UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
DC. 20549







FORM
20-F







(Mark
One)







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


OR





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





For
      the fiscal year
      ended                                          December
      31, 2008


OR





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


For
the transition period from _________________ to _________________





OR





o
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934


Date of event requiring this shell
company report _______________________________





Commission
      file number
            000-29106





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





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





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





Title
      of each class
                    
                    Name
      of each exchange on which registeredCommon  Shares,
      $0.01 Par Value
                    
                    Nasdaq
      Global Select 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
      o
            
            Nox





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





Yes
      x
            
            No
      o





Note
– 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.





Yes
      x
            
            No
      o





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





Yes
      o
            
            No
      o





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





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





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





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





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


item
the registrant has elected to follow:





Item
      17 o
            
            Item
      18 o





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





Yes
      o
            
            No
      x





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
            13Item 4A.
            Unresolved Staff
      Comments
            25Item 5.
            Operating and Financial Review and
      Prospects
            25Item 6.
            Directors, Senior Management and
      Employees
            32Item 7.
            Major Shareholders and Related
      Party Transactions
            34Item 8.
            Financial
      Information
            35Item 9.
            The Offer and
      Listing
            36Item 10.
            Additional
      Information
            36Item 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
            44Item 16E.
            Purchase of Equity Securities by
      the Issuer and Affiliated Purchasers
            44Item 16F.
            Change in Registrant's Certifying
      Accountant
            44Item 16G.
            Corporate
      Governance
            44PART IIIItem 17.
            Financial
      Statements
            46Item 18.
            Financial
      Statements
            46Item 19.
            Exhibits
            46











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




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




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





PART I





ITEM 1.  IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISERS





Not applicable.





ITEM 2.  OFFER STATISTICS AND
EXPECTED TIMETABLE





Not applicable.





ITEM 3.  KEY
INFORMATION





Throughout this report, the "Company,"
"we," "us" and "our" all refer to 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 statement of operations data of the Company with respect to the fiscal
years ended December 31, 2008, 2007 and 2006, and the selected balance sheet
data of the Company with respect to the fiscal years ended December 31, 2008 and
2007, respectively, have been derived from the Company's consolidated financial
statements included herein and should be read in conjunction with such
statements and the notes thereto. The selected statement of operations data with
respect to the fiscal years ended December 31, 2005 and 2004, and the selected
balance sheet data with respect to the fiscal years ended December 31, 2006,
2005 and 2004 have been derived from consolidated financial statements of the
Company not included herein. The following table should also be read in
conjunction with Item 5. "Operating and Financial Review and Prospects" and the
Company's consolidated financial statements and notes thereto included herein.
The Company's accounts are maintained in U.S. dollars.







Fiscal year ended December
      31,2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005
                          
                          
                          2004(in thousands of $, except shares,
      per share data and ratios)Statement of Operations
      Data:Total operating
      revenues
                          
                          
                          82,914
                          
                          
                          
                          88,160
                          
                          
                          
                          105,728
                          
                          
                          
                          100,179
                          
                          
                          
                          135,695Total operating
      expenses
                          
                          
                          33,796
                          
                          
                          
                          46,913
                          
                          
                          
                          54,463
                          
                          
                          
                          51,778
                          
                          
                          
                          42,441Net operating
      income
                          
                          
                          49,118
                          
                          
                          
                          90,366
                          
                          
                          
                          51,265
                          
                          
                          
                          48,401
                          
                          
                          
                          93,254Net
      income
                          
                          
                          48,054
                          
                          
                          
                          84,836
                          
                          
                          
                          45,717
                          
                          
                          
                          43,967
                          
                          
                          
                          85,839Earnings per common
      share- basic and
      diluted
                          
                          
                          2.81
                          
                          
                          
                          4.96
                          
                          
                          
                          2.67
                          
                          
                          
                          2.57
                          
                          
                          
                          5.02Cash dividend declared per
      share
                          
                          
                          2.75
                          
                          
                          
                          2.50
                          
                          
                          
                          3.60
                          
                          
                          
                          4.55
                          
                          
                          
                          4.55Balance Sheet Data (at end of
      year):Cash and cash
      equivalents
                          
                          
                          77,998
                          
                          
                          
                          82,143
                          
                          
                          
                          8,538
                          
                          
                          
                          12,634
                          
                          
                          
                          31,653Restricted
      cash
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          10,000
                          
                          
                          
                          10,000Newbuildings
                          
                          
                          51,305
                          
                          
                          
                          33,459
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Vessels,
      net
                          
                          
                          187,360
                          
                          
                          
                          201,072
                          
                          
                          
                          267,949
                          
                          
                          
                          285,070
                          
                          
                          
                          301,500Total
      assets
                          
                          
                          331,685
                          
                          
                          
                          342,166
                          
                          
                          
                          301,499
                          
                          
                          
                          323,159
                          
                          
                          
                          365,554Current portion of long-term
      debt
                          
                          
                          42,560
                          
                          
                          
                          8,960
                          
                          
                          
                          11,211
                          
                          
                          
                          11,200
                          
                          
                          
                          11,309Long-term
      debt
                          
                          
                          60,480
                          
                          
                          
                          103,040
                          
                          
                          
                          98,000
                          
                          
                          
                          109,200
                          
                          
                          
                          120,400Share
      capital
                          
                          
                          171
                          
                          
                          
                          171
                          
                          
                          
                          171
                          
                          
                          
                          171
                          
                          
                          
                          171Stockholders'
      equity
                          
                          
                          222,305
                          
                          
                          
                          221,276
                          
                          
                          
                          179,190
                          
                          
                          
                          195,033
                          
                          
                          
                          228,871Common shares
      outstanding
                          
                          
                          17,100,000
                          
                          
                          
                          17,100,000
                          
                          
                          
                          17,100,000
                          
                          
                          
                          17,100,000
                          
                          
                          
                          17,100,000Other Financial
      Data:Equity to assets ratio
      (percentage) (1)
                          
                          
                          67.0
                          %
                          
                          
                          64.7
                          %
                          
                          
                          59.4
                          %
                          
                          
                          60.4
                          %
                          
                          
                          62.6
                          %Debt to equity ratio
      (2)
                          
                          
                          0.5
                          
                          
                          
                          0.5
                          
                          
                          
                          0.6
                          
                          
                          
                          0.6
                          
                          
                          
                          0.6Price earnings ratio
      (3)
                          
                          
                          5.2
                          
                          
                          
                          4.9
                          
                          
                          
                          8.9
                          
                          
                          
                          9.4
                          
                          
                          
                          6.7Time charter equivalent revenue
      (4)
                          
                          
                          78,902
                          
                          
                          
                          75,288
                          
                          
                          
                          85,713
                          
                          
                          
                          83,720
                          
                          
                          
                          121,455











1


(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:





2008
                                          
                                          2007
                                          
                                          2006
                                          
                                          2005
                                          
                                          2004(in thousands of
      $)Total operating
      revenues
                                          
                                          
                                          82,914
                                          
                                          88,160
                                          
                                          
                                          105,728
                                          
                                          100,179
                                          
                                          
                                          135,695Less: Voyage
      expense
                                          
                                          
                                          (4,012)
                                          
                                          (12,872)
                                          
                                          
                                          (20,015)
                                          
                                          (16,459)
                                          
                                          
                                          (14,240)Time charter equivalent
      revenue
                                          
                                          
                                          78,902
                                          
                                          75,288
                                          
                                          
                                          85,713
                                          
                                          83,720
                                          
                                          
                                          121,455





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





B.  CAPITALIZATION AND
INDEBTEDNESS





Not applicable.





C.  REASONS FOR THE OFFER AND
USE OF PROCEEDS





Not applicable.





D. RISK FACTORS





We are engaged primarily in transporting
crude oil and oil products and expect, with the acquisition of two Capesizedrybulk 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
Industries





Tankers





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





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





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





●
            demand for oil and oil
      products;





●
            global and regional economic and
      political conditions;





●
            changes in oil production and
      refining capacity;





●
            environmental and other regulatory
      developments;





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





●
            changes in seaborne and other
      transportation patterns.






2





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.





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





The international tanker industry has
experiencedvolatilecharter rates and vessel values and
there can be no assurance that these charter rates and vessel values
willreturn to their
previous high values





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





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





The demand for our oil tankers derives
primarily from demand for Arabian Gulf and West African crude oil, along with
crude oil from the formerSoviet 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 crude oil from the mentioned geographical areas.
One such factor is the price of worldwide crude oil. The world's oil
markets have experienced high levels of volatility in the last 25 years. In July
2008, oil prices rose to a high of approximately $143 per barrel before
decreasing to approximately $38 per barrel by the end of December
2008.





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,West
      Africaor the
      FSU;





●
            increased use of existing and
      future crude oil pipelines in the Arabian Gulf,West Africaand
  FSU;





●
            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
      andWest
      Africaand political
      or other factors; and





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





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





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





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





Over the last year, global financial
markets have experienced extraordinary disruption and volatility following
adverse changes in the global credit markets. The credit markets in theUnited Stateshave experienced significant
contraction, deleveraging and reduced liquidity, and governments around the
world have taken highly significant measures in response to such events,
including the enactment of the Emergency Economic Stabilization Act of 2008 in
theUnited
States, and may implement
other significant responses in the future.






3





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





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





World events could affect our results of
operations and financial condition





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





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





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





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





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.






4





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 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 United States Oil Pollution Act
of 1990, or OPA, the United States Clean Air Act and United States Clean Water
Act, the United States Marine Transportation Security Act of 2002, the
International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended, or CLC, the International Convention for the Prevention of Pollution
from Ships, of 1975, the International Convention for the Safety of Life at Sea
of 1974, or SOLAS, the International Convention on Load Lines of 1966 or LL
Convention, and implementing regulations adopted by the International Maritime
Organization, or the IMO (the United Nations agency for maritime safety and the
prevention of pollution by vessels), the European Union, or the EU, and other
international, national and local regulatory bodies.





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





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





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





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





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





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





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






5





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





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





Our vessels may call on ports located in
countries that are subject to restrictions imposed by theUnited Statesgovernment





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





Dry
bulk





Charter hire rates for dry bulk
vessels may decrease in the future, which may adversely affect our earnings once
we take delivery of our newbuilding dry bulk vessels





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





Factors
that influence demand for vessel capacity include:


●
              supply
      and demand for energy resources, commodities, semi-finished and finished
      consumer and industrial products;
 
 ●
              changes
      in the exploration or production of energy resources, commodities,
      semi-finished and finished consumer and industrial
    products;
 
 ●
              the
      location of regional and global exploration, production and manufacturing
      facilities;
 
 ●
              the
      location of consuming regions for energy resources, commodities,
      semi-finished and finished consumer and industrial
    products;
 
 ●
              the
      globalization of production and
manufacturing;
 
 ●
              global
      and regional economic and political conditions, including armed conflicts
      and terrorist activities; embargoes and
strikes;
 
 ●
              developments
      in international trade;
 
 ●
              changes
      in seaborne and other transportation patterns, including the distance
      cargo is transported by sea;
 
 ●
              environmental
      and other regulatory developments;
 
 ●
              currency
      exchange rates; and
 
 ●
              weather.


Factors
      that influence the supply of vessel capacity
  include:




●
              number
      of newbuilding deliveries;●
              scrapping
      of older vessels;●
              vessel
      casualties; and





6






●
            number
      of vessels that are out of service.




We
anticipate that the future demand for our dry bulk vessels upon their delivery
to us will be dependent upon economic growth in the world's economies, seasonal
and regional changes in demand, changes in the capacity of the global dry bulk
fleet and the sources and supply of dry bulk cargo to be transported by sea. The
capacity of the global dry bulk carrier fleet seems likely to increase and
economic growth may not continue. Adverse economic, political, social or other
developments could have a material adverse effect on our business and operating
results.





