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, 2007




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934For
      the transition period fromCommission
      file number
            033-79220-03







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   _______________________________







CALPETRO
      TANKERS (BAHAMAS III) LIMITED(Exact
      name of Registrant as specified in its charter)CALPETRO
      TANKERS (BAHAMAS III) LIMITED(Translation
      of Registrant’s name into English)Bahamas(Jurisdiction
      of incorporation or organization)Mareva
      House, 4 George Street, PO Box N-3937, Nassau Bahamas(Address
      of principal executive offices)








Georgina
      Sousa,Tel :  (1) 441 295 3494, Fax : (1) 441 295 6935
      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 registeredNone
            
            Not
      applicable


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.




None(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.


Common
stock: 100 shares par value of $1 per share




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


Yes o    
No x




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


Yes o    
No x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x    
No o




Indicate
by check mark whether the registrant 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  o
            Non-accelerated filer  x


Indicate
by check mark which financial statement item the registrant has elected to
follow.




Item 17
o    
Item 18 x




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 o                                                                                     Other
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
            Page




PART
      IItem
      1.
            Identity
      of Directors, Senior Management and Advisers
            6Item
      2.
            Offer
      Statistics and Expected Timetable
            6Item
      3.
            Key
      Information
            3Item
      4.
            Information
      on the Company
            11Item
      4A.
            Unresolved
      Staff Comments
            24Item
      5.
            Operating
      and Financial Review and Prospects
            24Item
      6.
            Directors,
      Senior Management and Employees
            29Item
      7.
            Major
      Shareholders and Related Party Transactions
            30Item
      8.
            Financial
      Information
            31Item
      9.
            The
      Offer and Listing
            31Item
      10.
            Additional
      Information
            31Item
      11.
            Quantitative
      and Qualitative Disclosures about Market Risk
            33Item
      12.
            Description
      of Securities Other than Equity Securities
            33PART
      IIItem
      13.
            Defaults,
      Dividend Arrearages and Delinquencies
            34Item
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            34Item
      15.
            Controls
      and Procedures
            34Item
      16.
            Reserved
            35Item
      16A.
            Audit
      Committee Financial Expert
            35Item
      16B.
            Code
      of Ethics
            35Item
      16C.
            Principal
      Accountant Fees and Services
            35Item
      16D.
            Exemptions
      from the Listing Rules for Audit Committees
            36Item
      16E.
            Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
            36PART
      IIIItem
      17.
            Financial
      Statements
            37Item
      18.
            Financial
      Statements
            37Item
      19.
            Exhibits
            38





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS





Matters
discussed in this document 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.





CalPetro
Tankers (Bahamas III) Limited (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 document 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.  The words “believe,” “except,” “anticipate,” “intends,”
“estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,” “should,”
“expect” and similar expressions identify forward-looking
statements.





The
forward-looking statements in this document 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 and
currencies, general market conditions, including fluctuations in charterhire
rates and vessel values, changes in demand in the tanker market, as a result of
changes in OPEC’s petroleum production levels and world wide oil consumption and
storage, changes in the company’s operating expenses, 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
or political events, and other important factors described from time to time in
the reports filed by CalPetro Tankers (Bahamas III) Limited with the Securities
and Exchange Commission.





Please
      note: In this section, “we”, “us” and “our” all refer to the
      Company.





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 Calpetro Tankers
(Bahamas III) Limited. 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” and “$” in
this report are to, and amounts are presented in, U.S. dollars.





A.     
      Selected Financial Data





The
selected income statement data of the Company with respect to the fiscal years
ended December 31, 2007, 2006 and 2005, and the selected balance sheet data at
December 31, 2007 and 2006, have been derived from the Company’s audited
financial statements included herein and should be read in conjunction with such
statements and the notes thereto. The selected statement of operations and
retained earnings data with respect to the years ended December 31, 2004 and
2003 and the selected balance sheet data at December 31, 2005, 2004 and 2003
have been derived from audited 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 audited financial statements and notes
thereto included herein. The Company’s accounts are maintained in U.S.
dollars.





Fiscal
      Years ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands of $, except share data)Income
      Statement data:Total
      operating revenues
            
            
            3,093
            
            
            
            2,255
            
            
            
            1,381
            
            
            
            1,596
            
            
            
            1,808Net
      income / (loss)
            
            
            2,385
            
            
            
            1,335
            
            
            
            (41
            )
            
            
            8
            
            
            
            46Per
      share data:Dividends
      per share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Balance
      sheet data:Total
      assets
            
            
            16,658
            
            
            
            18,789
            
            
            
            16,861
            
            
            
            19,482
            
            
            
            22,056Current
      portion loans
            
            
            -
            
            
            
            570
            
            
            
            2,530
            
            
            
            2,530
            
            
            
            2,530Long-term
      loans
            
            
            11,328
            
            
            
            12,174
            
            
            
            12,744
            
            
            
            15,274
            
            
            
            17,804Stockholder’s
      equity
            
            
            4,961
            
            
            
            2,576
            
            
            
            1,241
            
            
            
            1,282
            
            
            
            1,274Number
      of shares
            
            
            100
            
            
            
            100
            
            
            
            100
            
            
            
            100
            
            
            
            100








B.
Capitalization and Indebtedness





Not
Applicable.


1


C.
Reason for the offer and use of proceeds





Not
Applicable.





D.
Risk Factors





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





Our
vessel, the Front Voyager (the “Vessel”) is currently operated under a bareboat
charter (the “Charter”) to Front Voyager Inc. (the “Charterer”), a subsidiary of
Frontline Ltd. (“Frontline”), one of the world’s largest tanker companies.
Frontline is our ultimate parent company.





If the
tanker industry is depressed in the future when our Vessel’s Charter expires or
is terminated, our earnings and available cash flow may decrease. Our ability to
re-charter our Vessel at the expiration or termination of its Charter 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.





Because
our Charter may be terminated in April 2010, we may incur additional expenses
and not be able to re-charter our Vessel profitably





The term of the Charter
expired onApril 1, 2008. The Charterer holds options to re-charter the
Vessel for seven additional one-year periods until April 1, 2015. On April 1,
2008, the Charterer exercised its option to re-charter the Vessel until April 1,
2009.  The Charterer may choose not to re-charter the Vessel in the
future.





We cannot
predict at this time any of the factors that the Charterer will consider in
deciding whether to exercise its renewal options under the Charter. It is
likely, however, that the Charterer would consider a variety of factors, which
may include whether a vessel is surplus or suitable to their requirements and
whether competitive charterhire rates are available in the open market at that
time.





If the
Charterer should decide not to extend the Charter at any point, we will attempt
to arrange a replacement charter, or may sell the Vessel to satisfy our
obligations under the Term Loans. Replacement charters may include shorter-term
time charters and employing the Vessel on the spot charter market (which is
subject to greater fluctuation than the time charter market).  Any
replacement charter may bring us lower charter rates and would likely require us
to incur greater expenses which may reduce the amounts available, if any, to pay
principal and interest on the Notes, defined below.




Front
Voyager Inc., our current charterer, is a wholly owned subsidiary of Frontline,
which also is our manager and as such conflicts of interest might arise where
Frontline would favour its own interests over ours





Front
Voyager Inc. the current charterer of the Front Voyager, is a wholly owned
subsidiary of Frontline.  As such, situations might arise where
Frontline may favour its own interest to the detriment of the Front Voyager’s
owner, CalPetro Bahamas III, or the Company’s security
holders.  Possible conflicts of interest may arise in re-negotiation
of our Charter with Front Voyager Inc. or negotiations
of disputes arising from the Charter, where Frontline may act in its own best
interests and not our best interests.






2





We
operate in the highly competitive international tanker market which could affect
our position at the end of our current Charter





The
operation of tanker vessels and transportation of crude and petroleum products
is an extremely competitive business.  During the term of the existing
Charter we are not exposed to the risk associated with this
competition.  At the end of the Charter or in the event that the
Charterer does not choose to renew the Charter, we will have to compete with
other tanker owners, including major oil companies as well as independent tanker
companies for charters.  Due in part to the fragmented tanker market,
competitors with greater resources could enter and operate larger fleets through
acquisitions or consolidations and may be able to offer better prices and
fleets, which could result in us achieving lower revenues from our Suezmax oil
tanker which will reduce the amounts available, if any, to pay the principal and
interest on the Term Loans.





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





Our
operations are affected by extensive and changing international, national, state
and local laws, regulations, treaties, conventions and standards in force in
international waters, the jurisdictions in which our Vessel operates and the
country in which our Vessel is registered, including those governing the
management and disposal of hazardous substances and wastes, the cleanup of oil
spills and other contamination, air emissions, and water discharges and ballast
water management.  These regulations include the U.S. Oil Pollution
Act of 1990, or OPA, the International Convention on Civil Liability for Oil
Pollution Damage of 1969, International Convention for the Prevention of
Pollution from Ships, the IMO International Convention for the Safety of Life at
Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and
the U.S. Marine Transportation Security Act of 2002.  In addition,
vessel classification societies also impose significant safety and other
requirements on our vessel.  In complying with current and future
environmental requirements, we 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
vessel to keep it in compliance, or even to scrap or sell the vessel
altogether.





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 also can affect the resale value or useful
lives of our vessel, 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 vessel 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 vessel, as a result of violations of or liabilities under
environmental laws, regulations and other requirements.


3


For
example, OPA affects all vessel owners shipping oil to, from or within the
United States.  OPA allows for potentially unlimited liability without
regard to fault for owners, operators and bareboat charterers of vessels for oil
pollution in United States waters.  Similarly, the International
Convention on Civil
Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by
most countries outside of the United States, imposes liability for oil pollution
in international waters.  OPA expressly permits individual states to
impose their own liability regimes with regard to hazardous materials and oil
pollution incidents occurring within their boundaries.  Coastal states
in the United States have enacted pollution prevention liability and response
laws, many providing for unlimited liability.





Compliance
with extensive and changing environmental laws and other regulations may entail
significant expenses including expenses for ship modifications and changes in
operating procedures and therefore affect the operation of the
Vessel.  Although the Charterer is responsible for all operational
matters and bears all these expenses during the term of the Charter, these
expenses could have an adverse effect on our business operations at any time
after the expiration or termination of the Charter or in the event the Charterer
fails to make a necessary payment.





An
acceleration of the current prohibition to trade deadlines for our non-double
hull tanker could adversely affect our operations.





Our
Vessel is a non-double hull tanker.  The United States, the European
Union and the International Maritime Organization, or IMO, have all imposed
limits or prohibitions on the use of these types of tankers in specified markets
after certain target dates, depending on certain factors such as the size of the
vessel and the type of cargo.  In the case of our non-double hull
tanker, these phase out dates range from 2010 to 2015.  As of April
15, 2005, the Marine Environmental Protection Committee of the IMO has amended
the International Convention for the Prevention of Pollution from Ships to
accelerate the phase out of certain categories of single hull tankers, including
the types of vessel in our fleet, from 2015 to 2010 unless the relevant flag
states extend the date.  This change could result in non-double hull
tankers being unable to trade in many markets after 2010.  The phase
out of single hull tankers will also reduce the demand for single hull tankers,
force the remaining single hull tankers into employment on less desirable
trading routes and increase the number of tankers trading on those
routes.  As a result, single hull tankers are likely to be chartered
less frequently and at lower rates.  Moreover, the IMO may still adopt
regulations in the future that could adversely affect the useful life of the
non-double hull vessel as well as our ability to generate income which will
affect our ability to service its debt to us.





