            16,459
            
            
            
            21.6
            %Ship
      operating expenses
            
            
            15,835
            
            
            
            17,211
            
            
            
            (8.0
            )%Administrative
      expenses
            
            
            1,492
            
            
            
            988
            
            
            
            51.0
            %Depreciation
            
            
            17,121
            
            
            
            17,120
            
            
            
            0.0
            %Total
      operating expenses
            
            
            54,463
            
            
            
            51,778
            
            
            
            5.2
            %





The two
vessels that traded in the spot market generated 93.3% in 2006 (2005: 94.1%) of
the voyage expenses and commission as substantially all voyage costs associated
with time charters are covered by the charterer. The increased voyage expenses
in 2006 correlate to the increase in voyage charter revenues. The decrease in
ship operating expenses in 2006 is a result of only one vessel drydocking in
2006, whereas four of the five Vessels drydocked in 2005.  The vessels
have scheduled drydockings approximately every five years.





The
increase in administration costs in 2006 relates primarily to higher fees
payable to the Manager for administration services provided of $645,000 (2005:
$245,000). The remainder of administration costs for the Company are directors’
fees, directors and officers insurance, shareholder and public relations,
management fees and audit fees.





Interest
income and expenses





(in
      thousands of $)
            
            2006
            
            
            2005
            
            
            ChangeInterest
      income
            
            
            1,383
            
            
            
            959
            
            
            
            44.2
            %Interest
      expense
            
            
            (6,881
            )
            
            
            (5,310
            )
            
            
            29.6
            %Net
      interest expense
            
            
            (5,498
            )
            
            
            (4,351
            )
            
            
            26.4
            %





The
significant increase in interest income during 2006 is a result of higher
interest rates received on short term deposits.





Interest
expense consists of interest paid in relation to the $140.0 million loan
facility and the amortization of deferred financing charges incurred in
connection with the debt. The increase in interest expense in 2006 is primarily
due to the rise in the three month LIBOR since the beginning of the year from
4.5% to 5.4%.  Since March 2005, the interest rate is calculated at
LIBOR plus 0.7%, previously LIBOR plus 1.0%.








Recently
Issued Accounting Standards





In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. FAS 157 applies under most other accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements. FAS 157 is effective for fiscal years
beginning after November 15, 2007.





In
February 2008, the FASB issued FSP No. FAS157-1 “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP FAS157-1”). FSP FAS157-1 amends FAS 157 to
exclude FASB Statement No. 13 “Accounting for Leases” (“FAS 13”) and its related
interpretive accounting pronouncements that address leasing transactions. The
FASB decided to exclude leasing transactions covered by FAS 13 in order
to





29





allow it
to more broadly consider the use of fair value measurements for these
transactions as part of its project to comprehensively reconsider the accounting
for leasing transactions. The Company does not expect the adoption of FAS 157
and FSP FAS157-1 to have a material impact on its financial
statements.





In
February 2007, the FASB issued 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 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for fiscal years beginning after November 15
2007. The Company does not expect the adoption of SFAS 159 to have a material
impact on its financial statements.





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial
Statements – an amendment of ARB No. 51” (SFAS 160). SFAS 160 is intended
to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its consolidated financial
statements with reference to a noncontrolling interest in a subsidiary. Such a
noncontrolling interest, sometimes called a minority interest, is the portion of
equity in a subsidiary not attributable, directly or indirectly, to the parent
entity. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008. The Company does not expect the adoption of SFAS 160 to have a
material impact on its financial statements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“FAS
141R”). The objective of FAS 141R is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
To accomplish this, FAS 141R establishes principles and requirements for how the
acquirer a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any non-controlling interest in the
acquiree, b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain price, and c) determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. FAS 141R is effective for
fiscal years beginning on or after December 15, 2008. The Company does not
expect the adoption of FAS 141R to have a material impact on its financial
statements.








Liquidity
and Capital Resources





The
Company operates in a capital intensive industry and has historically financed
its purchase of tankers through a combination of equity capital and borrowings
from commercial banks. Our ability to generate adequate cash flows on a short
and medium term basis depends substantially on the trading performance of our
Vessels in the market.  Market rates for charters of our Vessels have
historically been volatile.  Periodic adjustments to the supply of and
demand for oil tankers cause the industry to be cyclical in nature.





The
Company’s funding and treasury activities are conducted within corporate
policies to maximize investment returns while maintaining appropriate liquidity
for the Company’s requirements. Cash and cash equivalents are held primarily in
United States dollars.





Short-term
liquidity requirements of the Company relate to servicing our debt, payment of
operating costs, funding working capital requirements and maintaining cash
reserves against fluctuations in operating cash flows. Sources of short-term
liquidity include cash balances, restricted cash balances, short-term
investments and receipts from our customers. Revenues from time charters are
generally received monthly or bi-weekly in advance while revenues from voyage
charters are received upon completion of the voyage.





We
estimated the cash breakeven average daily TCE rate in February 2008 for our
VLCCs to be $19,410. This represents the daily rate our Vessels must earn to
cover payment of budgeted operating costs (including corporate overheads),
estimated interest and scheduled loan principal repayments.  These
rates do not take into account loan balloon repayments at maturity, which we
expect to refinance with new loans. Based on the current strength of the tanker
market and the employment status of our Vessels, the Company believes that
working capital is sufficient for the Company’s present
requirements.








30





Medium
and long-term liquidity requirements of the Company include funding the
replacement of vessels through the acquisition of second hand vessels or
newbuilding vessels, and the repayment of long-term debt
balances.  The Company's sources of capital have been the proceeds of
its initial public offering, bank loans and charterhire income. The Company
expects that charterhire paid from time charters or voyage charter income in the
spot market will be sufficient sources of income for the Company to continue to
pay ordinary recurring expenses including installments due on outstanding
borrowings under the Loan Agreement. However, there can be no assurance that the
Company will be able to pay or refinance its borrowings when the debt becomes
due, or that it will not incur extraordinary expenses.





As of
December 31, 2007, 2006, and 2005, the Company had cash and cash equivalents of
$82.1 million, $8.5 million and $12.6 million, respectively. As of December 31,
2007, 2006, and 2005, the Company had restricted cash of $10.0
million.  The restricted cash balance is a result of a minimum
liquidity balance which we are required to maintain at all times in conjunction
with the $140.0 million loan facility with the Royal Bank of
Scotland.  The cash position at the end of 2007 was significantly
higher than the amount usually maintained by us due to the sale in December of
one of the Company’s vessels, the Chelsea, which generated net proceeds of $99.0
million. $20.1 million of these proceeds was used in December to partially repay
the $140.0 million loan facility.





During
the year ended December 31, 2007, we paid total cash dividends of $42.8
million.





Borrowing
activities





In March
2004, the Company refinanced its prior debt facility with a $140.0 million
credit facility (“Loan”), incurring expenses of $0.01 million on the debt
extinguishment. The original repayment schedule was twenty-eight quarterly
installments of $2.8 million and a final settlement of $61.6 million. Following
the $20.1 million repayment in December 2007, the Company is obligated to repay
the Loan in fourteen quarterly installments of $2.2 million and a final
installment of $49.3 million.  The Loan provides for payment of
interest on the outstanding principal balance of the Loan, quarterly in arrears
at the annual rate of LIBOR plus a margin.  The Company has not
entered into any interest rate swap agreements in respect to the variable rate
on the Loan Agreement. The original credit facility did not have principal
installments and was due for repayment in its entirety in August 2004. At the
time of entering into the credit facility, the Company entered into an interest
rate swap agreement that provided for a fixed rate payment of 6.74% on notional
principal of $125.4 million, which matured in August 2004.





During
2007, the Company obtained extension on the Loan with two tranches of $16.8
million each in order to fund the first installments on the two Capesize
newbuildings. The tranches are repayable in 2009 and are subject to the same
covenants as the original Loan. As of December 31, 2007, the remaining
commitments on the newbuilding contracts are $129.6 million, which the Company
intends to finance through borrowing against existing assets and its contract
back log as well as existing cash resources. Such a financing will not
materially affect the Company's dividend capacity during the newbuildings’
construction period. For long-term financing of the assets normal mortgage
financing as well as lease financing will be considered. It is not intended that
the purchase of the two newbuildings will require any new equity
issues.





