UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 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 from
                              
      to


OR


o           SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934Date
      of event requiring this shell company report:


Commission file number:
1-33373





CAPITAL
PRODUCT PARTNERS L.P.


(Exact
name of Registrant as specified in its charter)







Republic
of The Marshall Islands


(Jurisdiction
of incorporation or organization)







3
Iassonos Street, Piraeus, 18537 Greece


+30
210 458 4950


(Address
and telephone number of principal executive offices)









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


Title
      of each class
              Name
      of each exchange on which registeredCommon
      units representing limited partnership interests
              Nasdaq
      Global Market







Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None


Securities
for which there is a reporting obligation pursuant to Section 15(d) of
the Act: None


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.




13,512,500
Common Units


8,805,522
Subordinated Units


455,470
General Partner Units




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 definitions 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 statements item the registrant has elected to
follow.


ITEM 17oITEM 18x


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
















CAPITAL
PRODUCT PARTNERS L.P.




TABLE OF CONTENTS







PageSpecial Note Regarding Forward-Looking
      StatementsPART IItem 1.
            Identity of Directors, Senior Management and
      Advisors.
            Not
      applicableItem 2.
            Offer Statistics and Expected
Timetable.
            Not
      applicableItem 3.
            Key Information.
            1Item 4.
            Information on the Partnership.
            23Item
      4A.
            Unsolved
      Staff Comments.
            Not
      applicableItem 5.
            Operating and Financial Review and
      Prospects.
            39Item 6.
            Directors, Senior Management and
    Employees.
            50Item 7.
            Major Unitholders and Related Party
      Transactions.
            54Item 8.
            Financial Information.
            58Item 9.
            The Offer and Listing.
            61Item 10.
            Additional Information.
            61Item 11.
            Quantitative and Qualitative Disclosures About Market
      Risk.
            68Item 12.
            Description of Securities Other than Equity
      Securities.
            Not
      applicablePART IIItem 13.
            Defaults, Dividend, Arrearages and
      Delinquencies.
            70Item 14.
            Material Modifications to the Rights of Security Holders
      and Use of Proceeds.
            70Item 15.
            Controls and Procedures.
            70Item 16A.
            Audit Committee Financial Expert.
            70Item 16B.
            Code of Ethics.
            70Item 16C.
            Principal Accountant Fees and
    Services.
            70Item 16D.
            Exemptions from the Listing Standards for Audit
      Committees.
            71Item 16E.
            Purchases of Equity Securities by the Issuer and
      Affiliated Purchasers.
            71PART IIIItem 17.
            Financial Statements.
            Not
      applicableItem 18.
            Financial Statements.
            72Item 19.
            Exhibits.
            73Signatures
            
            74





i
 Table of Contents


FORWARD-LOOKING STATEMENTS




This
annual report on Form 20-F (the “Annual Report”) should be read in conjunction
with the audited consolidated and predecessor combined financial statements and
accompanying notes included herein.




Statements
included in this Annual Report which are not historical facts (including
statements concerning plans and objectives of management for future operations
or economic performance, or assumptions related thereto) are forward-looking
statements. In addition, we and our representatives may from time to time make
other oral or written statements which are also forward-looking statements. Such
statements include, in particular, statements about our plans, strategies,
business prospects, changes and trends in our business, financial condition and
the markets in which we operate, and involve risks and uncertainties. In some
cases, you can identify the forward-looking statements by the use of words such
as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,”
“forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue”
or the negative of these terms or other comparable terminology. Forward-looking
statements appear in a number of places and include statements with respect to,
among other things:




•
            anticipated
      future acquisition of vessels from Capital Maritime, and in particular the
      expected acquisition of the M/T Aristofanis in the second quarter of
      2008;




•
            our
      anticipated growth strategies;




•
            future
      charter hire rates and vessel
values;




•
            our
      ability to make cash distributions on the
units;




•
            our
      future financial condition or results of operations and our future
      revenues and expenses, including revenues from profit sharing
      arrangements;




•
            the
      repayment of debt and settling of interest rate
  swaps;




•
            our
      ability to access debt and equity
markets;




•
            future
      refined product and crude oil prices and
  production;




•
            planned
      capital expenditures and availability of capital resources to fund capital
      expenditures;




•
            future
      supply of, and demand for, refined products and crude
  oil;




•
            increases
      in domestic oil consumption;




•
            changes
      in interest rates;




•
            our
      ability to maintain long-term relationships with major refined product
      importers and exporters, major crude oil companies, and major commodity
      traders;




•
            our
      ability to leverage to our advantage Capital Maritime & Trading
      Corp.’s (“Capital Maritime”) relationships and reputation in the shipping
      industry;




•
            our
      continued ability to enter into long-term, fixed-rate time charters with
      our tanker charterers;




•
            obtaining
      tanker projects that we or Capital Maritime bid
  on;




•
            our
      ability to maximize the use of our vessels, including the re-deployment or
      disposition of vessels no longer under long-term time
    charter;




•
            timely
      purchases and deliveries of newbuilding
vessels;




•
            our
      ability to compete successfully for future chartering and newbuilding
      opportunities;




•
            the
      expected cost of, and our ability to comply with, governmental regulations
      and maritime self-regulatory organization standards, as well as standard
      regulations imposed by our charterers applicable to our
      business;




•
            our
      anticipated general and administrative expenses and our expenses under the
      management agreement and the administrative services agreement with
      Capital Ship Management Corp., a subsidiary of Capital Maritime (“Capital
      Ship Management”), and for reimbursement for fees and costs of our general
      partner;




•
            the
      expected impact of heightened environmental and quality concerns of
      insurance underwriters, regulators and
  charterers;




•
            the
      anticipated taxation of our partnership and distributions to our
      unitholders;










ii
 Table of Contents






•
              estimated
      future maintenance and replacement capital
  expenditures;


•
            expected
      demand in the refined product shipping sector in general and the demand
      for our medium range vessels in
particular;




•
            our
      ability to retain key employees;




•
            customers’
      increasing emphasis on environmental and safety
  concerns;




•
            future
      sales of our common units in the public market;
  and




•
            our
      business strategy and other plans and objectives for future
      operations.




These
and other forward-looking statements are made based upon management’s current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us and therefore involve a number of risks and uncertainties,
including those risks discussed in “Risk Factors.” The risks, uncertainties and
assumptions involve known and unknown risks and are inherently subject to
significant uncertainties and contingencies, many of which are beyond our
control. We caution that forward-looking statements are not guarantees and that
actual results could differ materially from those expressed or implied in the
forward-looking statements.




We
undertake no obligation to update any forward-looking statement or statements to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events. New factors emerge from
time to time, and it is not possible for us to predict all of these factors.
Further, we cannot assess the impact of each such factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to be materially different from those contained in any forward- looking
statement. You should carefully review and consider the various disclosures
included in this Annual Report and in our other filings made with the SEC that
attempt to advise interested parties of the risks and factors that may affect
our business, prospects and results of operations.






iii
 Table of Contents







PART I




Item 1.    Identity of Directors, Senior
Management and Advisors.




Not Applicable.




Item 2.   Offer Statistics and Expected
Timetable.




Not Applicable.




Item 3.   Key Information.





Selected
Financial Data





We have
derived the following selected historical financial and other data for the three
years ending December 31, 2007 from our auditedconsolidated and
predecessor combined financial statements for the years ended December 31, 2007,
2006, 2005 respectively, appearing elsewhere in this Annual Report. The historical financial
and other data presented for the period from August 27, 2003 (inception) to
December 31, 2004 have been derived from audited financial statements not
required to be included in this Annual Report and are provided for comparison
purposes. August 27, 2003 refers to the incorporation date of the vessel-owning
subsidiary of the M/T Aktoras and is the earliest incorporation date of any of
our vessel-owning subsidiaries.




Consolidated Financial Statements.Financial statements presented reflecting our balance sheet as of
December 31, 2007 and results of operations and cash flows from April 4, 2007
(completion of our initial public offering) to December 31, 2007 are referred to
herein as our “consolidated financial statements” and include operations of the
five vessels which had been delivered as of December 31, 2006 and the M/T
Attikos and operations of the remaining seven vessels in our fleet which were
delivered between January and September 2007as of their respective
delivery dates.




Predecessor Combined Financial
Statements.Financial statements presented reflecting the historical
carrying costs of certain vessel-owning companies under the common control of
Capital Maritime which were contributed to us by Capital Maritime at the time of
our initial public offering or which were purchased by us from Capital Maritime
are collectively referred to herein as our “predecessor combined financial
statements”. These include the balance sheet as of December 31, 2006 and the
results of operations and cash flows of the eight vessels that comprised our
fleet at the time of our initial public offering (the “initial vessels”) from
their respective delivery dates in 2006 to April 3, 2007, the date they were
transferred to us, and of the M/T Attikos from January 20, 2005, the date it was
delivered to Capital Maritime, to September 23, 2007, the date it was acquired
by us.Construction
costs incurred by Capital Maritime in connection with the M/T Attikos during the
period from August 27, 2003 (inception) to December 31, 2004 are included in the
historical financial data for the period presented below.




Our
historical results are not necessarily indicative of the results that may be
expected in the future. Specifically, our audited consolidated and predecessor
combined financial statements are not comparable, as our initial public offering
and certain other transactions that occurred during 2007, including the delivery
of four newbuildings, the acquisition of the M/T Attikos, the agreement we
entered into with Capital Ship Management for the provision of management and
administrative services to our fleet for a fixed fee and the new financing
arrangements we entered into, have affected our results of operations.
Furthermore, for the year ended December 31, 2006, only six of the vessels in
our current fleet had been delivered to Capital Maritime. Five of these vessels
were delivered between April and November 2006 and were in operation for only a
portion of the year. The M/T Attikos was delivered on January 20, 2005 and is
the only vessel in our fleet which had been delivered to Capital Maritime during
the year ended December 31, 2005. Consequently, the following table should be
read together with, and is qualified in its entirety by reference to, the
historical audited consolidated and predecessor combined financial statements
and the accompanying notes included elsewhere in this Annual Report. The table
should also be read together with “Item 5: —Management’s Discussion and Analysis
of Financial Condition and Results of Operations”.




Our consolidated financial statements
are prepared in accordance with United States generally accepted accounting
principles. All numbers are in thousands of U.S. Dollars, except numbers of
units and earnings per unit.






1
 Table of Contents








Period
      from Aug. 27, 2003 (inception) to Dec. 31, 2004*
            
            
            Year
      Ended
              Dec. 31, 2005*
            
            
            Year
      Ended
              Dec. 31, 2006*
            
            
            Year
      Ended
              Dec. 31, 2007


Income
      Statement Data:Revenues
            
            $
            -
            
            
            $
            4,377
            
            
            $
            19,913
            
            
            $
            72,543Expenses:Voyage
      expenses(1)
            
            
            -
            
            
            
            520
            
            
            
            373
            
            
            
            770Vessel
      operating expenses—related party
            
            
            -
            
            
            
            216
            
            
            
            890
            
            
            
            12,283Vessel
      operating expenses(2)
            
            
            40
            
            
            
            1,932
            
            
            
            4,043
            
            
            
            3,196General
      and administrative expenses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,477Depreciation
      and amortization
            
            
            -
            
            
            
            360
            
            
            
            3,370
            
            
            
            13,109Total
      operating expenses
            
            
            40
            
            
            
            3,028
            
            
            
            8,676
            
            
            
            30,835Operating
      income (expense)
            
            
            (40
            )
            
            
            1,349
            
            
            
            11,237
            
            
            
            41,708Interest
      expense and finance costs
            
            
            -
            
            
            
            (389
            )
            
            
            (4,584
            )
            
            
            (10,809
            )Loss
      on interest rate swap agreement
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,763
            )Interest
      income
            
            
            -
            
            
            
            1
            
            
            
            13
            
            
            
            710Foreign
      currency gain/(loss), net
            
            
            -
            
            
            
            9
            
            
            
            (56
            )
            
            
            (19
            )Net
      income (loss)
            
            
            (40
            )
            
            $
            970
            
            
            $
            6,610
            
            
            $
            27,827Less:Net
      income attributable to predecessor operations:Initial
      vessels’ net income from January 1, 2007 to April 3, 2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            (5,328
            )Attikos’
      net income  from January 1, 2007 to September 23,
      2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (928
            )Partnership’s
      net income for the period from April 4 to December 31,
2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            21,571General
      partner’s interest in our  net income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            431Limited
      partners’ interest in our net income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            21,140Net
      income per limited partner unit, basic and diluted:Common units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1.11Subordinated
      units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.70Total
      units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.95Weighted-average
      units outstanding (basic and diluted):Common units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,512,500Subordinated units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,805,522Total units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            22,318,022Balance Sheet Data (at
      end of period):Vessels,
      net and under construction
            
            $
            25,152
            
            
            $
            49,351
            
            
            $
            208,028
            
            
            $
            429,171Total
      assets
            
            
            25,165
            
            
            
            50,553
            
            
            
            216,124
            
            
            
            454,914Total
      partners’/stockholders’ equity
            
            
            19,658
            
            
            
            24,840
            
            
            
            49,397
            
            
            
            161,939Number
      of shares/units
            
            
            3,700
            
            
            
            3,700
            
            
            
            3,700
            
            
            
            22,773,492Common
      units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,512,500Subordinated units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,805,522General
      Partner units
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            455,470Dividends
      declared per unit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            0.75






2
 Table of Contents




Period
      from Aug. 27, 2003 (inception) to Dec. 31, 2004*
              
              
              Year
      Ended
                Dec. 31, 2005*
              
              
              Year
      Ended
                Dec. 31, 2006*
              
              
              Year
      Ended
                Dec. 31, 2007


Cash
      Flow Data:Net
      cash provided by operating activities
            
            
            29
            
            
            
            1,468
            
            
            
            9,497
            
            
            
            50,582Net
      cash used in investing activities
            
            
            (25,152
            )
            
            
            (24,559
            )
            
            
            (162,047
            )
            
            
            (246,938
            )Net
      cash provided by financing activities
            
            
            25,134
            
            
            
            23,087
            
            
            
            153,782
            
            
            
            215,034


___________




(1)
            Vessel
      voyage expenses primarily consist of commissions, port expenses, canal
      dues and bunkers. Since April 4, 2007 our only voyage expenses have been
      commissions.


(2)
            Since
      April 4, 2007 our vessel operating expenses have consisted primarily of
      management fees payable to our manager, who provides commercial and
      technical services such as crewing, repairs and maintenance, insurance,
      stores, spares and lubricants, as well as administrative services pursuant
      to management and administrative services agreements. Vessel operating
      expenses presented in the predecessor combined financial statements
      consist of all expenses relating to the operation of the vessels including
      crewing, repairs and maintenance, insurances, stores and lubricants,
      management fees and miscellaneous
expenses.


*
            The
      amount of historical earnings per unit for the period from August 27, 2003
      (inception) to December 31, 2004, for the years ended December 31,
      2005 and 2006 and for the period from January 1, 2007 to April 3, 2007,
      giving retroactive impact to the number of common and subordinated units
      (and the 2% general partner interest) that were issued upon the completion
      of our initial public offering on April 3, 2007is not presented
      in our selected historical financial data. We do not believe that a
      presentation of earnings per unit for these periods would not be
      meaningful to our investors as the vessels comprising our initial fleet
      and the M/T Attikos were under construction during the period from August
      27, 2003 (inception) to December 31, 2004 and during the year ended
      December 31, 2005 the vessel-owning subsidiaries included herein,
      with the exception of the one which owns the M/T Attikos which was
      delivered in January 2005 to Capital Maritime, were in the start-up phase.
      In addition, during the year ended December 31, 2006 only six of the 13
      vessels we owned as of December 31, 2007 had been delivered to us and only
      the M/T Attikos was in operation for the full year ended December 31,
      2006, while the other five vessels were in operation for only part of the
      period (the vessels were delivered in April, May, July, August and
      November 2006, respectively) and a portion of the revenues generated
      during 2006 was derived from charters with different terms and conditions
      from those in the charters in place during 2007. Earnings per unit for
      these periods are not reflective of our anticipated earnings and
      operations going forward.Please
      note that our audited consolidated and predecessor combined financial
      statements for the years ended December 31, 2007, 2006 and 2005 and for
      the period from August 27, 2003 (inception) to December 31, 2004 have been
      retroactively adjusted to reflect the results of operations and initial
      construction costs of the M/T Attikos, which was delivered in January 2005
      to an entity under common control and acquired by us in September
      2007.






Risk
Factors




Some of
the following risks relate principally to the countries and the industry in
which we operate and the nature of our business in general. Although many of our
business risks are comparable to those of a corporation engaged in a similar
business would face, limited partner interests are inherently different from the
capital stock of a corporation. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. In particular, if any of the following
risks actually occurs, our business, financial condition or operating results
could be materially adversely affected. In that case, we might not be able to
pay distributions on our common units, the trading price of our common units
could decline, and you could lose all or part of your
investment.




Risks
Inherent in Our Business




We
may not have sufficient cash from operations to enable us to pay the quarterly
distribution on our common units following the establishment of cash reserves
and payment of fees and expenses.




We may
not have sufficient cash available each quarter to pay the declared quarterly
distribution per common unit following establishment of cash reserves and
payment of fees and expenses. The amount of cash we can distribute on our common
units principally depends upon the amount of cash we generate from our
operations, which may fluctuate based on numerous factors generally described
under this “Risk Factors” heading, including, among other things:




•
            the
      rates we obtain from our charters;




•
            the
      level of additional revenues we generate from our profit-sharing
      arrangements, if any;






3
 Table of Contents






•
            the
      level of our operating costs, such as the cost of crews and insurance,
      following the expiration of our management agreement pursuant to which we
      pay a fixed daily fee for an initial term of approximately five years from
      the time we take delivery of each vessel, which includes the expenses for
      its next scheduled special or intermediate survey, as applicable, and
      related drydocking;




•
            the
      number of unscheduled off-hire days for our fleet and the timing of, and
      number of days required for, scheduled drydocking of our
      vessels;




•
            delays
      in the delivery of newbuildings and the beginning of payments under
      charters relating to those vessels;




•
            demand
      for seaborne transportation of refined oil products and crude
      oil;




•
            supply
      of product and crude oil tankers and specifically the number of
      newbuildings entering the world tanker fleet each
  year;




•
            prevailing
      global and regional economic and political conditions;
  and




•
            the
      effect of governmental regulations and maritime self-regulatory
      organization standards on the conduct of our
  business.




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




•
            the
      level of capital expenditures we make, including for maintaining vessels,
      building new vessels, acquiring existing vessels and complying with
      regulations;




•
            our
      debt service requirements and restrictions on distributions contained in
      our debt instruments;




•
            interest
      rate fluctuations;




•
            the
      cost of acquisitions, if any;




•
            fluctuations
      in our working capital needs;




•
            our
      ability to make working capital borrowings, including to pay distributions
      to unitholders; and




•
            the
      amount of any cash reserves, including reserves for future maintenance and
      replacement capital expenditures, working capital and other matters,
      established by our board of directors in its
  discretion.




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




The
shipping industry is cyclical, which may lead to lower charter hire rates and
lower vessel values, resulting in decreased distributions to our common
unitholders.




The
shipping industry is cyclical, which may result in volatility in charter hire
rates and vessel values. We may not be able to successfully charter our vessels
in the future or renew existing charters at the same or similar rates. If we are
required to enter into a charter when charter hire rates are low, our results of
operations and our ability to make cash distributions to our common unitholders
could be adversely affected.