We
may not have adequate insurance in the event existing charters are not
renewed





There are
a number of risks associated with the operation of ocean-going vessels,
including mechanical failure, collision, property loss, cargo loss or damage and
business interruption due to political circumstances in foreign countries,
hostilities and labour strikes.  In addition, the operation of any
vessel is subject to the inherent possibility of marine disaster, including oil
spills and other environmental mishaps, and the liabilities arising from owning
and operating vessels in international trade.  Under the Charter, the
Charterer bears all risks associated with the operation of our Vessel including
the total loss of the Vessel.  However, we cannot assure holders of
the Notes, defined below, that we will adequately insure against all risks at
the end of the Charter or in the event the Charter is terminated.  We
may not be able to obtain adequate insurance coverage at reasonable rates for
our vessel in the future and the insurers may not pay particular
claims.





We
are dependent on our Charterer Front Voyager Inc.





Under the
Charter, the Charterer prepaid the first two years’ charterhire payments
totalling $5.05 million. Front Voyager Inc. has exercised its option to hire the
vessel for an additional year and it will prepay an amount totalling $1.5
million. We are dependent on the performance by the Charterer of its obligations
under the Charter. A failure by the Charterer to perform its obligations could
result in our inability
to service the Term Loan. If the Notes holders had to enforce the mortgages
securing the Notes, defined below, they may not be able to recover the principal
and interest owed to them.


4





We
may not be able to pay down our debt in the future





Currently,
we must dedicate a large portion of our cash flow from operations to satisfy our
debt service obligations. Our ability to pay interest on, and other amounts due
in respect of, our Term Loan will depend on our future operating performance,
prevailing economic conditions and financial, business and other factors, many
of which are beyond our control.  There can be no assurance that our
cash flow and capital resources will be sufficient for payment of our
indebtedness in the future.  If we are unable to service our
indebtedness or obtain additional financing, as needed, this could have a
material adverse effect on the holder of the Notes, defined below.





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





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





The
Notes may not be as liquid as other securities with established trading markets,
which may affect the value of the Notes and your ability to trade
them





The
Notes, defined below, are not listed on any national securities exchange or
traded on the NASDAQ National Market and have no established trading
market.  Consequently, the Notes, defined below could trade at prices
that may be higher or lower than their principal amount or purchase price,
depending on many factors, including prevailing interest rates, the market for
similar notes and warrants, and our financial performance.  The
placement agents for the Notes currently make a market for the Notes, but are
not obligated to do so and may discontinue their market making activity at any
time.  In addition, their market making activity is subject to the
limits imposed by the Securities Act and the Exchange Act.  We cannot
assure you that an active trading market will exist for the Notes or that any
market for the Notes will be liquid.





Substantial
leverage and debt service could affect our ability to grow and service our debt
obligations





We are
highly leveraged. As of December 31, 2007, we had $11.3 million outstanding in
total indebtedness and $5.0 million of stockholders’ equity.  The
degree to which we are leveraged could have important consequences for the
holders of the Notes, defined below, including:





·
            we
      may have trouble withstanding competitive pressures and responding to
      changing business conditions;





·
            we
      may be more vulnerable than others in the event of a downturn in general
      economic conditions or in our business;
and





·
            we
      may be more highly leveraged than other tanker owners with which we
      compete, which may put us at a competitive
  disadvantage.


5





We
have a limited business purpose which limits our flexibility





Our
activity is limited to engaging in the acquisition, disposition, ownership, and
chartering of a Suezmax oil tanker.  During the term of our Charter
with Front Voyager Inc., we expect that the only source of operating revenue
from which we may pay principal and interest on the Term Loan will be from the
Charter and from any subsequent charters following the termination of the
Charter with Front Voyager Inc.





Item
4.  INFORMATION ON THE COMPANY





A   
History and Development of the Company





CalPetro
Tankers (Bahamas III) Limited was incorporated in the Bahamas on May 13, 1994
together with two other companies: CalPetro Tankers (Bahamas I) Limited and
CalPetro Tankers (Bahamas II). In addition CalPetro Tankers (IOM) Limited was
incorporated in the Isle of Man.  Together these companies are
referred to as the “Owners”.  Each of the Owners was organized as a
special purpose company for the purpose of acquiring one of four oil tankers
(each a “Vessel”, together the “Vessels”) from Chevron.  We are
wholly-owned by California Tankers Investments Limited, a company organized
under the laws of the Bahamas, which is in turn a wholly-owned subsidiary of
CalPetro Holdings Limited, an Isle of Man company. CalPetro Holdings Limited is
a wholly-owned subsidiary of Independent Tankers Corporation (“ITC”), a Cayman
Islands company. In February, 2008, Frontline, a Bermuda company listed on the
New York Stock Exchange (“FRO”), established an intermediary holding company,
Independent Tankers Corporation Limited (“ITCL”) to hold its investment in ITC
and distributed 17.53% of ITCL’s common shares to Frontline’s ordinary
shareholders in March 2008.





Our
principal executive offices are located at Mareva House, 4 George Street, PO Box
N-3937, Nassau, Bahamas.





California
Petroleum Transport Corporation (“California Petroleum”), a Delaware
corporation, acting as agent on behalf of the Owners, issued as full recourse
obligations $167,500,000 Serial First Preferred Mortgage Notes and $117,900,000
8.52% First Preferred Mortgage Notes due 2015 (together the
“Notes”).  The proceeds from the sale of the Notes were applied by way
of long-term loans, being Serial Loans in respect of the Serial First Preferred
Mortgage Notes and Term Loans in respect of the First Preferred Mortgage Notes
due 2015, to the Owners to fund the acquisition of the Vessels from
Chevron.  We were allocated $27,640,000 of the Serial Loans and
$12,744,000 of the Term Loans and acquired our Vessel, the Front Voyager, as
described below.  We will engage in no business other than the
ownership and chartering of our Vessel and activities resulting from or
incidental to such ownership and chartering.





On April
21, 2005, we received irrevocable notice from Chevron regarding the termination
of its bareboat charter of the Vessel on April 1, 2006 pursuant to that
charter’s terms. On April 1, 2006, the Vessel was redelivered to us and
immediately delivered to the Charterer, a wholly owned subsidiary of Frontline,
for an initial two year period (the “Initial Period”) under the Charter which
provides for the prepayment of the charterhire in the amount of $5.05 million
for the two years ended April 1, 2008. The Charter contains annual options to
extend the charter after April 1, 2008 up to April 1, 2015 and provides
sufficient funds to allow us to satisfy our obligations to make all of our
mandatory sinking fund payments and to pay all related expenses.





Under the
Charter, if Front Voyager Inc. does not exercise any further charter extension
option after April 1, 2008 or if the Charter is otherwise terminated, Front
Voyager Inc is obligated to pay us an amount,
after accounting for the termination fee, equal to the Period charterhire and
all expenses incurred to re-charter the vessel that is sufficient to
cover:






6




(a)
            the
      principal and interest due on the Term Loans from California Petroleum
      based on the revised sinking fund schedule that took effect when the
      Initial Charter was terminated by
Chevron;


(b)
            any
      recurring fees and taxes for the
vessel;


(c)
            the
      management fee and technical advisor’s fees allocated to the
      Company;


(d)
            the
      amount of fees and expenses of the Indenture Trustee, trustee fees and
      designated representative fees allocable to us;
  and


(e)
            an
      amount equal to at least 30% of the estimated annual amounts above to
      cover miscellaneous and unexpected
expenses.





If the
Charter is extended, Front Voyager Inc. is to pay us, on or before the date of
the extension, an additional amount equal to the lesser of:




(i)
            the
      amount of principal and interest on the Term Loan that will become due in
      the period of the extension; or


(ii)
            the
      amount that provides sufficient funds to pay in full all amounts due under
      the revised sinking fund schedule after taking into account prior amounts
      of prepaid charterhire,  termination fees and expenses to
      re-charter the vessel.





If this
charter agreement is not renewed and an acceptable replacement charter cannot be
found, Frontline will solicit bids for the sale of the vessel. If there are no
bids that provide net proceeds that, together with the termination payment, at
least equal the allocated principal amount of our Term Loans plus any interest
accrued, Frontline will forward to the appointed Indenture Trustee copies of all
bids for the re charter of the Vessel. Unless instructed by all the holders of
the Term Mortgage Notes to accept a sale bid that is below the required minimum
bid, Frontline will attempt to re-charter the vessel on such terms as it deems
appropriate provided that:





(i)
            such
      charter is at arms length;


(ii)
            such
      charter shall have a termination date no later than April 1, 2015;
      and


(iii)
            charterhire
      payable is sufficient to make the mandatory sinking fund payments together
      with all related interest, recurring fees and taxes for the vessel and the
      cost of insurance not maintained by the charterer, management fees and
      technical advisor’s fees and the fees of the designated representative,
      the indenture trustee and the collateral trustee as defined in the
      prospectus for the Registrant’s 8.52% First Preferred Mortgage Notes due
      2015.





As of
April 1, 2008, Front Voyager Inc. exercised its option to extend the Charter for
an additional year until April 1, 2009.





Our
principal executive offices are located at Mareva House, 4 George Street, PO Box
N-3937, Nassau, Bahamas.





B  Business
Overview





Our
Vessel, the Front Voyager, is a 155,000 dwt Suezmax oil tanker, which was
originally acquired from Chevron. Suezmax tankers are medium-sized vessels
ranging from approximately 120,000 to 200,000 dwt, and of maximum length,
breadth and draft capable of passing fully loaded through the Suez
Canal.  The Vessel was chartered back to Chevron until April 1, 2006
at which time that charter was terminated.  Since the termination of
the charter, the vessel has been chartered to Front Voyager Inc., a subsidiary
of Frontline.  The Charter was for a period of two years with seven
one year options to extend the Charter.  As of March 31, 2008, Front
Voyager Inc. exercised its option to extend the Charter for an additional year
until April 1, 2009.




7





Frontline
is principally engaged in the marine transportation of oil products. Frontline’s
vessels transportation routes are from the Middle East, Indonesia, Mexico, West
Africa and the North Sea to ports in the United States, Europe, the United
Kingdom and Asia.





The
Vessel is a single-hull oil carrier of and is presently registered under the
Bahamas flag. The Vessel was constructed under the supervision of Chevron and
designed to Chevron’s specifications to enhance safety and reduce operating and
maintenance costs, including such features as high performance rudders, extra
steel (minimal use of high tensile steels), additional fire safety equipment,
redundant power generation equipment, extra coating and electrolytic corrosion
monitoring and protection systems and additional crew quarters to facilitate
added manning. The builder of the Vessel was Ishikawajima do Brasil Estaleiros
S.A.





Management





On March
31, 1999, Frontline became our Manager and Technical Advisor pursuant to an
assignment of our management agreement (“Management Agreement”). Under the
Management Agreement, Frontline provides administrative, management and advisory
services to us along with technical advisory services. If the Charter is
terminated by Front Voyager Inc., Frontline, acting on our behalf, will provide
all technical management services and will attempt to find an acceptable
replacement charter for the Vessel.  If an acceptable replacement
charter is commercially unavailable, the Manager will solicit bids for the sale
or re-charter of the Vessel. The Manager’s ability to obtain an acceptable
replacement charter, to sell the Vessel or re-charter the Vessel will depend on
market rates for new and used vessels, both of which will depend on the supply
of and demand for tanker capacity for oil transportation, and the advantages or
disadvantages of the Vessel compared with other vessels available at the
time.





Environmental
and Other Regulations





Government
regulation significantly affects the ownership and operation of our tanker. We
are subject to international conventions, national, state and local laws and
regulations in force in the countries in which our vessel 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.