Although
the Company's activities are conducted worldwide, the international shipping
industry's functional currency is the United States Dollar and virtually all of
the Company's operating revenues and most of its anticipated cash expenses are
expected to be denominated in United States Dollars. Accordingly, the Company's
operating revenues are not expected to be adversely affected by movements in
currency exchange rates or the imposition of currency controls in the
jurisdictions in which the vessels operate.





Off-balance
sheet arrangements





None





Tabular
disclosure of contractual obligations





At
December 31 2007, the Company had the following contractual
obligations:





Payment
      due by periodTotal
            
            
            Less
      than one year
            
            
            1-3
      years
            
            
            3-5
      yearss
            
            
            More
      than5
      years(In
      thousands of $)Long-term
      debt obligations
            
            
            112,000
            
            
            
            8,960
            
            
            
            51,520
            
            
            
            51,520
            
            
            
            -Newbuilding
      commitments
            
            
            129,600
            
            
            
            32,400
            
            
            
            97,200
            
            
            
            -Total
      contractual cash obligations
            
            
            241,600
            
            
            
            41,360
            
            
            
            148,720
            
            
            
            51,520
            
            
            
            -




31


Safe
Harbor





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





ITEM
6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





A.  DIRECTORS
AND SENIOR MANAGEMENT





Set forth
below are the names and positions of the directors and executive officers of the
Company.





The
Company




Name
              
              Age
              
              PositionOla
      Lorentzon
              
              58
              
              Director
      and ChairmanDouglas
      C. Wolcott
              
              76
              
              Director
      and Audit Committee memberDavid
      M. White
              
              67
              
              Director
      and Audit Committee ChairmanBjørn
      Sjaastad
              
              50
              
              Director
      and Chief Executive OfficerInger
      M. Klemp
              
              45
              
              Chief
      Financial OfficerGeorgina
      Sousa
              
              58
              
              Company
      Secretary
  Pursuant
to the management agreement with the
Company, the Manager provides management and advisory services to the
Company.  Set forth below are the names and positions of the
directors, executive officers and officers of the Manager.





Name
            
            Age
            
            PositionInger
      M. Klemp
            
            45
            
            Director
      and PresidentKate
      Blankenship
            
            43
            
            DirectorGraham
      Baker
            
            48
            
            Director




Directors
of both the Company and the Manager are elected annually, and each director
elected holds office until a successor is elected.  Officers of both
the Company and the Manager are elected from time to time by vote of the
respective board of directors and hold office until a successor is
elected.  Certain biographical information with respect to each
director and executive officer of the Company and the Manager is set forth
below.





Ola Lorentzon has been a
director of the Company since September 18, 1996 and Chairman since May 26,
2000.  Mr. Lorentzon is also a director of Erik Thun AB, Crew Chart
Ship Management AB, Remedial (Cyprus) PLC and is the Chairman of Consafe MSV
AB.  Mr. Lorentzon was the Managing Director of Frontline Management
AS, a subsidiary of Frontline, from April 2000 until September
2003.





Douglas C. Wolcotthas been a
director of the Company since September 18, 1996.  Mr. Wolcott has
also served as President of Chevron Shipping Corporation until
1994.  Mr. Wolcott previously served as Deputy Chairman and director
of the United Kingdom Protection and Indemnity Club and as a director of London
& Overseas Freighters Limited.  He is currently a director of the
American Bureau of Shipping.





David M. White has been a
director of the Company since September 18, 1996.  Mr. White was
Chairman of Dan White Investment Limited which is now closed.  Mr.
White has also served as a director of NatWest Equity Primary





32





Markets
Limited from January 1992 to March 1996, and was previously a director of both
NatWest Markets Corporate Finance Limited and NatWest Markets Securities Limited
until December 1991.





Bjørn Sjaastad
has been a director of the Company since September 2007 and has served as our
Chief Executive Officer since September 2007. Mr. Sjaastad has served as Chief
Executive Officer of Frontline Management A.S. since October
2006.  From 2004 to 2006 Mr. Sjaastad ran his own consultancy
business.  From 1990 to 2004, Mr. Sjaastad was the Chief Executive
Officer of Odfjell ASA, a Norwegian based, stock listed, international chemical
tanker operator.  From 1981 to 1989 Mr. Sjaastad served as a lending
officer of DnB NOR ASA (previously Bergen Bank AS), heading up the banks
shipping and offshore department in Bergen.  Mr. Sjaastad has, over
the years, been a member of the boards of a range of companies and has also been
the President of the Norwegian Shipowners Association. Mr. Sjaastad resigned as
Chief Executive Officer on Frontline Management AS on April 2, 2008 and is
expected to leave the company before the end of June 2008.





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





Kate Blankenship was Chief
Financial Officer of the Company from April 2000 to September 2007 and served as
Secretary of the Company from December 2000 to March 2007. Mrs. Blankenship has
been a director of the Manager since March 2000. Mrs. Blankenship served as the
Chief Accounting Officer and Secretary of Frontline between 1994 and October
2005. Mrs. Blankenship also serves as a director of Golar LNG Limited, Ship
Finance International Limited, Seadrill Limited and Golden Ocean Group
Limited.





Graham Bakerhas been a
director of the Manager since December 6, 2006. Mr Baker is Chief Accounting
Officer of Frontline having joined the company in July 2006. Mr Baker has worked
in various senior financial roles and most recently was the Head of Group
Reporting at NTL Inc., a large NASDAQ quoted company and before that the
European Chief Financial Officer of DVI Inc., a NYSE listed group. He is a
member of the Institute of Chartered Accountants in England and Wales and the
Association of Corporate Treasurers.





Georgina E. Sousa has served
as Secretary of the Company since March 15, 2007 and has been employed by
Frontline since February 2007.  Prior to joining Frontline, Mrs. Sousa
was Vice-President-Corporate Services of Consolidated Services Limited, a
Bermuda management company having joined that firm in 1993 as Manager of
Corporate Administration.  From 1976 to 1982 she was employed by the
Bermuda law firm of Appleby, Spurling & Kempe as a Company Secretary and
from 1982 to 1993 she was employed by the Bermuda law firm of Cox &
Wilkinson as Senior Company Secretary.








B.  COMPENSATION





The
Company incurred directors’ fees of $256,000 in 2007. No separate compensation
was paid to the Company's officers.





C.  BOARD
PRACTICES





As
provided in the Company's bye-laws, each Director shall hold office until the
next Annual General Meeting following his election or until his successor is
elected.  The Officers of the Company are elected by the Board of
Directors as soon as possible following each Annual General Meeting and shall
hold office for such period and on such terms as the Board may
determine.





The
Company has established an audit committee comprised of Messrs. White and
Wolcott, independent directors of the Company.





33





Board
practices and exemptions from NASDAQ corporate governance rules





We have
certified to NASDAQ that our corporate governance practices are in compliance
with, and are not prohibited by, the laws of Bermuda. Therefore, we are exempt
from many of NASDAQ's corporate governance practices other than the requirements
regarding the disclosure of a going concern audit opinion, submission of a
listing agreement, notification of material non-compliance with NASDAQ corporate
governance practices and the establishment and composition of an audit committee
and a formal written audit committee charter. The practices that we follow in
lieu of NASDAQ's corporate governance rules are as follows:





●
            Our
      board of directors is currently comprised by a majority of independent
      directors.  Under Bermuda law, we are not required to have a
      majority of independent directors and cannot assure you that we will
      continue to do so.





●
            In
      lieu of holding regular meetings at which only independent directors are
      present, our entire board of directors may hold regular meetings as is
      consistent with Bermuda law.





●
            In
      lieu of an audit committee comprised of three independent directors, our
      audit committee has two members, which is consistent with Bermuda
      law.  Both members of the audit committee currently meet the
      NASDAQ requirement of independence.