In
addition, the market value and charter hire rates of product and crude oil
tankers can fluctuate substantially over time due to a number of different
factors, including:




•
            prevailing
      economic conditions in the market in which the vessel
    trades;




•
            regulatory
      change;




•
            lower
      levels of demand for the seaborne transportation of refined products and
      crude oil;




•
            increases
      in the supply of vessel capacity;
and




•
            the
      cost of retrofitting or modifying existing ships, as a result of
      technological advances in vessel design or equipment, changes in
      applicable environmental or other regulations or standards, or
      otherwise.




We have
entered into an agreement with Capital Maritime to purchase, among others, its
interests in the subsidiaries that own two newbuildings, expected to be
delivered during 2008, at pre-determined purchase prices. We will purchase from
Capital Maritime its interests in each subsidiary that owns the newbuildings
upon delivery of the vessel to the applicable subsidiary. Even if the market
value of similar vessels declines between the time we entered into the agreement
and the time the newbuildings are actually delivered, we will still be required
to purchase the interests in those subsidiaries at the prices specified in the
agreement with Capital Maritime. As a result, we may pay substantially more for
those vessels than we would pay if we were to purchase those vessels from
unaffiliated third parties. For more information on our agreement to purchase
the two newbuildings from Capital Maritime, please read “Item 4: Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Purchase of Vessels Following the
Offering” and “Item 7B: Related Party Transactions—Share Purchase
Agreement.”






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If we
sell a vessel at a time when the market value of our vessels has fallen, the
sale may be at less than the vessel’s carrying amount, resulting in a loss. A
decline in the market value of our vessels could also lead to a default under
any prospective credit facility to which we become a party, affect our ability
to refinance our existing credit facilities and/or limit our ability to obtain
additional financing.




We
have a limited operating history, which makes it more difficult to accurately
forecast our future results and may make it difficult for investors to evaluate
our business and our future prospects, both of which will increase the risk of
your investment.




We were
formed as an independent limited partnership on January 16, 2007. Only five of
the vessels in our current fleet had been delivered to the relevant
vessel-owning subsidiaries as of December 31, 2006 and were in operation
during a portion of the period then ended. Moreover, as these vessels were
operated as part of Capital Maritime’s fleet during the reporting period, the
vessels were operated in a different manner than they are currently operated,
and thus their historical results may not be indicative of their future results.
Because of our limited operating history, we lack extended historical financial
and operational data, making it more difficult for an investor to evaluate our
business, forecast our future revenues and other operating results, and assess
the merits and risks of an investment in our common units. This lack of
information will increase the risk of your investment. Moreover, you should
consider and evaluate our prospects in light of the risks and uncertainties
frequently encountered by companies with a limited operating history. These
risks and difficulties include challenges in accurate financial planning as a
result of limited historical data and the uncertainties resulting from having
had a relatively limited time period in which to implement and evaluate our
business strategies as compared to older companies with longer operating
histories. Our failure to address these risks and difficulties successfully
could materially harm our business and operating results.




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




We must
make substantial capital expenditures to maintain, over the long-term, the
operating capacity of our fleet. These maintenance and replacement capital
expenditures include capital expenditures associated with drydocking a vessel,
modifying an existing vessel or acquiring a new vessel to the extent these
expenditures are incurred to maintain the operating capacity of our fleet. These
expenditures could increase as a result of changes in:




•
            the
      cost of our labor and materials;




•
            the
      cost and replacement life of suitable replacement
  vessels;




•
            customer/market
      requirements;




•
            increases
      in the size of our fleet;




•
            the
      age of the vessels in our fleet;




•
            charter
      rates in the market; and




•
            governmental
      regulations, industry and maritime self-regulatory organization standards
      relating to safety, security or the
environment.




Our
significant maintenance and replacement capital expenditures will reduce the
amount of cash we have available for distribution to our unitholders. Any costs
associated with scheduled drydocking are included in a fixed daily fee of $5,500
per time chartered vessel ($8,500 for the M/T Amore Mio II), that we pay Capital
Ship Management under a management agreement, for an initial term of
approximately five years from the time we take delivery of each vessel, which
includes the expenses for its next scheduled special or intermediate survey, as
applicable, and related drydocking. In the event our management agreement is not
renewed, we will separately deduct estimated capital expenditures associated
with drydocking from our operating surplus in addition to estimated replacement
capital expenditures.




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






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If
Capital Maritime or any third party seller we may contract with in the future
for the purchase of newbuildings fails to make construction payments for such
vessels, the shipyard may rescind the purchase contract and we may lose access
to such vessels or need to finance such vessels before they begin operating,
which could harm our business and our ability to make cash
distributions.




To date,
all the newbuildings we have acquired and agreed to acquire have been contracted
directly by Capital Maritime and all costs for the construction and delivery of
such vessels have been, or are being, incurred by Capital Maritime. Since our
initial public offering in April 2007 we have taken delivery of five
newbuildings from Capital Maritime, with an additional two expected for delivery
in 2008. In the future, we may enter into similar arrangements with Capital
Maritime or other third parties for the acquisition of newbuildings. If Capital
Maritime or any third party sellers we contract with in the future fail to make
construction payments for the newbuildings after receiving notice by the
shipbuilder following nonpayment on any installment due date, the shipbuilder
could rescind the newbuilding purchase contract. As a result of such default,
Capital Maritime or the third party seller could lose all or part of the
installment payments made prior to such default, and we could either lose access
to the remaining newbuildings or any future vessels we contract to acquire or
may need to finance such vessels before they begin operating and generating
voyage revenues, which could harm our business and reduce our ability to make
cash distributions.




If we finance the
purchase of any additional vessels we acquire in the future or the purchase of
the contracted  newbuildings to be delivered in 2008 through cash from
operations or by issuing debt or equity securities, our ability to make cash
distributions may be diminished, our financial leverage could increase or our
unitholders could be diluted. In addition, if we expand the size of our fleet by
directly contracting newbuildings in the future, we generally will be required
to make significant installment payments for such acquisitions prior to their
delivery and generation of revenue.




The
actual cost of a new product or crude oil tanker varies significantly depending
on the market price charged by shipyards, the size and specifications of the
vessel, governmental regulations and maritime self-regulatory organization
standards. The total delivered cost of a vessel will be higher and include
financing, construction supervision, vessel start-up and other
costs.




To date,
all the newbuildings we have acquired and agreed to acquire were contracted
directly by Capital Maritime and all costs for the construction and delivery of
these vessels have been, or are being, incurred by Capital Maritime. As of March
31, 2008, we had taken delivery of five newbuildings and purchased two
additional vessels from Capital Maritime. We have financed the purchase of these
vessels, and intend to finance the purchase of the remaining newbuildings to be
delivered in 2008 and any other vessel we contract to acquire from Capital
Maritime, either with debt, or partly with debt and partly by issuing additional
equity securities. If we issue additional common units or other equity
securities your ownership interest in us will be diluted. Please read “—We may
issue additional equity securities without your approval, which would dilute
your ownership interest” below.




If we
elect to expand our fleet in the future by entering into contracts for
newbuildings directly with shipyards, we generally will be required to make
installment payments prior to their delivery. We typically must pay 5-25% of the
purchase price of a vessel upon signing the purchase contract, even though
delivery of the completed vessel will not occur until much later (approximately
18-36 months later for current orders), which could reduce cash available
for distributions to unitholders. If we finance these acquisition costs by
issuing debt or equity securities, we will increase the aggregate amount of
interest payments or quarterly distributions we must make prior to generating
cash from the operation of the newbuilding.




To fund
the remaining portion of the acquisition price of the two newbuildings expected
to be delivered in 2008 or the acquisition price of any additional vessels we
may contract to purchase from Capital Maritime or other third parties and other
related capital expenditures, we will be required to use cash from operations or
incur borrowings or raise capital through the sale of debt or additional equity
securities. Use of cash from operations will reduce cash available for
distributions to unitholders. Even if we are successful in obtaining necessary
funds, the terms of such financings could limit our ability to pay cash
distributions to unitholders. Incurring additional debt may significantly
increase our interest expense and financial leverage, and issuing additional
equity securities may result in significant unitholder dilution and would
increase the aggregate amount of cash required to meet our quarterly
distributions to unitholders, which could have a material adverse effect on our
ability to make cash distributions.






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Our
ability to obtain bank financing and/or to access the capital markets for future
equity offerings may be limited by prevailing economic conditions. If we are
unable to obtain funding or access the capital markets, we may be unable to
complete any future purchases of vessels from Capital Maritime or from third
parties.




Our
ability to obtain bank financing or to access the capital markets for future
offerings may be limited by our financial condition at the time of any such
financing or offering, as well as by adverse market conditions resulting from,
among other things, general economic conditions, weakness in the financial
markets and contingencies and uncertainties that are beyond our control. Our
failure to obtain the funds for necessary future capital expenditures could have
a material adverse effect on our business, results of operations and financial
condition and on our ability to make cash distributions. We expect to fund part
of the purchase price of the vessels to be delivered in 2008 through drawdowns
on our existing credit facility and the remainder through issuances of equity.
If the prevailing equity market conditions at the time of delivery of the
vessels are not favorable, we may be unable to complete the purchases, or we may
have to complete them at terms not favorable to us or to our
unitholders.




Our
debt levels may limit our flexibility in obtaining additional financing and in
pursuing other business opportunities.




As of
March 31, 2008, we had drawn down $322.5 million under our existing credit
facility and had $47.5 million available. In addition,we entered into a new
$350.0 million credit facility on March 19, 2008 and, following the acquisition
of the M/T Amore Mio II on March 27, 2008, had $304.0 million available.For more information
regarding the terms of our existing revolving credit facilities, please read
“Item 5:—Liquidity and Capital Resources—Revolving Credit Facilities.” Our level
of debt could have important consequences to us, including the
following:




•
            our
      ability to obtain additional financing, if necessary, for working capital,
      capital expenditures, acquisitions or other purposes may be impaired, or
      such financing may not be available on favorable
  terms;




•
            we
      will need a substantial portion of our cash flow to make interest payments
      and, following the end of the relevant non-amortizing periods, principal
      payments on our debt, reducing the funds that would otherwise be available
      for operations, future business opportunities and distributions to
      unitholders;




•
            our
      debt level will make us more vulnerable to competitive pressures, or to a
      downturn in our business or in the economy in general, than our
      competitors with less debt; and




•
            our
      debt level may limit our flexibility in responding to changing business
      and economic conditions.




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




Our
existing credit facilities contain, and we expect that any future credit
facilities we may enter into will contain, restrictive covenants, which may
limit our business and financing activities.




The
operating and financial restrictions and covenants in our existing revolving
credit facilities and in any future credit facility we enter into could
adversely affect our ability to finance future operations or capital needs or to
engage, expand or pursue our business activities. For example, our existing
revolving credit facilities require the consent of our lenders to, or limit our
ability to, among other items:




•
            incur
      or guarantee indebtedness;




•
            charge,
      pledge or encumber the vessels;




•
            change
      the flag, class, management or ownership of our
  vessels;




•
            change
      the commercial and technical management of our
  vessels;




•
            sell
      or change the beneficial ownership or control of our vessels;
      and




•
            subordinate
      our obligations thereunder to any general and administrative costs
      relating to the vessels, including the fixed daily fee payable under the
      management agreement.




Our
credit facilities also require us to comply with the ISM Code and to maintain
valid safety management certificates and documents of compliance at all
times.




In
addition, our existing credit facilities require us to:






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•
            maintain
      minimum free consolidated liquidity (50% of which may be in the form of
      undrawn commitments under the relevant credit facility) of at least
      $500,000 per financed vessel;




•
            maintain
      a ratio of EBITDA (as defined in each credit facility) to interest expense
      of at least 2.00 to 1.00 on a trailing four-quarter basis;
    and




•
            maintain
      a ratio of  net Total Indebtedness to the aggregate Fair Market
      Value (as defined in each credit facility) of our total fleet, current or
      future, of no more than 0.725 to
1.00.




We will also be required to maintain an
aggregate fair market value of our financed vessels equal to 125% of the
aggregate amount outstanding under each credit facility.




Our
ability to comply with the covenants and restrictions contained in our existing
revolving credit facilities and any other debt instruments we may enter into in
the future may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. If market or other economic
conditions deteriorate, our ability to comply with these covenants may be
impaired. If we are in breach of any of the restrictions, covenants, ratios or
tests in our existing credit facility, especially if we trigger a cross-default
currently contained in certain of our loan agreements, a significant portion of
our obligations may become immediately due and payable, and our lenders’
commitment to make further loans to us may terminate. We may not have, or be
able to obtain, sufficient funds to make these accelerated payments. In
addition, obligations under our credit facilities are secured by our vessels,
and if we are unable to repay debt under the credit facilities, the lenders
could seek to foreclose on those assets.




Restrictions
in our debt agreements may prevent us from paying distributions.




Our
payment of interest and, following the end of the relevant non-amortizing
periods, principal on the debt will reduce cash available for distribution on
our units. In addition, our existing credit facilities prohibit the payment of
distributions if we are not in compliance with certain financial covenants
or  upon the occurrence of an event of default or if the fair market
value of our financed vessels is less than 125% of the aggregate amount
outstanding under each of our credit facilities.




Events of
default under our credit facilities include:




•
            failure
      to pay principal or interest when
due;




•
            breach
      of certain undertakings, negative covenants and financial covenants
      contained in the credit facility, any related security document or
      guarantee or the interest rate swap agreements, including failure to
      maintain unencumbered title to any of the vessel-owning subsidiaries or
      any of the assets of the vessel-owning subsidiaries and failure to
      maintain proper insurance;




•
            any
      breach of the credit facility, any related security document or guarantee
      or the interest rate swap agreements (other than breaches described in the
      preceding two bullet points) if, in the opinion of the lenders, such
      default is capable of remedy and continues unremedied for 20 days
      after written notice of the
lenders;




•
            any
      representation, warranty or statement made by us in the credit facility or
      any drawdown notice thereunder or related security document or guarantee
      or the interest rate swap agreements is untrue or misleading when
      made;




•
            a
      cross-default of our other indebtedness of $5.0 million or greater or
      of the indebtedness of our subsidiaries of $750,000 or
      greater;




•
            we
      become, in the reasonable opinion of the lenders, unable to pay our debts
      when due;




•
            any
      of our or our subsidiaries’ assets are subject to any form of execution,
      attachment, arrest, sequestration or distress in respect of a sum of
      $1.0 million or more that is not discharged within 10 business
      days;




•
            an
      event of insolvency or bankruptcy;




•
            cessation
      or suspension of our business or of a material part
    thereof;




•
            unlawfulness,
      non-effectiveness or repudiation of any material provision of our credit
      facility, of any of the related finance and guarantee documents or of our
      interest rate swap agreements;




•
            failure
      of effectiveness of security documents or
  guarantee;




•
            the
      common units cease to be listed on the Nasdaq Global Market or on any
      other recognized securities
exchange;




•
            any
      breach under any provisions contained in our interest rate swap
      agreements;




•
            termination
      of our interest rate swap agreements or an event of default thereunder
      that is not remedied within five business
days;






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•
            invalidity
      of a security document in any material respect or if any security document
      ceases to provide a perfected first priority security interest;
      or




•
            any
      other event that occurs or circumstance that arises in light of which the
      lenders reasonably consider that there is a significant risk that we will
      be unable to discharge our liabilities under the credit facility, related
      security and guarantee documents or interest rate swap
      agreements.




We
anticipate that any subsequent refinancing of our current debt or any new debt
will have similar restrictions. For more information regarding our financing
arrangements, please read “Item 5: Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital
Resources.”




We
currently derive all of our revenues from a limited number of customers, and the
loss of any customer or charter or vessel could result in a significant loss of
revenues and cash flow.




We have
derived, and believe that we will continue to derive, all of our revenues and
cash flow from a limited number of customers. BP Shipping Limited, Morgan
Stanley Capital Group Inc. and Trafigura Beheer B.V.accounted for all of our
revenues for the year ending December 31, 2007, with BP and Morgan Stanley
representing 64% and 28% of our revenues, respectively. For the year ended
December 31, 2006, BP and Morgan Stanley represented 53% and 23% of the revenues
of our predecessor, respectively. In January 2008 we took delivery of the first
of the three newbuildings chartered to subsidiaries of Overseas Shipholding
Group Inc., increasing the number of our customers for 2008 to four.We could lose a customer
or the benefits of a charter if:




•
            the
      customer fails to make charter payments because of its financial
      inability, disagreements with us or
otherwise;




•
            the
      customer exercises certain rights to terminate the charter or purchase the
      vessel;




•
            the
      customer terminates the charter because we fail to deliver the vessel
      within a fixed period of time, the vessel is lost or damaged beyond
      repair, there are serious deficiencies in the vessel or prolonged periods
      of off-hire, or we default under the charter;
or




•
            a
      prolonged force majeure event affecting the customer, including damage to
      or destruction of relevant production facilities, war or political unrest
      prevents us from performing services for that
  customer.




Please read “Item 4: Business
Overview—Our Charters”.




If we
lose a key charter, we may be unable to re-deploy the related vessel on terms as
favorable to us due to the long-term nature of most charters. If we are unable
to re-deploy a vessel for which the charter has been terminated, we will not
receive any revenues from that vessel, but we may be required to pay expenses
necessary to maintain the vessel in proper operating condition. Until such time
as the vessel is re-chartered, we may have to operate it in the spot market at
charter rates which may not be as favorable to us as our current charter
rates.In addition,
if a customer exercises its right to purchase a vessel, we would not receive any
further revenue from the vessel and may be unable to obtain a substitute vessel
and charter. This may cause us to receive decreased revenue and cash flows from
having fewer vessels operating in our fleet. Any replacement newbuilding would
not generate revenues during its construction, and we may be unable to charter
any replacement vessel on terms as favorable to us as those of the terminated
charter. Any compensation under our charters for a purchase of the vessels may
not adequately compensate us for the loss of the vessel and related time
charter.




The loss
of any of our customers, time or bareboat charters or vessels, or a decline in
payments under our charters, could have a material adverse effect on our
business, results of operations and financial condition and our ability to make
cash distributions.




Delays
in deliveries of newbuildings, our decision to cancel or our inability to
otherwise complete the acquisitions of our newbuildings, could harm our
operating results and lead to the termination of the related
charters.




We are
scheduled to take delivery of certain contracted newbuildings during the
remainder of 2008, which are being built at STX Shipbuilding Co., Ltd. shipyard
in South Korea.The
delivery of these vessels, or any other newbuildings we may contract to acquire
or order in the future, could be delayed, not completed or canceled, which would
delay or eliminate our expected receipt of revenues under the charters for the
vessels. The shipbuilder could fail to deliver the newbuilding vessels as
agreed, or Capital Maritime could cancel a purchase or a newbuilding contract
because the shipbuilder has not met its obligations, including its obligation to
maintain agreed refund guarantees in place for our benefit. For prolonged
delays, the customer may terminate the time charter.