A
continued downturn in the dry bulk carrier charter market may have an adverse
effect on our earnings, the value of our dry bulk vessels when they are
delivered to us and our ability to comply with our loan covenants





The
Baltic Dry Index, or BDI, a daily average of charter rates in 26 shipping routes
measured on a time charter and voyage basis and covering Supramax, Panamax, and
Capesize dry bulk carriers, declined from a high of 11,793 in May 2008 to a low
of 663 in December 2008, which represents a decline of 94%. Since December 2008
it has risen to 4,106 through June 2, 2009, representing an increase of 519%,
although it remains approximately 65% below its record highs. During the first
quarter of 2009 the BDI has risen 108% and the Baltic Panamax and Baltic
Supramax Indices increased 154% and 213%, respectively. The general decline in thedry bulkcarrier charter market has resulted in
lower charter rates for vessels exposed to the spot market and time charters
linked to the BDI. Although we have entered into five year charter agreements
which are scheduled to commence following the delivery of our newbuildingdry bulkcarriers to us, our ability to obtain
renewal charters upon the expiration of our current charters or charters for new
vessels that we may acquire in the future will be directly impacted by
prevailing BDI charter rates.





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





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





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





The
market supply of drybulk carriers has been increasing, and the number of drybulk
carriers on order is near historic highs. These newbuildings were delivered in
significant numbers starting at the beginning of 2006 and continued to be
delivered in significant numbers through 2008. As of May 30, 2009, newbuilding
orders had been placed for an aggregate of more than 68% of the current global
dry bulk fleet, with deliveries expected during the next 36 months. According to
market sources about 50% of the dry bulk fleet is contracted at established
yards, while the other 50% is contracted at yards that are less established and
whose viability may be uncertain. Due to lack of financing many analysts expect
significant cancellations and/ or slippage of newbuilding orders. While vessel
supply will continue to be affected by the delivery of new vessels and the
removal of vessels from the global fleet, either through scrapping or accidental
losses, an over-supply of dry bulk carrier capacity, particularly in conjunction
with the currently low level of demand, could exacerbate the recent decrease in
charter rates or prolong the period during which low charter rates prevail. If
the current low charter rate environment persists, or a further reduction
occurs, during a period when thecurrent charters for our dry bulk carriers
expire or are terminated, we may only be able to recharter those vessels at
reduced rates or we may not be able to charter our vessels at all.





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.





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






7





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





●
            general economic and market
      conditions affecting the
    shipping  industry;





●
            competition from other shipping
      companies;





●
            types and sizes of
      vessels;





●
            other modes of
      transportation;





●
            cost of
      newbuildings;





●
            shipyard
      capacity;





●
            governmental or other
      regulations;





●
            age of
    vessels;





●
            prevailing level of charter rates;
      and





●
            technological
      advances.





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





We may be unable to successfully compete
with other tanker operators for charters





The operation of tankers and
transportation of crude and petroleum products and the other businesses in which
we operate are extremely competitive. Through our operating subsidiaries we
compete with other oil tanker owners (including major oil companies as well as
independent companies), and, to a lesser extent, owners of other size vessels.
The tanker market is highly fragmented. It is possible that our competitive
position will erode in the future.





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, aBermudacorporation.  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, three of our tankers are
contractually committed to time charters, with the remaining terms of these
charters expiring on dates between 2010 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.





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





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





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







8




We have entered into newbuilding
contracts for the construction of two Capesizedry bulkcarriers with Daehan Shipbuilding Co.
Ltd.in theRepublicofKorea.  We have also entered into
related long-term time charters for employment of these vessels upon their
expected deliveryto usin August and October 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





The acquisition and eventual management
of our twonewbuilding
Capesizedry
bulkcarriers will impose
significant responsibilities on our management.  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





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, three of our vessels are
employed on time charters. We have also entered into long-term charters for the
employment of our two Capesizedry bulkcarriers upon their expected delivery
in August and October 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 tousor 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,ourprofitability may be adversely
affected.





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





We have entered into various contracts,
including charter parties with our customers, newbuilding contracts with
shipyards and our credit facilities. Such agreements subject us to counterparty
risks. The ability of each of our counterparties to perform its obligations
under a contract with us will depend on a number of factors that are beyond our
control and may include, among other things, general economic conditions, the
condition of the maritime and offshore industries, the overall financial
condition of the counterparty, charter rates received for specific types of
vessels, and various expenses. In addition, in depressed market conditions, our
charterers and customers may no longer need a vessel that is currently under
charter or contract or may be able to obtain a comparable vessel at lower rates.
As a result, charterers and customers may seek to renegotiate the terms of their
existing charter parties or avoid their obligations under those contracts.
Should a counterparty fail to honor its obligations under agreements with us, we
could sustain significant losses which could have a material adverse effect on
our business, financial condition, results of operations and cash
flows.





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




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





Fuel or bunker prices, may adversely
affect our profits





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






9





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




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




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




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




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




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




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.





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,Bermudalaw 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.





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





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





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





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






10





We may not be able to finance our future
capital commitments




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




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





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





We may 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 theUnited Statesexpose us to global risks that may
interfere with the operation of our vessels





We are an international company and
primarily conduct our operations outside of theUnited 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 theUnited Stateson September 11, 2001 and the military
response by theUnited
Stateshas increased the
likelihood of acts of terrorism worldwide. Acts of terrorism, regional
hostilities or other political instability, as shown by the attack on theLimburginYemenin October 2002, attacks on oil
pipelines during and subsequent to theIraqwar in 2003 and attacks on expatriate
workers in theMiddle
Eastcould 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 aUnited Statescorporation may
have





We are aBermudacompany. 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 aUnited Statesjurisdiction. UnderBermudalaw 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 underBermudalaw. Further, our Bye-laws provide for
the indemnification of our directors or officers against any liability arising
out of any act or omission except for an act or omission constituting fraud,
dishonesty or illegality.





United Statestax authorities could treat us as a
"passive foreign investment company," which could have adverseUnited Statesfederal income tax consequences toUnited Statesholders





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






11





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





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





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





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





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





We may have to pay tax onUnited Statessource 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 ourselves and our subsidiaries, that is
attributable to transportation that begins or ends, but that does not both begin
and end, in the United States, may be subject to a 4% United States federal
income tax without allowance for deduction, unless that corporation qualifies
for exemption from tax under Section 883 of the Code and the applicable
Treasury Regulations 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 forUnited
Statesfederal 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 toUnited Statesfederal income tax on ourUnited Statessource income. Therefore, we can give no assurances on our
tax-exempt status or that of any of our subsidiaries.





If we or our subsidiaries are not
entitled to exemption under Section 883 of the Code for any taxable year, we, or
our subsidiaries, could be subject for those years to an effective 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





TheRepublicofLiberiaenacted 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.






12





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 ordinary shares may be adversely impacted if we are unable to comply with
Section 404 of the Sarbanes-Oxley Act of 2002





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





ITEM 4.  INFORMATION ON THE
COMPANY





A.  HISTORY AND DEVELOPMENT OF
THE COMPANY





Knightsbridge Tankers Limited was
incorporated inBermudaon September 18, 1996. The Company's
registered and principal executive offices are located atPar-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.





Following the redelivery, the Company
entered into a five year time charter for one of its vessels, which expired in
March 2009, 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, aBermudabased 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, three of which are employed on time
charters. One vesselhas
beenoperating in the spot
marketfollowing the expiry
of its time charter in March 2009 and is currently being marketed for
sale.





In May 2007,we entered into agreements for the
construction of two Capesize dry bulkcarriers, eachwith a cargo-carrying capacity of
approximately 170,000 dwt,
withDaehan Shipbuilding Co
Ltd in theRepublicof Korea.Both of the vessels are scheduled to
commence five-year time charters following their delivery to us in August and
October 2009.




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 theMarshall
Islandsand is currently
deployed on time charters operating worldwide.  In addition to the
VLCCs, the Company has contracted to acquire twoCapesize dry bulkcarriers currently under construction.
The Company expects to take delivery of these vessels in 2009 and employ them
under five-year time charters. 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 following chart provides information on the
deployment of our Vessels and the newbuildings as of December 31,
2008:






13





Vessel Name
                Type
                Employment
                Expiration
    DateCamden(1)
                VLCC
                Time
charter
                March
  2009Mayfair
                VLCC
                Time
charter
                March
  2010Hampstead
                VLCC
                Time
charter
                May 2012Kensington
                VLCC
                Time
charter
                May 2011Battersea(2)
                Capesize
                Time
charter
                5 yearsBelgravia(3)
                Capesize
                Time
charter
                5
  years





(1)  Vesselhas beenoperating in the spot market followingtheexpiry ofitstime charter in March 2009 and is
currently being marketed for sale.


(2)  Vessel under construction
for delivery in August 2009. Time charter is expected to commence upon delivery
of the vessel.


(3)  Vessel under construction
for delivery in October 2009. Time charter is expected to commence upon delivery
of the vessel.





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 twoCapesize dry
bulkcarriers, currently
under construction, and upon their delivery in 2009, they will operate in
the dry bulk market.





Our goal is to generate competitive
returns for our shareholders with quarterly dividend paymentsalthough we did not declare a dividend
with respect to the first quarter of 2009 and there is no guarantee that we will
pay a dividend in any future quarters. The level of dividend will be guided
by present earnings, market prospects, current capital expenditure programs as
well as investment opportunities.





Management Structure





The Company has one vessel on a time
charter, which expires in 2010 and two vessels, which  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. The fourth vesselhas beenoperating in the spot market followingtheexpiry ofitstime charter in March 2009 and is
currently being marketed for sale.Two of the Company's subsidiaries have
orderedCapesize dry
bulkvessels at Daehan
Shipbuilding Co. Ltd. inKorea. The constructionof these vesselscommenced in August 2008. The vessels
are expected to be delivered in 2009. 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 byICB Shipping (Bermuda)
Limited(the
"Manager") on the terms set forth in a management
agreement datedFebruary
12, 1997, as subsequently amended by an amendment no. 1 thereto dated March 1,
2004(the "Management
Agreement"). The Manageris
awholly owned
subsidiaryof 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 payableto the Managerpursuant to the terms of theManagement Agreementis$1.15 millionper annum plus a commission of
1.25% on gross freight revenues and 1% of proceeds on the sale of vessels.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 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 day's 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;






14





●
            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
Agreementterminates
automatically in 2012 unless earlier terminated as per 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.




Technical Management of
Vessels





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





Building Supervision of
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 monthper newbuilding, 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., aBermudacompany listed on the Oslo Stock
Exchange.Golden Ocean
Group Limited is a related party to Frontline.





Seasonality




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




Customers




Our
customers include major oil companies, petroleum products traders, government
agencies and various other entities. During the year ended December 31, 2008,
three customers accounted for 91% of our consolidated operating
revenues.




Competition




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






15





Environmental Regulation and Other
Regulations





Government regulations and laws
significantly affect the ownership and operation of our tankers. We are subject
to international conventions, national, state and local laws and regulations in
force in the countries in which our vessels may operate or are registered.
Compliance with such laws, regulations and other requirements entails
significant expense, including vessel modifications and implementation of
certain operating procedures.





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 administrations (countries of registry) 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, certificates 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 that emphasize
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 is in substantial compliance with applicable environmental laws and
regulations and that our vessels have all material permits, licenses,
certificates or other authorizations necessary for the conduct of our
operations; however, because such laws and regulations are frequently changed
and may impose increasingly stricter requirements, we cannot predict the
ultimate cost of complying with these requirements, or the impact of these
requirements on the resale value or useful lives of our 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. Under IMO regulations, in order to trade in ports of IMO
member nations, a newbuild tanker of 5,000 dwt or above 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.