A variety
of government and private entities subject our vessel to both scheduled and
unscheduled inspections. These entities include the local port authorities
(United States Coast Guard, harbor master or equivalent), classification
societies, flag state administrations (country of registry) and charterers,
particularly terminal operators and oil companies. Certain of these entities
require us to obtain permits, licenses and certificates for the operation of our
tanker. Failure to maintain necessary permits, certificates or approvals could
require us to incur substantial costs or temporarily suspend the operation of
our vessel.





We
believe that the heightened level of environmental and quality concerns among
insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the tanker industry. Increasing
environmental concerns have created a demand for vessels that conform to
stricter environmental standards. Our charterers, Frontline, are required to
maintain operating standards for our vessel to emphasize operational safety,
quality maintenance, continuous training of our officers and crews and
compliance with United States and international regulations. We believe that the
operation of our vessel is in substantial compliance with applicable
environmental laws and regulations; however, because such laws and regulations
are frequently changed and may impose increasingly stringent requirements, we
cannot predict the ultimate cost of complying with these requirements, or the
impact of these requirements on the resale value or useful life of our tanker.
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.




8







As of the
date of this annual report, our vessel complies with the latest IMO and European
Union amended regulations for double-hull requirements, are not subject to
phase-out under IMO and U.S. requirements and current European Union legislation
and are eligible to carry heavy grade oil without any time limitation under IMO
and U.S. requirements and current European Union legislation. 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 vessel.





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 for a tanker to trade in ports of IMO member nations,
a tanker must be of double-hull construction or a mid-deck design with double
sided construction or be of another approved design ensuring the same level of
protection against oil pollution if the tanker:





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





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





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





Since the
enactment of these regulations, the IMO has accelerated the timetable for the
phase-out of single-hull oil 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 vessel on the date or in the year specified in the following
table:


9





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 vessels delivered on April 5, 1982 or earlier 2005 for vessels
      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 vessels delivered on April 5, 1977 or earlier
              2005
      for vessels delivered after April 5, 1977 but before January 1,
      1978
              2006
      for vessels delivered in 1978 and 1979
              2007
      for vessels delivered in 1980 and 1981
              2008
      for vessels delivered in 1982
              2009
      for vessels delivered in 1983
              2010
      for vessels delivered in 1984 or
later





Under the
revised regulations, a flag state may permit continued operation of certain
Category 2 or 3 tankers beyond their phase out date in accordance with the above
schedule. Under regulation 13G, the flag state may allow for some newer
single-hull oil tankers registered in its country that conform to certain
technical specifications to continue operating until the earlier of the
anniversary of the date of delivery of the vessel in 2015 or the 25th
anniversary of their delivery. Under regulations 13G and 13H, 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 until the earlier of their anniversary date of delivery
in 2015 or the year in which the vessel reaches 25 years of age after the date
of its delivery, whichever is earlier under any of the flag state
exemptions.  These regulations have been adopted by over 150 nations,
including many of the jurisdictions in which our tanker operates.




In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to
address air pollution from vessels. Annex VI was ratified in May 2004, and
became effective in 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 we
are in substantial compliance with the Annex VI regulations. Additional or new
conventions, laws and regulations may be adopted that could adversely affect our
ability to manage our vessel. For example, in April 2008, MEPC approved proposed
amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur
oxide emissions standards. The emissions program described in the proposal would
reduce air pollution from vessels by establishing a series of progressive
standards to further limit the sulfur content in fuel oil, which would be phased
in through 2020, and by establishing new tiers of nitrogen oxide emission
standards for new marine diesel engines, depending on their date of
installation. These amendments will be considered for adoption by the MEPC in
October 2008, and could enter into force in 2010.


10


In
addition, the IMO adopted the 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 tonnage. To date, there has not been sufficient
adoption of this standard for it to take force.





The
operation of our vessel is also affected by the requirements set forth in the
IMO’s Management Code for the Safe Operation of Ships and Pollution Prevention,
or ISM Code. The ISM Code requires vessel-owners and bareboat charterers to
develop and maintain an extensive “Safety Management System” that includes the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation and describing procedures for
dealing with emergencies. We rely on the safety management system that has been
developed by Frontline.





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 certificate unless its manager has been awarded a Document
of Compliance, issued by each flag state, under the ISM Code. Frontline is
required to renew these documents of compliance and safety management
certificates periodically.





Non-compliance
with the ISM Code and other IMO regulations may subject the vessel-owner or a
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in a tanker’s denial of
access to, or detention in, some ports. Both the United States Coast Guard and
EU authorities have indicated that vessels not in compliance with the ISM Code
will be prohibited from trading in U.S. and EU ports, respectively.





Although
the United States is not a party to these conventions, many countries have
ratified and follow the liability plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage of 1969.
Under this convention and depending on whether the country in which the damage
results is a party to the 1992 Protocol to the International Convention on Civil
Liability for Oil Pollution Damage, 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.
Under an amendment to the 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 $6.7 million plus $933 for each additional gross ton over
5,000. For vessels of over 140,000 gross tons, liability will be limited to
approximately $133.0 million. As the convention calculates liability in
terms of a basket of currencies, these figures are based on currency exchange
rates on June 1, 2008. Under the 1969 Convention, the right to limit liability
is forfeited where the spill is caused by the owner’s actual fault; under the
1992 Protocol, a vessel owner cannot limit liability where the spill is caused
by the owner’s intentional or reckless conduct. Vessels trading to states that
are parties to these conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the International Convention on
Civil Liability for Oil Pollution Damage has not been adopted, various
legislative schemes or common law govern, and liability is imposed either on the
basis of fault or in a manner similar to that convention. Operators, such as
Frontline in the case of our Vessel, are required to insure their vessels with
pollution liability insurance in the maximum commercially available amount of
$1 billion per incident per vessel. We believe that our P&I insurance
will cover the liability under the plan adopted by the IMO.





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.


11


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
States Oil Pollution Act of 1990 and Comprehensive Environmental Response,
Compensation, and Liability Act





The
United States regulates the tanker industry with an extensive regulatory and
liability regime for environmental protection and cleanup of oil spills,
consisting primarily of OPA, and the Comprehensive Environmental Response,
Compensation, and Liability Act, or CERCLA. OPA affects all owners and operators
whose vessels trade with the United States or its territories or possessions, or
whose vessels operate in the waters of the United States, which include the
United States territorial sea and the 200 nautical mile exclusive economic zone
around the United States. 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 damage and related assessment
costs;





·
            real
      and personal property damage;





·
            net
      loss of taxes, royalties, rents, fees and other lost
    revenues;





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





·
            loss
      of subsistence use of natural
resources.





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





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


12


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. The U.S. Coast Guard has enacted
regulations requiring evidence of financial responsibility in the amount of
$1,500 per gross ton for tankers, coupling the former OPA limitation on
liability of $1,200 per gross ton with the CERCLA liability limit of $300 per
gross ton. On February 5, 2008, the U.S. Coast Guard proposed a new rule that
will 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. 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 the evidence of financial responsibility in the form of guarantees
issued by a guarantor approved by the United States Coast Guard and received
certificates of financial responsibility from the United States Coast Guard for
our vessel that calls in United States waters.





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





OPA also
amended the Federal Water Pollution Control Act to require owners or operators
of tankers operating in the waters of the United States to file vessel response
plans with the United States Coast Guard, and their tankers are required to
operate in compliance with their United States 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.





The
vessel response plan for our tanker operating in the waters of the United States
has been approved by the United States Coast Guard. In addition, the United
States Coast Guard has announced it intends to propose similar regulations
requiring certain vessels to prepare response plans for the release of hazardous
substances. Our vessel currently carries cargoes to U.S. waters regularly and we
believe that it is suitable to meet OPA and other U.S. environmental
requirements and that it would also qualify for trade if chartered to serve U.S.
ports.





13




In
addition, the United States Clean Water Act prohibits the discharge of oil or
hazardous substances in United States navigable waters and imposes strict
liability in the form of penalties for unauthorized discharges. The Clean Water
Act also imposes substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA and CERCLA, discussed
above. The United States Environmental Protection Agency, or EPA, has exempted
the discharge of ballast water and other
substances incidental to the normal operation of vessels in U.S. ports from
Clean Water Act permitting requirements. However, on March 31, 2005, a U.S.
District Court ruled that the EPA exceeded
its authority in creating an exemption for ballast water. On September 18, 2006,
the court issued an order invalidating the exemption in the EPA’s regulations
for all discharges incidental to the normal operation of a vessel as of
September 30, 2008, and directing the EPA to develop a system for regulating all
discharges from vessels by that date. Under the court’s ruling, owners and
operators of vessels visiting U.S. ports would be required to comply with the
Clean Water Act permitting program to be developed by the EPA or face penalties.
The EPA has appealed this decision, and oral arguments on the appeal were heard
by the Ninth Circuit Court of Appeals on August 13, 2007. No decision has
yet been issued.  In June 2007, the EPA provided notice and solicited
public comment regarding its intention to promulgate rules governing the
regulation of ballast water discharges and other discharges incidental to the
normal operation of vessels. If the EPA’s exemption is ultimately repealed, our
vessels may be subject to Clean Water Act permit requirements that could include
ballast water treatment obligations that could increase the cost of operating in
the United States. For example, this could require the installation of equipment
on our vessel 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 vessel from entering
U.S. waters. Various states have also enacted legislation restricting ballast
water discharges and the introduction of non-indigenous species considered to be
invasive. These and any similar restrictions enacted in the future could
increase the costs of operating in the relevant waters.





Other
Regulations





The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, required the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. Our vessel
is subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas. Our vessel that operates 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 vessel
operating in covered port areas are already equipped with vapor recovery systems
that satisfy these existing requirements. The EPA and the state of California,
however, have each proposed more stringent regulations of air emissions from
ocean-going vessels. Although a risk exists that new regulations could require
significant capital expenditures and otherwise increase our costs, based on the
regulations that have been proposed to date, we believe that no material capital
expenditures beyond those currently contemplated and no material increase in
costs are likely to be required.





The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by vessels in foreign ports. The United States Coast
Guard adopted regulations under NISA in July 2004 that impose mandatory ballast
water management practices for all vessels equipped with ballast water tanks
entering U.S. waters. These requirements can be met by performing mid-ocean
ballast exchange, by retaining ballast water on board the vessel, or by using
environmentally sound alternative ballast water management methods approved by
the United States Coast Guard. Mid-ocean ballast exchange is the primary method
for compliance with the United States Coast Guard regulations, since holding
ballast water can prevent vessels from performing cargo operations upon arrival
in the United States, and alternative methods are still under development.
Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or
safety concerns may discharge minimum amounts of ballast water (in areas other
than the Great Lakes and the Hudson River), provided that they comply with
recordkeeping requirements and document the reasons they could not follow the
required ballast water management requirements. The United States Coast Guard is
developing a proposal to establish ballast water discharge standards, which
could set maximum acceptable discharge limits for various invasive species, and/or
lead to requirements for active treatment of ballast water. The U.S. House of
Representatives has recently 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. The state of California
has 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. A U.S. District Court dismissed challenges to the state of
Michigan’s ballast water management legislation mandating the use of various
techniques for ballast water treatment, and an appeal is now pending in the
Sixth Circuit Court of Appeals. Other states may proceed with the enactment of
similar requirements that could increase the costs of operating in state
waters.