●
            In
      lieu of a nomination committee comprised of independent directors, our
      board of directors is responsible for identifying and recommending
      potential candidates to become board members and recommending directors
      for appointment to board committees. There is nothing to prohibit
      Shareholders identifying and recommending potential candidates to become
      board members, but pursuant to the bye-laws, directors are elected by the
      shareholders in duly convened annual or special general
      meetings.





●
            In
      lieu of a compensation committee comprised of independent directors, our
      board of directors is responsible for establishing the executive officers’
      compensation and benefits. Under Bermuda law, compensation of the
      executive officers is not required to be determined by an independent
      committee.





●
            In
      lieu of obtaining an independent review of related party transactions for
      conflicts of interests, consistent with Bermuda law requirements, our
      bye-laws do not prohibit any director from being a party to, or otherwise
      interested in, any transaction or arrangement with the Company or in which
      the Company is otherwise interested, provided that the director makes
      proper disclosure of same as required by the bye-laws and Bermuda
      law.





●
            Prior
      to the issuance of securities, we are required to obtain the consent of
      the Bermuda Monetary Authority as required by law. We have obtained
      blanket consent from the Bermuda Monetary Authority for the issue and
      transfer of the Company’s securities provided that such securities remain
      listed.





●
            Pursuant
      to NASDAQ corporate governance rules and as a foreign private issuer, we
      are not required to solicit proxies or provide proxy statements to NASDAQ.
      Bermuda law does not require that we solicit proxies or provide proxy
      statements to NASDAQ. Consistent with Bermuda law and as provided in our
      bye-laws, we are also required to notify our shareholders of meetings no
      less than 5 days before the meeting.  Our bye-laws also provide
      that shareholders may designate a proxy to act on their
      behalf.





Other
than as noted above, we are in full compliance with all other applicable NASDAQ
corporate governance standards.





D.  EMPLOYEES





The
Company has not had any employees since inception as the Manager is responsible
for the management and administration of the Company.





E.  SHARE
OWNERSHIP





As of
March 31, 2008, none of the directors or officers of the Company owned any
Common Shares of the Company.





34


ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS





A.  MAJOR
SHAREHOLDERS





The
Company is not directly or indirectly controlled by another corporation, by a
foreign government or by any other natural or legal person. We are not aware of
any arrangements, the operation of which may at a subsequent date result in a
change in control of the Company.





The
Company is not aware of any person who owns more than five percent of the
Company’s outstanding common shares as of March 31, 2008.





B.  RELATED
PARTY TRANSACTIONS





None





C.  INTERESTS
OF EXPERTS AND COUNSEL





Not
Applicable





ITEM
8. FINANCIAL INFORMATION





A.  CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION





See Item
18.





Legal
Proceedings





To the
best of the Company's knowledge, there are no legal or arbitration proceedings
existing or pending which have had or may have significant effects on the
Company's financial position or profitability and no such proceedings are
pending or known to be contemplated by governmental authorities.





Dividend
Policy





The
Company's policy is to make distributions to shareholders based on the Company's
earnings and cash flow. The amount and timing of dividends will depend on the
Company's earnings, financial condition, cash position, Bermuda law affecting
the payment of distributions and other factors. There will be no guaranteed
minimum and the Company may not be able to make distributions in quarters where
the earnings are low and where cash flow is insufficient. The Company's
financing may also restrict distributions in certain circumstances.





In 2007,
2006 and 2005, the Company paid the following distributions to
shareholders.





Record
      Date
            Payment
      Date
            Amount
      per share2007February
      26, 2007
            March  9,
      2007
            $0.80May
      26, 2007
            June
      11, 2007
            $0.60August
      23, 2007
            September
      7, 2007
            $0.60November
      23, 2007
            December
      7, 2007
            $0.502006February
      23, 2006
            March  9,
      2006
            $0.80May
      29, 2006
            June
      12, 2006
            $1.00August
      25, 2006
            September
      8, 2006
            $0.80November
      27, 2006
            December
      7, 2006
            $1.002005February
      25, 2005
            March
      11, 2005
            $1.75May
      19, 2005
            June
      1, 2005
            $1.50August
      26, 2005
            September
      6, 2005
            $0.80November
      21, 2005
            December
      5, 2005
            $0.50




On
February 13, 2008 the Board declared a cash dividend of $0.75 per share for the
fourth quarter of 2007 that was paid on March 6, 2008.


35





B.  SIGNIFICANT
CHANGES





Not
applicable





ITEM
9.  THE OFFER AND LISTING





Not
applicable except for Item 9.A.4 and Item 9.C.





The
following table sets forth, for the five most recent fiscal years during which
the Company's Common Shares were traded on the NASDAQ National Market, the
annual high and low closing prices for the Common Shares as reported by the
NASDAQ National Market.





Fiscal
      year ended December 31
            
            High
            
            
            Low2007
            
            $
            34.00
            
            
            $
            23.012006
            
            $
            30.78
            
            
            $
            20.422005
            
            $
            47.50
            
            
            $
            23.762004
            
            $
            39.25
            
            
            $
            12.522003
            
            $
            17.56
            
            
            $
            8.452002
            
            $
            18.85
            
            
            $
            11.51





The
following table sets forth, for the two most recent fiscal years, the high and
low closing prices for the Common Shares as reported by the NASDAQ National
Market.





Fiscal
      year ended December 31, 2007
            
            High
            
            
            LowFirst
      quarter
            
            $
            27.94
            
            
            $
            23.01Second
      quarter
            
            $
            34.00
            
            
            $
            27.00Third
      quarter
            
            $
            33.00
            
            
            $
            23.25Fourth
      quarter
            
            $
            27.75
            
            
            $
            23.01





Fiscal
      year ended December 31, 2006
            
            High
            
            
            LowFirst
      quarter
            
            $
            27.87
            
            
            $
            24.03Second
      quarter
            
            $
            28.23
            
            
            $
            20.42Third
      quarter
            
            $
            30.78
            
            
            $
            24.53Fourth
      quarter
            
            $
            28.57
            
            
            $
            22.48








The
following table sets forth, for the most recent six months, the high and low
closing prices for the Common Shares as reported by the NASDAQ National
Market.





Month
            
            High
            
            
            LowMarch
      2008
            
            $
            27.20
            
            
            $
            23.64February
      2008
            
            $
            28.79
            
            
            $
            25.00January
      2008
            
            $
            26.49
            
            
            $
            20.25December
      2007
            
            $
            27.25
            
            
            $
            23.54November
      2007
            
            $
            26.00
            
            
            $
            23.01October
      2007
            
            $
            27.75
            
            
            $
            24.50








The
Company's Common Shares have been quoted on the NASDAQ National Market under the
symbol “VLCCF” since its initial public offering in February 1997.





36





ITEM
10.  ADDITIONAL INFORMATION





A.  SHARE
CAPITAL





Not
Applicable





B.  MEMORANDUM
AND ARTICLES OF ASSOCIATION





Incorporated
by reference to “Description of Capital Stock” in the prospectus contained in
the Company's Registration Statement on Form F-1, filed December 13, 1996 (File
No. 333-6170).





At the
2005 Annual General Meeting of the Company the shareholders voted to amend the
Company’s bye-laws 83 and 85 by removing the restrictions that limited the
Company’s business activities.  The changes to the bye-laws removed
restrictions on the Company’s activities such as rechartering the Vessels,
refinancing or replacing the credit facility, acting in connection with the
management agreement, offering Common Shares and listing them, enforcing its
rights in connection with the Charters, the Credit Facility, the UK Finance
Leases, the management agreement and other agreements into which the Company and
its subsidiaries entered at the time of its initial public offering, and
leasing, selling or otherwise disposing of the Vessels (or Vessel owning
subsidiaries) on termination of the Charters or subsequent charters. The amended
bye-laws of the Company as adopted on June 27, 2005, have been filed as Exhibit
4.2 to the Company’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2005, filed with Securities and Exchange Commission on June 15,
2006, and are hereby incorporated by reference into this Annual
Report.