Since the enactment of these
regulations, the IMO has accelerated the timetable for the phase-out of single
hull oil tankers.We do not
currently own any single hull tankers.





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






16





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





The MEPC, in October 2004, adopted a
unified interpretation of 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:





●
            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
      15єC higher than 900 kg/m3;





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





●
            bitumen, tar and their
      emulsions.





Under
the regulation 13H, the flag state may allow continued operation of oil tankers
of 5,000 dwt and above, carrying crude oil with a density at 15єC higher than
900 kg/m3 but lower than 945 kg/m3, that conform to certain technical
specifications and, inthe
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 the 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.






17





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 imposes 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 cubic meters 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, for which the keel is laid on or after February 1,
2008.





Air Emissions





In September 1997, the IMO adopted Annex
VI to the MARPOL Convention, Regulations for the Prevention of Pollution from
Ships, to address air pollution from ships. Effective May 2005, Annex VI sets
limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel
exhausts and prohibits deliberate emissions of ozone depleting substances (such
as halons and chlorofluorocarbons), emissions of volatile compounds from cargo
tanks, and the shipboard incineration of specific substances. 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 current Annex VI regulations. Additional or new conventions, laws and
regulations may be adopted that could require the installation of expensive
emission control systems and could adversely affect our business, results of
operations, cash flows and financial condition. In October 2008, the IMO adopted
amendments to Annex VI regarding nitrogen oxide and sulfur oxide emissions
standards that will enter into force on July 1, 2010. The amended Annex VI would
reduce air pollution from vessels by, among other things, (i) implementing a
progressive reduction of sulfur oxide, emissions from ships, with the global
sulfur oxide emission cap reduced initially from 4.50% to 3.50% beginning
January 1, 2012 and then reduced progressively to 0.50%, by January 1, 2020,
subject to a feasibility review to be completed no later than 2018; and (ii)
establishing new tiers of stringent nitrogen oxide emissions standards for new
marine engines, depending on their date of installation. Once these amendments
become effective, we may incur costs to comply with these revised standards. TheUnited Statesratified the Annex VI amendments in
October 2008, thereby renderingU.S.air emissions standards equivalent to
IMO requirements. The directive 2005/33/EU, which is effective from January 1,
2010, bans the use of fuel oils containing more than 0.1% sulphur by mass by any
merchant vessel whilst at berth in any EU country and this will result in extra
costs and some minor modification of the fuel supply systems in our vessels. Our
initial investigation suggests that compliance can be achieved by modest
investment, purchase of LS fuel and alteration of operating
procedures.





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 material 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 our
appointed ship managers have developed.





The ISM Code requires that vessel
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. Our 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. The document of compliance, or DOC, and ship management
certificate, or SMC, are renewed every five years but DOC is subject to audit
verification annually and the SMC every 2.5 years.





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 inU.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.







18




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 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. To date there has not
been sufficient adoption of this standard for it to take
force.





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.





Anti-Fouling
Requirements





In 2001, the IMO adopted the
International Convention on the Control of Harmful Anti-fouling Systems on
Ships, or the Anti-fouling Convention.  The Anti-fouling Convention
prohibits the use of organotin compound coatings to prevent the attachment of
mollusks and other sea life to the hulls of vessels after September 1,
2003.  The exteriors of vessels constructed prior to January 1, 2003
that have not been in dry-dock must, as of September 17, 2008, either not
contain the prohibited compounds or have coatings applied to the vessel exterior
that act as a barrier to the leaching of the prohibited
compounds.  Vessels of over 400 gross tons engaged in international
voyages must obtain an International Anti-fouling System Certificate and undergo
a survey before the vessel is put into service or when the antifouling systems
are altered or replaced. We are in compliance with the Anti-fouling
Convention.





Oil Pollution
Liability





Although theUnited Statesis 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 0.632000 SDR per U.S. dollar on April 7, 2009. The
right to limit liability is forfeited under the International Convention on
Civil Liability for Oil Pollution Damage 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 laws 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.





The IMO adopted the International
Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, to impose strict liability on ship owners for pollution damage in
jurisdictional waters of ratifying states caused by discharges of bunker fuel.
The Bunker Convention, which became effective on November 21, 2008, requires
registered owners of ships over 1,000 gross tons to maintain insurance for
pollution damage in an amount equal to the limits of liability under the
applicable national or international limitation regime (but not exceeding the
amount calculated in accordance with the Convention on Limitation of Liability
for Maritime Claims of 1976, as amended).  With respect to
non-ratifying states, liability for spills or releases of oil carried as fuel in
ship's bunkers typically is determined by the national or other domestic laws in
the jurisdiction where the events or damages occur.





IMO regulations also require owners and
operators of vessels to adopt Ship Oil Pollution Emergency Plans or SOPEPs.
Periodic training and drills for response personnel and for vessels and their
crews are required.





The IMO continues to review and
introduce new regulations. It is impossible to predict what additional
regulations, if any, may be passed by the IMO and what effect, if any, such
regulations might have on our operations.





United StatesRequirements






19





In 1990, the United States Congress
enacted the U.S. Oil Pollution Act of 1990, or 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 theUnited Statesor its territories or possessions, or
whose vessels operate in the waters of theUnited States, which include theU.S.territorial sea and the 200 nautical
mile exclusive economic zone around theUnited 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 and earnings capacity;
and





●
            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 with respect to tankers over
3,000 gross tons to the greater of $3,000 per gross tons or $22.0 million per
single hull tanker, and $1,900 per gross ton or $16.0 million per double hull
tanker, respectively. 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 for vessels carrying a hazardous substance as
cargo and the greater of $300 per gross ton or $0.5 million for any other
vessel.





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





OPA also requires owners and operators
of vessels to establish and maintain with the U.S. Coast Guard evidence of
financial responsibility sufficient to meet the limit of their potential strict
liability under the act. On October 17, 2008, the U.S. Coast Guard regulatory
requirements under OPA and CERCLA were amended to require evidence of financial
responsibility in amounts that reflect the higher limits of liability imposed by
the July 2006 amendments to OPA, as described above. The increased amounts
became effective on January 15, 2009. U.S. Coast Guard regulations currently
require evidence of financial responsibility in the amount of $3,300 per gross
ton for a single hull tanker or $2,200 per gross ton for a double hull tanker,
coupling the OPA limitation on liability of $3,000 per gross ton for a single
hull tanker, or $1,900 per gross ton for a double hull tanker, respectively,
with the CERCLA liability limit of $300 per gross ton. 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 withinU.S.waters are limited to discharging at
theLouisianaOffshoreOilPortor 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.






20





OPA also amended the Federal Water
Pollution Control Act to require owners or operators of tankers operating in the
waters of theUnited
Statesto 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 theUnited States.





In addition, the U.S. Clean Water Act,
or CWA, prohibits the discharge of oil or hazardous substances inU.S.navigable waters unless authorized by a
duly-issued permit or exemption, and imposes strict liability in the form of
penalties for any unauthorized discharges. The CWA also imposes substantial
liability for the costs of removal, remediation and damages and complements the
remedies available under OPA and CERCLA. Furthermore, mostU.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 thanU.S.federal law.





The U.S. Environmental Protection
Agency, or EPA, historically exempted the discharge of ballast water and other
substances incidental to the normal operation of vessels inU.S.waters from CWA 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 the
EPA's regulations for all discharges incidental to the normal operation of a
vessel as of September 30, 2008, and directed the EPA to develop a system for
regulating all discharges from vessels by that date. The District Court's
decision was affirmed by the Ninth Circuit Court of Appeals on July 23,
2008.





In response to the invalidation and
removal of the EPA's vessel exemption by the Ninth Circuit, the EPA has enacted
rules governing the regulation of ballast water discharges and other discharges
incidental to the normal operation of vessels withinU.S.waters. Under the new rules, which took
effect February 6, 2009, commercial vessels 79 feet in length or longer (other
than commercial fishing vessels), which we refer to as Regulated Vessels, are
required to obtain a CWA permit regulating and authorizing such normal
discharges. This permit, which the EPA has designated as the Vessel General
Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP,
incorporates the current U.S. Coast Guard requirements for ballast water
management as well as supplemental ballast water requirements, and includes
limits applicable to 26 specific discharge streams, such as deck runoff, bilge
water and gray water.





For each discharge type, among other
things, the VGP establishes effluent limits pertaining to the constituents found
in the effluent, including best management practices, or BMPs, designed to
decrease the amount of constituents entering the waste stream. Unlike land-based
discharges, which are deemed acceptable by meeting certain EPA-imposed numerical
effluent limits, each of the 26 VGP discharge limits is deemed to be met when a
Regulated Vessel carries out the BMPs pertinent to that specific discharge
stream. The VGP imposes additional requirements on certain Regulated Vessel
types, including tankers, that emit discharges unique to those vessels.
Administrative provisions, such as inspection, monitoring, recordkeeping and
reporting requirements are also included for all Regulated
Vessels.





On August 31, 2008, the District Court
ordered that the date for implementation of the VGP be postponed from September
30, 2008 until December 19, 2008. This date was further postponed until February
6, 2009 by the District Court. Although the VGP became effective on February 6,
2009, the VGP application procedure, known as the Notice of Intent, or NOI, has
yet to be finalized. Accordingly, Regulated Vesselswereeffectively covered under the VGP from
February 6, 2009 until June 19, 2009, at which time the "eNOI" electronic filing
interface became operational.





Thereafter, owners and operators of
Regulated Vessels must file their NOIs prior to September 19, 2009, or the
Deadline. Any Regulated Vessel that does not file an NOI by the Deadline will,
as of that date, no longer be covered by the VGP and will not be allowed to
discharge intoU.S.navigable waters until it has obtained
a VGP. Any Regulated Vessel that was delivered on or before the Deadline will
receive final VGP permit coverage on the date that the EPA receives such
Regulated Vessel's complete NOI. Regulated Vessels delivered after the Deadline
will not receive VGP permit coverage until 30 days after their NOI submission.
Our fleet is composed entirely of Regulated Vessels, and we intend to submit
NOIs for each vessel in our fleet as soon after June 19, 2009 as
practicable.





Owners and operators of vessels visitingU.S.waters will be required to comply with
this VGP program or face penalties.  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 enteringU.S.waters. In addition, pursuant to
Section 401 of the CWA which requires each state to certify federal discharge
permits such as the VGP, certain states have enacted additional discharge
standards as conditions to their certification of the VGP. These local standards
bring the VGP into compliance with more stringent state requirements, such as
those further restricting ballast water discharges and preventing the
introduction of non-indigenous species considered to be invasive. The VGP and
its state-specific regulations and any similar restrictions enacted in the
future will increase the costs of operating in the relevant
waters.