14






European
      Union Tanker Restrictions





In
July 2003, in response to the M/T Prestige oil 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 is also considering
legislation that would: (1) ban manifestly sub-standard vessels (defined as
those more than 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 Prestige and
resulting oil spill in November 2002 has led to the adoption of other
environmental regulations by certain European Union nations, which could
adversely affect the remaining useful life of our tanker and our ability to
generate income from it. 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.





Greenhouse
Gas Regulation





In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, which we refer to as 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 the United
States, the California Attorney General and a coalition of environmental groups
in October 2007 petitioned the EPA to regulate greenhouse gas emissions from
ocean-going vessels under the Clean Air Act. Any 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
Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the United States
Coast Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of
the United States. Similarly, in December 2002, amendments to the
International Convention for the Safety of Life at Sea, or SOLAS, created a new
chapter of the convention dealing specifically with maritime security. The new
chapter came into effect in July 2004 and imposes various detailed security
obligations on vessels and port authorities, most of which are contained in the
newly created International Ship and Port Facilities 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 from a recognized security
organization approved by the vessel’s flag state.






15


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 vessels and shore stations, including information on a
      vessel’s identity, position, course, speed and navigational
      status;





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





·
            the
      development of vessel security
plans;





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





·
            a
      continuous synopsis record kept onboard showing a vessel’s history
      including the name of the vessel and the state whose flag the vessel is
      entitled to fly, the date on which the vessel was registered with that
      state, the vessel’s identification number, the port at which the vessel 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
seagoing 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.


16


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





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





•
            Annual
      Surveys. For seagoing vessels, 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 vessel’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 ultrasonic 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. 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. The vessel’s machinery is surveyed on
      a continuous survey cycle, in which every part of the vessel’s machinery
      would be surveyed within a five-year
cycle.





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 otherwise required. The period between two subsequent surveys of
each area must not exceed five years.





Insurance




The
operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters, environmental mishaps, cargo and property losses or damage and
business interruptions caused by adverse weather and ocean conditions,
mechanical failures, human error, political action in various countries, war,
terrorism, piracy, labour strikes and other circumstances or events. Pursuant to
the Charter, the Vessel may be operated through out the world in any lawful
trade for which the Vessel is suitable, including carrying oil and its products.
In the past, political conflicts in many regions, particularly in the Arabian
Gulf, have included attacks on tankers, mining of waterways and other efforts to
disrupt shipping in the area. Vessels trading in such regions have also been
subject to acts of terrorism and piracy. In addition, the carriage of petroleum
products is subject to the risk of spillage and leakage.  Any such
event may result in increased costs or the loss of revenues or assets, including
our Vessel.





Under the
Charter, the Charterer, is entitled to self-insure against marine and war risks
relating to the Vessel and against protections and indemnity risks relating to
the Vessel during the term of the Charter and, accordingly, purchasers of the
Notes cannot rely on the existence of third-party insurance. There can be no
assurance that all risks will be adequately insured against, that any particular
loss will be covered or that we will be able to procure adequate insurance
coverage at commercially reasonable rates in the future. In particular, stricter
environmental regulations may result in
increased costs for, or the lack of availability or, insurance against the risks
of environmental damage or pollution.




The
Charterer, will, pursuant to the Charter, indemnify us from damages arising from
a failure to maintain any financial responsibility requirements whether relating
to oil or other pollution damage. The Charterer, will also indemnify us to the
extent losses, damages or expenses are incurred by us relating to oil or other
pollution damage as a result of the operation of the Vessel by the
Charterer.


17








C  Organizational
Structure





As
described above, and also in Item 7. “Major Shareholders and Related Party
Transactions”, we are a wholly owned subsidiary of California Tankers
Investments Limited, a company organized under the laws of the Bahamas, which is
a wholly-owned subsidiary of ITC. In February, 2008, Frontline established an
intermediary holding company, ITCL to hold their investment in ITC and
distributed 17.53% of ITCL’s common shares to Frontline’s ordinary shareholders
in March 2008.




D  Property,
Plant and Equipment





Other
than the Vessel described above, we do not have any 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 Financial Statements and Notes thereto
included herein.





Our
strategy has been to acquire a Vessel and charter this Vessel under a bareboat
charter which is expected to provide:





a)
            charterhire
      payments sufficient to pay, so long as the Charter is in
      effect:


i.
            the
      obligations under the loans for acquiring the
  Vessel,


ii.
            management
      fees and technical advisor’s fees,


iii.
            recurring
      fees and taxes, and


iv.
            any
      other costs and expenses incidental to the ownership and chartering of the
      Vessel;





b)
            that
      the Vessel will be maintained in accordance with the good commercial
      maintenance practices required by the Charter and to arrange for vessel
      management and remarketing services to be available in case the Charter is
      not extended by Front Voyager Inc. or the Vessel is for any other reason
      returned to our possession and use.





Market
Overview and Trend Information





The year
started at a time charter equivalent, or TCE, of approximately about $70,700 per
day for the Suezmaxes. The Suezmax segment of the tanker market weakened in the
first quarter of 2007 compared to the last quarter of 2006. A strike at the port
of Lavera in late March, which kept a large number of Suezmaxes waiting to
discharge, made the Suezmax earnings spike.









18




This set
the stage for a gradual decline in Suezmax TCE rates throughout the summer and
well into autumn. The main reasons for this decline in TCE rates can most likely
be found in reduced global oil production over the summer, the price structure
on oil turning from a situation where the current price is expected to be less
than the future price, to the future price being greater than the current price,
which initiated a significant draw on crude stocks world wide. Volatility, the
trademark of these tanker
segments, was relatively low until a boom in the rates of very large crude
carrier, or VLCCs, in mid November.


The
primary factor contributing to this boom was the discounting of crude prices
offered by Saudi Aramco, to mainly U.S. refiners, towards the end of November.
This resulted in more than normal VLCC TCE rates between the last week in
November and the third week in December, and this increase in activity had the
effect of upsetting the balance of supply and demand in vessel owners’ favor
which resulted in an upward rate spiral which vessel owners successfully
exploited. The oil-spill by a Chinese owned, single hull VLCC off the coast of
South Korea in early December also contributed to the increased VLCC TCE rates.
Another important factor which further increased VLCC TCE rates was a joint
decision by several major vessel owners to reduce laden and ballast speeds to
save bunkers and reduce costs. In a low market at the time, when higher bunkers
reduced owners earnings by as much as $50,000 per day, the reduction in speed
from 15 to 12 knots saved and estimated $20,000 per day and reduced the overall
market capacity by approximately 10%.





According
to Clarksons, the average TCE for the year was approximately $44,800 per day for
a double hulled Suezmax.





There is
a trend that oil majors discriminate single hull tonnage when transporting
persistent oils and therefore also avoid inspecting single hull ships on the
same basis. Oil traders with crude or fuel oil cargoes often require double hull
tonnage in order to have full flexibility with regards to cargo delivery. Hence,
single hull ships appear no longer able to trade to their full capacity compared
to the double hull vessels which implies a further gap in the already existing
’two tier market’ between the double and the single vessels.





Bunkers
followed the movements in the oil market closely in 2007 with Fujairah’s lowest
bunker quote for the year set in early January at $256 per metric ton and the
highest bunker quote set in early November at $513 per metric ton. The average
bunker price in 2007 was calculated at approximately $374 per metric
ton.





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





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





The IEA
further estimates that the average world oil demand was 85.8 million barrels per
day in 2007, a 1.1% increase from 2006. The IEA has forecasted that in 2008,
world oil demand will increase by 2.0% or 1.7 million barrels per day because of
the increased demand for oil in China, Latin America and the Middle East among
other things.


19


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





The total
world Suezmax fleet increased by 2.4% in 2007 to 348 vessels according to
Fearnleys’ Fleet Update from December 31, 2007. The report further states that a
total of 25 new vessels were delivered to owners during 2007 and 37 newbuilding
orders were placed. The total newbuilding order book amounted to 134 vessels at
the end of the year which represented approximately 38% of the existing world
fleet. Half the newbuilding order book is set to be delivered in
2009.





Fearnleys
further expects 19 Suezmax vessels to be delivered from shipyards during
2008.





Operating
results





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





Total
Revenues





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            %
      ChangeCharter
      revenue
            
            
            3,093
            
            
            
            1,894
            
            
            
            33
            %Finance
      lease interest income
            
            
            -
            
            
            
            361
            
            
            
            (100
            )%





On April
1, 2006, the Vessel was redelivered from Chevron. At this time we entered into a
two year charter with Front Voyager Inc. Under the terms of this Charter, we
received a $5.05 million prepayment of the charterhire for the two years ended
April 1, 2008. The charter is classified as an operating lease, and earnings
recorded as charter revenue. Following a re-assessment of the lease at the
beginning of 2008, we have recorded additional income of $568,000 in 2007 as we
decided to record the lease as a four year operating lease and not a two year
operating lease.  On April 1, 2008, Front Voyager Inc. exercised its option
to extend the Charter for an additional year to 1 April, 2009.





While the
Front Voyager was under charter to Chevron, the charter was classified as a
capital lease. Finance lease interest income in 2006 relates only to the period
from January 1 to April 1.





Expenses





(in
      thousands of $)
            
            2007
            
            
            2006
            
            
            %
      ChangeInterest
      expense
            
            
            995
            
            
            
            1,134
            
            
            
            (12
            )%Amortization
      of loan discount
            
            
            8
            
            
            
            11
            
            
            
            (27
            )%





Interest
expense has fallen in line with expectations, with interest expense falling in
line with the amount outstanding under our loans each year. The Company
amortizes the discount over the life of the Term Loans.





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





Total
Revenues





(in
      thousands of $)
            
            2006
            
            
            2005
            
            
            %
      ChangeCharter
      Revenue
            
            
            1,894
            
            
            
            -
            
            
            
            100
            %Finance
      lease interest income
            
            
            361
            
            
            
            1,381
            
            
            
            (74
            )%





20


Finance
lease interest income in 2006 relates only to the period January 1 to April 1
due to the reclassification from capital to operating lease.





Expenses





(in
      thousands of $)
            
            2006
            
            
            2005
            
            
            %
      ChangeInterest
      expense
            
            
            1,134
            
            
            
            1,327
            
            
            
            (15
            )%Amortization
      of loan discount
            
            
            11
            
            
            
            31
            
            
            
            (65
            )%





Amortization
of the loan expenses relates to Term Loans. For both years interest payable has
fallen as the loan principal as reduced.





Liquidity
and Capital Resources





As of
December 31, 2007, revenues from the Charter were sufficient to pay our
obligations under the Term Loans.  Front Voyager Inc. has options to
extend the Charter for a further seven one year periods.  For each
option exercised, Front Voyager Inc. will pay charter hire sufficient to ensure
that we will avoid negative cash flow.





If Front
Voyager Inc. does not exercise its right to extend the Charter in the future,
the Manager, acting on our behalf, shall seek to secure an acceptable
replacement charter. If such a charter is commercially unavailable, the Manager
will solicit bids for the sale or re-charter of the Vessel.  The
Manager’s ability to obtain an acceptable replacement charter, to sell the
Vessel or re-charter the Vessel will depend on market rates for new and used
vessels, both of which will depend on the supply of and demand for tanker
capacity for oil transportation, and the advantages or disadvantages of the
Vessel compared with other vessels available at the time.





Front
Voyager Inc. has exercised its option to extend the Charter for an additional
year to 1 April, 2009.





Off-balance
Sheet Arrangements





None.