C.  MATERIAL
CONTRACTS





The
Company announced in May 2007, that it had agreed to purchase two newbuilding
contracts, each for a Capesize bulk carrier of approximately 170,000 dwt. The
ships will be built at Daehan Shipbuilding Co. Ltd in the Republic of Korea with
delivery scheduled for 2009. The newbuilding contracts have been acquired from
Golden Ocean Group Limited (“GOGL”) which company has ordered a series of sister
ships at the same yard. The contract price for the two vessels is $81 million
per vessel. In addition, the Company will pay a 1% commission to GOGL for
arranging the deal. GOGL is listed on the Oslo Stock Exchange and is an
affiliate of Frontline, the parent company of the Manager. The supervision of
the ships' construction will be carried out by Frontline Management (Bermuda)
Ltd. and the commercial operation will be contracted to Golden Ocean Management
AS, a subsidiary of GOGL that operates the GOGL fleet.





D.  EXCHANGE
CONTROLS





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





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





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





E.  TAXATION





United
States Taxation





The
following discussion is based upon the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury
Department regulations, administrative rulings, pronouncements and





37





judicial
decisions, all as of the date of this Annual Report.  Unless otherwise
noted, references to the “Company” include the Company’s
Subsidiaries.  This discussion assumes that we do not have an office
or other fixed place of business in the United States.





Taxation
of the Company’s Shipping Income: In General


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





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





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





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




Application
of Code Section 883





Under the
relevant provisions of Section 883, the Company will be exempt from U.S.
taxation on its U.S. source shipping income if:




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




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




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




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





The U.S.
Treasury Department has recognized Bermuda, the country of incorporation of the
Company and certain of its subsidiaries, as a qualified foreign
country.  In addition, the U.S. Treasury Department has recognized
Liberia, the country of incorporation of the Company’s subsidiaries, as
qualified foreign countries.  Accordingly, the Company and its vessel
owning subsidiaries satisfy the country of organization
requirement.





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





For the
2007 tax year, the Company satisfied the Publicly-Traded Test since, on more
than half the days of the taxable year, the Company’s stock was primarily and
regularly traded on the NASDAQ National Market.







38


Taxation
in Absence of Internal Revenue Code Section 883 Exemption





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





Gain
on Sale of Vessels





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





Taxation
of U.S. Holders




The
following is a discussion of the material United States federal income tax
considerations relevant to an investment decision by a U.S. Holder, as defined
below, with respect to the common stock.  This discussion does not
purport to deal with the tax consequences of owning common stock to all
categories of investors, some of which may be subject to special
rules.  You are encouraged to consult your own tax advisors concerning
the overall tax consequences arising in your own particular situation under
United States federal, state, local or foreign law of the ownership of common
stock.




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




If a
partnership holds the common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership.  If you are a partner in a partnership holding the common
stock, you are encouraged consult your own tax advisor on this
issue.




Distributions




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




Dividends
paid by the Company to a United States Holder which is an individual, trust, or
estate (a “U.S. Non-Corporate Holder”) will generally be treated as “qualified
dividend income” that is taxable to such shareholders at preferential United
States federal income tax rates (currently through 2010) provided that (1) the
common stock is readily tradable on an established securities market in the
United States (such as the NASDAQ National Market on which the common stock is
traded); (2) the Company not a passive foreign investment company (a “PFIC”) for
the taxable year during which the dividend is paid or the immediately preceding
taxable year (as discussed in more detail below); and (3) the U.S. Non-Corporate
Holder has owned the common stock for more than 60 days in the 121-day period
beginning 60 days before the date on which the common stock becomes
ex-dividend.  The Company was a PFIC for United States federal income
tax purposes through its 2003 taxable year.  Beginning with its 2004
taxable year, the Company ceased to be a PFIC as a result of the expiration of
the Shell International charters on





39





February
27, 2004.  The Company was not a PFIC for United States federal income
tax purposes in the 2007 taxable year and does not anticipate being a PFIC in
future years, although there is no assurance that this will be the
case.





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







Sale,
Exchange or other Disposition of Common Stock




Subject
to the discussion of PFIC status below, a U.S. Holder generally will recognize
taxable gain or loss upon a sale, exchange or other disposition of the common
stock in an amount equal to the difference between the amount realized by the
U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s
tax basis in such stock.  Such gain or loss will be treated as
long-term capital gain or loss if the U.S. Holder’s holding period in the common
stock is greater than one year at the time of the sale, exchange or other
disposition.  A U.S. Holder’s ability to deduct capital losses is
subject to certain limitations.




Passive
Foreign Investment Company Status and Significant Tax Consequences




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




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




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




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




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




If the
Company were to be treated as a PFIC, special and adverse United States federal
income tax rules would apply to a U.S. Holder of the common
stock.  Among other things, the distributions a U.S. Holder received
with respect to the Common Stock and the gain, if any, a U.S. Holder derived
from his sale or other disposition of the common stock would be taxable as
ordinary income (rather than as qualified dividend income or capital gain, as
the case may be), would be treated as realized ratably over his holding period
in the common stock, and would be subject to an additional interest
charge.  However, a U.S. Holder may be able to make certain tax
elections which ameliorate these consequences.




As
described above, the Company was a PFIC for United States federal income tax
purposes through its 2003 taxable year.  The Company has not been a
PFIC beginning with its 2004 taxable year.  Shareholders who held
the







40


Company’s
common stock prior to the 2004 taxable year are encouraged to consult their tax
advisors regarding the proper tax treatment of any dispositions of common stock
and any distributions by the Company.




Bermuda
Taxation




Bermuda
currently imposes no tax  (including a tax in the nature of an income,
estate  duty,  inheritance,  capital  transfer
or  withholding  tax) on profits,
income,  capital  gains
or  appreciations  derived  by,  or  dividends  or
other distributions paid to U.S. Shareholders of common shares. Bermuda has
undertaken not to impose any such Bermuda taxes on U.S. Shareholders of common
chares prior to the year 2016 except in so far as such tax applies to
persons ordinarily resident in Bermuda.




Liberian
Taxation




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




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




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




F.  DIVIDENDS
AND PAYING AGENTS





Not
Applicable





G.  STATEMENT
BY EXPERTS





Not
Applicable





H.  DOCUMENTS
ON DISPLAY





The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the accompanying exhibits may be
inspected and copied at the public reference facilities maintained by the
Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 and at 500
West Madison Street, Suite 1400, Northwestern Atrium Center, Chicago, Illinois
60661 and are also available on our website located at
www.knightsbridgetankers.com.  You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330, and you
may obtain copies at prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington,
D.C. 20549.  The SEC maintains a website (http://www.sec.gov.)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.  In
addition, documents referred to in this annual report may be inspected at the
Company's headquarters at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton,
Bermuda.





41





I.  SUBSIDIARY
INFORMATION





Not
Applicable





ITEM
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
Company is exposed to market risk from changes in interest rates primarily
resulting from the floating rate of the Company's borrowings.  The
Company does not currently utilise interest rate swaps to manage such interest
rate risk.  The Company has not entered into any financial instruments
for speculative or trading purposes.





The
Company's borrowings under its loan facility at December 31, 2007 of $112.0
million (December 31, 2006: $109.2 million) bear interest at an annual rate of
LIBOR plus a margin of 0.7%. A one percent change in interest rates would
increase or decrease interest expense by $1.1 million per year as of December
31, 2007. The fair value of the loan facility at December 31, 2007 was
equal to the carrying amount of the facility at the same date.





ITEM
12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES





Not
Applicable





42





PART
II





ITEM
13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES





Neither
we nor any of our subsidiaries have been subject to a material default in the
payment of principal, interest, a sinking fund or purchase fund installment or
any other material default that was not cured within 30 days. In addition, the
payment of our dividends is not, and has not been in arrears or has not been
subject to a material delinquency that was not cured within 30
days.