21





The U.S. Clean Air Act of 1970, as
amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires
the EPA to promulgate standards applicable to emissions of volatile organic
compounds and other air contaminants. Our vessels are subject to vapor control
and recovery requirements for certain cargoes when loading, unloading,
ballasting, cleaning and conducting other operations in regulated port areas.
Our vessels that operate in such port areas with restricted cargoes are equipped
with vapor recovery systems that satisfy these requirements. The CAA also
requires states to draft State Implementation Plans, or SIPs, designed to attain
national health-based air quality standards in primarily major metropolitan
and/or industrial areas. Several SIPs regulate emissions resulting from vessel
loading and unloading operations by requiring the installation of vapor control
equipment. As indicated above, our vessels operating in covered port areas are
already equipped with vapor recovery systems that satisfy these existing
requirements. As referenced above, the amended Annex VI to the IMO's MARPOL
Convention, which addresses air pollution from ships, was ratified by theUnited Stateson October 9, 2008 and entered into
force domestically on January 8, 2009. Previously, the state ofCaliforniahad adopted stringent air emissions
requirements for ocean-going vessels that were held by a federal court in
February 2008 to be preempted by the Clean Air Act and thus invalidated. In
response, on July 24, 2008, the California Air Resources Board of the State ofCalifornia, or CARB, then adopted clean-fuel
regulations applicable to all vessels sailing within 24 miles of theCaliforniacoastline whose itineraries call for
them to enter anyCaliforniaports, terminal facilities, or internal
or estuarine waters. The new CARB regulations, while avoiding explicit
regulation of emissions, require such vessels to use low sulfur marine fuels
rather than bunker fuel. By July 1, 2009, such vessels are required to switch
either to marine gas oil with a sulfur content of no more than 1.5% or marine
diesel oil with a sulfur content of no more than 0.5%. By 2012, only marine gas
oil and marine diesel oil fuels with 0.1% sulfur will be allowed.Californiais also requesting EPA to grant it a
waiver under the Clean Air Act to enforce theCaliforniavessel emission standards that were
invalidated. More legal challenges are expected to follow. If EPA grants theCaliforniawaiver request or if CARB prevails and
the new fuel content regulations go into effect as scheduled on July 1, 2009,
our vessels would be subject to the CARB requirements if they were to travel
within such waters. The newCaliforniaregulations would require significant
expenditures on low-sulfur fuel and would increase our operating costs. Finally,
although the more stringent CARB regime was technically superseded when the
United States ratified and implemented the amended Annex VI, the United States
and Canada jointly requested IMO on March 27, 2009 to designate the area
extending 200 miles from their territorial sea baseline adjacent to the
Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as
Emissions Control Areas under the Annex VI amendments. If approved by IMO, more
stringent emissions standards similar to the new CARB regulations would apply in
the Emissions Control Areas that would cause us to incur further
costs.





The U.S. National Invasive Species Act,
or NISA, was enacted in 1996 in response to growing reports of harmful organisms
being released intoU.S.ports through ballast water taken on by
ships in foreign ports. The U.S. 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 U.S. Coast Guard. (However,
mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes orHudson 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 U.S. Coast Guard regulations, since
holding ballast water can prevent ships from performing cargo operations upon
arrival in theUnited
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 theHudson River), provided that they comply with
recordkeeping requirements and document the reasons they could not follow the
required ballast water management requirements. The U.S. 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. In April
2008, the U.S. House of Representatives passed a bill that amends NISA by
prohibiting the discharge of ballast water unless it has been treated with
specified methods or acceptable alternatives. Similar bills have been introduced
in the U.S. Senate, but we cannot predict which bill, if any, will be enacted
into law. In the absence of federal standards, states have enacted legislation
or regulations to address invasive species through ballast water and hull
cleaning management and permitting requirements. For instance, the state ofCaliforniahas recently enacted legislation
extending its ballast water management program to regulate the management of
"hull fouling" organisms attached to vessels and adopted regulations limiting
the number of organisms in ballast water discharges.Michigan's ballast water management legislation
mandating the use of various techniques for ballast water treatment was upheld
by the federal courts. Other states may proceed with the enactment of similar
requirements that could increase the costs of operating in state
waters.





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.






22





Other Regulations





European Union Tanker
      Regulations





In July 2003, in response to the MTPrestigeoil spill in November 2002, the
European Union adopted legislation, which was amended in October 2003 that
prohibits all single hull tankers from entering into its ports or offshore
terminals by 2010 or earlier, depending on their age. The European Union has
also already 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 MTPrestigeand 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.





Greenhouse Gas
Regulation





In February 2005, the Kyoto Protocol to
the United Nations Framework Convention on Climate Change, or the Kyoto
Protocol, entered into force. Pursuant to the Kyoto Protocol, adopting countries
are required to implement national programs to reduce emissions of certain
gases, generally referred to as greenhouse gases, which are suspected of
contributing to global warming. Currently, the emissions of greenhouse gases
from international shipping are not subject to the Kyoto Protocol. However, the
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels. In theUnited States, the Attorneys General from 16 states
and a coalition of environmental groups in April 2008 filed a petition for a
writ of mandamus, or petition, with the DC Circuit Court of Appeals, or the DC
Circuit, to request an order requiring the EPA to regulate greenhouse gas
emissions from ocean-going vessels under the Clean Air Act. Although the DC
Circuit denied the petition in June 2008, EPA then published an Advanced Notice
of Proposed Rulemaking soliciting comments on whether greenhouse gas emissions
should be regulated under the Clean Air Act. Climate change initiatives will
also be considered by the U.S. Congress in this session. Any future passage of
climate control legislation or other regulatory initiatives by the IMO, European
Union or individual countries where we operate that restrict emissions of
greenhouse gases could entail financial impacts on our operations that we cannot
predict with certainty at this time.





Vessel Security
Regulations





Since the terrorist attacks of September
11, 2001, there have been a variety of initiatives intended to enhance vessel
security. 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 theUnited 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 alert
      the authorities on shore;





●
            the development of vessel security
      plans;





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






23





●
            a continuous synopsis record kept
      onboard showing a vessel's history including the 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.





Inspection by Classification
Societies





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





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 and 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 are drydocked every 30-36 months for inspection of the underwater parts and
for repairs related to the inspection. 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 insurance underwriters make it a
condition for insurance coverage that a vessel be certified as "in-class" by a
classification society which is a member of the International Association of
Classification Societies. All our vessels are certified as being "in-class" by a
recognized classification society.





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.






24





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.





C.  ORGANIZATIONAL
STRUCTURE





See Exhibit 8.1 for a list of oursignificantsubsidiaries.





D.  PROPERTY, PLANT AND
EQUIPMENT





We operate a modern fleet of four
tankers and have contracts to acquire twoCapesize dry bulkcarriers 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.






25





One of the Company's vessels is
currently operating in the spot market. The remaining three 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
    2011Mayfair
            $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 $53,000netper day. The length of both charters is
five years and they are due to commence upon delivery of the vessels in
2009.





Market Overview and Trend
Information





In early 2008, the daily TCE for VLCCs
reached a high of approximately $195,000. Despite the volatility experienced in
the tanker market throughout the year, the daily TCE was approximately $100,000
during the second and third quarters of 2008 and approximately $50,000 to
$70,000 during the fourth quarter of 2008. Average earnings for double hull
VLCCs in 2008 was in excess of $95,000 per day according to industry sources.
The recent adverse changes in world financial markets have not materially
affected our business in 2008.





In the first half of 2008, the tanker
market benefited from the following factors:





●
            The National Iranian Tanker
      Company tied up an estimated 12 to 14 VLCCs for storage as there was low
      demand for Iranian crude
oil;





●
            Strong demand from the Chinese in
      connection with the 2008 Olympic
Games;





●
            Number of port strikes during
      2008, including inFrance, contributed to a tighter tonnage
      list;





●
            Total ton-mile growth for the US,
      China, Japan and Korea was, according to industry sources, approximately
      7.3%, increasing from just below 14,000 miles in the first quarter of 2007
      to approximately 15,000 miles in the first quarter of
      2008.





During the second half of 2008, the
decreased production of crude oil by OPEC was one of the major factors impacting
the tanker market. The oil price in 2008 averaged at $98.70 per barrel, peaking
at a record high of $143 per barrel on July 11 and a low of approximately $38
per barrel by the end of December. As crude oil prices and world demand for
petroleum products decreased throughout the second half of 2008, OPEC production
was reduced.





Average OPEC production is estimated at
31.24 million barrels per day in 2008 according to IEA'sJune2009 report. The expected 2009 OPEC
production output figure has not yet been published by the IEA, however, they
reported a first quarter 2009 OPEC production of 28.49million barrels per day, which is a
decrease of approximately3.9million barrels per day
year-on-year.


The IEA further estimates that average
world oil demand was 85.8 million barrels per day in 2008, a 0.3% decrease from
2007. For 2009, a decrease in world oil demand of 2.9% or 2.5million barrels per day is
forecast.





The tanker market benefited from
'contango' in the oil price during 2008. This is a market condition where the
future oil price is higher than the current price. At the end of October 2008,
the spread between the current and future oil price widened making it profitable
for oil companies and traders to store crude oil. Consequently, the demand for
storage services increased, predominantly in the Atlantic basin but also in theArabian Gulf. The spot market at that time was
approximately $50,000 per day. Since then approximately 40 ships were
charterered either for straight storage or voyages followed by storage, with
rates ranging from $55,000 to $85,000 per day.





Throughout 2008, there was a continued
trend among oil companies to discriminate against single hull tankers due to
their decreasing territory allowance and increasing probability of
inspection.





Bunkers followed the movements in the
oil market closely in 2008. The lowest bunker price in Fujairah was quoted at
the end of December at $206.50 per metric ton while the highest bunker price inFujairahwas quoted at $756.5 per metric ton in
mid-July. The average bunker price in 2008 was approximately $508 per metric
ton.





According to figures released in April
2009 by The International Monetary Fund, or 'IMF', the World Trade Volume had a
3.3% increase in 2008. However, the IMF forecast that the World Trade Volume
will see a decline of 11% in 2009. Furthermore, world GDP increased by 3.2% in
2008 and is forecast to decline by 1.3% throughout 2009. In 2008, the U.S had a
1.1% growth in the GDP, which is estimated to decline by 2.8% throughout 2009.China's 2008 GDP increased by 9%
year-on-year, and is forecast to have a 6.5% increase in 2009. Negative growth
is expected in Europe andJapanwhile emerging markets and developing
countries will experience a continued decrease in their growth
figures.






26





In 2008, the total VLCC fleet increased
by 7.6% to 500 vessels. Throughout the year a total of 38 new vessels were
delivered to owners and 82 new orders were made. The total order book amounted
to 230 vessels at the end of the year, which represented approximately 46% of
the existing fleet.





Throughout 2009 it is estimated that69new VLCCs will enter the market
including19in the first quarterand 10 in the second
quarter. This substantial
amount of new tonnage will be partially offset by the expected phase out program
of single hull vessels. Further cancellations of orders and delays in deliveries
of newbuildings are also expected.





Critical Accounting Policies and
Estimates





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




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




Revenue
and expense recognition




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




Vessels




The
cost of the vessels less estimated residual value is depreciated on a
straight-line basis over the vessels' estimated remaining economic useful lives.
The estimated economic useful life of the Company's vessels is 25
years.





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.






27





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





Operating revenues





(in thousands of
      $)
                
                2008
                
                
                2007
                
                ChangeTime charter
      revenues
                
                
                74,837
                
                
                
                53,814
                
                39.1%Voyage charter
      revenues
                
                
                8,077
                
                
                
                34,346
                
                (76.5)%Total operating
      revenues
                
                
                82,914
                
                
                
                88,160
                
                (6.0)%





The
increase in time charter revenues is due to the full year impact of three
vessels, which entered into new time charter agreements during 2007. The rate
for Hampstead and Kensington increased by $7,750 per day from June 2007. In
addition, the profit share for the two vessels was much higher compared to 2007,
due to increases in the spot market related index which is used to calculate
profit share allocations. The rate for the Camden increased by $14,000 per day
from April 2007.





Due to the sale of the only vessel
trading in the spot market, there has been a sharp fall in voyage charter
revenues. Although the vessel was sold in December 2007, the revenue has been
recognized ratably over the length of the last voyage. The voyage ended in
February 2008 and the vessel was promptly delivered to its new
owners.





Operating expenses





(in thousands of
      $)
              
              2008
              
              
              2007
              
              
              ChangeVoyage expenses and
      commission
              
              
              4,012
              
              
              
              12,872
              
              
              
              (68.8)%Ship operating
      expenses
              
              
              14,535
              
              
              
              15,544
              
              
              
              (6.5)%Administrative
      expenses
              
              
              1,538
              
              
              
              1,481
              
              
              
              3.9%Depreciation
              
              
              13,711
              
              
              
              17,016
              
              
              
              (19.4)%Total operating
      expenses
              
              
              33,796
              
              
              
              46,913
              
              
              
              (28.0)%





50.0% (2007: 91.9%) of voyage expenses
and commissions relates to the vessels that operated in the spot
market.  The decrease in voyage expenses and commissions in 2008 is
due primarily to the sale of one vessel and the delivery to its new owner in
February 2008.