Our
receipt of newbuildings could be delayed, canceled, or otherwise not completed
because of:




•
            quality
      or engineering problems;




•
            changes
      in governmental regulations or maritime self-regulatory organization
      standards;






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 Table of Contents






•
            work
      stoppages or other labor disturbances at the
  shipyard;




•
            bankruptcy
      or other financial crisis of the
shipbuilder;




•
            a
      backlog of orders at the shipyard;




•
            political
      or economic disturbances in South Korea, where the vessels are being
      built;




•
            weather
      interference or catastrophic event, such as a major earthquake or
      fire;




•
            the
      shipbuilder failing to deliver the vessels in accordance with our vessel
      specifications;




•
            our
      requests for changes to the original vessel
  specifications;




•
            shortages
      of or delays in the receipt of necessary construction materials, such as
      steel;




•
            our
      inability to finance the purchase of the
  vessels;




•
            a
      deterioration in Capital Maritime’s relations with STX;
  or




•
            our
      inability to obtain requisite permits or
  approvals.




If
delivery of a vessel is materially delayed, it could adversely affect our
results of operations and financial condition and our ability to make cash
distributions.




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




Pursuant
to a management agreement and an administrative services agreement between us
and Capital Ship Management, Capital Ship Management provides significant
commercial and technical management services (including the commercial and
technical management of our vessels, class certifications, vessel maintenance
and crewing, purchasing and insurance and shipyard supervision) as well as
administrative, financial and other support services to us. Please read “Item
7B: Related Party Transactions—Management Agreement” and “—Administrative
Services Agreement”. Our operational success and ability to execute our growth
strategy will depend significantly upon Capital Ship Management’s satisfactory
performance of these services. Our business will be harmed if Capital Ship
Management fails to perform these services satisfactorily, if Capital Ship
Management cancels either of these agreements, or if Capital Ship Management
stops providing these services to us. We may also in the future contract with
Capital Maritime for it to have newbuildings constructed on our behalf and to
incur the construction-related financing. We would purchase the vessels on or
after delivery based on an agreed-upon price.




Our
ability to enter into new charters and expand our customer relationships will
depend largely on our ability to leverage our relationship with Capital Maritime
and its reputation and relationships in the shipping industry. If Capital
Maritime suffers material damage to its reputation or relationships, it may harm
our ability to:




•
            renew
      existing charters upon their
expiration;




•
            obtain
      new charters;




•
            successfully
      interact with shipyards during periods of shipyard construction
      constraints;




•
            obtain
      financing on commercially acceptable terms;
or




•
            maintain
      satisfactory relationships with suppliers and other third
      parties.




If our
ability to do any of the things described above is impaired, it could have a
material adverse effect on our business, results of operations and financial
condition and our ability to make cash distributions.




Our
growth depends on continued growth in demand for refined products and crude oil
and the continued demand for seaborne transportation of refined products and
crude oil.




Our
growth strategy focuses on expansion in the refined product tanker and crude oil
shipping sector. Accordingly, our growth depends on continued growth in world
and regional demand for refined products and crude oil and the transportation of
refined products and crude oil by sea, which could be negatively affected by a
number of factors, including:




•
            fluctuations
      in the actual or projected price of refined products and crude
      oil;




•
            refining
      capacity and its geographical
location;




•
            increases
      in the production of oil in areas linked by pipelines to consuming areas,
      the extension of existing, or the development of new, pipeline systems in
      markets we may serve, or the conversion of existing non-oil pipelines to
      oil pipelines in those markets;






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 Table of Contents






•
            decreases
      in the consumption of oil due to increases in its price relative to other
      energy sources, other factors making consumption of oil less attractive or
      energy conservation measures;




•
            availability
      of new, alternative energy sources;
and




•
            negative
      or deteriorating global or regional economic or political conditions,
      particularly in oil consuming regions, which could reduce energy
      consumption or its growth.




Reduced
demand for refined products and crude oil and the shipping of refined products
or crude oil or the increased availability of pipelines used to transport
refined products or crude oil, would have a material adverse effect on our
future growth and could harm our business, results of operations and financial
condition.




Our
growth depends on our ability to expand relationships with existing customers
and obtain new customers, for which we will face substantial
competition.




Medium to
long-term time charters and bareboat charters have the potential to provide
income at pre-determined rates over more extended periods of time. However, the
process for obtaining longer term time charters and bareboat charters is highly
competitive and generally involves a lengthy, intensive and continuous screening
and vetting process and the submission of competitive bids that often extends
for several months. In addition to the quality, age and suitability of the
vessel, longer term shipping contracts tend to be awarded based upon a variety
of other factors relating to the vessel operator further described below under
“Our vessels’ present and future employment could be adversely affected by an
inability to clear the oil majors’ risk assessment process”.




In
addition to having to meet the stringent requirements set out by charterers, it
is likely that we will also face substantial competition from a number of
competitors who may have greater financial resources, stronger reputation or
experience than we do when we try to recharter our vessels. It is also likely
that we will face increased numbers of competitors entering into our
transportation sectors, including in the ice class sector. Increased competition
may cause greater price competition, especially for medium to long-term
charters.




As a
result of these factors, we may be unable to expand our relationships with
existing customers or obtain new customers for medium to long-term time charters
or bareboat charters on a profitable basis, if at all. However, even if we are
successful in employing our vessels under longer term time charters or bareboat
charters, our vessels will not be available for trading in the spot market
during an upturn in the tanker market cycle, when spot trading may be more
profitable. If we cannot successfully employ our vessels in profitable time
charters, our results of operations and operating cash flow could be adversely
affected.




Our
vessels’ present and future employment could be adversely affected by an
inability to clear the oil majors’ risk assessment process.




Shipping,
and especially crude oil, refined product and chemical tankers have been, and
will remain, heavily regulated. The so called “oil majors companies”, together
with a number of commodities traders, represent a significant percentage of the
production, trading and shipping logistics (terminals) of crude oil and refined
products world-wide. Concerns for the environment have led the oil majors to
develop and implement a strict ongoing due diligence process when selecting
their commercial partners. This vetting process has evolved into a sophisticated
and comprehensive risk assessment of both the vessel operator and the vessel,
including physical ship inspections, completion of vessel inspection
questionnaires performed by accredited inspectors and the production of
comprehensive risk assessment reports. In the case of term charter
relationships, additional factors are considered when awarding such contracts,
including:




•
            office
      assessments of the vessel operator, including extensive annual office
      audits;




•
            the
      operator’s environmental, health and safety
  record;




•
            compliance
      with the standards of the International Maritime Organization ("IMO"), a
      United Nations agency that issues international trade standards for
      shipping;




•
            compliance
      with heightened industry standards that have been set by some energy
      companies;




•
            shipping
      industry relationships, reputation for customer service, technical and
      operating expertise;




•
            shipping
      experience and quality of ship operations, including
      cost-effectiveness;




•
            quality,
      experience and technical capability of
crews;




•
            the
      ability to finance vessels at competitive rates and overall financial
      stability;




•
            relationships
      with shipyards and the ability to obtain suitable
  berths;






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•
            construction
      management experience, including the ability to procure on-time delivery
      of new vessels according to customer
  specifications;




•
            willingness
      to accept operational risks pursuant to the charter, such as allowing
      termination of the charter for force majeure events;
  and




•
            competitiveness
      of the bid in terms of overall
price.




Should Capital Maritime and Capital
Ship Management not continue to successfully clear the oil majors’ risk
assessment processes on an ongoing basis, our vessels’ present and future
employment as well as our relationship with our existing charterers and our
ability to obtain new charterers, whether medium or long-term, could be
adversely affected. Such a situation may lead to the oil majors’ terminating
existing charters and refusing to use our vessels in the future which would
adversely affect our results of operations and cash flows. Please read “Item 4:
Information on the Partnership—Major Oil Company Vetting Process” for more
information regarding this process.




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




Our
growth strategy focuses on a gradual expansion of our fleet. Any acquisition of
a vessel may not be profitable to us at or after the time we acquire it and may
not generate cash flow sufficient to justify our investment. In addition, our
growth strategy exposes us to risks that may harm our business, financial
condition and operating results, including risks that we may:




•
            fail
      to realize anticipated benefits, such as new customer relationships,
      cost-savings or cash flow
enhancements;




•
            be
      unable to hire, train or retain qualified shore and seafaring personnel to
      manage and operate our growing business and
  fleet;




•
            decrease
      our liquidity by using a significant portion of our available cash or
      borrowing capacity to finance
acquisitions;




•
            significantly
      increase our interest expense or financial leverage if we incur additional
      debt to finance acquisitions;




•
            incur
      or assume unanticipated liabilities, losses or costs associated with the
      business or vessels acquired; or




•
            incur
      other significant charges, such as impairment of goodwill or other
      intangible assets, asset devaluation or restructuring
    charges.




Unlike
newbuildings, existing vessels typically do not carry warranties as to their
condition. While we generally inspect existing vessels prior to purchase, such
an inspection would normally not provide us with as much knowledge of a vessel’s
condition as we would possess if it had been built for us and operated by us
during its life. Repairs and maintenance costs for existing vessels are
difficult to predict and may be substantially higher than for vessels we have
operated since they were built. These costs could decrease our cash flow and
reduce our liquidity.




The
vessels that currently make up our fleet, as well as the six vessels we may
purchase from Capital Maritime under our omnibus agreement, have been, or will
be, built in accordance with custom designs from three different shipyards, and
the vessels from each respective shipyard are the same in all material respects.
As a result, any latent defect discovered in one vessel will likely affect all
of our vessels.




The
vessels that make up our existing and contracted fleet, with the exception of
the M/T Amore Mio II, as well as the six vessels in Capital Maritime’s fleet for
which we have been granted a right of first offer, are, or will be, based on
standard designs from Hyundai MIPO Dockyard Co., Ltd., South Korea, STX
Shipbuilding Co., Ltd., South Korea and Baima Shipyard, China, and have been
customized by Capital Maritime, in some cases in consultation with the
charterers of the vessel, and are, or will be, uniform in all material respects.
As a result, any latent design defect discovered in one of our vessels will
likely affect all of our other vessels in that class. In addition, the remaining
vessels we have agreed to acquire have, or will have, the same or similar
equipment. As a result, any equipment defect discovered may affect all of our
vessels. Any disruptions in the operation of our vessels resulting from defects
could adversely affect our receipt of revenues under the charters for the
vessels affected.




Certain
design features in our vessels have been modified by Capital Maritime to enhance
the commercial capability of our vessels and have not yet been tested. As a
result, we may encounter unforeseen expenses, complications, delays and other
unknown factors which could adversely affect our revenues.




Capital
Maritime has modified certain design features in our vessels which have not yet
been tested and as a result, they may not operate as intended. If these
modifications fail to enhance the commercial capability of our vessels as
intended or interfere with the operation of our vessels, we could face expensive
and time-consuming design modifications, delays in the operation of our vessels,
damaged customer relationships and harm to our reputation. Any disruptions in
the operation of our vessels resulting from the design modifications could
adversely affect our receipt of revenues under the charters for the vessels
affected.






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




Terrorist
attacks, such as the attacks that occurred in the United States on
September 11, 2001, the bombings in Spain on March 11, 2004, the
bombings in London on July 7, 2005, and the current conflicts in Iraq and
Afghanistan and other current and future conflicts, may adversely affect our
business, operating results, financial condition, ability to raise capital and
future growth. Continuing hostilities in the Middle East may lead to additional
armed conflicts or to further acts of terrorism and civil disturbance in the
United States or elsewhere, which may contribute further to economic instability
and disruption of oil production and distribution, which could result in reduced
demand for our services.




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




Our
operations expose us to political and governmental instability, which could harm
our business.




Our
operations may be adversely affected by changing or adverse political and
governmental conditions in the countries where our vessels are flagged or
registered and in the regions where we otherwise engage in business. Any
disruption caused by these factors may interfere with the operation of our
vessels, which could harm our business, financial condition and results of
operations. In particular, we derive a substantial portion of our revenues from
shipping oil and oil products from politically unstable regions. Past political
efforts to disrupt shipping in these regions, particularly in the Arabian Gulf,
have included attacks on ships and mining of waterways. In addition to acts of
terrorism, trading in this and other regions has also been subject, in limited
instances, to piracy. Our operations may also be adversely affected by
expropriation of vessels, taxes, regulation, tariffs, trade embargoes, economic
sanctions or a disruption of or limit to trading activities, or other adverse
events or circumstances in or affecting the countries and regions where we
operate or where we may operate in the future.




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




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




•
            marine
      disasters;




•
            bad
      weather;




•
            mechanical
      failures;




•
            grounding,
      fire, explosions and collisions;




•
            piracy;




•
            human
      error; and




•
            war
      and terrorism.




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




•
            environmental
      damage, including potential liabilities or costs to recover any spilled
      oil or other petroleum products and to restore the ecosystem where the
      spill occurred;




•
            death
      or injury to persons, loss of
property;




•
            delays
      in the delivery of cargo;




•
            loss
      of revenues from or termination of charter
  contracts;




•
            governmental
      fines, penalties or restrictions on conducting
  business;




•
            higher
      insurance rates; and




•
            damage
      to our reputation and customer relationships
  generally.






Any of
these results could have a material adverse effect on our business, financial
condition and operating results.






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




The
operation of ocean-going vessels in international trade is inherently risky.
Although we carry protection and indemnity insurance, all risks may not be
adequately insured against, and any particular claim may not be paid. We do not
currently maintain off-hire insurance, which would cover the loss of revenue
during extended vessel off-hire periods, such as those that occur during an
unscheduled drydocking due to damage to the vessel from accidents. Accordingly,
any extended vessel off-hire, due to an accident or otherwise, could have a
material adverse effect on our business and our ability to pay distributions to
our unitholders. Any claims covered by insurance would be subject to
deductibles, and since it is possible that a large number of claims may be
brought, the aggregate amount of these deductibles could be material. Certain of
our insurance coverage is maintained through mutual protection and indemnity
associations, and as a member of such associations we may be required to make
additional payments over and above budgeted premiums if member claims exceed
association reserves.




We may be
unable to procure adequate insurance coverage at commercially reasonable rates
in the future. For example, more stringent environmental regulations have led in
the past to increased costs for, and in the future may result in the lack of
availability of, insurance against risks of environmental damage or pollution. A
catastrophic oil spill or marine disaster could exceed our insurance coverage,
which could harm our business, financial condition and operating results. In
addition, certain of our vessels are under bareboat charters with BP Shipping
Limited and subsidiaries of Overseas Shipholding Group Inc. Under the terms
of these charters, the charterer provides for the insurance of the vessel and as
a result these vessels may not be adequately insured and/or in some cases may be
self-insured. Any uninsured or underinsured loss could harm our business and
financial condition. In addition, our insurance may be voidable by the insurers
as a result of certain of our actions, such as our ships failing to maintain
certification with applicable maritime self-regulatory
organizations.




Changes
in the insurance markets attributable to terrorist attacks may also make certain
types of insurance more difficult for us to obtain. In addition, the insurance
that may be available to us may be significantly more expensive than our
existing coverage.




The
maritime transportation industry is subject to substantial environmental and
other regulations, which may significantly limit our operations or increase our
expenses.




Our
operations are affected by extensive and changing international, national and
local environmental protection laws, regulations, treaties, conventions and
standards in force in international waters, the jurisdictional waters of the
countries in which our vessels operate, as well as the countries of our vessels’
registration. Many of these requirements are designed to reduce the risk of oil
spills and other pollution, and our compliance with these requirements can be
costly.




These
requirements can affect the resale value or useful lives of our vessels, require
a reduction in cargo-capacity, ship modifications or operational changes or
restrictions, lead to decreased availability of insurance coverage for
environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in certain ports. Under local,
national and foreign laws, as well as international treaties and conventions, we
could incur material liabilities, including cleanup obligations, in the event
that there is a release of petroleum or other hazardous substances from our
vessels or otherwise in connection with our operations. We could also become
subject to personal injury or property damage claims relating to the release of
or exposure to hazardous materials associated with our current or historic
operations. Violations of or liabilities under environmental requirements also
can result in substantial penalties, fines and other sanctions, including, in
certain instances, seizure or detention of our vessels.




We could
incur significant costs, including cleanup costs, fines, penalties, third-party
claims and natural resource damages, as the result of an oil spill or other
liabilities under environmental laws. The United States Oil Pollution Act of
1990 ("OPA 90") affects all vessel owners shipping oil or petroleum
products to, from or within the United States. OPA 90 allows for potentially
unlimited liability without regard to fault of owners, operators and bareboat
charterers of vessels for oil pollution in U.S. 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 U.S., imposes
liability for oil pollution in international waters. OPA 90 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 U.S. have enacted pollution prevention liability and response
laws, many providing for unlimited liability.




In
addition to complying with OPA 90, IMO regulations, such as Annex VI to the
International Convention for the Prevention of Pollution from Ships, EU
directives and other existing laws and regulations and those that may be
adopted, shipowners may 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 expenditure on our vessels to keep them in compliance, or
even to scrap or sell certain vessels altogether. For example, draft amendments
to revise the regulations of the International Convention for the Prevention of
Pollution from Ships ("MARPOL") regarding the prevention of air pollution from
ships were agreed by the IMO Sub-Committee on Bulk Liquids and Gases when it met
for its 12th session. Following lengthy and technically challenging discussions
in the Air Pollution Working Group, the Sub-Committee agreed a draft revised
Annex VI to the MARPOL Convention and amendments to the NOx Technical Code.
These will now be submitted to the Marine Environment Protection Committee
(MEPC), which meets for its 57th session from March 31 to April 4,
2008.






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A number
of options remain open for discussion at the MEPC, which is expected to approve
the amendments prior to their formal adoption at MEPC 58 in October 2008. The
amendments would then enter into force, under the tacit acceptance procedure, 16
months later, in March 2010, or on a date to be decided by the MEPC. Given the
significant environmental, human health, and economic consequences of a decision
on how best to further reduce emissions of sulphur oxide (SOx) and particulate
matter from ships, the Sub-Committee decided that relevant policy decisions
should be taken at the Committee level and that its principal duty was to
initiate such discussions.





Further
legislation applicable to international and national maritime trade is expected
over the coming years in areas such as ship recycling, sewage systems, emission
control, ballast treatment and handling, etc. This new legislation may require
additional capital expenditure in order to maintain our vessels’ compliance with
international and/or national regulations.





Additionally,
various jurisdictions are considering regulating the management of ballast water
to prevent the introduction of non-indigenous species considered to be invasive.
Further to that and as a result of marine accidents (such as the
November 2002 oil spill from the motor tanker Prestige, a 26 year-old
single-hull tanker  - which was owned by a company unrelated to us), we
believe that regulation of the shipping industry will continue to become more
stringent and more expensive for us and our competitors. In recent years, the
IMO and EU have both accelerated their existing non-double-hull phase-out
schedules in response to highly publicized oil spills and other shipping
incidents involving companies unrelated to us. Future incidents may result in
the adoption of even stricter laws and regulations, which could limit our
operations or our ability to do business and which could have a material adverse
effect on our business and financial results. Please read “Item 4: Business
Overview—Regulation”.




We
have a limited history operating as a publicly traded entity.