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





Not
Applicable





ITEM
15.  CONTROLS AND PROCEDURES





a)           Disclosure
Controls and Procedures




Management
assessed the effectiveness of the design and operation of the Company’s
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934, as of the end of the period covered by this annual report
as of December 31, 2007. Based upon that evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company’s
disclosure controls and procedures are effective as of the evaluation
date.




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




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




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




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




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




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




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




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




Our
management with the participation of our Principal Executive Officer and
Principal Financial Officer assessed the effectiveness of the design and
operation of the Company’s internal controls over financial reporting pursuant
to Rule
13a-15 of the Securities Exchange Act of 1934, as of December 31, 2007.
Based upon that evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that the Company’s internal controls over financial
reporting are effective as of December 31, 2007. 43


The
effectiveness of the Company’s internal control over financial reporting as of
December 31 2007 has been audited by Moore Stephens, P.C., an independent
registered public accounting firm, as stated in their report which appears
herein.




c)           Changes
in internal control over financial reporting




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





ITEM
16 A. AUDIT COMMITTEE FINANCIAL EXPERT





The
Company’s Board of Directors has determined that the Company’s Audit Committee
has one Audit Committee Financial Expert. Mr. David White is an independent
director and is the Audit Committee Financial Expert.





ITEM
16 B. CODE OF ETHICS





The
Company has adopted a Code of Ethics that applies to all entities controlled by
the Company and all employees, directors, officers and agents of the Company,
including representatives and agents of the Company’s manager, ICB Shipping
(Bermuda) Limited. The Code of Ethics has previously been filed as Exhibit 11.1
to the Company’s Annual Report on Form 20-F for the fiscal year ended December
31 2003, filed with the Securities and Exchange Commission on June 2, 2004, and
is hereby incorporated by reference into this Annual Report.





The
Company has posted a copy of its Code of Ethics on its website at
www.knightsbridgetankers.com. The Company will provide any person, free of
charge, a copy of its Code of Ethics upon written request to the Company’s
registered office.





ITEM
16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Our
independent registered public accounting firm for 2007 and 2006 was Moore
Stephens, P.C. The following table sets forth for the two most recent fiscal
years the fees paid or accrued for audit and services provided by Moore
Stephens, P.C.





(in
      $)
            
            2007
            
            
            2006Audit
      Fees (a)
            
            
            200,000
            
            
            
            120,000Audit-Related
      Fees (b)
            
            
            -
            
            
            
            -Tax
      Fees (c)
            
            
            -
            
            
            
            2,900All
      Other Fees (d)
            
            
            4,600
            
            
            
            3,000Total
            
            
            204,600
            
            
            
            125,900





(a)
            Audit
      Fees


Audit
fees represent professional services rendered for the audit of the Company’s
annual financial statements and services provided by our independent registered
public accounting firm in connection with statutory and regulatory filings or
engagements.





(b)
            Audit
      Related Fees


Audit-related
fees consisted of assurance and related services rendered by our independent
registered public accounting firm related to the performance of the audit or
review of the Company’s financial statements which have not been reported under
Audit Fees above.





44





(c)
            Tax
      Fees


Tax fees
represent fees for professional services rendered by our independent registered
public accounting firm for tax compliance, tax advice and tax
planning.





(d)
            All
      Other Fees


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





The
Company’s Audit Committee has adopted pre-approval policies and procedures in
compliance with paragraph (c) (7)(i) of Rule 2-01 of Regulation S-X that require
the Audit Committee to approve the appointment of the independent auditor of the
Company before such auditor is engaged and approve each of the audit and
non-audit related services to be provided by such auditor under such engagement
by the Company.   All services provided by our independent
registered public accounting firm in 2007 were approved by the Audit Committee
pursuant to the pre-approval policy.





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





Not
applicable





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





Not
Applicable





45


PART
III





ITEM 17.  FINANCIAL
STATEMENTS





Not
Applicable




ITEM 18.  FINANCIAL
STATEMENTS





The
following financial statements listed below and set forth on pages F-1 through
F-12 are filed as part of this annual report:





Consolidated
Financial Statements of Knightsbridge Tankers Limited





Index
      to Consolidated Financial Statements of Knightsbridge Tankers
      Limited
              
              F-1Report
      of Independent Registered Public Accounting Firm
              
              F-2Consolidated
      Statements of Operations for the years ended December 31, 2007, 2006 and
      2005
              
              F-3Consolidated
      Balance Sheets as of December 31, 2007 and 2006
              
              F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006 and
      2005
              
              F-5Consolidated
      Statements of Changes in Stockholders' Equity for the years
      ended
              
              F-6December
      31, 2007, 2006 and 2005Notes
      to Consolidated Financial Statements
              
              F-7
  ITEM
19.  EXHIBITS





Number
            Description of
      Exhibit







1.1
            Memorandum
      of Association of the Company. *




1.2
            Amended
      Bye-Laws of the Company. **




4.1
            Form
      of Shipbuilding Contract.




8.1
            List
      of subsidiaries of the Company.




11.1
            Code
      of Ethics.***




12.1
            Certification
      of the Principal Executive Officer.




12.2
            Certification
      of the Principal Financial Officer.




13.1
            Principal
      Executive Officer Certifications pursuant to 18 U.S.C. Section
      1350.




13.2
            Principal
      Financial Officer Certifications pursuant to 18 U.S.C. Section
      1350.




*
            Incorporated
      by reference to Exhibit No. 4.1 in the Company's Registration Statement on
      Form F-1, filed December 13,
1996.


**
            Incorporated
      by reference to Exhibit No. 4.2 in the Company’s Annual report on Form 20F
      for the fiscal year ended December 31,
2005.




***
            Incorporated
      by reference to the same Exhibit No. of the Company’s Annual Report on
      Form 20-F for the fiscal year ended December 31,
  2003.





46








SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.





KNIGHTSBRIDGE
TANKERS LIMITED





By: /s/
Inger M. Klemp





_____________________


Inger M.
Klemp


Chief
Financial Officer


Dated:  April
23, 2008










47









Index to Consolidated Financial Statements of
      Knightsbridge Tankers
      LimitedReport
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Statements of Operations for the years ended December 31, 2007, 2006 and
      2005
              F-3Consolidated
      Balance Sheets as of December 31, 2007 and 2006
              F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006 and
      2005
              F-5Consolidated
      Statements of Changes in Stockholders' Equity for the years
      ended
              F-6December
      31, 2007, 2006 and 2005Notes
      to Consolidated Financial Statements
              F-7
  F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Knightsbridge
Tankers Limited




We have
audited the accompanying consolidated balance sheets of Knightsbridge Tankers
Limited as of December 31, 2007 and 2006, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
2007.  We also have audited Knightsbridge Tankers Limited’s internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.  Knightsbridge
Tankers Limited's management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s annual report on internal
controls over financial reporting.  Our responsibility is to express
an opinion on these consolidated financial statements and an opinion on the
Company's internal control over financial reporting based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in
all material respects.  Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall consolidated financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audits provide a reasonable basis for our
opinions.




A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated 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 consolidated 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 consolidated 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, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Knightsbridge Tankers
Limited as of December 31, 2007 and 2006, and the results of operations and cash
flows for each of the years in the three-year period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.  Also in our opinion, Knightsbridge Tankers Limited
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.




.


New York,
New
York                                                                                                           Moore
Stephens, P.C.