Tabular
disclosure of contractual obligations





As at
December 31, 2007, we had the following contractual obligations and
commitments:





Payments
      due by period(in
      thousands of $)
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            More
      than 5 years
            
            
            TotalTerm
      Loans (8.52%)
            
            
            -
            
            
            
            1,174
            
            
            
            1,640
            
            
            
            8,514
            
            
            
            11,328Total
      contractual obligations
            
            
            -
            
            
            
            1,174
            
            
            
            1,640
            
            
            
            8,514
            
            
            
            11,328





Critical
Accounting Policies





Our
principal accounting policies are described in Note 2 to the financial
statements, which are included in Item 18. “Financial Statements” of this Annual
Report.  The most critical accounting policies
include:


21


Revenue
Recognition




Revenue
is generated from bareboat charter hire and is recorded over the term of the
charter as service is provided.





Vessel,
Depreciation and Impairment




The
Vessel is depreciated based on cost less estimated residual value over the
lesser of the period to the year 2015 or the useful life of the
vessel.  If the estimated economic useful life is incorrect, or
circumstances change and the estimated economic useful life has to be revised,
an impairment loss could result in future periods and/or annual depreciation
expense could be increased. Our Vessel is reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amount may not
be recoverable. Factors we consider important that could affect recoverability
and trigger impairment include significant underperformance relative to expected
operating results, new regulations that change the estimated useful economic
lives of our Vessel and significant negative industry or economic
trends.  In assessing the recoverability of the Vessels’ carrying
amounts when an indicator of impairment is present, we must make assumptions
regarding estimated future cash flows. These assumptions include assumptions
about the spot market rates for Vessels, the revenues the Vessel could earn
under time charter, voyage charter or bareboat charter, the operating costs of
our Vessel and the estimated economic useful life of our Vessel. In making these
assumptions, the Company refers to historical trends and performance as well as
any known future factors. If our review indicates impairment, an impairment
charge is recognized based on the difference between carrying value and fair
value. Fair value is typically established using an average of three independent
valuations.





Recently
Issued Accounting Standards





In
February 2007 the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial
Liabilities – including an amendment of FASB  Statement No.
115” (SFAS 159). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS is effective for fiscal years beginning after November 15 2007.
The Company does not expect the adoption of SFAS 159 to have an impact on its
financial statements.





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





In
November 2007 the SEC issued Staff Accounting Bulletin No. 109 (SAB 109),
relating to written loan commitments recorded at fair value through earnings.
Previously Staff Accounting Bulletin No. 105 “Application of Accounting Principles
to Loan Commitments”(SAB 105) provided the views of the staff regarding
derivative loan commitments that are accounted for at fair value through
earnings pursuant to Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging
Activities”. SAB
105 stated that in measuring the fair value of a derivative loan commitment, the
staff believed it would be inappropriate to incorporate the expected net future
cash flows related to the associated servicing of the loan. This new SAB 109
supersedes SAB 105 and expresses the current view of the staff that, consistent
with the guidance in Statement of Financial Accounting
Standards No. 156 “Accounting
for Servicing of Financial Assets” and Statement of Financial Accounting
Standards No. 159
“The Fair Value Option for
Financial Assets and Financial Liabilities”, the expected net future cash
flows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings. SAB 105 also indicated that the staff believed that
internally-developed intangible assets (such as customer relationship intangible
assets) should not be recorded as part of the fair value of a derivative loan
commitment. SAB 109 retains that staff view and broadens its application to all
written loan commitments that are accounted for at fair value through earnings.
The Company adopted the provisions of SAB 109 as of December 31 2007. The
adoption did not have any effect on the Company’s results of operations or
financial position.






22





Item
6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





A.  Directors
and Senior Management





Name                                                      Age           Position





Tor Olav
Trøim                                     45           Director
and President


Kate
Blankenship                                 43           Director
and Secretary





Tor Olav
Trøim has been a Director of CalPetro Tankers (Bahamas III) Limited since
October 31, 2001. Mr. Trøim graduated as M.Sc Naval Architect from the
University of Trondheim, Norway in 1985. His careers include Portfolio Manager
Equity in Storebrand ASA (1987- 1990), and Chief Executive Officer for the
Norwegian Oil Company DNO AS (1992-1995). Since 1995 Mr. Trøim has been a
Director of SeaTankers Management in Cyprus.  In this capacity he has
acted as Chief Executive Officer for the public companies Frontline and Golar
LNG Limited (NASDAQ).  Mr. Trøim was also the Chief Executive Officer
of Seadrill Ltd. until the recent takeover and integration of Smedvig ASA. In
addition, Mr. Trøim is a director of Ship Finance International Limited (NYSE)
and a member of the Boards in the public companies Golden Ocean Group Limited
(OSE), Aktiv Kapital ASA (OSE) and Marine Harvest Group (OSE).





Kate
Blankenship has been a Director of CalPetro Tankers (Bahamas III) Limited since
October 31, 2001.  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 and
asChief Financial Officer of
Knightsbridge Tankers Limited from April 2000 to September 2007 and Secretary of
Knightsbridge from December 2000 to March 2007. Mrs. Blankenship also serves as
a director of Golar LNG Limited, Ship Finance International Limited, Seadrill
Limited and Golden Ocean Group Limited. She is a member of the Institute of
Chartered Accountants in England and Wales.





B.  Compensation





During
the year ended December 31, 2007, we paid no compensation to our directors and
officers.





C.  Board
Practices





The
directors have no fixed date of expiry of their term of office. The details of
their service are shown above.  The directors have no entitlement to
any benefits on termination of their office.





We have
neither an audit nor a remuneration committee.





D.  Employees





We do not
have any employees involved in the management of the Vessel.


23


Frontline
is our Manager as described below in Item 7. “Major Shareholders and Related
Party Transactions”.





E.  Share
Ownership





The
directors have no interest in the share capital of the Company, nor do they have
any arrangements for involvement in our capital.





Item
7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS





A  Major
Shareholders





We are a
wholly-owned subsidiary of California Tankers Investments Limited, a company
organized under the laws of the Bahamas, which is a wholly-owned subsidiary of
ITC. In February, 2008, ITCL was established by Frontline as an intermediary
holding company to hold its investment in ITC and Frontline distributed 17.53%
of ITCL’s common shares to Frontline’s ordinary shareholders in March 2008. All
the issued and outstanding shares of our capital stock have been pledged by us
to California Petroleum Transport Corporation (“CPTC”) pursuant to the stock
pledge agreement between us and CPTC and are being held by the Bank of New York,
formerly the Chase Manhattan Trust Company of California and JP Morgan Chase
(the “Collateral Trustee”) as part of the collateral for the Notes. ITC has full
voting control over us subject to the rights of the Collateral
Trustee.





Significant
changes in ownership have been disclosed in Item 4. “Information on the
Company”, there are no known arrangements, which may lead to a change in our
control.





B  Related
Party Transactions





As
discussed in Item 4. “Information on the Company”, Frontline, the ultimate
parent, is our Manager. Under the Management Agreement, Frontline is entitled to
a management fee and a technical advisor’s fee.





Under the
terms of the management agreement, the management fee consists of an annual fee
of $13,625 for each Vessel, along with an additional annual fee of $3,000
covering all four Vessels (“Management Fee”). The technical advisor’s fee
consists of an annual fee of $10,000 for each Vessel, payable semi-annually in
arrears (“Technical Advisor’s Fee”).  Both the Management Fee and the
Technical Advisors Fee is payable semi-annually in arrears for the period until
the third anniversary of the closing of the Notes issue then increasing by four
percent on each subsequent anniversary of the closing of the issue of the
Notes.





In
addition, the Technical Advisor is entitled to be reimbursed for the fees, costs
and expenses of conducting periodic inspections of the Vessels.





Pursuant
to a designated representative agreement, CalPetro Holdings Limited (the
“Designated Representative”) was appointed to represent California Petroleum as
its Designated Representative to act on its behalf with respect to certain
administrative matters such as the filing of periodic reports and financial
statements with the Securities and Exchange Commission. The fee payable to the
Designated Representative (the “Designated Representative Fee”) during the
initial three year period described above was $15,000 per annum with a four
percent increase on each subsequent anniversary of the closing of the issue of
the Notes.





In 2007,
a total of $41,231 was paid under the Management and Designated Representative
Agreements.


24


Item
8.  FINANCIAL INFORMATION





Consolidated
Statements and Other Financial Information





See Item
18. “Financial Statements” below.





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 know to be contemplated by governmental authorities.





Item
9.  THE OFFER AND LISTING





Not
Applicable.





Item
10.  ADDITIONAL INFORMATION





A.  Share
Capital





Not
Applicable.





B.  Memorandum
and Articles of Association





The
Company is No. 23063B in the Bahamian register.





Directors
may be interested in Company transactions but such interest should be disclosed
to the other directors or Company members prior to agreement by the board or
Company meeting as appropriate.   The director concerned may not
vote on the transaction. The directors may borrow on behalf of the Company as
they think fit. There are no stated age limits for directors and directors need
not be stockholders. They do not retire by rotation.





All
shares issued are unclassified; there is no authorization in force to issue
other classes of shares.   Consequently all shares have equal
entitlement to voting rights, dividends, profit shares and other rights and
duties.  Should any dividend be declared and not claimed the directors
may, after a period of three years, resolve that such dividends are forfeit for
the benefit of the Company.  There are no provisions for changes to
the rights of stockholders contained in the articles, except that by resolution
of the directors the authorized capital may be increased and that the Company
may divide or combine shares within the same class.





Company
meetings may be convened by the directors or held on request of members holding
50% of the voting shares. Annual meetings are held according to Bahamian law.
Members, their properly appointed proxies and corporate members representatives
are entitled to attend.





There are
no limits to ownership of Company securities or to the exercise of voting
rights.  Disclosure of ownership is governed by Bahamian law and any
laws operative in the jurisdictions pertaining to the owners of the
securities.  The directors of the Company may, without giving a
reason, decline to register a transfer of shares.





C.  Material
Contracts





The
Company has no material contracts apart from those pertaining to its normal
business.


25





D.  Exchange
Controls





The
Company was registered under the International Business Companies Act, 1989 of
the Commonwealth of the Bahamas (the “IBC Act”) in May 1994.  As a
result of such registration the Company is exempt from the provisions of the
Exchange Control Regulations Act of the Bahamas.  Interests in the
Registered Securities may be freely transferred among non-residents of The
Bahamas under Bahamian Law.





There are
no restrictions upon the payment of foreign (non-Bahamian) currency dividends,
interest or other payments in respect of the Registered Securities.





The
Company is not permitted to deal in the currency of the Bahamas except in an
external Bahamian dollar account which can be funded only with foreign currency
funds or funds the Company has permission to convert.





None of
the Company’s Articles of Association, Memorandum of Association or any other
document, nor any Bahamian law nor, to the knowledge of the Company, any foreign
law, imposes limitations on the right of non-residents or foreign owners to hold
the Company’s shares of common stock.





E.  Taxation





No
Bahamian income or withholding taxes are imposed on the payment by the Company
of any principal or interest to any holder of Notes who is either an individual
citizen or resident of the United States or an entity formed under the laws of
the United States.  There is no income tax treaty currently in effect
between the United States and Bahamas.





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 (“SEC”). These
materials, including this annual report and the accompanying exhibits may be
inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, NE, Washington, D.C. 20549.  You may obtain information
on the operation of the public reference room by calling 1 (800)
SEC-0330.  The SEC maintains a website (http://www.sec.gov.) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.  In
addition, documents referred to in this annual report may be inspected at our
principal executive offices at Mareva House, 4 George
Street, PO Box N-3937, Nassau, Bahamas or at the offices of our Manager
at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM
08.