We completed our initial public
offering on the Nasdaq Global Market on April 3, 2007 and have a limited history
operating as a publicly traded entity. As a publicly traded limited partnership,
we are required to comply with the SEC’s reporting requirements and with
corporate governance and related requirements of the U.S. Sarbanes-Oxley Act,
the SEC and the Nasdaq Global Market, on which our common units are listed.
Section 404 of the Sarbanes−Oxley Act requires that we evaluate and determine
the effectiveness of our internal control over financial reporting. However, as
a newly public non−accelerated filer, we are not subject to this requirement for
the first year of our operations. Currently, we would be subject to such
requirement by the end of our fiscal year ending December 31,2008. If we have a
material weakness in our internal control over financial reporting, we may not
detect errors on a timely basis and our financial statements may be materially
misstated. We will have to dedicate a significant amount of time and resources
to ensure compliance with the regulatory requirements of Section 404. We will
continue to work with our legal, accounting and financial advisors to identify
any areas in which changes should be made to our financial and management
control systems to manage our growth and our obligations as a public company.
However, these and other measures we may take may not be sufficient to allow us
to satisfy our obligations as a public company on a timely and reliable
basis.We have
incurred and will continue to incur significant legal, accounting and other
expenses in complying with these and other applicable regulations. We anticipate
that our incremental general and administrative expenses as a publicly traded
limited partnership taxed as a corporation for U.S. federal income tax purposes
will include costs associated with annual reports to unitholders, tax returns,
investor relations, registrar and transfer agent’s fees, incremental director
and officer liability insurance costs and director compensation.




The
crew employment agreements manning agents enter into on behalf of Capital
Maritime or its affiliates may not prevent labor interruptions and the failure
to renegotiate these agreements successfully in the future may disrupt our
operations and adversely affect our cash flows.




The crew
employment agreements that manning agents enter into on behalf of Capital
Maritime or its affiliates may not prevent labor interruptions and are subject
to renegotiation in the future. Any labor interruptions, including due to a
failure to renegotiate employment agreements with our crew members successfully,
could disrupt our operations and could adversely affect our business, financial
condition and results of operations.




A
global economic slowdown could have a material adverse effect on our business,
financial position and results of operations.




Oil has
been one of the world’s primary energy sources for a number of decades. Global
economic growth has been strong in recent years which has had a significant
impact on shipping demand.  However, such growth may not be sustained
or the global economy may experience negative growth in the near future. Such an
economic downturn may sharply reduce the demand for oil and refined petroleum
products, and also potentially affect tanker demand. Even though our vessels are
chartered under medium or long-term charters, a negative change in global
economic conditions will likely have a material adverse effect on our business,
financial position, results of operations and ability to pay dividends, as well
as our future prospects.






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Risks
Inherent in an Investment in Us




Capital
Maritime and its affiliates may engage in competition with us.




Pursuant
to the omnibus agreement that we and Capital Maritime have entered into, Capital
Maritime and its controlled affiliates (other than us, our general partner and
our subsidiaries) generally will agree not to acquire, own or operate medium
range tankers under time charters of two or more years without the consent of
our general partner. The omnibus agreement, however, contains significant
exceptions that may allow Capital Maritime or any of its controlled affiliates
to compete with us, which could harm our business.  Please read “Item
7B: Related Party Transactions—Omnibus Agreement—Noncompetition.”




Unitholders
have limited voting rights and our partnership agreement restricts the voting
rights of unitholders owning 5% or more of our common units.




Holders
of common units have only limited voting rights on matters affecting our
business. We will hold a meeting of the limited partners every year to elect one
or more members of our board of directors and to vote on any other matters that
are properly brought before the meeting. Common unitholders elect only four of
the seven members of our board of directors. The elected directors will be
elected on a staggered basis and will serve for three-year terms. Our general
partner in its sole discretion has the right to appoint the remaining three
directors and to set the terms for which those directors will serve. The
partnership agreement also contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our operations, as
well as other provisions limiting the unitholders’ ability to influence the
manner or direction of management. Unitholders will have no right to elect our
general partner and our general partner may not be removed except by a vote of
the holders of at least 662⁄3%
of the outstanding units, including any units owned by our general partner and
its affiliates, voting together as a single class and a majority vote of our
board of directors.




Our
partnership agreement further restricts unitholders’ voting rights by providing
that if any person or group, other than our general partner, its affiliates,
their transferees and persons who acquired such units with the prior approval of
our board of directors, owns beneficially 5% or more of any class of units then
outstanding, any such units owned by that person or group in excess of 4.9% may
not be voted on any matter and will not be considered to be outstanding when
sending notices of a meeting of unitholders, calculating required votes, except
for purposes of nominating a person for election to our board, determining the
presence of a quorum or for other similar purposes, unless required by law. The
voting rights of any such unitholders in excess of 4.9% will be redistributed
pro rata among the other common unitholders holding less than 4.9% of the voting
power of all classes of units entitled to vote.




Our
general partner and its other affiliates own a controlling interest in us and
have conflicts of interest and limited fiduciary and contractual duties, which
may permit them to favor their own interests to your detriment.




As of
March 31, 2008, Capital Maritime owned a 45.6%interest in us,
including a 2% interest through its ownership of our general partner which
effectively controls our day-to-day affairs consistent with policies and
procedures adopted by and subject to the direction of our board of directors.
Although our general partner and its affiliates and our directors have a
fiduciary duty to manage us in a manner beneficial to us and our unitholders,
the officers of our general partner have a fiduciary duty to manage our general
partner in a manner beneficial to Capital Maritime. Furthermore, all of the
officers of our general partner and certain of our directors are directors or
officers of Capital Maritime and its affiliates, and as such they have fiduciary
duties to Capital Maritime that may cause them to pursue business strategies
that disproportionately benefit Capital Maritime or which otherwise are not in
the best interests of us or our unitholders. Conflicts of interest may arise
between Capital Maritime and its affiliates, including our general partner and
its officers, on the one hand, and us and our unitholders, on the other hand. As
a result of these conflicts, our general partner and its affiliates may favor
their own interests over the interests of our unitholders. Please read “—Our
partnership agreement limits the fiduciary duties of our general partner and our
directors to our unitholders and restricts the remedies available to unitholders
for actions taken by our general partner or our directors” below. These
conflicts include, among others, the following situations:




•
            neither
      our partnership agreement nor any other agreement requires our general
      partner or Capital Maritime or its affiliates to pursue a business
      strategy that favors us or utilizes our assets, and Capital Maritime’s
      officers and directors have a fiduciary duty to make decisions in the best
      interests of the unitholders of Capital Maritime, which may be contrary to
      our interests;




•
            the
      executive officers of our general partner and three of our directors also
      serve as executive officers and/or directors of Capital
      Maritime;




•
            our
      general partner and our board of directors are allowed to take into
      account the interests of parties other than us, such as Capital Maritime,
      in resolving conflicts of interest, which has the effect of limiting their
      fiduciary duties to our
unitholders;






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•
            our
      general partner and our directors have limited their liabilities and
      reduced their fiduciary duties under the laws of the Marshall Islands,
      while also restricting the remedies available to our unitholders, and, as
      a result of purchasing common units, unitholders are treated as having
      agreed to the modified standard of fiduciary duties and to certain actions
      that may be taken by our general partner and our directors, all as set
      forth in the partnership agreement;




•
            our
      general partner and our board of directors will be involved in determining
      the amount and timing of our asset purchases and sales, capital
      expenditures, borrowings, and issuances of additional partnership
      securities and reserves, each of which can affect the amount of cash that
      is available for distribution to our
  unitholders;




•
            our
      general partner may have substantial influence over our board of
      directors’ decision to cause us to borrow funds in order to permit the
      payment of cash distributions, even if the purpose or effect of the
      borrowing is to make a distribution on the subordinated units or to make
      incentive distributions or to accelerate the expiration of the
      subordination period;




•
            our
      general partner is entitled to reimbursement of all reasonable costs
      incurred by it and its affiliates for our
  benefit;




•
            our
      partnership agreement does not restrict us from paying our general partner
      or its affiliates for any services rendered to us on terms that are fair
      and reasonable or entering into additional contractual arrangements with
      any of these entities on our behalf;
and




•
            our
      general partner may exercise its right to call and purchase our common
      units if it and its affiliates own more than 80% of our common
      units.




Although
a majority of our directors will over time be elected by common unitholders, our
general partner will likely have substantial influence on decisions made by our
board of directors. Please read “Item 7B:  Related Party
Transactions”.




We
currently do not have any officers and expect to rely solely on officers of our
general partner, who face conflicts in the allocation of their time to our
business.




We do not
currently expect our board of directors to exercise its power to appoint
officers of Capital Product Partners L.P. and, as a result, we expect to rely
solely on the officers of our general partner, who are not required to work
full-time on our affairs and who also work for affiliates of our general
partner, including Capital Maritime. For example, our general partner’s Chief
Executive Officer and Chief Financial Officer is also an executive officer of
Capital Maritime. The affiliates of our general partner conduct substantial
businesses and activities of their own in which we have no economic interest. As
a result, there could be material competition for the time and effort of the
officers of our general partner who also provide services to our general
partner’s affiliates, which could have a material adverse effect on our
business, results of operations and financial condition.




Our
partnership agreement limits our general partner’s and our directors’ fiduciary
duties to our unitholders and restricts the remedies available to unitholders
for actions taken by our general partner or our directors.




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




•
            permits
      our general partner to make a number of decisions in its individual
      capacity, as opposed to in its capacity as our general partner. Where our
      partnership agreement permits, our general partner may consider only the
      interests and factors that it desires, and in such cases it has no duty or
      obligation to give any consideration to any interest of, or factors
      affecting us, our affiliates or our unitholders. Decisions made by our
      general partner in its individual capacity will be made by its sole owner,
      Capital Maritime. Specifically, pursuant to our partnership agreement, our
      general partner will be considered to be acting in its individual capacity
      if it exercises its call right, pre-emptive rights or registration rights,
      consents or withholds consent to any merger or consolidation of the
      partnership, appoints any directors or votes for the election of any
      director, votes or refrains from voting on amendments to our partnership
      agreement that require a vote of the outstanding units, voluntarily
      withdraws from the partnership, transfers (to the extent permitted under
      our partnership agreement) or refrains from transferring its units,
      general partner interest or incentive distribution rights or votes upon
      the dissolution of the partnership;




•
            provides
      that our general partner and our directors are entitled to make other
      decisions in “good faith” if they reasonably believe that the decision is
      in our best interests;




•
            generally
      provides that affiliated transactions and resolutions of conflicts of
      interest not approved by the conflicts committee of our board of directors
      and not involving a vote of unitholders must be on terms no less favorable
      to us than those generally being provided to or available from unrelated
      third parties or be “fair and reasonable” to us and that, in determining
      whether a transaction or resolution is “fair and reasonable,” our board of
      directors may consider the totality of the relationships between the
      parties involved, including other transactions that may be particularly
      advantageous or beneficial to us;
and






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 Table of Contents






•
            provides
      that neither our general partner and its officers nor our directors will
      be liable for monetary damages to us, our limited partners or assignees
      for any acts or omissions unless there has been a final and non-appealable
      judgment entered by a court of competent jurisdiction determining that our
      general partner or directors or its officers or directors or those other
      persons engaged in actual fraud or willful
  misconduct.




In order
to become a limited partner of our partnership, a common unitholder is required
to agree to be bound by the provisions in the partnership agreement, including
the provisions discussed above.




Fees
and cost reimbursements, which Capital Ship Management will determine for
services provided to us and certain of our subsidiaries, will be substantial,
may fluctuate, and will reduce our cash available for distribution to you. Such
fees and cost reimbursements may change upon the expiration of the management
and administrative agreements currently in place.




We pay a
fixed daily fee for an initial term of approximately five years from the time we
take delivery of each vessel for services provided to us by Capital Ship
Management, and we reimburse Capital Ship Management for all expenses it incurs
on our behalf. The fixed daily fee to be paid to Capital Ship Management
includes all costs incurred in providing certain commercial and technical
management services to us, including vessel maintenance, crewing, purchasing and
insurance and also includes the expenses for each vessel’s next scheduled
special or intermediate survey, as applicable, and related
drydocking.  In addition to the fixed daily fees payable under the
management agreement, Capital Ship Management is entitled to reasonable
supplementary remuneration for extraordinary fees and costs of any direct and
indirect expenses it incurs in providing these services which may vary from time
to time.  In addition, Capital Ship Management provides us with
administrative services, including audit, legal, banking and insurance services,
pursuant to an administrative services agreement with an initial term of five
years from the date of our initial public offering, and we reimburse Capital
Ship Management for all costs and expenses reasonably incurred by it in
connection with the provision of those services. Costs for these services are
not fixed and may fluctuate depending on our requirements.




Going
forward, when we acquire new vessels or when the respective management
agreements for our vessels expire, we will have to enter into new agreements
with Capital Ship Management or a third party for the provision of the above
services. It is possible that any such new agreement may not be on the same or
similar terms as our existing agreements, and that the level of our operating
costs may change following any such renewal. Any increase in the costs and
expenses associated with the provision of these services by our manager in the
future, such as the costs of crews for our time-chartered vessels and insurance,
will lead to an increase in the fees we will have to pay to Capital Ship
Management under any new agreements we enter into. The payment of fees to
Capital Ship Management and reimbursement of expenses to Capital Ship Management
could adversely affect our ability to pay cash distributions.




Our
partnership agreement contains provisions that may have the effect of
discouraging a person or group from attempting to remove our current management
or our general partner, and even if public unitholders are dissatisfied, they
will be unable to remove our general partner without Capital Maritime’s consent,
unless Capital Maritime’s ownership share in us is decreased, all of which could
diminish the trading price of our common units.




Our
partnership agreement contains provisions that may have the effect of
discouraging a person or group from attempting to remove our current management
or our general partner.




•
            The
      unitholders will be unable to remove our general partner without its
      consent because our general partner and its affiliates own sufficient
      units to be able to prevent its removal. The vote of the holders of at
      least 662⁄3%
      of all outstanding units voting together as a single class and a majority
      vote of our board of directors is required to remove the general partner.
      As of March 31, 2008,Capital Maritime
      owned a 45.6% interest in us, including a 2% interest through its
      ownership of our general partner.




•
            If
      our general partner is removed without “cause” during the subordination
      period and units held by our general partner and Capital Maritime are not
      voted in favor of that removal, all remaining subordinated units will
      automatically convert into common units and any existing arrearages on the
      common units will be extinguished. A removal of our general partner under
      these circumstances would adversely affect the common units by prematurely
      eliminating their distribution and liquidation preference over the
      subordinated units, which would otherwise have continued until we had met
      certain distribution and performance tests. “Cause” is narrowly defined to
      mean that a court of competent jurisdiction has entered a final,
      non-appealable judgment finding our general partner liable for actual
      fraud or willful or wanton misconduct in its capacity as our general
      partner. Cause does not include most cases of charges of poor management
      of the business, so the removal of our general partner because of the
      unitholders’ dissatisfaction with the general partner’s performance in
      managing our partnership will most likely result in the termination of the
      subordination period.




•
            Common
      unitholders elect only four of the seven members of our board of
      directors. Our general partner in its sole discretion has the right to
      appoint the remaining three
directors.






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•
            Election
      of the four directors elected by unitholders is staggered, meaning that
      the members of only one of three classes of our elected directors are
      selected each year. In addition, the directors appointed by our general
      partner will serve for terms determined by our general
      partner.




•
            Our
      partnership agreement contains provisions limiting the ability of
      unitholders to call meetings of unitholders, to nominate directors and to
      acquire information about our operations as well as other provisions
      limiting the unitholders’ ability to influence the manner or direction of
      management.




•
            Unitholders’
      voting rights are further restricted by the partnership agreement
      provision providing that if any person or group, other than our general
      partner, its affiliates, their transferees, and persons who acquired such
      units with the prior approval of our board of directors, owns beneficially
      5% or more of any class of units then outstanding, any such units owned by
      that person or group in excess of 4.9% may not be voted on any matter and
      will not be considered to be outstanding when sending notices of a meeting
      of unitholders, calculating required votes, except for purposes of
      nominating a person for election to our board, determining the presence of
      a quorum or for other similar purposes, unless required by law. The voting
      rights of any such unitholders in excess of 4.9% will be redistributed pro
      rata among the other common unitholders holding less than 4.9% of the
      voting power of all classes of units entitled to
  vote.




•
            We
      have substantial latitude in issuing equity securities without unitholder
      approval.




The
effect of these provisions may be to diminish the price at which the common
units will trade.




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




Our
general partner may transfer its general partner interest to a third party in a
merger or in a sale of all or substantially all of its assets without the
consent of the unitholders. In addition, our partnership agreement does not
restrict the ability of the members of our general partner from transferring
their respective membership interests in our general partner to a third party.
Any such change in control of our general partner may affect the way we and our
operations are managed, which could have a material adverse effect on our
business, results of operations or financial condition and our ability to make
cash distributions.




Substantial
future sales of our common units in the public market could cause the price of
our common units to fall.




We have
granted registration rights to Capital Maritime and certain affiliates of
Capital Maritime. These unitholders have the right, subject to some conditions,
to require us to file registration statements covering any of our common,
subordinated or other equity securities owned by them or to include those
securities in registration statements that we may file for ourselves or other
unitholders. As of March 31, 2008, Capital Maritime owned 2,007,847 common
units, 8,805,522 subordinated units and certain incentive distribution
rights.Following
their registration and sale under the applicable registration statement, the
subordinated units will become freely tradeable. By exercising their
registration rights and selling a large number of common units or other
securities, these unitholders could cause the price of our common units to
decline.




We
may issue additional equity securities without your approval, which would dilute
your ownership interests.




We may,
without the approval of our unitholders, issue an unlimited number of additional
units or other equity securities, including securities to Capital Maritime. In
particular, we have financed a portion of the purchase price of the
non-contracted vessel we acquired from Capital Maritime during the first quarter
of 2008 through the issuance of additional common units to Capital Maritime and
we may finance a substantial portion of the purchase price of theremaining newbuildings
to be delivered in 2008 through the issuance of additional common
units.




The
issuance by us of additional common units or other equity securities of equal or
senior rank will have the following effects:




•
            our
      unitholders’ proportionate ownership interest in us will
      decrease;




•
            the
      amount of cash available for distribution on each unit may
      decrease;




•
            because
      a lower percentage of total outstanding units will be subordinated units,
      the risk that a shortfall in the payment of the quarterly distribution
      will be borne by our common unitholders will
  increase;




•
            the
      relative voting strength of each previously outstanding unit may be
      diminished; and




•
            the
      market price of the common units may
decline.






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




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




Our
general partner has a limited call right that may require you to sell your
common units at an undesirable time or price.




If at any
time our general partner and its affiliates own more than 80% of the common
units, our general partner will have the right, which it may assign to any of
its affiliates or to us, but not the obligation, to acquire all, but not less
than all, of the common units held by unaffiliated persons at a price not less
than their then-current market price. As a result, you may be required to sell
your common units at an undesirable time or price and may not receive any return
on your investment. You may also incur a tax liability upon a sale of your
units.




As of March 31, 2008, Capital Maritime,
an affiliate of our general partner, owned 12.9%of our common units. At
the end of the subordination period, assuming no further issuances of common
units and conversion of our subordinated units into common units, Capital
Maritime will own 45.6% of our common units, including a 2% interest through its
ownership of our general partner.




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




As a
limited partner in a partnership organized under the laws of the Marshall
Islands, you could be held liable for our obligations to the same extent as a
general partner if you participate in the “control” of our business. Our general
partner generally has unlimited liability for the obligations of the
partnership, such as its debts and environmental liabilities, except for those
contractual obligations of the partnership that are expressly made without
recourse to our general partner. In addition, the Marshall Islands Limited
Partnership Act (the "Marshall Islands Act") provides that, under some
circumstances, a unitholder may be liable to us for the amount of a distribution
for a period of three years from the date of the distribution. In addition, the
limitations on the liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly established in some
jurisdictions in which we do business. Please read “The Partnership
Agreement—Limited Liability” for a discussion of the implications of the
limitations on liability to a unitholder.