April 18,
2008                                                                                                           Certified
Public Accountants





F-2





Knightsbridge
Tankers Limited


Consolidated
Statements of Operations for the years ended


December
31, 2007, 2006 and 2005


(in
thousands of $, except per share data)





2007
            
            
            2006
            
            
            2005Operating
      revenuesTime
      charter revenues
            
            
            53,814
            
            
            
            42,445
            
            
            
            42,325Voyage
      charter revenues
            
            
            34,346
            
            
            
            63,283
            
            
            
            57,854Total
      operating revenues
            
            
            88,160
            
            
            
            105,728
            
            
            
            100,179Gain
      on sale of assets
            
            
            49,119
            
            
            
            -
            
            
            
            -Operating
      expensesVoyage
      expenses and commission
            
            
            12,872
            
            
            
            20,015
            
            
            
            16,459Ship
      operating expenses
            
            
            15,544
            
            
            
            15,835
            
            
            
            17,211Administrative
      expenses
            
            
            1,481
            
            
            
            1,492
            
            
            
            988Depreciation
            
            
            17,016
            
            
            
            17,121
            
            
            
            17,120Total
      operating expenses
            
            
            46,913
            
            
            
            54,463
            
            
            
            51,778Net
      operating income
            
            
            90,366
            
            
            
            51,265
            
            
            
            48,401Other
      income (expenses)Interest
      income
            
            
            1,026
            
            
            
            1,383
            
            
            
            959Interest
      expense
            
            
            (6,373
            )
            
            
            (6,881
            )
            
            
            (5,310
            )Other
      financial items, net
            
            
            (183
            )
            
            
            (50
            )
            
            
            (83
            )Net
      other expenses
            
            
            (5,530
            )
            
            
            (5,548
            )
            
            
            (4,434
            )Net
      income
            
            
            84,836
            
            
            
            45,717
            
            
            
            43,967Per
      share information:Earnings
      per share: basic and diluted
            
            $
            4.96
            
            
            $
            2.67
            
            
            $
            2.57Cash
      dividends per share declared
            
            $
            2.50
            
            
            $
            3.60
            
            
            $
            4.55










The
accompanying notes are an integral part of these consolidated financial
statements.





F-3





Knightsbridge
Tankers Limited


Consolidated
Balance Sheets as of December 31, 2007 and 2006


(in
thousands of $)





2007
            
            
            2006ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            
            82,143
            
            
            
            8,538Restricted
      cash
            
            
            10,000
            
            
            
            10,000Trade
      accounts receivable, net
            
            
            4,843
            
            
            
            8,535Other
      receivables
            
            
            5,836
            
            
            
            666Inventories
            
            
            3,923
            
            
            
            2,621Voyages
      in progress
            
            
            -
            
            
            
            2,273Prepaid
      expenses and accrued income
            
            
            608
            
            
            
            628Total
      current assets
            
            
            107,353
            
            
            
            33,261Vessels,
      net
            
            
            201,072
            
            
            
            267,949Newbuildings
            
            
            33,459
            
            
            
            -Deferred
      charges
            
            
            282
            
            
            
            289Total
      assets
            
            
            342,166
            
            
            
            301,499LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesCredit
      facilities and current portion of long-term debt
            
            
            8,960
            
            
            
            11,211Trade
      accounts payable
            
            
            620
            
            
            
            8,094Accrued
      expenses
            
            
            5,861
            
            
            
            3,072Other
      current liabilities
            
            
            2,409
            
            
            
            1,932Total
      current liabilities
            
            
            17,850
            
            
            
            24,309Long-term
      liabilitiesLong-term
      debt
            
            
            103,040
            
            
            
            98,000Total
      liabilities
            
            
            120,890
            
            
            
            122,309Commitments
      and contingenciesStockholders’
      equityShare
      capital
            
            
            171
            
            
            
            171Contributed
      capital surplus account
            
            
            179,019
            
            
            
            179,019Retained
      earnings
            
            
            42,086
            
            
            
            -Total
      stockholders’ equity
            
            
            221,276
            
            
            
            179,190Total
      liabilities and stockholders’ equity
            
            
            342,166
            
            
            
            301,499





The
accompanying notes are an integral part of these consolidated financial
statements.





F-4





Knightsbridge
Tankers Limited


Consolidated
Statements of Cash Flows for the years ended


December
31, 2007, 2006 and 2005


(in
thousands of $)







2007
            
            
            2006
            
            
            2005Net
      income
            
            
            84,836
            
            
            
            45,717
            
            
            
            43,967Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
            
            
            17,016
            
            
            
            17,121
            
            
            
            17,120Amortization
      of deferred charges
            
            
            148
            
            
            
            70
            
            
            
            66Gain
      on sale of assets
            
            
            (49,119
            )
            
            
            -
            
            
            
            -Changes
      in operating assets and liabilities:Trade
      accounts receivable, net
            
            
            3,330
            
            
            
            (902
            )
            
            
            5,599Other
      receivables
            
            
            (5,170
            )
            
            
            473
            
            
            
            (531
            )Inventories
            
            
            (1,302
            )
            
            
            (609
            )
            
            
            (381
            )Voyages
      in progress
            
            
            2,273
            
            
            
            1,394
            
            
            
            2,455Prepaid
      expenses and accrued income
            
            
            20
            
            
            
            17
            
            
            
            (229
            )Trade
      accounts payable
            
            
            (7,112
            )
            
            
            6,120
            
            
            
            1,509Accrued
      expenses
            
            
            2,789
            
            
            
            (228
            )
            
            
            570Other
      current liabilities
            
            
            477
            
            
            
            (520
            )
            
            
            (17
            )Net
      cash provided by operating activities
            
            
            48,186
            
            
            
            68,653
            
            
            
            70,128Investing
      activitiesAdditions
      to newbuildings
            
            
            (33,459
            )
            
            
            -
            
            
            
            -Proceeds
      from sale of asset
            
            
            98,980
            
            
            
            -
            
            
            
            -Net
      cash provided by investing activities
            
            
            65,521
            
            
            
            -
            
            
            
            -Financing
      activitiesProceeds
      from long-term debt
            
            
            33,600
            
            
            
            87
            
            
            
            -Repayments
      of long-term debt and credit facilities
            
            
            (30,811
            )
            
            
            (11,276
            )
            
            
            (11,309
            )Debt
      fees paid
            
            
            (141
            )
            
            
            -
            
            
            
            (33
            )Dividends
      paid
            
            
            (42,750
            )
            
            
            (61,560
            )
            
            
            (77,805
            )Net
      cash used in financing activities
            
            
            (40,102
            )
            
            
            (72,749
            )
            
            
            (89,147
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            73,605
            
            
            
            (4,096
            )
            
            
            (19,019
            )Cash
      and cash equivalents at beginning of year
            
            
            8,538
            
            
            
            12,634
            
            
            
            31,653Cash
      and cash equivalents at end of year
            
            
            82,143
            
            
            
            8,538
            
            
            
            12,634Supplemental
      disclosure of cash flow information:Interest
      paid, net of capitalized interest
            
            
            6,416
            
            
            
            6,791
            
            
            
            5,235







The
accompanying notes are an integral part of these consolidated financial
statements.





F-5





Knightsbridge
Tankers Limited


Consolidated
Statements of Changes in Stockholders’ Equity for the years ended


December
31, 2007, 2006 and 2005


(in
thousands of $, except number of shares)





2007
            
            
            2006
            
            
            2005NUMBER
      OF SHARES OUTSTANDINGBalance
      at beginning and end of year
            
            
            17,100,000
            
            
            
            17,100,000
            
            
            
            17,100,000SHARE
      CAPITALBalance
      at beginning and end of year
            
            
            171
            
            
            
            171
            
            
            
            171CONTRIBUTED
      CAPITAL SURPLUS ACCOUNTBalance
      at beginning of year
            
            
            179,019
            
            
            
            194,862
            
            
            
            220,059Distributions
      to shareholders
            
            
            -
            
            
            
            (15,843
            )
            
            
            (25,197
            )Balance
      at end of year
            
            
            179,019
            
            
            
            179,019
            
            
            
            194,862RETAINED
      EARNINGSBalance
      at beginning of year
            
            
            -
            
            
            
            -
            
            
            
            8,641Net
      income
            
            
            84,836
            
            
            
            45,717
            
            
            
            43,967Dividends
      paid
            
            
            (42,750
            )
            
            
            (45,717
            )
            
            
            (52,608
            )Balance
      at end of year
            
            
            42,086
            
            
            
            -
            
            
            
            -Total
      Stockholders’ Equity
            
            
            221,276
            
            
            
            179,190
            
            
            
            195,033







The
accompanying notes are an integral part of these consolidated financial
statements.