Ship operating expenses fell by 6.5%
during 2008,primarily due the sale of one vessel
and the delivery to its new owner in February 2008offset by an increase in crew costs.
There were no dry docking costs during 2008 (2007: nil).





The decrease in depreciation is due to
having one less vessel in the fleet.






28





Gain on sale of
assets





(in thousands of
      $)
                
                2008
                
                
                2007
                
                
                ChangeGain on sale of
      assets
                
                
                -
                
                
                
                49,119
                
                
                
                -





No assets were sold during the year. The
gain on sale of assets in 2007 relates to the sale of the VLCC Chelsea in
December 2007.





Interest income and
expenses





(in thousands of
      $)
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeInterest
      income
                  
                  
                  2,336
                  
                  
                  
                  1,026
                  
                  
                  
                  127.7%Interest
      expense
                  
                  
                  (3,216
                  )
                  
                  
                  (6,373
                  )
                  
                  
                  (49.5)%Net interest
      expense
                  
                  
                  (880
                  )
                  
                  
                  (5,347
                  )
                  
                  
                  (83.5)%





The increase in interest income during
2008 is primarily due to larger amounts invested for longer periods resulting
from the sale of the VLCC Chelsea in December 2007 for net proceeds of $99.0
million.





Interest expense consists of interest
paid in relation to the $140.0 million loan facility. The decrease in interest
expense in 2008 is due to the lower average debt outstanding, which is largely a
result of a $20.2 million repayment in December 2007 following the sale of a
vessel, and lower interest rates during the year.The average three month LIBOR rate
during the year was 3.52% (2007: 5.32%). The interest expense of $1.4 million on
the newbuilding financing has been capitalized (2007: $1.0
million).





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)%





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.






29





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).





Recently Issued Accounting
Standards





In
September 2006, the Financial Accounting Standards Board ('FASB') issued
Financial Accounting Standard No. 157, Fair Value Measurements, ('FAS
157'),and is effective for fiscal years beginning after November 15,
2007.This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. The statement establishes a fair value hierarchy that
distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reported entity and the reported
entities own assumptions about market participant assumptions developed based on
the best information available in the circumstances. In February 2008, the FASB
issued a staff position that delays the effective date of FAS 157 for certain
nonfinancial assets and liabilities to fiscal years beginning on or after
November 15, 2008. The Company's adoption of FAS 157 did not have a material
effect on the consolidated financial statements. Adoption of the delayed
provisions of FAS 157 is not expected to have a material effect on the Company's
consolidated financial statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standard
No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115 ("FAS 159"). FAS 159
allows  entities to choose to measure many financial instruments and
certain other items at fair value, with unrealized gains and losses related to
these financial instruments being reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company's adoption of this statement did not have a
material effect on the consolidated financial statements.




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




In
March 2008, the FASB issued Statement of Financial Accounting Standard
No. 161, Disclosures
about Derivative Instruments and Hedging Activities ('FAS 161'). This
standard amends and expands the disclosure requirements of FASB Statement 133,
Accounting for Derivative
Instruments and Hedging Activities, and is effective for fiscal years
beginning after November 15, 2008. FAS 161 requires enhanced disclosures that
better convey the purpose of an entity's derivative and hedging activities in
terms of the risk it intends to manage. In addition to other disclosure
requirements, the statement requires disclosure of the reasons for holding or
issuing derivative instruments in the context of its overall risk exposure. The
Company's adoption of FAS 161 is not expected to have a material effect on the
Company's consolidated financial statements.




In
May 2008, the FASB issued Statement of Financial Accounting Standard
No. 162, The Hierarchy of
Generally Accepted Accounting Principles,('FAS 162'). This Statement
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements in
conformity with generally accepted accounting principles in the United States.
Adoption of FAS 162 is not expected to have a material effect on the Company's
consolidated financial statements.





Liquidity and Capital
Resources





The Company operates in a capital
intensive industry and has historically financed its purchase ofvesselsthrough 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.  Periodic adjustments to the
supply of and demand for oil tankers cause the industry to be cyclical in
nature.






30





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 inUnited Statesdollars.





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 inMay2009 for our VLCCs to be
$19,200. 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. We believe
our working capital is sufficient for the Company's present requirements;
however, we may not be able to refinance our current borrowings or enter
into future borrowings at an interest rate or on terms that are acceptable to us
or at all.  See "Risk Factors -We cannot assure you that we will be
able to refinance indebtedness incurred under our current credit
facilities."





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, proceeds from the sale of
vesselsand 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, 2008, 2007, and 2006,
the Company had cash and cash equivalents of $78.0 million, $82.1 million and
$8.5 million, respectively. As of December 31, 2008, 2007, and 2006, 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
ofScotland.  The cash position at the
end of 2008 was slightly lower than 2007 but still significantly higher than
2006 due to the funds generated by the sale ofChelsea.





During the year ended December 31, 2008,
we paid total cash dividends of $47.0 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 an
extension of the Loan with two tranches of $16.8 million each,subject to the same covenants as the
original Loan,in order to fund the first installments
on the two Capesize newbuildings. The tranches are repayableupon delivery of the Capesize vessels,
which is expected to beinAugust andOctober 2009.In addition to this,the remainingnewbuilding installments at May 31,
2009,which are due to be paid by the time of
the vessels' deliveries, total$81.0million.The Company intends to fund these
commitments from existing cash resources and new bank financing committed in
June 2009.




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.






31





Off-balance sheet
arrangements





None.





Tabular disclosure of contractual
obligations





At December 31 2008, the Company had the
following contractual obligations:





Payment due by
      periodTotal
              
              
              Less than one
      year
              
              
              1-3 years
              
              
              3-5 years
              
              
              More than 5
      years(In thousands of
      $)Debt
    (1)
              
              
              103,040
              
              
              
              42,560
              
              
              
              60,480
              
              
              
              -
              
              
              
              -Newbuilding
      commitments
              
              
              113,400
              
              
              
              113,400
              
              
              
              -
              
              
              
              -
              
              
              
              -Total contractual cash
      obligations
              
              
              216,440
              
              
              
              155,960
              
              
              
              60,480
              
              
              
              -
              
              
              
              -





(1) All of the Company's loan facilities
are at floating interest rates based on three month LIBOR plus 0.7% and the
Company has not entered into any interest rate swaps. The amounts included above
do not include interest payments.





Safe
harbor




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







ITEM 6.  DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES





A.  DIRECTORS AND SENIOR
MANAGEMENT





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





The Company




Name
              
              Age
              
              PositionOla
    Lorentzon
              
              59
              
              Director and
      ChairmanDouglas C.
      Wolcott
              
              77
              
              Director and Audit Committee
      memberDavid M.
    White
              
              68
              
              Director and Audit Committee
      ChairmanHans Petter
    Aas
              
              63
              
              DirectorInger M.
    Klemp
              
              46
              
              Chief Financial
      OfficerGeorginaSousa
              
              59
              
              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
              
              46
              
              Director and
      PresidentKate
      Blankenship
              
              44
              
              DirectorGraham
Baker
              
              49
              
              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
Lorentzonhas 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, Sea Bird Exploration Ltdand is the ChairmanStockholm Chartering AB.  Mr. Lorentzon was the
Managing Director of Frontline Management AS, a subsidiary of Frontline, from
April 2000 until September 2003.






32





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.
Whitehas 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 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.




Hans Petter
Aas has been a Director of the Company since September 2008. Mr. Aas has
been a Director of Ship Finance International Limited since August 2008 and
Chairman since January 2009. Mr. Aas has a long career as banker in the
international shipping and offshore market, and retired from his position as
Global Head of the Shipping, Offshore and Logistics Division of DnB NOR Bank ASA
("DnB NOR") in August 2008. He joined DnB NOR (then Bergen Bank) in 1989, and
has previously worked for the Petroleum Division of the Norwegian Ministry of
Industry and the Ministry of Energy, as well as for VestaInsurance and Nevi
Finance.




Inger M.
Klemphas 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 has served as a director of
Independent Tankers Corporation Limited since February 2008. Mrs. Klemp served
as Vice President Finance of Frontline Management AS from August 2001 until she
was promoted in May 2006. Mrs. Klemp graduated as MSc in Business and Economics
from theNorwegianSchoolof 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
Blankenshipwas 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, Golden Ocean Group Limited and
Independent Tankers Corporation Limited.Sheis a member of theInstituteofChartered AccountantsinEnglandandWales.





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 largeNasdaq
listedcompany and before
that the European Chief Financial Officer of DVI Inc., a NYSE listed group. He
is a member of theInstituteofChartered AccountantsinEnglandandWalesand the Association of Corporate
Treasurers.





Georgina E.
Sousahas 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, aBermudamanagement 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 theBermudalaw firm of Cox & Wilkinson as
Senior Company Secretary.





B.  COMPENSATION





The Company incurred directors' fees of
$337,000 in 2008. No separate compensation was paid to the Company's
officers.





C.  BOARD
PRACTICES





As provided in the Company's bye-laws,
eachdirector shall hold office until the next
Annual General Meeting following his election or until his successor is
elected.  Theofficers of the Company are elected by
theboard ofdirectors 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.The audit
committee is responsible for assisting the Board with its oversight
responsibilities regarding the integrity of our financial statements, our
compliance with legal and regulatory requirements, our independent registered
public accounting firm's qualifications and independence, and the performance of
our internal audit functions.





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






33





Board practices and exemptions fromthe Nasdaqcorporate governance
rules





We have certified toNasdaqthat our corporate governance practices
are in compliance with, and are not prohibited by, the laws ofBermuda. Therefore, we are exempt from many ofNasdaq'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 withNasdaqcorporate 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 ofNasdaq's corporate governance rules are as
follows:





●
            Our board of directors is
      currently comprised by a majority of independent
      directors.  UnderBermudalaw, 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 withBermudalaw.





●
            In lieu of an audit committee
      comprised of three independent directors, our audit committee has two
      members, which is consistent withBermudalaw.  Both members of
      the audit committee currently meetNasdaq'srequirement 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 prohibitshareholders 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. UnderBermudalaw, 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 toNasdaqcorporate governance rules and as
      a foreign private issuer, we are not required to solicit proxies or
      provide proxy statements toNasdaq.Bermudalaw does not require that we
      solicit proxies or provide proxy statements toNasdaq. Consistent withBermudalaw and as provided in our
      bye-laws, we are also required to notify our shareholders of meetings no
      less thanfivedays 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 applicableNasdaqcorporate 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 June 30, 2009, none of the
directors or officers of the Company owned any Common Shares of the
Company.





ITEM 7.  MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS





A.  MAJOR
SHAREHOLDERS





The
following table presents certain information as of June 30, 2009 regarding the
ownership of our shares of common stock with respect to each shareholder, who we
know to beneficially own more than five percent of our outstanding shares of
common stock.





Beneficial
      Owner
                  Amount
      of Common Shares
                  Percentage
      OwnershipOceanic
      Investment Management Ltd. (1)
                  953,303
                  5.57%






34





(1)
Information derived from the Schedule 13G of Oceanic Investment Management Ltd.
which wasfiled
with the Commission on June 18, 2009.





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.





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.





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 hire 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. The
declaration and payment of dividends will be subject at all times to the
discretion of our board of directors.





In 2008, 2007 and 2006, the Company paid
the following distributions to shareholders.