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




Our
partnership agreement will allow us to make working capital borrowings to pay
distributions. Accordingly, we can make distributions on all our units even
though cash generated by our operations may not be sufficient to pay such
distributions. Any working capital borrowings by us to make distributions will
reduce the amount of working capital borrowings we can make for operating our
business. For more information, please read “Item 5: Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Financing Arrangements.”




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




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




Unitholders
may have liability to repay distributions.




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






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We
have been organized as a limited partnership under the laws of the Republic of
The Marshall Islands, which does not have a well developed body of partnership
law.




Our
partnership affairs are governed by our partnership agreement and by the
Marshall Islands Act. The provisions of the Marshall Islands Act resemble
provisions of the limited partnership laws of a number of states in the United
States, most notably Delaware. The Marshall Islands Act also provides that it is
to be applied and construed to make it uniform with the Delaware Revised Uniform
Partnership Act and, so long as it does not conflict with the Marshall Islands
Act or decisions of the Marshall Islands courts, interpreted according to the
non-statutory law (or case law) of the State of Delaware. There have been,
however, few, if any, court cases in the Marshall Islands interpreting the
Marshall Islands Act, in contrast to Delaware, which has a fairly well-developed
body of case law interpreting its limited partnership statute. Accordingly, we
cannot predict whether Marshall Islands courts would reach the same conclusions
as the courts in Delaware. For example, the rights of our unitholders and the
fiduciary responsibilities of our general partner under Marshall Islands law are
not as clearly established as under judicial precedent in existence in Delaware.
As a result, unitholders may have more difficulty in protecting their interests
in the face of actions by our general partner and its officers and directors
than would unitholders of a limited partnership formed in the United
States.




Because
we are organized under the laws of the Marshall Islands, it may be difficult to
serve us with legal process or enforce judgments against us, our directors or
our management.




We are
organized under the laws of the Marshall Islands, and all of our assets are
located outside of the United States. Our business is operated primarily from
our office in Greece. In addition, our general partner is a Marshall Islands
limited liability company and its directors and officers generally are or will
be non-residents of the United States, and all or a substantial portion of the
assets of these non-residents are located outside the United States. As a
result, it may be difficult or impossible for you to bring an action against us
or against these individuals in the United States if you believe that your
rights have been infringed under securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Marshall Islands
and of other jurisdictions may prevent or restrict you from enforcing a judgment
against our assets or the assets of our general partner or its directors and
officers. For more information regarding the relevant laws of the Marshall
Islands, please read “Service of Process and Enforcement of Civil
Liabilities.”




Tax
Risks




In
addition to the following risk factors, you should read “Item 10E:—Taxation” for
a more complete discussion of the expected material U.S. federal and non-U.S.
income tax considerations relating to us and the ownership and disposition of
common units.




U.S.
tax authorities could treat us as a “passive foreign investment company,” which
could have adverse U.S. federal income tax consequences to U.S.
holders.




A foreign
entity taxed as a corporation for U.S. federal income tax purposes will be
treated as a “passive foreign investment company” (a “PFIC”) for U.S. federal
income tax purposes if at least 75.0% of its gross income for any taxable year
consists of certain types of “passive income,” or at least 50.0% of the average
value of the entity’s assets produce or are held for the production of those
types of “passive income.” For purposes of these tests, “passive income”
includes dividends, interest, gains from the sale or exchange of investment
property, and rents and royalties other than rents and royalties that are
received from unrelated parties in connection with the active conduct of a trade
or business. For purposes of these tests, income derived from the performance of
services does not constitute “passive income.” U.S. shareholders of a PFIC are
subject to a disadvantageous U.S. federal income tax regime with respect to the
income derived by the PFIC, the distributions they receive from the PFIC, and
the gain, if any, they derive from the sale or other disposition of their shares
in the PFIC.




Based on
our current and projected method of operation we do not believe that we were a
PFIC for our 2006 or 2007 taxable years nor do we expect to become a PFIC with
respect to any other taxable year. Twelve of the 15 vessels in our fleet as well
as the M/T Aristofanis, which we intend to acquire during the second quarter of
2008, are or will be engaged in time chartering activities and we intend to
treat our income from those activities as non-passive income, and the vessels
engaged in those activities as non-passive assets, for PFIC purposes. However,
no assurance can be given that the Internal Revenue Service (the “IRS”) will
accept this position. The remainder of our fleet will be engaged in activities
that may be characterized as passive for PFIC purposes and the income from that
portion of our fleet may be treated as passive income for PFIC purposes. See
“Item 10E:—Taxation—PFIC Status and Significant Tax Consequences.”






21
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The
preferential tax rates applicable to qualified dividend income are temporary,
and the enactment of previously proposed legislation could affect whether
dividends paid by us constitute qualified dividend income eligible for the
preferential rate.




Certain
of our distributions may be treated as qualified dividend income eligible for
preferential rates of U.S. federal income tax to U.S. individual unitholders
(and certain other U.S. unitholders). In the absence of legislation extending
the term for these preferential tax rates, all dividends received by such U.S.
taxpayers in tax years beginning on January 1, 2011 or later will be taxed
at ordinary graduated tax rates. Please read “Item 10E:—Taxation—U.S. Federal
Income Taxation of U.S. Holders—Distributions.”




In
addition, previously proposed legislation proposed during a preceding
legislative session of the U.S. Congress would deny the preferential rate of
U.S. federal income tax currently imposed on qualified dividend income with
respect to dividends received from a non-U.S. corporation, unless the non-U.S.
corporation either is eligible for benefits of a comprehensive income tax treaty
with the United States or is created or organized under the laws of a foreign
country that has a comprehensive income tax system. Because the Marshall Islands
has not entered into a comprehensive income tax treaty with the United States
and imposes only limited taxes on entities organized under its laws, it is
unlikely that we could satisfy either of these requirements. Consequently, if
this legislation were enacted the preferential tax rates of federal income tax
discussed under “Item 10E:—Taxation—U.S. Federal Income Taxation of U.S.
Holders—Distributions” may no longer be applicable to distributions received
from us. As of the date hereof, it is not possible to predict with any certainty
whether this previously proposed legislation will be reintroduced and
enacted.




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




Under the
Code, 50% of the gross shipping income of a vessel-owning or chartering
corporation that is attributable to transportation that both begins or ends, but
that does not begin and end, in the U.S. is characterized as U.S. source
shipping income and such income generally is subject to a 4% U.S. federal income
tax without allowance for deduction, unless that corporation qualifies for
exemption from tax under Section 883 of the Code.




We
believe that  we and each of our subsidiaries will qualify for this
statutory tax exemption, and we will take this position for U.S. federal income
tax return reporting purposes. See “Item 10E:—Taxation.” However, there are
factual circumstances, including some that may be beyond our control, which
could cause us to lose the benefit of this tax exemption. In addition, our
conclusion that we qualify for this exemption is based upon legal authorities
that do not expressly contemplate an organization structure such as ours.
Although we have elected to be treated as a corporation for U.S. federal income
tax purposes, for corporate law purposes we are organized as a limited
partnership under Marshall Islands law and our general partner will be
responsible for managing our business and affairs and has been granted certain
veto rights over decisions of our board of directors. Therefore, we can give no
assurances that the IRS will not take a different position regarding our
qualification, or the qualification of any of our subsidiaries, for this tax
exemption.




If we or
our subsidiaries are not entitled to this exemption under Section 883 for
any taxable year, we or our subsidiaries generally would be subject for those
years to a 4% U.S. federal gross income tax on our U.S. source shipping income.
The imposition of this taxation could have a negative effect on our business and
would result in decreased earnings available for distribution to our
unitholders.




You
may be subject to income tax in one or more non-U.S. countries, including
Greece, as a result of owning our common units if, under the laws of any such
country, we are considered to be carrying on business there. Such laws may
require you to file a tax return with and pay taxes to those
countries.




We intend
that our affairs and the business of each of our controlled affiliates will be
conducted and operated in a manner that minimizes income taxes imposed upon us
and these controlled affiliates or which may be imposed upon you as a result of
owning our common units. However, because we are organized as a partnership,
there is a risk in some jurisdictions that our activities and the activities of
our subsidiaries may be attributed to our unitholders for tax purposes and,
thus, that you will be subject to tax in one or more non-U.S. countries,
including Greece, as a result of owning our common units if, under the laws of
any such country, we are considered to be carrying on business there. If you are
subject to tax in any such country, you may be required to file a tax
return with and to pay tax in that country based on your allocable share of our
income. We may be required to reduce distributions to you on account of any
withholding obligations imposed upon us by that country in respect of such
allocation to you. The United States may not allow a tax credit for any foreign
income taxes that you directly or indirectly incur.




We
believe we can conduct our activities in a manner so that our unitholders should
not be considered to be carrying on business in Greece solely as a consequence
of the acquisition, holding, disposition or redemption of our common units.
However, the question of whether either we or any of our controlled affiliates
will be treated as carrying on business in any country, including Greece,
will largely be a question of fact determined through an analysis of contractual
arrangements, including the management agreement and the administrative services
agreement we will enter into with Capital Ship Management, and the way we
conduct business or operations, all of which may change over time. The laws of
Greece or any other foreign country may also change, which could cause the
country’s taxing authorities to determine that we are carrying on business in
such country and are subject to its taxation laws. Any foreign taxes imposed on
us or any subsidiaries will reduce our cash available for
distribution.






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Item 4. Information on the Partnership.




A.
History and Development of the Partnership




We are a
limited partnership incorporated as Capital Product Partners L.P. under the laws
of the Marshall Islands on January 16, 2007 by Capital Maritime. On April
3, 2007, we completed our initial public offering (the “Offering”) on the Nasdaq
Global Market of 13,512,500 common units at a price of $21.50 per unit. At the
time of the Offering, Capital Maritime transferred all of the shares of eight
wholly owned subsidiaries, each of which owned a newly built, double hull medium
range product tanker, to us and we entered into an agreement with Capital Ship
Management, a subsidiary of Capital Maritime, to provide management and
technical services in connection with these and future vessels. As of March 31,
2008, Capital Maritime owned a 45.6% interest in us, including a 2% interest
through its ownership of our general partner, Capital GP L.L.C. We maintain our
principal executive headquarters at 3 Iassonos Street, Piraeus, 18537 Greece and
our telephone number is +30 210 4584 950.




B.
Business Overview




We are an
international owner of product tankers formed by Capital Maritime, an
international shipping company with a long history of operating and investing in
the shipping market. Our fleet currently consists of 15 double-hull, high
specification tankers including the largest Ice Class 1A medium range (MR)
product tanker fleet in the world based on number of vessels
and carrying capacity. Since the Offering we have taken delivery of five
newbuildings and have also acquired two additional vessels from Capital
Maritime, almost doubling the size of our fleet in terms of carrying capacity.
We also expect to take delivery of an additional 12,000 dwt small tanker from
Capital Maritime during the second quarter of 2008 and oftwo additional
newbuildings in June and August of 2008 which we contracted to acquire from
Capital Maritime prior to our Offering. Our vessels are capable of carrying
crude oil, refined oil products, such as gasoline, diesel, fuel oil and jet
fuel, as well as edible oils and certain chemicals such as ethanol and comply
not only with the strict regulatory standards that are currently in place but
also with the stricter regulatory standards that are currently expected to be
implemented. We charter our vessels under medium to long-term time and bareboat
charters (two to 10 years, with an average remaining term of approximately
5.3years) to large
charterers such as BP Shipping Limited, Morgan Stanley Capital Group Inc.,
Trafigura Beheer B.V., and subsidiaries of Overseas Shipholding Group Inc.
All our charters provide for the receipt of a fixed base rate for the life of
the charter, and in the case of 10 of our 11 time charters, also provide for
profit sharing arrangements in excess of the base rate.




Business
Strategies




●
            Our primary
      business objective is to increase quarterly distributions per unit over
      time.In
      order to achieve this objective we execute the following business
      strategies:




•
            Maintain
      and grow our cash flows.  We believe that the medium to
      long-term, fixed-rate nature of our charters, our profit sharing
      arrangements, our contracted and potential acquisitions from Capital
      Maritime or third parties and our agreement with Capital Ship Management
      for the commercial and technical management of our vessels, which provides
      for a fixed management fee for an initial term of approximately five years
      from when we take delivery of each vessel and includes the expenses for
      its next scheduled special or intermediate survey, as applicable, and
      related drydocking will provide a stable and growing base of revenue and
      predictable expenses that will result in stable cash flows in the medium
      term.




•
            Continue to
      grow our fleet.  We intend to continue to make strategic
      acquisitions and to take advantage of our unique relationship with Capital
      Maritime in a prudent manner that is accretive to our unitholders and to
      long-term distribution growth.  Since the Offering we have taken
      delivery of five newbuildings and have also acquired two additional
      vessels from Capital Maritime. We also expect to take delivery of one
      additional 12,000 dwt small tanker during the second quarter of 2008 and
      of two additional newbuildings in June and August of 2008. Furthermore,
      pursuant to our omnibus agreement with Capital Maritime, we have the
      opportunity to purchase six sister vessels currently owned or on order by
      Capital Maritime, but only in the event those vessels are fixed under
      medium to long-term charters. Capital Maritime also has a substantial
      newbuilding program in place and we will continue to
      evaluate opportunities to acquire both newbuildings and second-hand
      vessels, if and when they are chartered for more than two years, from
      Capital Maritime and from third parties as we seek to grow our
      fleet.We
      believe that our medium to long-term charters, strong relationships with
      reputable shipyards and financial flexibility will allow us to make
      additional accretive acquisitions based on our judgment and experience as
      to prevailing market conditions.




•
            Capitalize
      on our relationship with Capital Maritime and expand our charters with
      recognized charterers.  We believe that we can leverage
      our relationship with Capital Maritime and its ability to meet the
      rigorous vetting processes of leading oil companies in order to attract
      new customers. We also plan to increase the number of vessels we charter
      to our existing charterers as well as enter into charter agreements with
      new customers in order to maintain a portfolio of charters that is diverse
      from a customer, geographic and maturity perspective. Following our
      Offering we have added Trafigura Beheer B.V. to our customer
      base, delivered the first of three vessels to Overseas Shipholding Group
      and chartered an additional vessel with BP Shipping
      Limited.






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•
            Maintain
      and build on our ability to meet rigorous industry and regulatory safety
      standards.  Capital Ship Management, an affiliate of our
      general partner that manages our vessels, has an excellent vessel safety
      record, is capable of fully complying with rigorous health, safety and
      environmental protection standards, and is committed to provide our
      customers with a high level of customer service and support. We believe
      that in order for us to be successful in growing our business in the
      future we will need to maintain our excellent vessel safety record and
      maintain and build on our high level of customer service and
      support.




Competitive
Strengths




We
believe that we are well-positioned to execute our business strategies and our
future prospects for success are enhanced because of the following competitive
strengths:




•
            Stable and
      growing cash flows based on medium to long-term
      charters.  We believe that the medium to long-term,
      fixed-rate nature of our charters, our profit sharing arrangements and our
      fixed-rate management agreement provide a stable and growing base of
      revenue and predictable expenses that result in stable and growing cash
      flows. Our existing fleet has experienced significant growth since our
      Offering, almost doubling in terms of carrying capacity. In addition, we
      believe our intention to acquire the M/T Aristofanis in the second quarter
      of 2008, our commitment to purchase two additional vessels scheduled for
      delivery in 2008 and the potential opportunity to purchase up to an
      additional six sister vessels and up to 25modern double-hull
      tankers of various sizes from Capital Maritime provides visible
      opportunity for future growth in our revenue, operating income and net
      income.




•
            Strong
      relationship with Capital Maritime.We believe our
      relationship with Capital Maritime and its affiliates provides numerous
      benefits that are key to our long-term growth and success, including
      Capital Maritime’s reputation within the shipping industry and its network
      of strong relationships with many of the world’s leading oil companies,
      shipyards, commodity traders, and shipping companies. We also benefit from
      Capital Maritime’s expertise in technical fleet management and its ability
      to meet the rigorous vetting processes of some of the world’s most
      selective major international oil companies, including BP p.l.c., Royal
      Dutch Shell plc, StatoilHydro ASA, and most recently Chevron Corporation
      and ExxonMobil Corporation. We believe we are well-positioned not only to
      retain existing customers such as BP Shipping Limited, Morgan Stanley
      Capital Group Inc., Trafigura Beheer B.V. and Overseas Shipholding Group
      Inc., but also to enter into agreements with other large charterers and
      oil companies.




•
            Leading
      position in the product tanker market, with a modern, capable fleet, built
      to high specifications.Our fleet of
      15 tankers includes the largest Ice Class 1A MR fleet in the
      world based on number of vessels and carrying capacity. The IMO II/III and
      Ice Class 1A classification notations of most of our vessels provide a
      high degree of flexibility as to what cargoes our charterers can choose to
      trade as they employ our fleet. We also believe that the range in size and
      geographic flexibility of our fleet are attractive to our charterers,
      allowing them to consider a variety of trade routes and cargoes. In
      addition, with an average age of approximately 2.5 years, our fleet is one
      of the youngest fleets of its size in the world.  Finally, we
      believe our vessels’ compliance with
      existing and expected regulatory standards,the high technical
      specifications of our vessels and our fleet’s flexibility to transport a
      wide variety of refined products and crude oil across a wide range of
      trade routes is attractive to our existing and potential
      charterers.




•
            Financial
      strength and flexibility.  At the time of the Offering we
      entered into a non-amortizing revolving credit facility that provided us
      with the funds to purchase the vessels delivered to us to date, including
      the M/T Attikos, and we expect will provide us with the funds to pay a
      substantial portion of the purchase price for the remaining two newbuildings to be
      delivered in 2008. On March 19, 2008 we entered into a new 10-year
      revolving credit facility of up to $350.0 million, which is non-amortizing
      until March 2013, further enhancing our financial flexibility to realize
      new vessel acquisitions from Capital Maritime and third parties. We may
      use this facility to finance a portion of the acquisition price of
      certain identified vessels currently in Capital Maritime’s fleet which we
      may elect to acquire in the future and up to 50% of the purchase
      price of any potential future purchases of modern tanker vessels from
      Capital Maritime or any third parties.To date, we have
      used $46.0million of this
      facility to fund part of the acquisition price of the M/T Amore Mio II
      from Capital Maritime and expect to use approximately $11.5 million in
      connection with the acquisition of the M/T Aristofanis in the second
      quarter of 2008.**






24
 Table of Contents







Our
Customers




We
provide marine transportation services under medium to long-term time charters
or bareboat charters with counterparties that we believe are creditworthy.
Currently, our customers are:




•
            BP Shipping
      Limited, the shipping affiliate of BP p.l.c., one of the world’s
      largest producers of crude oil and natural gas. BP p.l.c. has exploration
      and production interests in 26 countries and as of December 31,
      2006, BP p.l.c. had proved reserves of 17.7 billion barrels of oil
      and gas equivalent.




•
            Morgan
      Stanley Capital Group Inc., the commodities division of Morgan
      Stanley, the international investment bank, is a leading commodities
      trading firm in the energy and metals markets, encompassing both physical
      and derivative capabilities.




•
            Overseas
      Shipholding Group Inc., one of the largest independent
      shipping companies in the world operating crude and product tankers. As of
      December 31, 2007,Overseas
      Shipholding Group Inc.’s operating fleet consisted of 214 vessels, 44
      of which were under construction, aggregating 14.8 million
      dwt.