F-6








Knightsbridge
Tankers Limited


Notes
to Consolidated Financial Statements








1.
            DESCRIPTION
      OF BUSINESS





Knightsbridge
Tankers Limited (the “Company”) was incorporated in Bermuda in September, 1996,
for the purpose of the acquisition, disposition, ownership, leasing and
chartering of five very large crude oil carriers, or VLCCs and certain related
activities. The Company’s shares are listed on the NASDAQ National
Market.





During
2007, a vessel was sold and the remainder of the fleet is now operating in the
time charter market. Two of the vessels are on charter for four and five years
respectively, both earning a rate of $37,750 per day plus a market-based profit
sharing payment computed as 50% of the difference between the related spot
market index rate and the base rate. These charters commenced during the year.
Another vessel moved from the spot market to a three year time charter during
the year earning a rate of $45,000 per day. The remaining vessel charter expires
in 2009. This is a five year charter earning a rate of $31,000 a day. In
addition, the Company currently has two newbuildings under construction, both
Capesize bulk carriers of approximately 170,000 dwt, which are scheduled for
delivery in 2009. One of the newbuildings will commence a five year time charter
upon delivery in 2009, earning a rate of $40,000 per day.





The
business of the Company is managed by ICB Shipping (Bermuda) Limited (the
“Manager”), an indirect wholly-owned subsidiary of Frontline Ltd.








2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of presentation


The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The consolidated
financial statements include the assets and liabilities of Knightsbridge Tankers
Limited and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated upon consolidation.





The
preparation of financial statements in accordance with generally accepted
accounting principles requires that management make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.





Reporting
currency


The
Company's functional currency is the United States dollar as all revenues are
received in United States dollars and a majority of the Company's expenditures
are made in United States dollars. The Company and its subsidiaries report in
United States dollars.





Transactions
in foreign currencies during the year are translated into United States dollars
at the rates of exchange in effect at the date of the transaction. Foreign
currency monetary assets and liabilities are translated using rates of exchange
at the balance sheet date. Foreign currency non-monetary assets and liabilities
are translated using historical rates of exchange. Foreign currency transaction
gains or losses are included in the consolidated statements of
operations.





Revenue
and expense recognition


Revenues
are generated from freight billings, time charter and bareboat charter hires.
Time charter and bareboat charter revenues are recorded over the term of the
charter as service is provided. Under a voyage charter the revenues and
associated voyage costs are recognized ratably over the estimated duration of
the voyage, which is measured from completion of discharge to completion of
discharge. Voyage revenues and expenses are recognized ratably over the
estimated length of each voyage and, therefore, are allocated between reporting
periods based on the relative transit time in each period. The impact of
recognizing voyage expenses ratably over the length of each voyage is not
materially different on a quarterly and annual basis from a method of
recognizing such costs as incurred. Probable losses on voyages are accrued in
full at the time such losses can be estimated. Amounts receivable from
profit sharing arrangements are accrued based on the time charter
equivalent rates





F-
7





achieved
through vessel deployment over the preceding quarter in the market for certain
key routes and are not contingent on the performance of the Company. This amount
is calculated and accounted for on a quarterly basis and is received on a
quarterly basis. Each quarterly settlement is final and does not get carried
forward to the next quarter. There is no consideration of future performance in
the recording of profit sharing revenue.





Leases


The
current time charters for the Company’s four vessels are classified as operating
leases by the Company.





Cash
and cash equivalents


All
demand and time deposits and highly liquid, low risk investments with maturities
of three months or less at the date of purchase are considered equivalent to
cash.







Restricted
cash


Restricted
cash consists of bank deposits maintained in accordance with contractual loan
arrangements.







Inventories


Inventories,
which are comprised principally of fuel and lubricating oils, are stated at the
lower of cost and market value. Cost is determined on a first-in, first-out
basis.





Newbuildings


The
carrying value of the vessels under construction or newbuildings, represents the
accumulated costs through the balance sheet date including capitalized loan
interest and associated finance costs. No charge for depreciation is made until
a vessel is put into operation.





Vessel
purchase expenditures are capitalized at the time vessel purchase contracts are
acquired or entered into. The Company reviews expected future cash flows, which
would result from each contract on a contract by contract basis to determine
whether the carrying value is recoverable. If the expected future cash flows are
less than the carrying value of the contract plus further costs to delivery,
impairment is recorded to write down the carrying value to the recoverable
amount. Capitalized amounts are transferred to cost of vessels, upon delivery of
a vessel to the Company.





Vessels
and depreciation


Vessels
are stated at cost less accumulated deprecation. Depreciation is calculated
based on cost less estimated residual value, using the straight-line method,
over the useful life of each vessel. The useful life of each vessel is deemed to
be 25 years.





Deferred
charges


Loan
costs, including debt arrangement fees, are capitalized and amortized on a
straight-line basis over the term of the loan. Amortization of loan costs is
included in interest expense.  If the loan is repaid early, any
unamortized portion of the related deferred charges is charged against income in
the period in which the loan is repaid.





Earnings
per share


Earnings
per share are based on the weighted average number of common shares outstanding
for the period presented. For all periods presented, the Company had no
potentially dilutive securities outstanding and therefore basic and diluted
earnings per share are the same.





Impairment
of long-lived assets


Long-lived
assets that are held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If such a review indicates impairment, an
impairment charge is recognized based on the difference between carrying value
and fair value. Fair value is typically established using an average of three
independent valuations. In addition, long-lived assets to be disposed of by sale
are reported at the lower of their carrying amount or fair value less estimated
costs to sell.





Distributions
to shareholders


Distributions
to shareholders are applied first to retained earnings. When retained earnings
are not sufficient, distributions are applied to the contributed capital surplus
account.








F-8


Drydocking





Normal
vessel repair and maintenance costs are expensed when incurred. The Company
recognises the cost of a drydocking at the time the drydocking takes place, that
is, it applies the “expense as incurred” method.





3.
            RECENTLY ISSUED ACCOUNTING
      STANDARDS





In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. FAS 157 applies under most other accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements. FAS 157 is effective for fiscal years
beginning after November 15, 2007.





In
February 2008 the FASB issued FSP No. FAS157-1 “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP FAS157-1”). FSP FAS157-1 amends FAS 157 to
exclude FASB Statement No. 13 “Accounting for Leases” (“FAS 13”) and its related
interpretive accounting pronouncements that address leasing transactions. The
FASB decided to exclude leasing transactions covered by FAS 13 in order to allow
it to more broadly consider the use of fair value measurements for these
transactions as part of its project to comprehensively reconsider the accounting
for leasing transactions. The Company does not expect the adoption of FAS 157
and FSP FAS157-1 to have a material impact on its financial
statements.





In
February 2007 the FASB issued 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 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for fiscal years beginning after November 15
2007. The Company does not expect the adoption of SFAS 159 to have a material
impact on its financial statements.





In
December 2007 the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial
Statements – an amendment of ARB No.51” (SFAS 160). SFAS 160 is intended
to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its consolidated financial
statements with reference to a noncontrolling interest in a subsidiary. Such a
noncontrolling interest, sometimes called a minority interest, is the portion of
equity in a subsidiary not attributable, directly or indirectly, to the parent
entity. SFAS 160 is effective for fiscal years beginning on or after December 15
2008. The Company does not expect the adoption of SFAS 160 to have a material
impact on its financial statements.





In
December 2007 the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“FAS
141R”). The objective of FAS 141R is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
To accomplish this, FAS 141R establishes principles and requirements for how the
acquirer a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any non-controlling interest in the
acquiree, b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain price, and c) determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. FAS 141R is effective for
fiscal years beginning on or after December 15, 2008. The Company does not
expect the adoption of FAS 141R to have a material impact on its financial
statements.








4.
            TAXATION





The
Company is incorporated in Bermuda. Under current Bermuda law, the Company is
not required to pay taxes in Bermuda on either income or capital gains. The
Company has received written assurance from the Minister of Finance in Bermuda
that, in the event of any such taxes being imposed, the Company will be exempted
from taxation until the year 2016. Based upon review of applicable laws and
regulations, and after consultation with counsel, the Company does not believe
it is subject to material income taxes in any jurisdiction.