Record Date
              Payment
Date
              Amount per
      share2008February 26,
      2008
              March 7,
    2008
              $0.75May 27,
2008
              June 9,
2008
              $0.75August 22,
    2008
              September 9,
      2008
              $0.75December 9,
      2008
              December 22,
      2008
              $0.502007February 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
              $1.00





On February 5,2009,the Board declared a cash dividend of
$0.25 per share for the fourth quarter of 2008 that was paid on March 2, 2009.
On May 13, 2009, the Board declared a dividend of $nil for the first quarter of
2009.





B.  SIGNIFICANT
CHANGES





Not applicable.






35





ITEM 9.  THE OFFER AND
LISTING





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





Fiscal year
      ended December 31,
              
              High
              
              
              Low2008
              
              $
              35.00
              
              
              $
              10.012007
              
              $
              34.00
              
              
              $
              23.012006
              
              $
              30.78
              
              
              $
              20.422005
              
              $
              47.50
              
              
              $
              23.762004
              
              $
              39.25
              
              
              $
              12.52





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 theNasdaq Global SelectMarket.





Fiscal year
      ended December 31, 2008
              
              High
              
              
              LowFirst
      quarter
              
              $
              28.79
              
              
              $
              20.25Second
      quarter
              
              $
              35.00
              
              
              $
              26.00Third
      quarter
              
              $
              33.83
              
              
              $
              23.30Fourth
      quarter
              
              $
              26.47
              
              
              $
              10.01





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





The following table sets forth, for the
most recent six months, the high and low closing prices for the Common Shares as
reported by theNasdaq
Global SelectMarket.





Month
              
              High
              
              
              LowMay
    2009
              
              $
              16.95
              
              
              $
              12.34April
      2009
              
              $
              16.16
              
              
              $
              12.71March
      2009
              
              $
              15.96
              
              
              $
              11.00February
      2009
              
              $
              17.16
              
              
              $
              13.17January
      2009
              
              $
              16.20
              
              
              $
              13.52December
      2008
              
              $
              16.44
              
              
              $
              12.32





The Company'sshares of common stockhave been quoted on theNasdaq Global SelectMarket under the symbol "VLCCF" since
its initial public offering in February 1997.








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.






36





C.  MATERIAL
CONTRACTS





In May 2007, the Company announced that it had agreed
to purchase two newbuilding contracts, each for aCapesize dry bulkcarrier of approximately 170,000 dwt.
Thevesselswill be built at Daehan Shipbuilding
Co. Ltd.in theRepublicofKoreawith delivery scheduled forAugust and October2009. The newbuilding
contracts have been acquired from Golden Ocean Group Limited("GOGL"), a companywhich 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
thevessels' 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 residing outside Bermuda
for exchange control purposes may be effected without specific consent under the
Exchange Control Act of 1972 and regulations thereunder and the issuance of
ordinary shares to persons regarded as residing outside Bermuda for exchange
control purposes may be effected without specific consent under the Exchange
Control Act of 1972 and regulations thereunder. Issues and transfers of ordinary
shares involving any person regarded as residing in Bermuda for exchange control
purposes requires specific prior approval under the Exchange Control Act of
1972.




The
owners of ordinary shares who ordinarily reside 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 StatesTaxation





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 judicial decisions, all as of the
date of this Annual Report.  Unless otherwise noted, references to the
"Company" include the Company's Subsidiaries.  This discussion
assumes that the Company does not have an office or other fixed place of
business in theUnited
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, charterhire or lease from time
or voyage charters and the performance of services directly related thereto,
which the Company refers to as "shipping income."





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





Shipping income attributable to
transportation exclusively between non-U.S. ports will be considered to be 100%
derived from sources outside theUnited States. Shipping income derived from sources
outside theUnited
Stateswill not be subject
toU.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 fromU.S.ports. Unless exempt from U.S. taxation
under Section 883 of the Code, or 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






37





Under the relevant provisions of Section
883, the Company will be exempt fromU.S.taxation on itsU.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
recognizedBermuda, the country of incorporation of the
Company, as a qualified foreign country. In addition, the U.S. Treasury
Department has recognizedLiberia,the countryof incorporation of certain of the
Company'svessel-owningsubsidiaries, asaqualified foreign country.  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 2008 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 New
York Stock Exchange.





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 ofU.S.source income, the Company'sU.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 onSaleof Vessels





Regardless of whether the Company
qualifies for exemption under Section 883, the Company will not be subject to
U.S. 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 U.S. 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 theUnited States.





Taxation ofU.S.Holders





The following is a discussion of the
materialU.S.federal income tax considerations
relevant to an investment decision by a U.S. Holder, as defined below, with
respect to the Ordinary Shares.  This discussion does not purport to
deal with the tax consequences of owning Ordinary Shares to all categories
of investors, some of which 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 underU.S.federal, state, local or foreign
law of the ownership of Ordinary Shares.





As used herein, the term "U.S. Holder"
means a beneficial owner of Ordinary Shares 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 Ordinary Shares as a capital asset, generally, for
investment purposes.





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






38





Distributions





Subject to the discussion of passive
foreign investment companies below, any distributions made by the Company with
respect to Ordinary shares 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 U.S. 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 Ordinary Shares on a
dollar-for-dollar basis and thereafter as capital gain.  Because the
Company is not aU.S.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 on Ordinary Shares to a
U.S. 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 U.S. federal income tax rates
(currently through 2010) provided that (1) OrdinaryShares are readily tradable on an
established securities market in the United States (such as theNasdaq Global Select Marketon which the OrdinaryShares are listed); (2) the Company is
not a passive foreign investment company for the taxable year during which the
dividend is paid or the immediately preceding taxable year (which the Company
does not believe it is, has been or will be); and (3) the U.S. Non-Corporate
Holder has owned the Ordinary Shares for more than 60 days in the 121-day period
beginning 60 days before the date on which the Ordinary Shares become
ex-dividend.





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





Sale, Exchange or other Disposition of
Common Stock





Assuming the Company does not constitute
a passive foreign investment company for any taxable year, a U.S. Holder
generally will recognize taxable gain or loss upon a sale, exchange or other
disposition of the Company's Ordinary Shares in an amount equal to the
difference between the amount realized by the 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 Ordinary Shares 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





SpecialU.S.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, forU.S.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
Company's Ordinary Shares, either;





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





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





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





Based on the Company's current
operations and future projections, the company does not believe that it is, nor
does it expect to become, a PFIC with respect to any taxable
year.  Although there is no legal authority directly on point, the
company's belief is based principally on the position that, for purposes of
determining whether the Company is a PFIC, the gross income the Company derives
or is deemed to derive from the time chartering and voyage chartering activities
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.  The
Company believes there is substantial legal authority supporting its position
consisting of case law and Internal Revenue Service pronouncements concerning
the characterization of income derived from time charters and voyage charters as
services income for other tax purposes.  However,there is also authority which
characterizes time charter income as rental income rather than services income
for other tax purposes. In
the absence of any legal authority specifically relating to the statutory
provisions governing passive foreign investment companies, the Internal Revenue
Service or a court could disagree with this position.  In addition,
the Company intends to conduct our affairs in a manner to avoid being classified
as a PFIC with respect to any taxable year, there can be no assurance that the
nature of its operations will not change in the future.






39





As discussed more fully below, if the
Company were to be treated as a PFIC for any taxable year, a U.S. Holder would
be subject to different taxation rules depending on whether the U.S. Holder
makes an election to treat the Company as a "Qualified Electing Fund," which
election is referred to as a "QEF election." As an alternative to making a QEF
election, a U.S. Holder should be able to make a "mark-to-market" election with
respect to the Ordinary Shares, as discussed below.





Taxation ofU.S.Holders Making a Timely QEF
Election





If a U.S. Holder makes a timely QEF
election, which U.S. Holder is referred to as an "Electing Holder," the Electing
Holder must report each year for U.S. federal income tax purposes his pro rata
share of the Company's ordinary earnings and its net capital gain, if any, for
the Company's taxable year that ends with or within the taxable year of the
Electing Holder, regardless of whether or not distributions were received from
the Company by the Electing Holder.  The Electing Holder's adjusted
tax basis in the Ordinary Shares will be increased to reflect taxed but
undistributed earnings and profits.  Distributions of earnings and
profits that had been previously taxed will result in a corresponding reduction
in the adjusted tax basis in the Ordinary Shares and will not be taxed again
once distributed.  An Electing Holder would generally recognize
capital gain or loss on the sale, exchange or other disposition of the Ordinary
Shares.





Taxation ofU.S.Holders Making a "Mark-to-Market"
Election





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





Taxation ofU.S.Holders Not Making a Timely QEF or
"Mark-to-Market" Election





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





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





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





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





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





Backup Withholding and Information
Reporting





In general, dividend payments, or other
taxable distributions, made within theUnited Statesto a holder will be subject to
information reporting requirements.  Such payments will also be
subject to "backup withholding" if paid to a non-corporate U.S. Holder
who:





●
              fails to provide an accurate
      taxpayer identification
number;





●
              is notified by the Internal
      Revenue Service that he has failed to report all interest or dividends
      required to be shown on his federal income tax returns;
      or






40





●
              in certain circumstances, fails to
      comply with applicable certification
  requirements.





If a holder sells his Ordinary Shares to
or through aU.S.office or broker, the payment of the
proceeds is subject to bothU.S.backup withholding and information
reporting unless the holder establishes an exemption.  If a holders
sells his Ordinary Shares through a non-U.S. office of a non-U.S. broker and the
sales proceeds are paid to the holder outside theUnited Statesthen information reporting and backup
withholding generally will not apply to that payment.  However,U.S.information reporting requirements, but
not backup withholding, will apply to a payment of sales proceeds, including a
payment made to a holder outside theUnited States, if the holder sells his Ordinary
Shares through a non-U.S. office of a broker that is aU.S.person or has some other contacts with
theUnited
States.





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





BermudaTaxation





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 Ordinary Shares. Bermuda has
undertaken not to impose any such Bermuda taxes on U.S. Shareholders of Ordinary
Shares prior to the year 2016 except in so far as such tax applies
to  persons  ordinarily resident inBermuda. The Company is not eligible for the
benefits of any tax treaty between theUnited StatesandBermuda.





Liberian Taxation





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





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





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





F.  DIVIDENDS AND PAYING
AGENTS





Not applicable.





G.  STATEMENT BY
EXPERTS





Not applicable.





H.  DOCUMENTS ON
DISPLAY





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






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 utilize 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 borrowingsas ofDecember 31, 2008 of $103.0
million (December 31, 2007: $112.0 million) bear interest at an annual rate of
LIBOR plus a margin of 0.7%. A1%change in interest rates would increase
or decrease interest expense by $1.0 million per year as of December 31, 2008.
The fair value of the loan facility at December 31, 2008 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





None.





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





None.





ITEM 15.  CONTROLS AND
PROCEDURES





a)   Disclosure
Controls and Procedures




Management
assessed the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934, as of the end of the period covered by this annual report
as of December 31, 2008. 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, 2008.
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, 2008.




The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2008 has been audited by MSPC Certified Public Accountants and
Advisors, a Professional Corporation, ("MSPC"), 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.






43





ITEM 16A. AUDIT COMMITTEE FINANCIAL
EXPERT





The Board has determined that the
Company'sauditcommittee has oneauditcommitteefinancialexpert. Mr. David White is an independent
director and is theauditcommitteefinancialexpert.





ITEM 16B. CODE OF
ETHICS





The Company has adopted acode ofethics 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'sManager. Thecode ofethics 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 thisannualreport.





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





ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES





Our independent registered public
accounting firm for 2008 and 2007 wasMSPC. The following table sets forth for the
two most recent fiscal years the fees paid or accrued for audit and services
provided byMSPC.