•
            Trafigura
      Beheer
      B.V., a large trader of crude oil and refined products based in The
      Netherlands and founded in 1993. Trafigura is the world’s largest
      independent oil traderwith investments
      in industrial assets around the world of more than $600 million as of
      October 2007.




BP
Shipping Limited and Morgan Stanley Capital Group Inc. accounted for 64%
and 28% of our revenues, respectively, for the year ended December 31, 2007 and
53% and 23% of the revenues, respectively, of our predecessor, for the year
ended December 31, 2006. The loss of any significant customer or a substantial
decline in the amount of services requested by a significant customer could harm
our business, financial condition and results of operations.




Our
Fleet




At the time of the Offering on April 3,
2007, our fleet consisted of eight newly built, Ice Class 1A, IMO II/III
double-hull, MR chemical/product tankers constructed by Hyundai MIPO Dockyard
Co., Ltd. to high specifications.  We also agreed to purchase from
Capital Maritime a further four Ice Class 1A IMO II/III sister vessels
which were delivered in 2007 and three IMO II/III MR chemical/product tanker
sister vessels constructed by STX Shipbuilding Co., Ltd. scheduled for
delivery in 2008 at a fixed price. Sister vessels are vessels of similar
specifications and size typically built at the same shipyard. All of the vessels
are or were designed, constructed, inspected and tested in accordance with the
rules and regulations of either Det Norske Veritas (DNV) or the American Bureau
of Shipping (ABS)and are under time or
bareboat charters commencing at the time of their delivery. The three MR
chemical/product tankers are chartered under bareboat charters to subsidiaries
of Overseas Shipholding Group Inc., which has an option  to purchase
each vessel at the end of the eighth, ninth or tenth year of its
charter.




Since the
Offering, the size of our fleet has almost doubled in terms of carrying
capacity.We have
acquired the following vessels:




•
            The
      four Ice Class 1A, IMO II/III, 47,000 dwt, MR chemical/product contracted
      newbuildings were delivered to us between May and September 2007 and
      delivered to Morgan Stanley Inc., their charterer. The charters for all
      four of these vessels are subject to profit sharing arrangements which
      allow each party to share additional revenues above the base rate on a
      50/50 basis. Our current fleet of 12 newly built, Ice Class 1A MR vessels
      represents the largest such fleet in the world based on number of vessels
      and carrying capacity.  Ice Class 1A vessels may earn a premium
      during winter months as they are capable of navigating through many
      ice-covered routes inaccessible to standard product
    tankers.




•
            The
      M/T Attikos, a 12,000 dwt, 2005 built, double-hull product tanker which is
      chartered to Trafigura Beheer B.V. under a charter with an earliest
      scheduled expiration date of September 2009, was our first non-contracted
      acquisition from Capital Maritime. The vessel was delivered to us in
      September 2007.




•
            The
      M/T Alexandros II, a 51,258 dwt IMO II/III MR chemical/product tanker, the
      first of three such contracted newbuilding MR sister vessels, was
      delivered in January 2008 and delivered to subsidiaries of Overseas
      Shipholding Group Inc., its charterer. The two sister vessels we have
      agreed to acquire from Capital Maritime are scheduled for delivery in June
      and August of 2008, respectively. All vessels are capable of transporting
      a range of refined oil products, chemicals (including ethanol and
      biodiesel feedstock), fuel oil and crude oil
  worldwide.






25
 Table of Contents






•
            The
      M/T Amore Mio II, a 159,982 dwt,2001 built,
      double-hull tanker, which is chartered to BP Shipping Limited under a
      charter with an earliest scheduled expiration date of January 2011, was
      acquired from Capital Maritime in March 2008. The charter is subject to a
      profit sharing arrangement which is calculated and settled monthly and
      which allows each party to share additional revenues above the base rate
      on a 50/50 basis.




In
addition to the above vessels, we have entered into a letter of intent with
Capital Maritime to acquire the M/T Aristofanis and intend to complete such
acquisition during the second quarter of 2008. The M/T Aristofanis, a 12,000
dwt, 2005 built, double-hull product tanker, is chartered to Shell International
Trading & Shipping Company Ltd. under a charter with an earliest scheduled
expiration date of March 2010 and is a sister vessel to the M/T
Attikos.




We expect
that by the end of the third quarter of 2008 our fleet will consist of 18double-hull tankers,
including the M/T Aristofanis, with an average age of approximately 2.5years.




Potential
Additional Vessels from Capital Maritime




We intend
to continue to make strategic acquisitions and to take advantage of our unique
relationship with Capital Maritime in a prudent manner that is accretive to our
unitholders and to long-term distribution growth. Pursuant to our omnibus
agreement with Capital Maritime, Capital Maritime has granted us a right of
first offer for any MR tankers in its fleet under charter for two or more years,
giving us the opportunity to purchase up to an additional six vessels comprised
of two 37,000 dwt Ice Class 1A MR chemical/product tanker sister vessels and
four 51,000 dwt MR IMO II/III chemical/product tanker sister vessels in the
future. Capital Maritime is, however, under no obligation to fix any of these
six vessels under charters of two or more years.  All six vessels are
currently under charter for less than two years or are yet to be chartered as
they are under construction.Please
read “Item 7B: Related Party Transactions” for a detailed description of our
omnibus agreement with Capital Maritime.




In
addition, Capital Maritime currently owns or has on order a total of 25
modern,double-hull
product and crude oil tankers of different sizes which we may potentially
acquire in the event those vessels were fixed under charters of two or more
years.




The first
table below provides summary information as of March 31, 2008 about the vessels
in our fleet and the vessels we have contracted to acquire or may have the
opportunity to acquire from Capital Maritime as well as their delivery date or
expected delivery date to us and theiremployment. The table
also includes the approximate expected termination date of the management
agreement with Capital Ship Management with respect to each vessel. The second
table provides information about the modern vessels in Capital Maritime’s fleet
as of March 31, 2008 and the year they were built or expected delivery date to
Capital Maritime. We may agree to purchase certain of these vessels from Capital
Maritime in the future. Sister vessels are denoted by the same letter in the
tables.








26
 Table of Contents







OUR
FLEET


Vessel
      Name
            Sister
      Vessels
      (1)
            Year
      Built/ Delivery Date
            DWT
            OPEX
              (per
      day)
            Management
      Agreement Expiration
            Duration/
      Charter
              Type
      (2)
            Expiry
      of
              Charter
      (3)
            Daily
      Charter
              Rate (Net)
      (4)
            Profit
      Sharing
            Charterer  (5)
            Description


VESSELS CURRENTLY IN
      OUR FLEETInitial
      Fleet – Delivered to Us At Time of the Offering (6)Atlantas
            A
            2006
            36,760
            $250
            Jan-Apr
      2011
            8-year
      BC
            Mar-2014
            $15,000(7)
            
            BP
            Ice
      Class 1A IMO II/III Chemical/ ProductAktoras
            A
            2006
            36,759
            $250
            Apr-Jul
      2011
            8-year
      BC
            Jun-2014
            $15,000(7)
            
            BPAiolos
            A
            2007
            36,725
            $250
            
            8-year
      BC
            Feb-2015
            $15,000(7)
            
            BPAgisilaos
            A
            2006
            36,760
            $5,500
            May-Aug
      2011
            2.5-year
      TC
            Jan-2009
            $17,500(7)
            ü
            BPArionas
            A
            2006
            36,725
            $5,500
            Aug-Nov
      2011
            2.5-year
      TC
            Apr-2009
            $21,000(9)(8)
            ü
            BPAxios
            B
            2007
            47,872
            $5,500
            Dec-2011-Mar-2012
            3-year
      TC
            Jan-2010
            $20,500(8)
            ü
            BPAvax
            B
            2007
            47,834
            $5,500
            Jun
      2010
            3-year
      TC
            May-2010
            $20,500
            ü
            BPAssos
            B
            2006
            47,872
            $5,500
            Feb-May
      2011
            3-year
      TC
            Oct-2009
            $20,000
            ü
            MSTotal
      DWT:
            
            
            327,307Vessels
      Purchased from Capital Maritime since the OfferingAtrotos
      (6)
            B
            May-2007
            47,786
            $5,500
            Feb-May
      2012
            3-year
      TC
            Apr-2010
            $20,000
            ü
            MS
            Ice
      Class 1A IMO II/III Chemical/ ProductAkeraios
      (6)
            B
            Jul-2007
            47,781
            $5,500
            May-Aug
      2012
            3-year
      TC
            Jun-2010
            $20,000
            ü
            MSAnemos
      I (6)
            B
            Sept-2007
            47,782
            $5,500
            Jul-Oct
      2012
            3-year
      TC
            Aug-2010
            $20,000
            ü
            MSApostolos
      (6)
            B
            Sept-2007
            47,782
            $5,500
            Jul-Oct
      2012
            3-year
      TC
            Aug-2010
            $20,000
            ü
            MSAttikos
      (10)
            C
            2005
            12,000
            $5,500
            Sept-Nov
      2012
            26-28
      mon. TC
            Sept-2009
            $13,503
            
            Trafigura
            ProductAlexandros
      II (11)(12)
            D
            Jan-2008
            51,258
            $250
            Dec-2012-Mar
      2013
            10-year
      BC
            Dec-2017
            $13,000
            
            OSG
            IMO
      II/III Chem./Prod.Amore
      Mio II (13)
            E
            2001
            159,982
            $8,500
            Mar-Apr
      2013
            3-year
      TC
            Jan-2011
            $36,000
            ü
            BP
            Crude
      OilTotal
      DWT:
            
            
            704,858VESSELS WE HAVE AGREED
      TO OR MAY PURCHASE FROM CAPITAL MARITIMEAdditional
      Contracted Vessels (With Expected Delivery Date)Aristofanis
      (10)
            C
            2005
            12,000
            $5,500
            
            2-year
      TC
            Mar-2010
            $12,952
            
            Shell
            ProductAristotelis
      II (11)(12)
            D
            Jun-2008
            51,000
            $250
            Mar-Jun
      2013
            10-year
      BC
            May-2018
            $13,000
            
            OSG
            IMO
      II/III Chem./Prod.Aris
      II (11)(12)
            D
            Aug-2008
            51,000
            $250
            May-Aug
      2013
            10-year
      BC
            Jul-2018
            $13,000
            
            OSGTotal
      DWT:
            
            
            114,000






27
 Table of Contents






Vessel
      Name
              Sister
      Vessels
      (1)
              Year
      Built/ Delivery Date
              DWT
              OPEX
                (per
      day)
              Management
      Agreement Expiration
              Duration/
      Charter
                Type
      (2)
              Expiry
      of
                Charter
      (3)
              Daily
      Charter
                Rate (Net)
      (4)
              Profit
      Sharing
              Charterer  (5)
              Description


May
      Purchase if Under Long-Term Charter (With Expected Delivery Date to
      Capital Maritime)Aristidis
      (6)
            A
            Jan-2006
            36,680
            
            
            
            
            
            
            
            Ice
      Class 1A IMO II/III Chem./Prod.Alkiviadis
      (6)
            A
            Mar-2006
            36,721Agamemnon
      II (11)
            D
            Oct-2008
            51,000
            
            
            
            
            
            
            
            IMO
      II/III Chemical/
              ProductAyrton
      III (11)
            D
            Jan-2009
            51,000Adonis
      II (11)
            D
            Jan-2009
            51,000Asterix
      II (11)
            D
            Mar-2009
            51,000Total
      DWT:
            
            
            277,401


___________




(1)
            Sister
      vessels, which are vessels of similar specifications and size typically
      built at the same shipyard, are denoted in the tables by the same
      letter.(2)
            TC:
      Time Charter, BC: Bareboat Charter.


(3)
            Earliest
      possible redelivery date. With the exception of the charter for the M/T
      Attikos and the M/T Aristofanis, whose charters expire on the date of
      expiration, redelivery date is +/–30 days at the charterer’s
      option.


(4)
            All
      rates quoted above are the net rates after we or our charterers have paid
      commissions on the base rate. The BP time and bareboat charters are
      subject to 1.25% commissions. The Trafigura time charter is subject to
      2.5% commissions. The Shell time charter is subject to 2.25% commissions.
      We do not pay any commissions for the MS time
  charters.


(5)
            BP:
      BP Shipping Limited. MS: Morgan Stanley Capital Group Inc., OSG:
      certain subsidiaries of Overseas Shipholding Group Inc. Trafigura:
      Trafigura Beheer B.V.  Shell: Shell International Trading &
      Shipping Company Ltd.


(6)
            These
      vessels were built by Hyundai MIPO Dockyard Co., Ltd., South
      Korea.


(7)
            The
      last three years of the BC will be at a daily charter rate of $13,433
      (net).


(8)
            In
      addition to the commission on the gross charter rate, the ship broker is
      entitled to an additional 1.25% commission on the amount of profit
      share.


(9)
            The
      last six months of the TC will be at a net daily charter rate of
      $19,000 plus a 50/50 profit sharing arrangement (from November 4, 2008 to
      April 4, 2009).


(10)
            These
      vessels were built by Baima Shipyard, China. The M/T Attikos was acquired
      by us in September 2007. We intend to acquire the M/T Aristofanis by the
      end of the second quarter of 2008 in accordance with a letter of intent
      entered into with Capital Maritime in February
  2008.


(11)
            These
      vessels were built or are being built by STX Shipbuilding Co., Ltd.,
      South Korea.


(12)
            OSG
      has an option to purchase each of the three STX vessels delivered or to be
      delivered in 2008 at the end of the eighth, ninth or tenth year of the
      applicable charter, for $38.0 million, $35.5 million and
      $33.0 million, respectively, which option is exercisable six months
      before the date of completion of the eighth, ninth or tenth year of the
      charter. The expiration date above may therefore change depending on
      whether the charterer exercises its purchase
  option.


(13)
            This
      vessel was built by Daewoo Shipbuilding and Marine Engineering
      Co., Ltd., South Korea and was acquired by us in March2008.






28
 Table of Contents






CAPITAL MARITIME’S
      FLEET





Vessel
      Name
            Sister Vessels
      (1)
            Year
      Built/Expected
              Delivery
      Date
            DWT
            DescriptionSuezmaxesMiltiadis
      M II (2)
            -
            2006
            162,396
            ICE
      Class 1A Product/Crude OilAlterego
      II (2)
            E
            2002
            159,924
            Crude
      OilHandy
      Tankers (3)Achilleas
      II
            F
            Jun-2010
            25,000
            IMO
      II Chemical/ProductAthlos
      II
            F
            Jun-2010
            25,000
            IMO
      II Chemical/ProductAmor
      II
            F
            Jul-2010
            25,000
            IMO
      II Chemical/ProductAktor
      II
            F
            Jul-2010
            25,000
            IMO
      II Chemical/ProductAristos
      II
            F
            Aug-2010
            25,000
            IMO
      II Chemical/ProductAnaxagoras
      II
            F
            Aug-2010
            25,000
            IMO
      II Chemical/ProductAmadeus
      II
            F
            Sep-2010
            25,000
            IMO
      II Chemical/ProductAiolos
      II
            F
            Sep-2010
            25,000
            IMO
      II Chemical/ProductAktoras
      II
            F
            Oct-2010
            25,000
            IMO
      II Chemical/ProductAlkaios
      II
            F
            Oct-2010
            25,000
            IMO
      II Chemical/ProductAtlantas
      II
            F
            Nov-2010
            25,000
            IMO
      II Chemical/ProductAmfitrion
      II
            F
            Nov-2010
            25,000
            IMO
      II Chemical/ProductSmall
      Tankers – 14,000 dwt (4)Amorito
      II
            G
            Sep-2008
            14,000
            IMO
      II Chemical/ProductAllegro
      II
            G
            Nov-2008
            14,000
            IMO
      II Chemical/ProductArchimidis
      II
            G
            Dec-2008
            14,000
            IMO
      II Chemical/ProductAias
      II
            G
            Apr-2009
            14,000
            IMO
      II Chemical/ProductActive
      II
            G
            Jun-2009
            14,000
            IMO
      II Chemical/ProductAmigo
      II
            G
            Jul-2009
            14,000
            IMO
      II Chemical/ProductApollonas
      II
            G
            Aug-2009
            14,000
            IMO
      II Chemical/ProductAdamastos
      II
            G
            Sep-2009
            14,000
            IMO
      II Chemical/ProductAnikitos
      II
            G
            Dec-2009
            14,000
            IMO
      II Chemical/ProductSmall
      Tankers – 12,000 dwt (5)Asopos
            H
            Aug-2008
            12,000
            IMO
      II Chemical/ProductAkadimos
            H
            Nov-2008
            12,000
            IMO
      II Chemical/ProductTOTAL
      DWT:
            
            
            772,320


___________


(1)
            Sister
      vessels, which are vessels of similar specifications and size typically
      built at the same shipyard, are denoted in the tables by the same
      letter.


(2)
            These
      vessels were built by Daewoo Shipbuilding and Marine Engineering
      Co., Ltd., South Korea.


(3)
            These
      vessels are being built by Samho Shipbuilding Co., Ltd., South
      Korea.


(4)
            These
      vessels are being built or were built by Baima Shipyard,
      China.(5)
            These
      vessels are being built by Ziuziang Yinxing Shipyard Co. Ltd,
      China.






29
 Table of Contents








Our
Charters




All of our current vessels and the
vessels we have contracted to purchase from Capital Maritime are or will be at
the time of delivery under medium to long-term time charters or bareboat
charters of more than two years. Under certain circumstances we may operate
vessels in the spot market until the vessels have been fixed under appropriate
medium to long-term charters.




Time
Charters




A time
charter is a contract for the use of a vessel for a fixed period of time at a
specified daily rate. Under a time charter, the vessel’s owner provides crewing
and other services related to the vessel’s operation, the cost of which is
included in the daily rate and the charterer is responsible for substantially
all vessel voyage costs, except for commissions which are assumed by the owner.
In the case of the vessels under time charter to Morgan Stanley Capital Group
Inc., the charterer is also responsible for the payment of all commissions. The
basic hire rate payable under the charters is a previously agreed daily rate, as
specified in the charter, payable at the beginning of the month in U.S. Dollars.
We currently have 11 vessels under time charter of which five are with Morgan
Stanley Capital Group Inc., five with BP Shipping Limited and one with Trafigura
Beheer B.V. Of our 11 time charters, 10 contain profit-sharing provisions that
allow us to realize at a pre-determined percentage additional revenues when spot
rates are higher than the base rates incorporated in our charters or, in some
instances, through greater utilization of our vessels by our
charterers.




Profit
Sharing Arrangements




Morgan Stanley Profit
Sharing.The profit sharing
arrangements for our vessels time chartered with Morgan Stanley Capital Group
Inc. are calculated on the basis of a weighted monthly average of three indices
published daily by the Baltic Exchange based on specific routes and cargo sizes
representative of the vessel’s trading. At the end of each month, the
monthly average of each route is calculated and the Time Charter Equivalent
(TCE) for a round voyage is estimated based upon the weighted average of the
three routes, the speed and consumption of the vessel in question, bunker prices
at agreed ports as published by Platts, port expenses adjusted twice a year and
other parameters mutually agreed such as loading/discharging time, bad weather
and commissions. If the weighted average hire rate is less than or equal to the
basic hire rate, then we receive the basic hire rate only. If the weighted
average hire exceeds the basic hire rate, then we receive the basic hire
rate plus 50% of the excess. However, we also have the right to access the
charterer’s annual results of operations for each vessel and if it is shown that
the vessel has performed better than the estimated profit outlined above, then
we may opt to use the charterer’s results of operations and are reimbursed the
difference between profits received under the first option outlined above, and
50% of actual vessel profits above the basic hire rate. With the exception of
the profit share arrangement for the M/T Assos, where 1.25% commission is
deducted from the gross profit share amount, no commissions are payable on
revenues derived from our profit shares. Annual results of operations from the
charterer are to be presented by December 31 of each year for the period
commencing December 1 of the previous year to November 30 of the year
in question.