F-9






5.
            LEASES


The
minimum future revenues to be received on time charters which are accounted for
as operating leases as of December 31, 2007 are as follows:





Year
      ending December 31,(in
      thousands of $)2008
            
            
            55,4182009
            
            
            46,1842010
            
            
            31,4282011
            
            
            20,6872012
            
            
            5,926Total
      minimum lease revenues
            
            
            159,643





The cost
and accumulated depreciation of vessels leased to third parties at December 31,
2007 was $352.3 million and $151.2 million respectively and at December 31, 2006
were $264.4 million and $103.3 million respectively.








6.
            TRADE
      ACCOUNTS RECEIVABLE, NET





Trade
accounts receivable are presented net of allowance for doubtful accounts
amounting to $0.2 million (2006: $0.2 million).








7.
            NEWBUILDINGS





(in
      thousands of $)
            
            2007
            
            
            2006Newbuildings
            
            
            33,459
            
            
            
            -





The
carrying value of newbuildings represents accumulated costs paid in purchase
installments, other capital expenditures and capitalized loan
interest.  Interest capitalized in the cost of newbuildings totaled
$1.0 million in 2007 (2006: $nil).








8.
            VESSELS





(in
      thousands of $)
            
            2007
            
            
            2006Cost
            
            
            352,308
            
            
            
            439,822Accumulated
      depreciation
            
            
            (151,236
            )
            
            
            (171,873
            )Net
      book value at end of year
            
            
            201,072
            
            
            
            267,949





Depreciation
expense was $17.0 million, $17.1 million and $17.1 million for the years ended
December 31, 2007, 2006 and 2005, respectively. During December 2007, a vessel
was sold to a third-party for net proceeds of $99.0 million.








9.
            DEFERRED
      CHARGES





Deferred
charges represent debt arrangement fees that are capitalized and amortized on a
straight-line basis to interest expense over the life of the debt instrument.
The deferred charges are comprised of the following amounts:





(in
      thousands of $)
            
            2007
            
            
            2006Capitalized
      financing fees and expenses
            
            
            523
            
            
            
            477Accumulated
      amortization
            
            
            (241
            )
            
            
            (188
            )Net
      book value at end of year
            
            
            282
            
            
            
            289








F-10





10.
            DEBT


(in
      thousands of $)
            
            2007
            
            
            2006US
      dollar denominated floating rate debt
            
            
            112,000
            
            
            
            109,200Other
            
            
            -
            
            
            
            11Total
      debt
            
            
            112,000
            
            
            
            109,211Less:
      Credit facilities and current portion of debt
            
            
            (8,960
            )
            
            
            (11,211
            )103,040
            
            
            
            98,000





The
average interest rate for the floating rate debt was 6.1% for the year ended
December 31, 2007 and 5.87% for the year ended December 31, 2006.





Credit
Facility Loan


In March
2004, the Company refinanced a prior debt facility with a $140.0 million credit
facility in the form of five tranches of $28.0 million, each in respect to a
vessel. The credit facility is secured by, among other things, a mortgage on
each vessel and an assignment of any charter in respect to that vessel. An
amount of $20.1 million was repaid following the sale of a vessel in December
2007. The repayment terms of the facility is seven years so that the facility is
due to be repaid in 2011.





The
credit facility bears interest at LIBOR plus a margin and contains a minimum
market value covenant on the vessels and a covenant requiring us to maintain a
certain minimum level of cash.





Newbuilding
Loan Extension


In May
2007, the Company took out an extension of the credit facility and drew two
tranches of $16.8 million each to fund instalment payments on two newbuilding
contracts. This is repayable in 2009 and is subject to the same covenants as the
original loan.





The
outstanding debt as of December 31, 2007 is repayable as follows:





Year
      ending December 31,(in
      thousands of $)2008
            
            
            8,9602009
            
            
            42,5602010
            
            
            8,9602011
            
            
            51,520Total
      debt
            
            
            112,000





11.
            SHARE
      CAPITAL


Authorized,
issued and fully paid share capital:





(in
      thousands of $)
            
            2007
            
            
            200617,100,000
      ordinary shares of $0.01 each
            
            
            171
            
            
            
            171





12.
            FINANCIAL
      INSTRUMENTS


Interest
rate risk management


In
certain situations, the Company may enter into financial instruments to reduce
the risk associated with fluctuations in interest rates. The Company does not
hold or issue instruments for speculative or trading purposes. As at December
31, 2007, the Company is not party to any interest rate swaps to hedge interest
rate exposure.





Foreign
currency risk


The
majority of the Company’s transactions, assets and liabilities are denominated
in United States dollars, the functional currency of the Company. There is no
significant risk that currency fluctuations will have a negative effect of the
value of the Company’s cash flows.





F-
11








Fair
values


The
carrying value and estimated fair value of the Company’s financial instruments
at December 31, 2007 and 2006 are as follows:





2007
            
            
            2007
            
            
            2006
            
            
            2006(in
      thousands of $)
            
            Fair
              Value
            
            
            Carrying
      Value
            
            
            Fair
              Value
            
            
            Carrying
      ValueCash
      and cash equivalents
            
            
            82,143
            
            
            
            82,143
            
            
            
            8,538
            
            
            
            8,538Restricted
      cash
            
            
            10,000
            
            
            
            10,000
            
            
            
            10,000
            
            
            
            10,000Floating
      rate debt and credit facilities
            
            
            112,000
            
            
            
            112,000
            
            
            
            109,211
            
            
            
            109,211





The
carrying value of cash and cash equivalents, and restricted cash, is a
reasonable estimate of fair value.





The
estimated fair value for floating rate long-term debt is considered to be equal
to the carrying value since it bears variable interest rates, which are reset on
a quarterly basis.





Concentrations
of risk


There is
a concentration of credit risk with respect to cash and cash equivalents to the
extent that substantially all of the amounts are carried with Skandinaviska
Enskilda Banken and The Royal Bank of Scotland plc. However, the Company
believes this risk is remote as these banks are high credit quality financial
institutions. The Company does not require collateral or other security to
support financial instruments subject to credit risk.





In 2007,
four customers accounted for $81.0 million, or 92% of gross revenue, while in
2006 four customers accounted for $71.1 million or 67% of gross revenue. In 2005
two customers accounted for $42.6 million or 42% of gross revenues. Below is a
list of customers who have revenue of more than 10% of total revenue in
2007.





Customer
            
            Revenue(in
      thousands of $)
            
            
            Percentage
              of
      revenueMalaysia
      International Shipping Corporation
            
            
            11,481
            
            
            
            13
            %Frontline
      Ltd
            
            
            29,881
            
            
            
            34
            %Great
      Elephant Corporation
            
            
            13,855
            
            
            
            16
            %Shell
      International
            
            
            25,807
            
            
            
            29
            %81,024
            
            
            
            92
            %





13.
            MANAGEMENT
      OF COMPANY


On
February 12, 1997, the Company entered into a management agreement with the
Manager under which the Manager provided certain administrative, management and
advisory services to the Company for an amount of $750,000 per year. Effective
February 2004, the Company entered into an amendment to the agreement with the
Manager. The management fee has been amended to $630,000 per year, in addition
to a commission of 1.25 per cent on gross freight revenues. Pursuant to the
terms of the amendment, the Company is now responsible for paying its own
administrative expenses. In February 2006 the management fee was increased to
$1,150,000 per annum.





14.
            COMMITMENTS
      AND CONTINGENCIES







The
Company has contracts for the construction of two Capesize newbuildings at
Daehan Shipbuilding Co. Ltd in the Republic of Korea. These vessels are
scheduled for delivery in 2009. As of December 31, 2007 the Company was
committed to make further instalments of $129.6 million under these
contracts.




15.
            SUBSEQUENT
      EVENTS




The
Company announced in March 2008 that it has agreed to fix out on time charter
one of its two newbuilding Capesize bulk carriers. The charter is for a period
of five years from the delivery scheduled for July 2009 and is at a net rate of
$53,000 per day.








F-
12