(in $)
              
              2008
              
              
              2007Audit Fees
      (a)
              
              
              220,000
              
              
              
              200,000Audit-Related Fees
      (b)
              
              
              -
              
              
              
              -Tax Fees
      (c)
              
              
              -
              
              
              
              -All Other Fees
      (d)
              
              
              3,738
              
              
              
              4,600Total
              
              
              223,738
              
              
              
              204,600





(a)           Audit
Fees


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





(b)           Audit–Related
Fees


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





(c)           Tax
Fees


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





(d)           All
Other Fees


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





Our Board of Directors has adopted
pre-approval policies and procedures in compliance with paragraph (c) (7)(i) of
Rule 2-01 of Regulation S-X that require the Board to approve the appointment of
the independent auditor of the Company before such auditor is engaged and
approve each of the audit and non-audit related services to be provided by such
auditor under such engagement by the Company. All services provided by the
principal auditor in 2008 were approved by the Board pursuant to the
pre-approval policy.





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





Not applicable.





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





None.





ITEM 16F. CHANGE IN REGISTRANT'S
CERTIFYING ACCOUNTANT





Not applicable.





ITEM 16G. CORPORATE
GOVERNANCE






44





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




Executive
Sessions.Nasdaq requires that non-management directors meet
regularly in executive sessions without management.  As permitted
under Bermuda law and our byelaws, our non-management directors do not regularly
hold executive sessions without management and we do not expect them to do so in
the future.




Audit
Committee.  Nasdaq requires, among other things, that a listed
U.S company have an audit committee with a minimum of three independent
members.  As permitted under Bermuda law and our byelaws, our audit
committee consists of two members which currently meets the Nasdaq independence
requirements.




Nominating/Corporate Governance
Committee.  Nasdaq requires that a listed U.S. company have a
nominating/corporate governance committee composed solely of independent
directors.  As permitted under Bermuda law and our byelaws, we do not
currently have a nominating or corporate governance committee.  Our
board of directors is responsible for identifying and recommending potential
candidates to become board members and recommending directors for appointment to
board committees.




Compensation
Committee.  Nasdaq requires that a listed U.S. company have a
compensation committee composed solely of independent directors.  As
permitted under Bermuda law and our byelaws, compensation of executive officers
is not required to be determined by a committee composed of independent
members.




Related Party
Transactions.  Nasdaq requires that a listed U.S. company conduct appropriate review and oversight
of all related party transactions for potential conflict of interest situations
on an ongoing basis by the company's audit committee or another independent body
of the board of directors.As permitted under Bermuda law and
our byelaws, our directors are not prohibited from being a party to, or
otherwise interested in, any transaction or arrangement with us or in which we
are otherwise interested, provided that the director makes proper disclosure of
same as required by our byelaws and Bermuda law.




Proxy
Materials.  Nasdaqrequires that a listedU.S.company solicit proxies and provide
proxy statements for all shareholder meetings. Such company must also provide
copies of its proxy solicitation to Nasdaq.  As permitted under
Bermuda law and our byelaws, we do not currently solicit proxies or provide
proxy materials to Nasdaq.  Our byelaws also require that we notify
our shareholders of meetings no less than 5 days before the
meeting.




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-12are 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, 2008, 2007 and
      2006
            
            F-3Consolidated Balance Sheets as of
      December 31, 2008 and 2007
            
            F-4Consolidated Statements of Cash
      Flows for the years ended December 31, 2008, 2007 and
      2006
            
            F-5Consolidated Statements of Changes
      in Stockholders' Equity for the years ended
            
            F-6December 31, 2008, 2007 and
      2006Notes 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
            Significant Subsidiaries at
      June 30, 2009.





11.1
            Code of
      Ethics.***





12.1
            Certification of the Principal
      Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
      Securities Exchange Act, as
amended.





12.2
            Certification of the Principal
      Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
      Securities Exchange Act, as
amended.





13.1
            Principal Executive Officer
      Certifications pursuant to 18 U.S.C. Section 1350as adopted, pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.





13.2
            Principal Financial Officer
      Certifications pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002.





*
            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 20-F 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











_____________________


Inger M. Klemp


Chief Financial
Officer


Dated:June 30, 2009

















47




Index
to Consolidated Financial Statements of Knightsbridge Tankers
Limited







Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Statements of Operations for the years ended December 31, 2008, 2007 and
      2006
            F-3Consolidated
      Balance Sheets as of December 31, 2008 and 2007
            F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007 and
      2006
            F-5Consolidated
      Statements of Changes in Stockholders' Equity for the years
      ended
            F-6December
      31, 2008, 2007 and 2006Notes
      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 and subsidiaries
(the "Company") as of December 31, 2008 and 2007, 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,
2008.  We also have audited the Company's internal control over
financial reporting as of December 31, 2008, based on criteria established inInternal
Control—Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  The Company'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
financial statements for external purposes in accordance with generally accepted
accounting principles.  A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





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





In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Knightsbridge Tankers Limited and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.  Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2008, based on criteria established inInternal
Control—Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.








/S/ MSPC


Certified Public Accountants and
Advisors


A Professional
Corporation


New York,New York


June 30, 2009








F-2


Knightsbridge
Tankers Limited


Consolidated
Statements of Operations for the years ended


December
31, 2008, 2007 and 2006


(in
thousands of $, except per share data)




2008
                                                            
                                                            
                                                            2007
                                                            
                                                            
                                                            2006Operating
      revenuesTime
      charter revenues
                                                            
                                                            
                                                            74,837
                                                            
                                                            
                                                            
                                                            53,814
                                                            
                                                            
                                                            
                                                            42,445Voyage
      charter revenues
                                                            
                                                            
                                                            8,077
                                                            
                                                            
                                                            
                                                            34,346
                                                            
                                                            
                                                            
                                                            63,283Total
      operating revenues
                                                            
                                                            
                                                            82,914
                                                            
                                                            
                                                            
                                                            88,160
                                                            
                                                            
                                                            
                                                            105,728Gain
      on sale of assets
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            49,119
                                                            
                                                            
                                                            
                                                            -Operating
      expensesVoyage
      expenses and commission
                                                            
                                                            
                                                            4,012
                                                            
                                                            
                                                            
                                                            12,872
                                                            
                                                            
                                                            
                                                            20,015Ship
      operating expenses
                                                            
                                                            
                                                            14,535
                                                            
                                                            
                                                            
                                                            15,544
                                                            
                                                            
                                                            
                                                            15,835Administrative
      expenses
                                                            
                                                            
                                                            1,538
                                                            
                                                            
                                                            
                                                            1,481
                                                            
                                                            
                                                            
                                                            1,492Depreciation
                                                            
                                                            
                                                            13,711
                                                            
                                                            
                                                            
                                                            17,016
                                                            
                                                            
                                                            
                                                            17,121Total
      operating expenses
                                                            
                                                            
                                                            33,796
                                                            
                                                            
                                                            
                                                            46,913
                                                            
                                                            
                                                            
                                                            54,463Net
      operating income
                                                            
                                                            
                                                            49,118
                                                            
                                                            
                                                            
                                                            90,366
                                                            
                                                            
                                                            
                                                            51,265Other
      income (expenses)Interest
      income
                                                            
                                                            
                                                            2,336
                                                            
                                                            
                                                            
                                                            1,026
                                                            
                                                            
                                                            
                                                            1,383Interest
      expense
                                                            
                                                            
                                                            (3,216
                                                            )
                                                            
                                                            
                                                            (6,373
                                                            )
                                                            
                                                            
                                                            (6,881
                                                            )Other
      financial items
                                                            
                                                            
                                                            (184
                                                            )
                                                            
                                                            
                                                            (183
                                                            )
                                                            
                                                            
                                                            (50
                                                            )Net
      other expenses
                                                            
                                                            
                                                            (1,064
                                                            )
                                                            
                                                            
                                                            (5,530
                                                            )
                                                            
                                                            
                                                            (5,548
                                                            )Net
      income
                                                            
                                                            
                                                            48,054
                                                            
                                                            
                                                            
                                                            84,836
                                                            
                                                            
                                                            
                                                            45,717Per
      share information:Earnings
      per share: basic and diluted
                                                              Cash
      dividends per share declared
                                                            
                                                            
                                                            $2.81
                                                              $2.75
                                                            
                                                            
                                                            
                                                            $4.96
                                                              $2.50
                                                            
                                                            
                                                            
                                                            $2.67
                                                              $3.60
















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


F-3


Knightsbridge
Tankers Limited


Consolidated
Balance Sheets as of December 31, 2008 and 2007


(in
thousands of $)





2008
                  2007ASSETSCurrent
      assetsCash
      and cash equivalents
                  77,998
                  82,143Restricted
      cash
                  10,000
                  10,000Trade
      accounts receivable, net
                  2,745
                  4,843Other
      receivables
                  446
                  5,836Inventories
                  1,222
                  3,923Prepaid
      expenses and accrued income
                  475
                  608Total
      current assets
                  92,886
                  107,353Vessels,
      net
                  187,360
                  201,072Newbuildings
                  51,305
                  33,459Deferred
      charges
                  134
                  282Total
      assets
                  331,685
                  342,166LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesCurrent
      portion of long-term debt
                  42,560
                  8,960Trade
      accounts payable
                  1,820
                  620Accrued
      expenses
                  2,111
                  5,861Other
      current liabilities
                  2,409
                  2,409Total
      current liabilities
                  48,900
                  17,850Long-term
      liabilitiesLong-term
      debt
                  60,480
                  103,040Total
      liabilities
                  109,380
                  120,890Commitments
      and contingenciesStockholders'
      equityShare
      capital
                  171
                  171Contributed
      capital surplus
                  179,019
                  179,019Retained
      earnings
                  43,115
                  42,086Total
      stockholders' equity
                  222,305
                  221,276Total
      liabilities and stockholders' equity
                  331,685
                  342,166














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, 2008, 2007 and 2006


(in
thousands of $)







2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006Net
      income
                                                        
                                                        
                                                        48,054
                                                        
                                                        
                                                        
                                                        84,836
                                                        
                                                        
                                                        
                                                        45,717Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
                                                        
                                                        
                                                        13,712
                                                        
                                                        
                                                        
                                                        17,016
                                                        
                                                        
                                                        
                                                        17,121Amortization
      of deferred charges
                                                        
                                                        
                                                        148
                                                        
                                                        
                                                        
                                                        148
                                                        
                                                        
                                                        
                                                        70Gain
      on sale of assets
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (49,119
                                                        )
                                                        
                                                        
                                                        -Changes
      in operating assets and liabilities:Trade
      accounts receivable, net
                                                        
                                                        
                                                        2,097
                                                        
                                                        
                                                        
                                                        3,330
                                                        
                                                        
                                                        
                                                        (902
                                                        )Other
      receivables
                                                        
                                                        
                                                        5,389
                                                        
                                                        
                                                        
                                                        (5,170
                                                        )
                                                        
                                                        
                                                        473Inventories
                                                        
                                                        
                                                        2,702
                                                        
                                                        
                                                        
                                                        (1,302
                                                        )
                                                        
                                                        
                                                        (609
                                                        )Voyages
      in progress
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,273
                                                        
                                                        
                                                        
                                                        1,394Prepaid
      expenses and accrued income
                                                        
                                                        
                                                        133
                                                        
                                                        
                                                        
                                                        20
                                                        
                                                        
                                                        
                                                        17Trade
      accounts payable
                                                        
                                                        
                                                        1,201
                                                        
                                                        
                                                        
                                                        (7,112
                                                        )
                                                        
                                                        
                                                        6,120Accrued
      expenses
                                                        
                                                        
                                                        (3,749
                                                        )
                                                        
                                                        
                                                        2,789
                                                        
                                                        
                                                        
                                                        (228
                                                        )Other
      current liabilities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        477
                                                        
                                                        
                                                        
                                                        (520
                                                        )Net
      cash provided by operating activities
                                                        