BP Profit Sharing.With the
exception of the M/T Amore Mio II, our profit sharing arrangements for our
vessels time chartered with BP Shipping Limited are based on the calculation of
the TCE according to the “last to next” principle. Actual voyage revenues earned
and received, actual expenses incurred and actual time taken to perform the
voyage are used for the purpose of the calculation. The charterer is obliged to
provide us with a copy of each fixture note and all reasonable documentation
with respect to items of cost and earnings referring to each voyage within every
calculation period, as well as with a statement listing actual voyage results
for voyages completed and estimated results for any voyage not completed at the
time of settlement. When actual revenue and/or expenses have not been settled,
BP Shipping Limited’s estimates apply but remain subject to adjustment upon
closing of actual accounts. If the average daily TCE is less than or equal to
the basic gross hire rate, then we receive the basic net hire rate only. If the
average daily TCE exceeds the basic gross hire rate, then we receive the basic
net hire rate plus 50% of the excess over the gross hire rate. In addition to
the 1.25% commission we pay on the gross charter rate for each vessel, the
relevant ship broker is also entitled to an additional 1.25% commission on the
amount of profit share received from the M/T Agisilaos, the M/T Arionas, the M/T
Axios and the M/T Amore Mio II.In the case of the M/T
Amore Mio II, the calculation of the profit share is based on the weighted
monthly average of two indices published daily by the Baltic Exchange based on specific routes
and cargo sizes representative of the vessel’s trading.The profit share
with BP Shipping Limited is calculated and settled quarterly, except for the
profit share for the M/T Amore Mio II, which is calculated and settled
monthly.




TCE rate
is a shipping industry performance measure used primarily to compare daily
earnings generated by vessels on time charters with daily earnings generated by
vessels on voyage charters, because charter hire rates for vessels on voyage
charters are generally not expressed in per day amounts while charter hire rates
for vessels on time charters generally are expressed in such amounts. TCE is
expressed as per ship per day rate and is calculated as voyage and time charter
revenues less voyage expenses during a period divided by the number of operating
days during the period, which is consistent with industry
standards.






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Please
read “—Our Fleet” above, including the chart and accompanying notes, for more
information on our time charters, including expected expiration dates and daily
charter rates.




Bareboat
Charters




A
bareboat charter is a contract pursuant to which the vessel owner provides the
vessel to the customer for a fixed period of time at a specified daily rate, and
the customer provides for all of the vessel’s operating expenses including
crewing, repairs, maintenance, insurance, stores, lube oils and communication
expenses in addition to the voyage costs and generally assumes all risk of
operation. The customer undertakes to maintain the vessel in a good state of
repair and efficient operating condition and drydock the vessel during this
period at its cost and as per the classification society requirements. The basic
rate hire is payable to us monthly in advance in U.S. Dollars.




We
currently have four vessels under bareboat charter, three with BP Shipping
Limited and one with subsidiaries of Overseas Shipholding Group Inc. The two
vessels scheduled for delivery by the third quarter of 2008 have also been fixed
under bareboat charters commencing at the time of delivery with subsidiaries of
Overseas Shipholding Group Inc. The charters entered into with subsidiaries of
Overseas Shipholding Group Inc. are fully and unconditionally guaranteed by
Overseas Shipholding Group Inc. Our charters with respect to the M/T
Alexandros II, Aristotelis II and Aris II include options for the charterer to
purchase each vessel for $38.0 million, $35.5 million or
$33.0 million at the end of the eighth, ninth or tenth year of the charter,
respectively. In each case, the option to purchase the vessel must be exercised
six months prior to the end of the charter year. Please read “—Our Fleet” above,
including the chart and accompanying notes, for more information on our bareboat
charters, including the expected expiration dates and daily charter
rates.




Seasonality




Our
vessels operate under medium to long-term charters and are not generally subject
to the effect of seasonable variations in demand.




Management
of Ship Operations, Administration and Safety




Capital
Maritime provides, through its subsidiary Capital Ship Management, expertise in
various functions critical to our operations. This affords a safe, efficient and
cost-effective operation and, pursuant to a management agreement and an
administrative services agreement we have entered into with Capital Ship
Management, we have access to human resources, financial and other
administrative services, including bookkeeping, audit and accounting services,
administrative and clerical services, banking and financial services, client and
investor relations and technical management services, including commercial
management of the vessels, vessel maintenance and crewing (not required for
vessels subject to bareboat charters), purchasing and insurance and shipyard
supervision.




Under
our time charter arrangements, Capital Ship Management, our manager, is
generally responsible for commercial, technical, health and safety and
other management services related to the vessels’ operation, and the charterer
is responsible for port expenses, canal dues and bunkers and, in the case of the
Morgan Stanley Capital Group Inc. time charters, for
commissions.  Pursuant to our management
agreement, we pay a fixed daily fee of $5,500 per vessel for our time chartered
vessels ($8,500 for the M/T Amore Mio II), for an initial term of approximately
five years from when we take delivery of each vessel and covers vessel operating
expenses, which include crewing, repairs and maintenance, insurance and the
expenses of the next scheduled special or intermediate survey for each vessel,
as applicable, and related drydocking. Please see the table in“—Our Fleet”above for a list of theapproximate expected termination dates of the management agreement with
Capital Ship Management with respect to each vesselcurrently in our fleet.
Capital Ship Management is directly responsible for providing all of these items
and services. The sole expense we incur in connection with our vessels under
bareboat charter is a daily fee of $250 per bareboat chartered vessel payable to
Capital Ship Management, mainly to cover compliance costs.Capital Ship
Management may provide these services to us directly or it may subcontract for
certain of these services with other entities, including other Capital Maritime
subsidiaries.Going
forward, when we acquire new vessels or when the respective management
agreements for our vessels expire,we will have to enter
into new agreements which may provide for different fees or include different
terms.  For more information on the management agreement and
administrative services agreements we have with Capital Ship Management please
read “Item 7B: Related Party Transactions—Management Agreement” and
“—Administrative Services Agreement.”




Capital
Ship Management operates under a safety and quality management system certified
under the ISM Code and complies with the quality assurance standard ISO 9001,
the environmental management standard ISO 14001 and the Occupational Health
& Safety Management System (OHSAS) 18001 with Lloyds Register of Shipping.
As a result, our vessels are operated in a manner intended to protect the safety
and health of Capital Maritime’s employees, the general public and the
environment. Capital Maritime’s technical management team actively manages the
risks inherent in our business and is committed to eliminating incidents that
threaten safety, such as groundings, fires, collisions and petroleum spills, as
well as reducing emissions and waste generation.






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Major
Oil Company Vetting Process




Shipping
in general, and crude oil, refined product and chemical tankers, in particular,
have been, and will remain, heavily regulated. Many international and national
rules, regulations and other requirements – whether imposed by the
classification societies, international statutes (IMO, SOLAS (defined below),
MARPOL, etc.), national and local administrations or industry – must be complied
with in order to enable a shipping company to operate and a vessel to
trade.




Traditionally
there have been relatively few large players in the oil trading business and the
industry is continuously consolidating. The so called “oil majors companies”,
such as ExxonMobil Corporation, BP p.l.c., Royal Dutch Shell plc, Chevron
Corporation, ConocoPhillips, StatoilHydro ASA and Total S.A., together with a
few smaller companies, represent a significant percentage of the production,
trading and, especially, shipping logistics (terminals) of crude and refined
products world-wide. Concerns for the environment, health and safety have led
the oil majors to develop and implement a strict due diligence process when
selecting their commercial partners. This vetting process has evolved into a
sophisticated and comprehensive risk assessment of both the vessel operator and
the vessel.




While a
plethora of parameters are considered and evaluated prior to a commercial
decision, the oil majors, through their association, the Oil Companies
International Marine Forum (OCIMF), have developed and are implementing two
basic tools: (i) a Ship Inspection Report Programme (SIRE) and (ii) the Tanker
Management & Self Assessment (TMSA) Program. The former is a physical ship
inspection based upon a thorough Vessel Inspection Questionnaire (VIQ), and
performed by accredited OCIMF inspectors, resulting in a report being logged on
SIRE, while the latter is a recent addition to the risk assessment tools used by
the oil majors.




Based
upon commercial needs, there are three levels of risk assessment used by the oil
majors: (i) terminal use, which will clear a vessel to call at one of the oil
major’s terminals; (ii) voyage charter, which will clear the vessel for a single
voyage; and (iii) term charter, which will clear the vessel for use for an
extended period of time. The depth, complexity and difficulty of each of these
levels of assessment vary. While for the terminal use and voyage charter
relationships a ship inspection and the operator’s TMSA will be sufficient for
the assessment to be undertaken, a term charter relationship also requires a
thorough office assessment. In addition to the commercial interest on the part
of the oil major, an excellent safety and environmental protection record is
necessary to ensure an office assessment is undertaken.




We
believe Capital Maritime and Capital Ship Management are among a small number of
ship management companies to have undergone and successfully completed audits by
five major international oil companies in the last few years (i.e., BP p.l.c.,
Royal Dutch Shell plc, StatoilHydro ASA, Chevron Corporation and ExxonMobil
Corporation).




Crewing
and Staff




Capital
Maritime recruits the senior officers and all other crew members for our vessels
either directly through a subsidiary crewing office in Romania or through a
crewing agent. Capital Maritime also maintains a presence in Russia and has
entered into an agreement for the training of officers under ice conditions at a
specialized training center in St. Petersburg. Capital Maritime’s vessels are
currently manned primarily by Romanian, Russian and Filipino crew members.
Having employed these crew configurations for a number of years, Capital
Maritime has considerable experience in operating vessels in this configuration
and has a pool of certified and experienced crew members.




Classification,
Inspection and Maintenance




Every
oceangoing vessel must be “classed” and certified by a classification society.
The classification society is responsible for verifying that the vessel has been
built and maintained in accordance with the rules and regulations of the
classification society and ship’s country of registry as well as the
international conventions of which that country has accepted and signed. In
addition, where surveys are required by international conventions and
corresponding laws and ordinances of a flag state, the classification society
will undertake them on application or by official order, acting on behalf of the
authorities concerned. The classification society also undertakes on request
other surveys and checks that are required by regulations and requirements of
the flag state or port authority. These surveys are subject to agreements made
in each individual case and/or to the regulations of the country
concerned.




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




Annual Surveys, which are
conducted for the hull and the machinery at intervals of 12 months.






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Intermediate Surveys, which
are extended surveys and are conducted two and one-half years after
commissioning and after each class renewal survey. In the case of newbuildings,
the requirements of the intermediate survey can be met through an underwater
inspection in lieu of drydocking the vessel.




Class Renewal Surveys (also
known as special
surveys) are carried out at the intervals indicated by the classification
for the hull (usually at five year intervals). During the special survey, the
vessel is thoroughly examined, including Non-Destructive Inspections
(NDIs) to determine the thickness of the steel structures. Should the
thickness be found to be less than class requirements, the classification
society will order steel renewals. The classification society may grant a
one-year grace period for completion of the special survey. Substantial amounts
of funds may have to be spent for steel renewals to pass a special survey if the
vessel experiences excessive wear and tear. In lieu of the special survey every
five years, depending on whether a grace period is granted, a ship-owner has the
option of arranging with the classification society for the vessel’s hull or
machinery to be on a continuous survey cycle, in which every part of the vessel
would be surveyed within a five-year cycle. At an owner’s application, the
surveys required for class renewal may be split according to an agreed schedule
to extend over the entire period of class. This process is referred to as ESP -
Enhanced Survey Program and CSM - Continuous Machinery Survey.




All areas
subject to survey, as defined by the classification society, are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere.




Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as “in class” by a classification society which is a member of the
International Association of Classification Societies. All of our vessels are
certified as being “in class” by American Bureau of Shipping, Det Norske Veritas
and, in the case of the M/T Attikos, China Classification
Society.  All of the newbuildings we currently have on order and any
other new and secondhand vessels that we purchase must be certified prior to
their delivery. If any vessel we have contracted to purchase is not certified as
“in class” on the date of closing, we have no obligation to take delivery of the
vessel.




Risk
Management and Insurance




The
operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters, death or personal injury and property losses caused by adverse
weather conditions, mechanical failures, human error, war, terrorism, piracy and
other circumstances or events. The occurrence of any of these events may result
in loss of revenues or increased costs or, in the case of marine disasters,
catastrophic liabilities. Although we believe our current insurance program is
comprehensive, we cannot insure against all risks, and we cannot be certain that
all covered risks are adequately insured against or that we will be able to
achieve or maintain similar levels of coverage throughout a vessel’s useful
life. Furthermore, there can be no guarantee that any specific claim will be
paid by the insurer or that it will always be possible to obtain insurance
coverage at reasonable rates. More stringent environmental regulations at times
in the past have resulted in increased costs for, and may result in the lack of
availability of, insurance against the risks of environmental damage or
pollution. Moreover, under the terms of our bareboat charters, the charterer
provides for the insurance of the vessel, and as a result, these vessels may not
be adequately insured and/or in some cases may be self-insured. Any uninsured or
under-insured loss could harm our business and financial condition.




We
currently carry “hull and machinery”, “increased value”, “protection and
indemnity” and “war risk” insurance coverage for each of our vessels to protect
against most of the accident-related risks involved in the conduct of our
business:


•
              Hull and machinery
      insurance covers loss of or damage to a vessel due to marine perils
      such as collisions, grounding and weather and the coverage is usually to
      an agreed “insured value” which, as a matter of policy, is never less than
      the particular vessel’s fair market
value.
  •
              Increased value insuranceaugments hull and machinery insurance cover by providing a low-cost
      means of increasing the insured value of the vessels in the event of a
      total loss casualty.
 
 •
              Protection and indemnity
      insurance is the principal coverage for third party liabilities and
      indemnifies against other liabilities incurred while operating vessels,
      including injury to the crew, third parties, cargo or third party property
      loss for which the shipowner is responsible and pollution. The current
      available amount of our coverage for pollution is $1.0 billion per
      vessel per incident.
 
 •
              War Risks insurance
      covers such items as piracy and
terrorism.




Not all
risks are insured and not all risks are insurable. The principal insurable risks
which nevertheless remain uninsured across the fleet are “loss of hire” and
“strikes.” Capital Maritime does not insure these risks because the costs are
regarded as disproportionate to the benefit.






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The
following table sets forth certain information regarding our insurance coverage
as of December 31, 2007.





Type
            
            Aggregate Sum Insured
      For All Vessels in our Existing FleetHull
      and Machinery
            
            $551.0
      million (increased value insurance (including excess liabilities) provides
      additional coverage).Increased
      Value (including Excess Liabilities)
            
            Up
      to $268.0 million additional coverage in total.Protection
      and Indemnity (P&I)
            
            Pollution
      liability claims: limited to $1.0 billion per vessel per
      incident.War
      Risk
            
            $819.0
      million.




The
International Product Tanker Industry




The
international seaborne transportation industry represents the most cost
effective method of transporting large volumes of crude oil and refined
petroleum products. The seaborne movement of refined petroleum products between
regions addresses demand and supply imbalances for such products caused by the
lack of resources or refining capacity in consuming countries. Global demand for
the shipping of refined products and crude oil has grown historically at a
faster rate than the demand for the refined products and the crude oil
themselves.  The demand for product and crude oil tankers is cyclical
and a function of several factors, including the general strength of the
economy, location of oil production and the distance from refineries as well as
refining and consumption and world oil demand and supply. Due to increasing
environmental restrictions on the building of refineries in the countries that
belong to the Organization for Economic Co-operation and Development (the
“OECD”), additional refineries are expected to continue to be built at locations
far from such points of consumption, resulting in refined product tankers being
required to travel longer distances on each voyage.




Competition




We
operate in a highly fragmented, highly diversified global market with many
charterers, owners and operators of vessels. Competition for charters can be
intense and depends on price as well as on the location, size, age, condition
and acceptability of the vessel and its operator to the charterer and is
frequently tied to having an available vessel which has met the strict
operational and financial standards established by oil majors to pre-qualify or
vet tanker operators prior to entering into charters with them. Although we
believe that at the present time no single company has a dominant position in
the markets in which we compete, that could change and we may face substantial
competition for medium to long-term charters from a number of experienced
companies who may have greater resources or experience than we do when we try to
recharter our vessels. However, we believe the young age of our fleet which is
one of the youngest in the industry, the high specifications of our vessels,
including the ability of most of our vessels to transport refined oil products
and certain chemicals, and the fact that 11 of our 15 charter contracts will
expire on or after January 2010 (the date at which all single-hull tankers
are due to be phased out under IMO regulations) when the number of vessels
available for rehire will have decreased, position us well to recharter our
vessels. In addition, Capital Maritime is among a small number of ship
management companies that has undergone and successfully completed audits by
five major international oil companies in the last few years, including audits
with BP p.l.c., Royal Dutch Shell plc, StatoilHydro ASA, Chevron Corporation and
ExxonMobil Corporation.We believe our ability
to comply with the rigorous and comprehensive standards of major oil companies
relative to less qualified or experienced operators allows us to compete
effectively for new charters.




Regulation


General




Our
operations and our status as an operator and manager of ships are significantly
regulated by international conventions, (i.e. SOLAS, MARPOL), Class
requirements, U.S. federal, state and local and foreign health, safety and
environmental protection laws and regulations, including OPA 90, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), the U.S. Port and Tanker Safety Act, the Act to Prevent Pollution
from Ships, regulations adopted by the IMO and the European Union, various
volatile organic compound air emission requirements, IMO/U.S. Coast Guard
pollution regulations and various Safety of Life at Sea ("SOLAS") amendments, as
well as other regulations described below. In addition, various jurisdictions
either have or are considering regulating the management of ballast water to
prevent the introduction of non-indigenous species considered to be invasive.
Compliance with these laws, regulations and other requirements could entail
additional expense, including vessel modifications and implementation of certain
operating procedures.




We are
also required by various other governmental and quasi-governmental agencies to
obtain permits, licenses and certificates for our vessels, depending upon such
factors as the country of registry, the commodity transported, the waters in
which the vessel operates, the nationality of the vessel’s crew, the age and
size of the vessel and our status as owner or charterer. Failure to maintain
necessary permits, licenses or certificates could require us to incur
substantial costs or temporarily suspend operations of one or more of our
vessels.






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We
believe that the heightened environmental and quality concerns of insurance
underwriters, regulators and charterers will in the future impose greater
inspection and safety requirements on all vessels in the shipping industry. In
addition to inspections by us, our vessels are subject to both scheduled and
unscheduled inspections by a variety of governmental and private entities, each
of which may have unique requirements. These entities include the local port
authorities (such as U.S. Coast Guard, harbor master or equivalent),
classification societies, flag state administration P&I Clubs, charterers,
and particularly terminal operators and major oil companies which conduct
frequent vessel inspections.