I.  Subsidiary
Information





Not
Applicable.


26


Item
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Quantitative information about market
risk





Quantitative
information about market risk instruments at December 31, 2007 is as
follows:





The Term
Loans bear interest at a rate of 8.52% per annum. Interest is payable on April 1
and October 1 of each year. Principal is repayable on the Term Loans in
accordance with a remaining nine-year sinking fund schedule.





When the
Charter was terminated on April 1, 2006, the scheduled mandatory sinking fund
payments on the Term Loans were revised so that the allocated principal amount
of the Term Loans for the Vessel will be redeemed on the remaining sinking fund
redemption dates on a schedule that approximates level debt service with an
additional principal payment on the maturity date of $5.5 million.





The
repayment schedule has been revised due to an overpayment during the year ended
2007. As a result, there will be no payments during 2008. Repayments will resume
in 2009.





Scheduled
      payment date
              $’000April
      1, 2008
              -April
      1, 2009
              444April
      1, 2010
              730April
      1, 2011
              790April
      1, 2012
              850April
      1, 2013
              930April
      1, 2014
              1,010April
      1, 2015
              6,57411,328


Qualitative
information about market risk





We were
organized solely for the purpose of the acquisition of the Vessel and
subsequently entered into a long-term agreement with Chevron which was
terminated on April 1, 2006. A replacement charter with Front Voyager Inc. has
been entered into as discussed above.





Item
12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES





Not
Applicable.


27





PART
II





Item
13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES





None.





Item
14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND


USE OF THE 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, 2007. Based upon that evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company’s
disclosure controls and procedures are effective as of the evaluation
date.





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




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




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




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




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




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




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




28


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




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




This
annual report does not include an attestation report of the Company’s current
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s
current registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





c)
            Changes
      in internal controls over financial
reporting





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





Item
16. RESERVED





Item
16A. AUDIT COMMITTEE FINANCIAL EXPERT





The
Company’s equity is neither listed nor publicly traded. The equity is held by
one beneficial holder, California Tankers Investments Limited. Accordingly the
Company’s Board of Directors has determined that the role played by an audit
committee would have no applicability to the Company.





Item
16B. CODE OF ETHICS





The
Company’s equity is neither listed nor publicly traded. The equity is held by
one beneficial holder, California Tankers Investments Limited. Accordingly the
Company’s Board of Directors has determined that the role played by a code of
ethics would have no applicability to the Company.





Item
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Our
principal accountant for 2007 and 2006 was Grant Thornton LLP.  The
following table sets forth for the two most recent fiscal years the fees paid or
accrued for audit and services provided by Grant Thornton LLP.





(in
      thousands of $)
            
            2007
            
            
            2006Audit
      fees (a)
            
            
            25
            
            
            
            20Audit
      related fees (b)
            
            
            -
            
            
            
            -Tax
      fees (c)
            
            
            -
            
            
            
            -All
      other fees (d)
            
            
            -
            
            
            
            -Total
            
            
            25
            
            
            
            20





29








a)
            Audit
      Fees


Audit
fees represent professional services rendered for the audit of the Company’s
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 consist of assurance and related services rendered by the principal
accountant related to the performance of the audit or review of the Company’s
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.





The
Company’s Board of Directors has assigned responsibility for the engagement of
the auditors to the Company’s manager.





Item
16D. EXEMPTIONS FROM THE LISTING RULES FOR AUDIT COMMITTEES





Not
Applicable.





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


PURCHASERS





Not
Applicable.


30


PART
III





Item
17.    FINANCIAL STATEMENTS





Not
Applicable.





Item
18.    FINANCIAL STATEMENTS





The
following financial statements and notes, together with the report of the
Independent Registered Public Accounting Firm are filed as part of this annual
report.


Page




Report
      of Independent Registered Public Accounting Firm
              F-1Statements
      of Operations and Retained Earnings for the Years Ended
              F-2December
      31, 2007, 2006 and 2005Balance
      Sheets as of December 31, 2007 and 2006
              F-3Statements
      of Cash Flows for the Years Ended
              F-4December
      31, 2007, 2006 and 2005Notes
      to the Financial Statements
              F-5
  31


Item
19.  EXHIBITS





1.1*
            Certificate
      of Incorporation and Memorandum of Association of CalPetro Tankers
      (Bahamas III) Limited, incorporated by reference to Exhibit 3.3 in the
      Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
      Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
      CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1
      and F-1, Registration No. 33-79220.





1.2*
            Articles
      of Association of CalPetro Tankers (Bahamas III) Limited, incorporated by
      reference to Exhibit 3.4 in the Registration Statement of CalPetro Tankers
      (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro
      Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed
      November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
      33-79220.





2.1*
            Form
      of Term Indenture between California Petroleum Transport Corporation and
      Chemical Trust Company of California, as Indenture Trustee, incorporated
      by reference to Exhibit 4.1 in the Registration Statement of CalPetro
      Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited,
      CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM) Limited
      filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
      33-79220.





2.2*
            Form
      of Term Mortgage Notes, incorporated by reference to Exhibit 4.2 in the
      Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
      Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
      CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1
      and F-1, Registration No. 33-79220.





2.3*
            Form
      of Bahamian Statutory Ship Mortgage and Deed of Covenants by [CalPetro
      Tankers (Bahamas I) Limited], [CalPetro Tankers (Bahamas II) Limited] to
      California Petroleum Transport Corporation (including the form of
      assignment of such Mortgage to Chemical Trust Company of California, as
      Collateral Trustee, by California Petroleum Transport Corporation),
      incorporated by reference to Exhibit 4.4 in the Registration Statement of
      CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
      Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers
      (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.





2.4*
            Form
      of Assignment of Initial Charter Guarantee by [CalPetro Tankers (Bahamas
      I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
      (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California
      Petroleum Transport Corporation (including the form of Collateral
      Assignment of such Initial Charter Guarantee to Chemical Trust Company of
      California, as Collateral Trustee, by California Petroleum Transport
      Corporation), incorporated by reference to Exhibit 4.7 in the Registration
      Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
      (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
      Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.





2.5*
            Form
      of Assignment of Earnings and Insurances from [CalPetro Tankers (Bahamas
      I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
      (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California
      Petroleum Transport Corporation, incorporated by reference to Exhibit 4.8
      in the Registration Statement of CalPetro Tankers (Bahamas I) Limited,
      CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
      Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on
      Forms S-3, S-1 and F-1, Registration No.
  33-79220.





2.6*
            Form
      of Assignment of Initial Charter from [CalPetro Tankers (Bahamas I)
      Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
      Limited[ [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
      Transport Corporation (including the form of Collateral Assignment of such
      Initial Charter to Chemical Trust Company of California, as Collateral
      Trustee, by California Petroleum Transport Corporation), incorporated by
      reference to Exhibit 4.9 in the Registration Statement of CalPetro Tankers
      (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro
      Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed
      November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
      33-79220.





2.7*
            Form
      of Management Agreement between P.D. Gram & Co., A.S., and [CalPetro
      Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited]
      [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited],
      incorporated by reference to Exhibit 4.10 in the Registration Statement of
      CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
      Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers
      (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.


32








2.8*
            Form
      of Assignment of Management Agreement from [CalPetro Tankers (Bahamas I)
      Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
      Limited] [CalPetro Tankers (Bahamas III) Limited], incorporated by
      reference to Exhibit 4.11 in the Registration Statement of CalPetro
      Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited,
      CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM) Limited
      filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
      33-79220.




2.9*
            Form
      of Serial Loan Agreement between California Petroleum Transport
      Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
      (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers
      (Bahamas III) Limited], incorporated by reference to Exhibit 4.12 in the
      Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
      Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
      CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1
      and F-1, Registration No. 33-79220.





2.10*
            Form
      of Term Loan Agreement between California Petroleum Transport Corporation
      and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II)
      Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III)
      Limited], incorporated by reference to Exhibit 4.13 in the Registration
      Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
      (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
      Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.





2.11*
            Form
      of Collateral Agreement between California Petroleum Transport Corporation
      [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II)
      Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III)
      Limited], the Indenture Trustee under the Serial Indenture, the Indenture
      Trustee under the Term Indenture and Chemical Trust Company of California,
      as Collateral Trustee, incorporated by reference to Exhibit 4.14 in the
      Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
      Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
      CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1
      and F-1, Registration No. 33-79220.





2.12*
            Form
      of Issue of One Debenture from [CalPetro Tankers (Bahamas I) Limited]
      [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited]
      [CalPetro Tankers (Bahamas III) Limited] to California Petroleum Transport
      Corporation, incorporated by reference to Exhibit 4.15 in the Registration
      Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
      (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
      Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.





4.1*
            Form
      of Initial Charter Guarantee by Chevron Corporation, incorporated by
      reference to Exhibit 10.1 in the Registration Statement of CalPetro
      Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited,
      CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM) Limited
      filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
      33-79220.





4.2*
            Form
      of Bareboat Initial Charter between [CalPetro Tankers (Bahamas I) Limited]
      [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited]
      [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
      Corporation, incorporated by reference to Exhibit 10.2 in the Registration
      Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
      (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
      Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
      Registration No. 33-79220.





4.3*
            Form
      of Vessel Purchase Agreement between [CalPetro Tankers (Bahamas I)
      Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
      Limited] [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
      Corporation (including the form of Assignment of such Vessel Purchase
      Agreement to California Petroleum Transport), incorporated by reference to
      Exhibit 10.3 in the Registration Statement of CalPetro Tankers (Bahamas I)
      Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas
      III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on
      Forms S-3, S-1 and F-1, Registration No.
  33-79220.




4.4*
              Bareboat
      Charter between Calpetro Tankers (Bahamas III) Limited and Front Voyager
      Inc. dated March 31, 2006.
 
 4.5*
                Assignment
      of Charter between Calpetro Tankers (Bahamas III) Limited and Front
      Voyager Inc. dated March 31, 2006.


33





10.1*
            Powers
      of Attorney for directors and certain officers of CalPetro Tankers
      (Bahamas II) Limited, incorporated by reference to Exhibit 24.1 in the
      Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
      Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas
      III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on
      Forms S-3, S-1 and F-1, Registration No.
  33-79220.







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





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





13.1
            Certification
      of the Principal Executive Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





13.2
            Certification
      of the Principal Financial Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





*
Incorporated by reference to the filing indicated.


34


Report of
Independent Registered Public Accounting Firm


To the
Board of Directors


Calpetro
Tankers (Bahamas III) Limited





We have
audited the accompanying balance sheets of Calpetro Tankers (Bahamas III)
Limited (the “Company”) as of December 31, 2007 and 2006 and the related
statements of operations and retained earnings, and cash flows for each of the
three years in the period ended December 31, 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting.  Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Calpetro Tankers (Bahamas III)
Limited as of December 31, 2007 and 2006 and the results of its operations
and cash flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.