                                                        
                                                        69,687
                                                        
                                                        
                                                        
                                                        48,186
                                                        
                                                        
                                                        
                                                        68,653Investing
      activitiesAdditions
      to newbuildings
                                                        
                                                        
                                                        (17,847
                                                        )
                                                        
                                                        
                                                        (33,459
                                                        )
                                                        
                                                        
                                                        -Proceeds
      from sale of asset
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        98,980
                                                        
                                                        
                                                        
                                                        -Net
      cash (used in) provided by investing activities
                                                        
                                                        
                                                        (17,847
                                                        )
                                                        
                                                        
                                                        65,521
                                                        
                                                        
                                                        
                                                        -Financing
      activitiesProceeds
      from long-term debt and credit facilities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        33,600
                                                        
                                                        
                                                        
                                                        87Repayments
      of long-term debt and credit facilities
                                                        
                                                        
                                                        (8,960
                                                        )
                                                        
                                                        
                                                        (30,811
                                                        )
                                                        
                                                        
                                                        (11,276
                                                        )Debt
      fees paid
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (141
                                                        )
                                                        
                                                        
                                                        -Dividends
      paid
                                                        
                                                        
                                                        (47,025
                                                        )
                                                        
                                                        
                                                        (42,750
                                                        )
                                                        
                                                        
                                                        (61,560
                                                        )Net
      cash used in financing activities
                                                        
                                                        
                                                        (55,985
                                                        )
                                                        
                                                        
                                                        (40,102
                                                        )
                                                        
                                                        
                                                        (72,749
                                                        )Net
      (decrease) increase in cash and cash equivalents
                                                        
                                                        
                                                        (4,
      145
                                                        )
                                                        
                                                        
                                                        73,605
                                                        
                                                        
                                                        
                                                        (4,096
                                                        )Cash
      and cash equivalents at beginning of year
                                                        
                                                        
                                                        82,143
                                                        
                                                        
                                                        
                                                        8,538
                                                        
                                                        
                                                        
                                                        12,634Cash
      and cash equivalents at end of year
                                                        
                                                        
                                                        77,998
                                                        
                                                        
                                                        
                                                        82,143
                                                        
                                                        
                                                        
                                                        8,538Supplemental
      disclosure of cash flow information:Interest
      paid, net of capitalized interest
                                                        
                                                        
                                                        3,219
                                                        
                                                        
                                                        
                                                        6,416
                                                        
                                                        
                                                        
                                                        6,791














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, 2008, 2007 and 2006


(in
thousands of $, except number of shares)





2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006NUMBER
      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 SURPLUSBalance
      at beginning of year
                                          
                                          
                                          179,019
                                          
                                          
                                          
                                          179,019
                                          
                                          
                                          
                                          194,862Distributions
      to stockholders
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (15,843
                                          )Balance
      at end of year
                                          
                                          
                                          179,019
                                          
                                          
                                          
                                          179,019
                                          
                                          
                                          
                                          179,019RETAINED
      EARNINGSBalance
      at beginning of year
                                          
                                          
                                          42,086
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
      income
                                          
                                          
                                          48,054
                                          
                                          
                                          
                                          84,836
                                          
                                          
                                          
                                          45,717Dividends
      paid
                                          
                                          
                                          (47,025
                                          )
                                          
                                          
                                          (42,750
                                          )
                                          
                                          
                                          (45,717
                                          )Balance
      at end of year
                                          
                                          
                                          43,115
                                          
                                          
                                          
                                          42,086
                                          
                                          
                                          
                                          -Total
      Stockholders' Equity
                                          
                                          
                                          222,305
                                          
                                          
                                          
                                          221,276
                                          
                                          
                                          
                                          179,190














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.
The Company was originally founded 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 has subsequently
expanded its scope of activities and currently has two newbuildings under
construction, both Capesize dry bulk carriers of approximately 170,000 dwt,
which are scheduled for delivery in the second half of 2009. The Company's
shares are listed on the Nasdaq Global Select Market.





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





In
December 2007, the only vessel then operating in the spot market was sold with
delivery taking place during February 2008. The remaining four vessels in the
fleet were then operating in the time charter market. Two 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 in 2007. One vessel is on a three year time charter earning a rate of
$45,000 per day. This charter is due to expire in 2010. The remainingvesselhas beenoperating in the spot marketfollowing the expiry of its time
charter in March 2009. The Company's newbuilding dry bulk carriers are
due to commence five year time charters upon delivery earning a rate of $40,000
and $53,000 per day.











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 and time charter hires. Time 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 rateably 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 rateably 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. 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 charters for the Company's four vessels are classified as operating
leases by the Company.






F-7





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.





Trade
accounts receivable


Trade and other receivables are
presented net of allowances for doubtful balances. If amounts become
uncollectible, they are charged against income when that determination is
made.





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.





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 Financial Accounting Standards Board ('FASB') issued
Financial Accounting Standard No. 157, Fair Value Measurements, ('FAS
157'),and is effective for fiscal years beginning after November 15,
2007.This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. The statement establishes a fair value hierarchy that
distinguishes between market participant assumptions developed based on market
data obtained from sources independent of the reported entity and the reported
entities own assumptions about market participant assumptions developed based on
the best information available in the circumstances. In February 2008, the FASB
issued a staff position that delays the effective date of FAS 157 for certain
nonfinancial assets and liabilities to fiscal years beginning on or after
November 15, 2008. The Company's adoption of FAS 157 did not have a material
effect on the consolidated financial statements. Adoption of the delayed
provisions of FAS 157 is not expected to have a material effect on the Company's
consolidated financial statements.






F-8




In
February 2007, the FASB issued Statement of Financial Accounting Standard
No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115 ("FAS 159"). FAS 159
allows  entities to choose to measure many financial instruments and
certain other items at fair value, with unrealized gains and losses related to
these financial instruments being reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company's adoption of this statement did not have a
material effect on the consolidated financial statements.




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




In
March 2008, the FASB issued Statement of Financial Accounting Standard
No. 161, Disclosures
about Derivative Instruments and Hedging Activities ('FAS 161'). This
standard amends and expands the disclosure requirements of FASB Statement 133,
Accounting for Derivative
Instruments and Hedging Activities, and is effective for fiscal years
beginning after November 15, 2008. FAS 161 requires enhanced disclosures that
better convey the purpose of an entity's derivative and hedging activities in
terms of the risk it intends to manage. In addition to other disclosure
requirements, the statement requires disclosure of the reasons for holding or
issuing derivative instruments in the context of its overall risk exposure. The
Company's adoption of FAS 161 is not expected to have a material effect on the
Company's consolidated financial statements.




In
May 2008, the FASB issued Statement of Financial Accounting Standard
No. 162, The Hierarchy of
Generally Accepted Accounting Principles,('FAS 162'). This Statement
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements in
conformity with generally accepted accounting principles in the United States.
Adoption of FAS 162 is not expected to have a material effect on the Company's
consolidated 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.








5.
            SEGMENT
      INFORMATION





The
Company has only one reportable segment.








6.
            LEASES







The
minimum future revenues to be received on time charters which are accounted for
as operating leases as of December 31, 2008 are as follows:






F-9





Year
      ending December 31,(in
      thousands of $)2009
                
                46,1842010
                
                31,4282011
                
                20,6872012
                
                5,9262013
                
                -Total
      minimum lease revenues
                
                104,225





The
cost and accumulated depreciation of vessels leased to third parties at December
31, 2008 was $352.3 million and $164.9 million respectively and at December 31,
2007 were $352.3 million and $151.2 million respectively.








7.
            TRADE
      ACCOUNTS RECEIVABLE, NET





Trade
accounts receivable are presented net of allowance for doubtful accounts
amounting to $0.2 million (2007 $0.2 million).








8.
            NEWBUILDINGS





(in thousands of
      $)
              2008
              2007Newbuildings
              51,305
              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 during the year totaled $1.4 million.
(2007: $1.0 million).








9.
            VESSELS





(in
      thousands of $)
                    
                    2008
                    
                    
                    2007Cost
                    
                    
                    352,308
                    
                    
                    
                    352,308Accumulated
      depreciation
                    
                    
                    (164,948
                    )
                    
                    
                    (151,236
                    )Net
      book value at end of year
                    
                    
                    187,360
                    
                    
                    
                    201,072





Depreciation
expense was $13.7 million, $17.0 million and $17.1 million for the years ended
December 31, 2008, 2007 and 2006, respectively.








10.
            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 $)
                    
                    2008
                    
                    
                    2007Capitalized
      financing fees and expenses
                    
                    
                    523
                    
                    
                    
                    523Accumulated
      amortization
                    
                    
                    (389
                    )
                    
                    
                    (241
                    )Net
      book value at end of year
                    
                    
                    134
                    
                    
                    
                    282








11.
            DEBT





(in
      thousands of $)
                      
                      2008
                      
                      
                      2007US
      dollar denominated floating rate debt
                      
                      
                      103,040
                      
                      
                      
                      112,000Total
      debt
                      
                      
                      103,040
                      
                      
                      
                      112,000Less:
      Current portion
                      
                      
                      (42,560
                      )
                      
                      
                      (8,960
                      )60,480
                      
                      
                      
                      103,040





The
average interest rate for the floating rate debt was 4.3% for the year ended
December 31, 2008 and 6.1% for the year ended December 31, 2007.





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.






F-10





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 installment payments on two newbuilding
contracts. The facility is secured on the same basis as the original loan and is
subject to the same covenants as the original loan. The tranches are repayable
on the delivery of the newbuilding vessels to the Company, which is expected to
be in July and October 2009.





The
outstanding debt as of December 31, 2008 is repayable as follows:





Year
      ending December 31,(in
      thousands of $)2009
                42,5602010
                8,9602011
      and thereafter
                51,520Total
      debt
                103,040








12.
            SHARE
      CAPITAL





Authorized,
issued and fully paid share capital:





(in
      thousands of $)
              2008
              200717,100,000
      ordinary shares of $0.01 each
              171
              171








13.
            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, 2008, 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.





Fair
values


The
carrying value and estimated fair value of the Company's financial instruments
at December 31, 2008 and 2007 are as follows:





2008
              2008
              2007
              2007(in
      thousands of $)
              Fair
                Value
              Carrying
      Value
              Fair
                Value
              Carrying
      ValueCash
      and cash equivalents
              77,998
              77,998
              82,143
              82,143Restricted
      cash
              10,000
              10,000
              10,000
              10,000Floating
      rate debt
              103,040
              103,040
              112,000
              112,000





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, The Royal Bank of Scotland plc, DnB NOR and Nordea bank. The
latter two banks deal with the money market transactions. The Company does not
require collateral or other security to support financial instruments subject to
credit risk.





In
2008, three customers accounted for $74.8 million, or 91% of gross revenue,
whilst in 2007 four customers accounted for $81.0 million or 92% of gross
revenue. In 2006 four customers accounted for $71.1 million or 67% of gross
revenues. Customers with revenues of more than 10% of the total revenue earned
in 2008 are listed below.






F-11





Revenue
                  (in
      thousands of  $)
                Percentage
                  of
      revenueMalaysia
      International Shipping Corporation
                11,312
                14%Frontline
      Ltd
                47,162
                57%Great
      Elephant Corporation
                16,363
                20%74,837
                91%








14.
            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.








15.
            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, 2008 the Company was
committed to make further installments of $113.4 million under these
contracts.








16.
            SUBSEQUENT
      EVENTS





On May
31, 2009, the remaining installments due on our newbuilding Capesize vessels,
which are due to be paid by the time of the vessels' deliveries, totaled $81.0
million. In addition, credit facilities of $33.6 million are due to be repaid
upon delivery of the newbuildings. The Company intends to fund these commitments
from existing cash resources and new bank financing committed in June
2009.






























F-12