/s/ Grant
Thornton LLP













Grant
Thornton LLP


New York,
New York


June 20,
2008






F-1


CalPetro
Tankers (Bahamas III) Limited


Statements
of Operations and Retained Earnings


for
the years ended December 31, 2007, 2006 and 2005


(in
thousands of $)








2007
            
            
            2006
            
            
            2005Operating
      revenuesCharter
      revenue
            
            
            3,093
            
            
            
            1,894
            
            
            
            -Finance
      lease interest income
            
            
            -
            
            
            
            361
            
            
            
            1,381Total
      operating revenues
            
            
            3,093
            
            
            
            2,255
            
            
            
            1,381Operating
      expensesAdministrative
      expenses
            
            
            (133
            )
            
            
            (134
            )
            
            
            (97
            )Total
      operating expenses
            
            
            (133
            )
            
            
            (134
            )
            
            
            (97
            )Net
      operating income
            
            
            2,960
            
            
            
            2,121
            
            
            
            1,284Other
      operating income / (expenses)Interest
      income
            
            
            487
            
            
            
            403
            
            
            
            33Interest
      expense
            
            
            (995
            )
            
            
            (1,134
            )
            
            
            (1,327
            )Depreciation
            
            
            (59
            )
            
            
            (44
            )
            
            
            -Amortization
      of deferred charges
            
            
            (8
            )
            
            
            (11
            )
            
            
            (31
            )Net
      other expenses
            
            
            (575
            )
            
            
            (786
            )
            
            
            (1,325
            )Net
      income / (loss)
            
            
            2,385
            
            
            
            1,335
            
            
            
            (41
            )Retained
      earnings at the start of year
            
            
            2,576
            
            
            
            1,241
            
            
            
            1,282Retained
      earnings at the end of year
            
            
            4,961
            
            
            
            2,576
            
            
            
            1,241








The
accompanying notes are an integral part of these financial
statements





F-2


CalPetro
Tankers (Bahamas III) Limited


Balance
Sheets as of December 31, 2007 and 2006


(in
thousands of $)







2007
            2006ASSETSCurrent
      AssetsRestricted
      cash
            
            
            8,244
            10,297Other
      current assets
            
            
            34
            45Total
      current assets
            
            
            8,278
            10,342Vessel
            
            
            8,349
            8,408Deferred
      charges
            
            
            31
            39Total
      assets
            
            
            16,658
            18,789LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesShort-term
      debt and current portion of long-term debt
            
            
            -
            570Deferred
      charter revenue
            
            
            63
            3,156Accrued
      interest
            
            
            242
            271Other
      current liabilities
            
            
            64
            42Total
      current liabilities
            
            
            369
            4,039Long-term
      debt
            
            
            11,328
            12,174Total
      liabilities
            
            
            11,697
            16,213Stockholder’s
      equityUnclassified
      stock: 100 shares of $1 par value
            
            
            -
            -Retained
      earnings
            
            
            4,961
            2,576Total
      stockholder’s equity
            
            
            4,961
            2,576Total
      liabilities and stockholder’s equity
            
            
            16,658
            18,789








The
accompanying notes are an integral part of these financial
statements


F-3


CalPetro
Tankers (Bahamas III) Limited


Statements
of Cash Flows for the years ended


December
31, 2007, 2006 and 2005


(in
thousands of $)




2007
            
            
            2006
            
            
            2005Net
      income (loss)
            
            
            2,385
            
            
            
            1,335
            
            
            
            (41
            )Adjustments
      to reconcile net income (loss) to net cash (used in)
              provided
      by operating activities:Depreciation
            
            
            59
            
            
            
            44
            
            
            
            -Amortization
      of deferred charges
            
            
            8
            
            
            
            11
            
            
            
            31Changes
      in operating assets and liabilities:Interest
      receivable
            
            
            (34
            )
            
            
            312
            
            
            
            55Other
      current assets
            
            
            45
            
            
            
            (42
            )
            
            
            7Accrued
      interest payable
            
            
            (29
            )
            
            
            (49
            )
            
            
            (48
            )Other
      current liabilities
            
            
            21
            
            
            
            16
            
            
            
            (2
            )Deferred
      charter revenue
            
            
            (3,093
            )
            
            
            3,156
            
            
            
            -Net
      cash (used in) provided by operating activities
            
            
            (638
            )
            
            
            4,783
            
            
            
            2Investing
      activitiesFinance
      lease payments
            
            
            -
            
            
            
            1,261
            
            
            
            2,526Termination
      fee received
            
            
            -
            
            
            
            5,050
            
            
            
            -(Placement)
      maturity of restricted cash
            
            
            -
            
            
            
            (8,564
            )
            
            
            2Net
      cash (used in) provided by investing activities
            
            
            -
            
            
            
            (2,253
            )
            
            
            2,528Financing
      activitiesRepayments
      of debt
            
            
            (1,416
            )
            
            
            (2,530
            )
            
            
            (2,530
            )Net
      cash used in financing activities
            
            
            (1,416
            )
            
            
            (2,530
            )
            
            
            (2,530
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            -
            
            
            
            -
            
            
            
            -Cash
      and cash equivalents at beginning of year
            
            
            -
            
            
            
            -
            
            
            
            -Cash
      and cash equivalents at end of year
            
            
            -
            
            
            
            -
            
            
            
            -Supplemental
      disclosure of cash flow information:Interest
      paid
            
            
            1,025
            
            
            
            1,182
            
            
            
            1,375







Significant
Noncash Investing and Financing Activities




On April
1, 2006 following the termination of the Initial Charter with Chevron, the
Company transferred $8.45 million, being the value of the vessel Front Voyager
at that date less the $5.05 million termination fee, from Investment in Finance
Lease to Vessels.





The
accompanying notes are an integral part of these financial
statements








F-4
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements


1.  Description of
Business





CalPetro
Tankers (Bahamas III) Limited (the “Company”) was incorporated in the Bahamas on
May 13, 1994 with two other entities: CalPetro Tankers (Bahamas I) Limited and
CalPetro Tankers (Bahamas II) Limited. In addition CalPetro Tankers (IOM)
Limited, was incorporated in the Isle of Man. These entities (the “Owners”) were
organized as special purpose companies for the purpose of acquiring one of four
oil tankers (each a “Vessel”, together the “Vessels”) from Chevron Transport
Corporation (“Chevron”) which were concurrently chartered on long-term charter
agreements back to Chevron. California Petroleum Transport Corporation, acting
as agent on behalf of the Owners, issued as full recourse obligations Term
Mortgage Notes and Serial Mortgage Notes (the “Serial and Term Notes”) and
subsequently loaned the proceeds to the Owners in the form of Term Mortgage
Loans and Serial Mortgage Loans (the “Term Loans” and “Serial Loans”,
respectively) to fund the acquisition of the Vessels from
Chevron.  The final tranche of the principal balances of the Serial
Loans payable by the Company to California Petroleum Transport Corporation
matured on April 1, 2006.





On April
21, 2005, pursuant to the bareboat charter dated April 5, 1995 between the
Company and Chevron, the Company received irrevocable notice from Chevron
regarding the termination of the bareboat charter of its Vessel Front Voyager,
on April 1, 2006. Under the terms of the bareboat charter between Chevron and
the Company, Chevron paid a termination fee of $5,05 million. As manager to the
Company, Frontline Ltd (“Frontline”) was obligated to find an acceptable
replacement charter as defined by the indenture governing the issue of the Notes
that were issued on behalf of the Company and three affiliated companies.
Pursuant to a bareboat charter agreement between the Company and Front Voyager
Inc, a wholly owned subsidiary of Frontline, Front Voyager Inc agreed to charter
the Front Voyager as of April 1, 2006 for an initial two-year period (the
“Initial Period”) with a further seven annual optional periods. The charterhire
payable for the Initial Period was $5,05 million which was prepaid in full on
March 31, 2006. In April 2008, Front Voyager Inc. exercised its option to extend
the Charter for an additional year to April 1, 2009, at a cost of $1.5
million





The Front
Voyager is a single hull vessel. The United States, the European Union and the
International Maritime Organization, or the IMO, have all imposed limits or
prohibitions on the use of these types of tankers in specified markets after
certain target dates which range from 2010 to 2015. In December 2003, the Marine
Environmental Protection Committee of the IMO adopted a proposed amendment to
the International Convention for the Prevention of Pollution from Ships to
accelerate the phase out of single hull tankers from 2015 to 2010 unless the
relevant flag states extend the date to 2015. Management do not know whether the
non-double hull vessel will be subject to this accelerated phase-out, but this
change could result in the Vessel being unable to trade in many markets after
2010. Moreover, the IMO may still adopt regulations in the future that could
adversely affect the useful life of the non-double hull vessel as well as the
Owner’s ability to generate income which will affect the Owner’s ability to
service its debt to us.





The only
sources of funds with respect to its obligation of the Company are the payments
by Front Voyager Inc. and investment income.





The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP).





F-5
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements


2.  Principal
Accounting Policies


A summary
of the Company’s accounting policies is set out below.





(a)
            Basis
      of presentation


The
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America requires the
      Company to make estimates and assumptions in determining the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities on the dates of the financial statements and the reported
      amounts of revenues and expenses during the reporting
      periods.  Actual results could differ from these
      estimates.





(b)
            Deferred
      charges


Deferred
      charges comprise expenses incurred in connection with the structuring of
      the financing transactions and issuance of debt. Such expenses are being
      amortized over the life of the debt on a straight line
    basis.





(c)
            Revenue
      and expense recognition


Revenues
      and expenses are recognized on the accrual basis. Revenue is substantially
      generated from bareboat charter hires and is recorded over the term of the
      charter as service is provided.  Charter revenue received in
      advance is recorded as deferred charter revenue until such time as the
      service is provided.  Interest payable on the Term Loans is
      accrued on a daily basis.





(d)
            Vessel
      and depreciation


Vessel
      is 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 the vessel. The useful life of our vessel
      is deemed to be 8 years and 11
months.





(e)        
Investment in finance lease


Up
      to April 1, 2006 the Company chartered out its vessel under an agreement
      that was classified as a direct financing lease. The minimum payments
      under the charter agreement were recorded as the gross investment in the
      finance lease. The difference between the gross investment in the finance
      lease and the cost of the vessel was recorded as unearned income.
      Throughout the term of the charter agreement, the Company recorded as
      revenue interest income and unearned income, which was amortized to income
      over the life of the charter agreement to produce a constant periodic rate
      of return on the net investment in the finance
  lease.





(f)
            Financial
      Instruments


In
      determining the fair value of its financial instruments, the Company uses
      a variety of methods and assumptions that are based on market conditions
      and risks existing at each balance sheet date. For the majority of
      financial instruments, including long-term debt, standard market
      conventions and techniques are used to determine fair value. All methods
      of assessing fair value result in a general approximation of value, and
      such value may never actually be
realized.





(g)
            Taxation


The
      Company is not liable to pay income taxes in the Bahamas. No Bahamian
      income or withholding taxes are imposed on the payment by the Company of
      any principal or interest to any holder of Notes who is either an
      individual citizen or resident of the United States or an entity formed
      under the laws of the United States.  There is no income tax
      treaty currently in effect between the United States and
      Bahamas.


F-6
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements





(h)          Impairment
of long-lived assets


The
      carrying value of long-lived assets that are held and used by the Company
      are reviewed whenever events or changes in circumstances indicate that the
      carrying amount of an asset may no longer be appropriate. The Company
      assesses recoverability of the carrying value of the asset by estimating
      the future net cash flows expected to result from the asset, including
      eventual disposal. If the future net cash flows are less than the carrying
      value of the asset, an impairment loss is recorded equal to the difference
      between the asset’s carrying value and fair value.  In addition,
      long-lived assets to be disposed of are reported at the lower of carrying
      amount or fair value less estimated costs to
  sell.







Recently
issued Accounting Standards


In
February 2007 the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial
Liabilities – including an amendment of FASB  Statement No.
115” (SFAS 159). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS is effective for fiscal years beginning after November 15 2007.
The Company does not expect the adoption of SFAS 159 to have an impact on its
financial statements.





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





In
November 2007 the SEC issued Staff Accounting Bulletin No. 109 (SAB 109),
relating to written loan commitments recorded at fair value through earnings.
Previously Staff Accounting Bulletin No. 105 “Application of Accounting Principles
to Loan Commitments”(SAB 105) provided the views of the staff regarding
derivative loan commitments that are accounted for at fair value through
earnings pursuant to Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging
Activities”. SAB
105 stated that in measuring the fair value of a derivative loan commitment, the
staff believed it would be inappropriate to incorporate the expected net future
cash flows related to the associated servicing of the loan. This new SAB 109
supersedes SAB 105 and expresses the current view of the staff that, consistent
with the guidance in Statement of Financial Accounting Standards No. 156 “Accounting for Servicing of
Financial Assets” and Statement of Financial Accounting Standards No. 159
“The Fair Value Option for
Financial Assets and Financial Liabilities”, the expected net future cash
flows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings. SAB 105 also indicated that the staff believed that
internally-developed intangible assets (such as customer relationship intangible
assets) should not be recorded as part of the fair value of a derivative loan
commitment. SAB 109 retains that staff view and broadens its application to all
written loan commitments that are accounted for at fair value through earnings.
The Company adopted the provisions of SAB 109 as of December 31 2007. The
adoption did not have any effect on the Company’s results of operations or
financial position.







F-7
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements




3.  Restricted
      Cash




The
      restricted cash accounts were established and are maintained by Bank of
      New York (formerly the Chase Manhattan Trust Company of California and
      JPMorgan Chase) as the Collateral Trustee who maintains the accounts as
      collateral agent for the equal and ratable benefit of the holders of the
      Term Notes. Charterhire payments are deposited into a revenue account and
      these funds can only be used to fund the principal and interest due on the
      Term Notes and any operating costs in relation to operating the
      Owners.





4.
      Vessel





(in thousands of $)
            
            2007
            
            
            2006Reinstatement
      of vessel
            
            
            8,452
            
            
            
            8,452Accumulated
      depreciation
            
            
            (103
            )
            
            
            (44
            )Net
      book value at end of year
            
            
            8,349
            
            
            
            8,408




Depreciation
expense was $0.06 million, $0.04 and $nil for the years ended December 31, 2007,
2006 and 2005, respectively.





5.  Deferred
      Charges




Deferred
charges represent the capitalization of debt issue costs.  These costs
are amortized over the term of the Loans to which they relate on a straight line
basis. The deferred charges are comprised of the following amounts:





(in thousands of $)
            
            2007
            
            
            2006Debt
      arrangement fees
            
            
            384
            
            
            
            384Accumulated
      amortization
            
            
            (353
            )
            
            
            (345
            )31
            
            
            
            39








6.  Debt





(in thousands of $)
            
            2007
            
            
            20068.52%
      Term Loan due 2015
            
            
            11,328
            
            
            
            12,744Less:
      current portion
            
            
            -
            
            
            
            (570
            )11,328
            
            
            
            12,174




The Term
Loans bear interest at a rate of 8.52% per annum. Interest is payable
semi-annually on April 1 and October 1. Principal is repayable on the Term Loans
in accordance with a nine-year sinking fund schedule.




There was
no current portion repayment as the debt was overpaid in April 2007 by the
trustees in error. As a result of this overpayment, there will be no further
repayments until April 2009.




When the
Initial Charter was terminated on April 1, 2006, the scheduled mandatory sinking
fund payments on the Term Loans were revised so that the allocated principal
amount of the Term Loans for the Vessel will be redeemed on the remaining
sinking fund redemption dates on a schedule that approximates level debt service
with an additional principal payment on the maturity date of $5.05
million.


F-8
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements


The table
below provides the revised scheduled sinking fund redemption amounts and final
principal payment of the Allocated Principal Amount of the Term Loans following
termination of the related Initial Charter on April 1, 2006;




Scheduled
      payment date
            
            $’000April
      1, 2008
            
            -April
      1, 2009
            
            444April
      1, 2010
            
            730April
      1, 2011
            
            790April
      1, 2012
            
            850April
      1, 2013
            
            930April
      1, 2014
            
            1,010April
      1, 2015
            
            6,57411,328




The Term
Notes are collateralized by a first preference mortgage on the Vessel to
California Petroleum Transport Corporation.  The earnings and
insurance relating to the Vessel have been collaterally assigned pursuant to an
Assignment of Earnings and Insurance to California Petroleum Transport
Corporation, which in turn has assigned such Assignment of Earnings and
Insurance to the Collateral Trustee.  The Front Voyager Inc. Charter
relating to the Vessel has been collaterally assigned pursuant to the Assignment
of Front Voyager Inc. Charter to California Petroleum Transport Corporation,
which in turn has assigned such Assignment to the Collateral
Trustee.  The Capital Stock of the Company has been pledged to
California Petroleum Transport Corporation pursuant to the Stock Pledge
Agreement.





7.  
      Share Capital




Authorized
share capital:




2007
            
            
            20061,000
      shares of $1 par value
            
            
            1,000
            
            
            
            1,000




Issued
and outstanding share capital:




2007
            
            
            2006100
      common shares of $1 par value
            
            
            100
            
            
            
            100





8.  
      Financial Instruments




Fair
values




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







F-9
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements


2007
            2007
            2006
            2006


(in
      thousands of $)
            Carrying
      Value
            Fair
      Value
            Carrying
      Value
            Fair
      ValueRestricted
      cash
            8,244
            8,244
            10,297
            10,2978.52%
      Term Loans due 2015
            11,328
            12,169
            12,744
            13,588




The
methods and assumptions used in estimating the fair values of financial
instruments are as follows:




The
carrying value of restricted cash, which is highly liquid, is a reasonable
estimate of fair value.




The
estimated fair value for fixed rate debt, being the Term Loans, is based on the
quoted market price of these or similar debt when available.




Concentrations
of risk




As at
December 31, 2007, the Company’s only source of funds for the repayment of the
principal and interest on the Loans was from charterhire payments from Front
Voyager Inc. and the proceeds, if any, from the sale of the Vessel. Accordingly,
the Company’s ability to service its obligations on the Loans is wholly
dependent upon Frontline’s ability to secure an acceptable replacement charter
should Front Voyager Inc. choose not to extend the Charter or the proceeds, if
any, from the sale of the Vessel is insufficient. Front Voyager Inc. has
extended the Charter for one year until April 1, 2009 at a cost of $1.5
million.





9. 
       Collateral Arrangements




The Term
Loans are collateralized by a first preference mortgage on the Vessel to
California Petroleum Transport Corporation. The earnings and insurance relating
to the Vessel have been collaterally assigned pursuant to an Assignment of
Earnings and Insurance to California Petroleum Transport Corporation, which in
turn has assigned such Assignment of Earnings and Insurance to the Collateral
Trustee. The Front Voyager Inc. Charter relating to the Vessel has been
collaterally assigned pursuant to the Assignment of Front Voyager Inc. Charter
to California Petroleum Transport Corporation, which in turn has assigned such
Assignment to the Collateral Trustee.  The Capital Stock of the
Company has been pledged to California Petroleum Transport Corporation pursuant
to the Stock Pledge Agreement.




10.  
      Related Party Transactions




Charterhire
revenue




The Company entered into a
two year bareboat charter agreement with Front Voyager Inc. onApril 1,
2006. Under this agreement charterhire of $5.05 million was prepaid for entire
period on commencement of the Charter. The following table outlines the revenue
and payments related to this agreement during the year:





(in
      thousands of $)
            
            2007
            
            
            2006Deferred
      charterhire revenue – January 1
            
            
            3,156
            
            
            
            -Charterhire
      paid during the year
            
            
            -
            
            
            
            5,050Charterhire
      revenue recognised in 2007
            
            
            (3,093
            )
            
            
            (1,894
            )Deferred
      charterhire revenue – December 31
            
            
            63
            
            
            
            3,156





F-10
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements




The
Charter contains seven annual options to extend the Charter after April 1, 2008
and provides sufficient funds to allow the Company to satisfy its obligations to
make mandatory sinking fund payments and to pay all related
expenses.




Under the
Charter, if Front Voyager Inc. does not exercise any charter extension option or
if the  Charter is otherwise terminated, Front Voyager Inc. is
obligated to pay the Company an amount, after accounting for the termination
fee,  Period charterhire and all expenses incurred to re-charter the
vessel that is sufficient to cover:




·
            the
      principal and interest due on the term loans from California Petroleum
      based on the revised sinking fund schedule that took effect when the
      charter was terminated by Chevron;


·
            any
      recurring fees and taxes for the
vessel;


·
            the
      management fee and technical advisor’s fees allocated to the
      Company;


·
            the
      amount of fees and expenses of the Indenture Trustee, trustee fees and
      designated representative fees allocable to the Company;
    and


·
            an
      amount equal to at least 30% of the estimated annual amounts above to
      cover miscellaneous and unexpected
expenses.




If the
Charter is extended, Front Voyager Inc. is to pay the Company, on or before the
date of the extension, an additional amount equal to the lesser of:




·
            the
      amount of principal and interest on the term loan that will become due in
      the period of the extension; or


·
            the
      amount that provides sufficient funds to pay in full all amounts due under
      the revised sinking fund schedule after taking into account prior amounts
      of prepaid charterhire,  termination fees and expenses to
      re-charter the vessel.




On April
1, 2008, Front Voyager Inc has exercised its option to extend the Charter for an
additional year to April 1, 2009. The Company believes the Charter will be
extended for a further year to April 1, 2010 and has recorded the Charter as a
four year operating lease. Charter revenue is being recognised over the expected
life of the Charter.




Management
Fee




Pursuant
to a management agreement, Frontline is the Company’s Manager and Technical
Advisor. Under the management agreement, Frontline is entitled to a Management
Fee and a Technical Advisor’s Fee.




Under the
terms of the management agreement, the Management Fee consists of a fee of
$13,625 initially per annum for the Vessel, along with a fee of $3,000 covering
all four Vessels, payable semi-annually in arrears for the period until the
third anniversary of the closing of the Notes issue then increasing by four
percent on each subsequent anniversary of the closing of the issue of the
Notes.




The
Technical Advisor’s Fee was initially $10,000 per annum for each Vessel, payable
semi-annually in arrears, during the initial first three year period as
described above. On each subsequent anniversary of the closing of the issue of
the Notes, the fee will increase by 4%. In addition, the Technical Advisor is
entitled to be reimbursed for the fees, costs and expenses of conducting
periodic inspections of the Vessels.


F-11
 CalPetro
Tankers ( Bahamas III) Limited
 Notes
to the Financial Statements






Pursuant
to a Designated Representative Agreement, CalPetro Holdings Limited (the
“Designated Representative”) was appointed to represent California Petroleum as
its Designated Representative to act on its behalf with respect to certain
administrative matters such as the filing of periodic reports and financial
statements with the Securities and Exchange Commission. The fee payable to the
Designated Representative (the “Designated Representative Fee”) during the
initial three year period described above was $15,000 per annum with a four
percent increase on each subsequent anniversary of the closing of the issue of
the Notes.




Management
fee expenses and management fee payable for the year ended and as of December
31, 2007, 2006, and 2005 are as follows:





(in thousands of $)
            
            2007
            
            
            2006
            
            
            2005Management
      fee expenses
            
            
            41
            
            
            
            40
            
            
            
            38Management
      fee payable
            
            
            10
            
            
            
            10
            
            
            
            10


F-12


SIGNATURES




Subject to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.










CalPetro
Tankers (Bahamas III) Limited








/s/ Kate
Blankenship





Kate
Blankenship


Director
and Secretary




















Date:  June
30, 2008


SK 02089 0006 896108