Our
vessels operate in full compliance with applicable environmental laws and
regulations. However, because such laws and regulations frequently change and
may impose increasingly strict requirements, we cannot predict the ultimate cost
of complying with these and any future requirements or the impact of these and
any future requirements on the resale value or useful lives of our
vessels.


United
States Requirements




The
United States regulates the tanker industry with an extensive regulatory and
liability regime for environmental protection and the cleanup of oil spills,
primarily through OPA 90 and CERCLA.




OPA 90
affects all vessel owners and operators shipping oil or petroleum products to,
from, or within U.S. waters. The law phases out the use of tankers having
single-hulls and can effectively impose unlimited liability on vessel owners and
operators in the event of an oil spill. Under OPA 90, vessel owners, operators
and bareboat charterers are liable, without regard to fault, for all containment
and clean-up costs and other damages, including natural resource damages and
economic loss without physical damage to property, arising from oil spills and
pollution from their vessels. OPA 90 had historically limited liability 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), unless the
incident was caused by gross negligence, willful misconduct, or a violation of
certain regulations, in which case liability was unlimited. Amendments to OPA 90
signed into law on July 11, 2006, however, increased these limits on the
liability of responsible parties to the greater of $1,900 per gross ton or
$16.0 million per tanker that is double-hulled and over 3,000 gross tons.
In addition, OPA 90 does not preempt state law and permits individual states to
impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries. Coastal states have enacted pollution
prevention, liability and response laws, many providing for unlimited liability.
CERCLA, which applies to the discharge of hazardous substances (other than oil)
whether on land or at sea, 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 $0.5 million, unless the incident
is caused by gross negligence, willful misconduct, or a violation of certain
regulations, in which case liability is unlimited.




The
financial responsibility regulations for tankers issued under OPA 90 also
require owners and operators of vessels entering U.S. waters to obtain, and
maintain with the U.S. Coast Guard, Certificates of Financial Responsibility, or
COFRs, in the amount of $1,500 per gross ton for tankers, combining the previous
OPA 90 limitation of liability of $1,200 per gross ton with the CERCLA liability
of $300 per gross ton. The U.S. Coast Guard has indicated that it intends to
propose a rule that will increase the required amount of such COFRs to $2,200
per gross ton to reflect the higher limits on liability imposed by the
July 2006 amendments to OPA 90, as described above. Under the regulations,
owners or operators of fleets of vessels are required to demonstrate evidence of
financial responsibility for each covered tanker up to the maximum aggregate
liability under OPA 90 and CERCLA. All of our vessels that need COFRs have
them.




We insure
each of our tankers with pollution liability insurance in the maximum
commercially available amount of $1.0 billion per incident. A catastrophic
spill could exceed the insurance coverage available, in which event there could
be a material adverse effect on our business. OPA 90 requires that tankers over
5,000 gross ton calling at U.S. ports have double hulls if contracted after
June 30, 1990 or delivered after January 1, 1994. Furthermore, OPA 90
calls for the phase-out of all single hull tankers by the year 2015 according to
a schedule that is based on the size and age of the vessel, unless the tankers
are retrofitted with double-hulls. All of our current vessels as well as the
vessels that we have agreed to purchase have double hulls.




OPA 90
also amended the Federal Water Pollution Control Act (the "Clean Water Act") to
require owners and operators of vessels to adopt contingency plans for reporting
and responding to oil spill scenarios up to a “worst case” scenario and to
identify and ensure, through contracts or other approved means, the availability
of necessary private response resources to respond to a “worst case discharge.”
In addition, periodic training programs and drills for shore and response
personnel and for vessels and their crews are required. Our vessel response
plans have been approved by the U.S. Coast Guard.




The Clean
Water Act prohibits the discharge of oil or hazardous substances in U.S.
navigable waters and imposes strict liability in the form of penalties for
unauthorized discharges. The Clean Water Act also imposes substantial liability
for the costs of removal, remediation and damages and complements the remedies
available under the more recent OPA 90 and CERCLA, discussed above. The U.S.
Environmental Protection Agency (the "EPA") had 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 30, 2005, a U.S. District Court ruled that the EPA exceeded its
authority in creating an exemption for ballast water. On September 18,
2006, the court issued an order invalidating the exemption in 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. The EPA has appealed this
decision. However, if the exemption is ultimately repealed, we would be subject
to Clean Water Act permit requirements that could include ballast water
treatment obligations that could increase the cost of operating in the United
States. For example, this could require the installation of equipment on our
vessels to treat ballast water before it is discharged or the implementation of
other port facility disposal arrangements or procedures at potentially
substantial cost and/or otherwise restrict our vessels from entering U.S.
waters.






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We
believe that we are in compliance with OPA 90, CERCLA and all applicable state
regulations in U.S. ports where our vessels call.


International
Requirements




The IMO
has also negotiated international conventions that impose liability for oil
pollution in international waters and a signatory’s territorial waters. In
September 1997, the IMO adopted Annex VI to the International Convention
for the Prevention of Pollution from Ships to address air pollution from ships.
Annex VI, which became effective in May 2005, sets limits on sulphur oxide
and nitrogen oxide emissions from ship exhausts and prohibits deliberate
emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI
also includes a global cap on the sulphur content of fuel oil and allows for
special areas to be established with more stringent controls on sulphur
emissions. A failure to comply with Annex VI requirements could result in a
vessel not being able to operate.




All of
our vessels are subject to Annex VI regulations. We believe that our existing
vessels meet relevant Annex VI requirements and that our undelivered product
tankers will be fitted with these emission control systems prior to their
delivery.




The ISM
Code, promulgated by the IMO, also requires the party with operational control
of a vessel to develop an extensive safety management system that includes,
among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. The ISM Code requires that
vessel operators obtain a safety management certificate for each vessel they
operate. 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. All of
our ocean going vessels are ISM certified.




Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. For example, the U.S. 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.




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 (the "CLC") (the United States, with its separate OPA 90 regime, is not
a party to the CLC). Under this convention and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the 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
defenses. Under an amendment to the Protocol that became effective on
November 1, 2003, for vessels of 5,000 to 140,000 gross tons, liability
will be limited to approximately $6.6 million plus $926 for each additional
gross ton over 5,000. For vessels of over 140,000 gross tons, liability will be
limited to approximately $131.0 million. As the convention calculates
liability in terms of a basket of currencies, these figures are based on
currency exchange rates on December 31, 2006. The right to limit liability
is forfeited under the International Convention on Civil Liability for Oil
Pollution Damage where the spill is caused by the owner’s actual fault and under
the 1992 Protocol where the spill is caused by the owner’s intentional or
reckless conduct. Vessels trading to states that are parties to these
conventions must provide evidence of insurance covering the liability of the
owner. In jurisdictions where the International Convention on Civil Liability
for Oil Pollution Damage has not been adopted, various legislative schemes or
common law regimes govern, and liability is imposed either on the basis of fault
or in a manner similar to that convention. We believe that our P&I insurance
will cover the liability under the plan adopted by the IMO.




IMO
regulations also require owners and operators of vessels to adopt Shipboard
Marine Pollution Emergency Plans ("SMPEPs"). Periodic training and drills for
response personnel and for vessels and their crews are required. The SMPEPs
required for our vessels are in place.






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In
addition, our operations are subject to compliance with the International Bulk
Chemical ("IBC") Code, as required by MARPOL and SOLAS for chemical tankers
built after July 1, 1986, which provides ship design, construction and
equipment requirements and other standards for the bulk transport of certain
liquid chemicals. Under October 2004 amendments to the IBC Code
(implemented to meet recent revisions to SOLAS and Annex II to MARPOL), some
previously unrestricted vegetable oils, including animal fats and marine oils,
must be transported in chemical tankers meeting certain double-hull construction
requirements. Our vessels may transport such cargoes but are restricted as to
the volume they are able to transport per cargo tank. This restriction does not
apply to edible oils. In addition, those amendments require re-evaluation of the
categorization of certain products with respect to their properties as marine
pollutants, as well as related ship type and carriage requirements. Where
necessary pollution data is not supplied for those products missing such data,
it is possible that the bulk carriage of such products will be
prohibited.




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 ("MTSA") came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States.




Similarly,
in December 2002, amendments to SOLAS created a new chapter of the
convention dealing specifically with maritime security. The new chapter went
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 ("ISPS") Code. Among the
various requirements are:




•
            on-board
      installation of automatic identification systems to enhance
      vessel-to-vessel and vessel-to-shore
  communications;


•
            on-board
      installation of ship security alert
systems;


•
            the
      development of vessel security plans;
and


•
            compliance
      with flag state security certification
  requirements.




The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempted non-U.S. vessels from MTSA vessel security measures provided
such vessels had on board, by July 1, 2004, a valid International Ship
Security Certificate that attests to the vessel’s compliance with SOLAS security
requirements and the ISPS Code. We have implemented the various security
measures addressed by the MTSA, SOLAS and the ISPS Code and have ensured that
our vessels are compliant with all applicable security
requirements.






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C.
Organizational Structure









Please
alsosee Exhibit
8.1 to this Annual Report for a list of our significant subsidiaries as of
December 31, 2007.







D.
Property, Plants and Equipment




Other
than our vessels, we do not have any material property.







Item 4A. Unresolved Staff Comments.




Not Applicable.






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Item 5.     Operating and Financial
Review and Prospects.




You
should read the following discussion of our financial condition and results of
operations in conjunction with the audited consolidated and predecessor combined
financial statements and related notes of Capital Product Partners L.P. included
elsewhere in this Annual Report. Among other things, those financial statements
include more detailed information regarding the basis of presentation for the
following information. The financial statements have been prepared in accordance
with U.S. GAAP and are presented in U.S. Dollars.




A.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations




Overview




We are an international owner of
product tankers formed in January 2007 by Capital Maritime, an international
shipping company with a long history of operating and investing in the shipping
market.  As of December 31, 2007, our fleet consisted of 13
double-hull, high specification tankers, eight of which were transferred to us
by Capital Maritime at the time of our Offering. Concurrently with the Offering,
we also agreed to purchase an additional seven newbuildings from Capital
Maritime delivered or scheduled for delivery during 2007 and 2008 at a fixed
price, four of which had been delivered as of December 31, 2007. These four Ice
Class 1A IMO II/III newbuilding sister vessels were delivered between May and
September 2007. In September 2007 we also acquired the M/T Attikos, a 12,000
dwt, 2005 built product tanker from Capital Maritime which we had not previously
agreed to purchase. In January 2008 we took delivery of the M/T Alexandros II, a
51,258 dwt MR IMO II/III chemical/product tanker, the first of three such
newbuilding sister vessels which we contracted to acquire from Capital Maritime
at the time of our Offering. The remaining two vessels are scheduled for
delivery in June and August 2008 respectively. In addition, in the first quarter
of 2008 we acquired the M/T Amore Mio II, a 159,982 dwt, 2001 built tanker from
Capital Maritime. We also intend to acquire the M/T Aristofanis, a 12,000 dwt,
2005 built product tanker, from Capital Maritime during the second quarter of
2008. We expect that by the end of the third quarter of 2008 our fleet will
consist of 18 double-hull tankers, including the M/T Aristofanis, with an
average age of approximately 2.5years.





Our primary business objective is to
provide our unitholders with steadily rising distributions per unit over the
long-term. Our growth strategy focuses on maintaining and growing our cash
flows, continuing to grow our product tanker fleet and maintaining and building
on our ability to meet rigorous industry and regulatory safety standards. We
believe that the combination of the medium to long-term nature of our charters
and our agreement with Capital Ship Management for the commercial and technical
management of our vessels, which provides for a fixed management fee for an
initial term of approximately five years from when we take delivery of each
vessel, will provide us with a strong base of stable cash flows in the medium
term.We intend to continue to make strategic
acquisitions and leverage the expertise and reputation of Capital Maritime in a
prudent manner that is accretive to our unitholders and to long-term
distribution growth.





Our
Initial Public Offering




On April 3, 2007, we completed our
Offering on the Nasdaq Global Market of 13,512,500 common units at a price of
$21.50 per unit which included 1,762,500 common units issued to the underwriters
in connection with the exercise of their over-allotment option. The Offering
also included 8,805,522subordinated units
issued to Capital Maritime and 455,470 general partner unitsissued to Capital GP
L.L.C., our general partner, a wholly owned subsidiary of Capital Maritime.The net proceeds from
the Offering were $270,472,956.0, including the proceeds
from the exercise of the over-allotment option by the underwriters. We
did not receive any proceeds from the sale of our common units. Capital Maritime
used part of the proceeds from our Offering to repay the debt on the eight
vessels that made up our fleet at the time of the Offering. Capital Maritime
transferred its interest in the vessel-owning companies of these eight vessels
to us at the time of the Offering. Capital Maritime also paid the offering
expenses, underwriting discounts, selling commissions and brokerage fees
incurred in connection with the Offering. As of December 31, 2007, Capital
Maritime owned a 40.7% interest in us, including a 2% interest through its
ownership of our general partner.




Potential
Additional Vessels




Pursuant
to our omnibus agreement with Capital Maritime, we have been granted a right of
first offer to purchase an additional six vessels from Capital Maritime if they
are fixed under charters of two or more years. Capital Maritime also owns or has
on order a total of 25 modern,double-hull, modern tankers of different sizes which we may potentially
acquire in the event those vessels were fixed under charters of two or more
years. Furthermore, wewill continue to evaluate
opportunities to acquire both newbuildings and second-hand vessels from Capital
Maritime and from third parties as we seek to grow our
fleet.




Historical
Results of Operations




We
commenced operations as an independent entity on April 4, 2007, at which time
Capital Maritime transferred its interest in eight vessel-owning companies to
us. Our historical results are not necessarily indicative of the results that
may be expected in the future. Specifically, our audited consolidated and
predecessor combined financial statements are not comparable, as our Offering
and certain other transactions that occurred during 2007, including the delivery
of four newbuildings, the acquisition of the M/T Attikos, the agreement we
entered into with Capital Ship Management for the provision of management and
administrative services to our fleet for a fixed fee and the new financing
arrangements we entered into, have affected our results of operations.
Furthermore, for the year ended December 31, 2006, only six of the vessels in
our current fleet had been delivered to Capital Maritime. Five of these vessels
were delivered between April and November 2006 and were in operation for only a
portion of the year.






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For more detail on the differences
between our historical results and expected future results, please read
“—Factors to Consider when Evaluating our Results” and “—Results of Operations”
below.




Accounting
for Deliveries of Vessels




All
vessels we acquire or have acquired from Capital Maritime are or were
transferred to us at historical cost and accounted for as a combination of
entities under common control or a transfer of assets between entities under
common control. All assets, liabilities and equity, other than the relevant
vessel, related charter agreement and related permits, of these vessels’
ship-owning companies were retained by Capital Maritime.




At the
time of our Offering, Capital Maritime contributed eight vessels to our fleet.
Between May and September 2007 we acquired an additional five vessels from
Capital Maritime for a total purchase price of $247.0 million. These five
vessels have been recorded in our financial statements at the amount of $166.1
million, which represents the net book value of the vessels as reflected in
Capital Maritime’s consolidated financial statements at the time of transfer. We
recognize transfers of assets between entities under common control at Capital
Maritime’s basis in the assets contributed. The amount of the purchase price in
excess of Capital Maritime’s basis in the assets, $80.9 million, was recognized
as a reduction to partners’ equity and presented as a financing activity in the
statement of cash flows. For additional information on how we have accounted for
specific transfers of vessels please see Note 1 (Basis of Presentation and
General Information) to our consolidated and predecessor combined financial
statements included elsewhere in this Annual Report.




Our
Charters




We
generate revenues by charging our customers for the use of our vessels to
transport their products. Historically, we have provided services to our
customers under the following two types of contractual
relationships:


•
              Time charters, which
      are contracts for the use of a vessel for a fixed period of time at a
      specified daily rate. With the exception of our time charters with Morgan
      Stanley Capital Group Inc. where we receive net daily rates, we are
      responsible for the payment of all commissions under our time charters.
      All other expenses related to time charter voyages are assumed by the
      charterers. Capital Ship Management, our manager, is generally responsible
      for commercial, technical, health and safety and other management
      services related to the vessels’ operation. With the exception of the time
      charter for the M/T Attikos, as of December 31, 2007 all of our time
      charter agreements contained profit sharing arrangements. Profit sharing
      refers to an arrangement between owners and charterers to share, at a
      pre-determined percentage, voyage profit in excess of the basic hire
      rate.
  •
              Bareboat charters,
      which are contracts pursuant to which the vessel owner provides the vessel
      to the charterer for a fixed period of time at a specified daily rate, and
      the customer provides for all of the vessel’s operating expenses including
      crewing, repairs, maintenance, insurance, stores, lube oils and
      communication expenses in addition to the voyage costs (with the exception
      of commissions) and generally assumes all risk of
    operation.




As of
December 31, 2007, all of the vessels in our fleet as well as the two vessels
expected to be delivered in 2008 were under medium- to long-term time or
bareboat charters of between two to 10 years, with an average remaining term of
approximately 5.3 years commencing at the time of their delivery. In addition,
of our 13 charter contracts as of December 31, 2007, nine were scheduled to
expire on or after January 2010 and of our 10 time charters, nine contained
profit-sharing arrangements. The three-year time charter of the M/T Amore Mio
II, purchased in March 2008 from Capital Maritime, also contains a
profit-sharing arrangement.




All of
our vessels are under charter contracts with BP Shipping Limited, Morgan Stanley
Capital Group Inc., Trafigura Beheer B.V., and subsidiaries of Overseas
Shipholding Group Inc. For the year ended December 31 2007, BP Shipping Limited
and Morgan Stanley Capital Group Inc. accounted for 64% and 28% of our
revenues, respectively, and 53% and 23% of our revenues for the year ended
December 31, 2006, respectively. For the year ended December 31, 2006,
Canterbury Tankers Inc., the charterer for the M/T Attikos, represented 24% of
the revenues of our predecessor. During 2008, we expect to derive the majority
of our revenues from BP Shipping Limited, Morgan Stanley Capital Group Inc., and
Overseas Shipholding Group Inc. In the future, as our fleet expands, we also
expect to enter into charters with new charterers in order to maintain a
portfolio that is diverse from a customer, geographic and maturity perspective.
The vessel purchased in March 2008 from Capital Maritime is also under time
charter with BP Shipping Limited. We may in the future operate vessels in the
spot market until the vessels have been chartered under appropriate medium to
long-term charters.






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Please
read “Item 4: Business—Our Fleet”, “Item 4: Business—Our Charters” and “Item 4:
Business—Profit Sharing Arrangements” for additional details regarding the
length, daily charter rate, information regarding the calculation of our profit
share arrangements and description of our charters.




Factors
Affecting Our Future Results of Operations




We
believe the principal factors that will affect our future results of operations
are the economic, regulatory, political and governmental conditions that affect
the shipping industry generally and that affect conditions in countries and
markets in which our vessels engage in business. Other key factors that will be
fundamental to our business, future financial condition and results of
operations include:




•
            the
      continuing strong demand for seaborne transportation
    services;




•
            supply
      of product and crude oil tankers and specifically the number of
      newbuildings entering the world tanker fleet each
  year;




•
            the
      successful implementation of our fleet expansion strategy, including
      taking delivery of our newbuildings on or about their scheduled delivery
      dates;




•
            the
      ability of Capital Maritime’s commercial and chartering operations to
      successfully employ our vessels at economically attractive rates,
      particularly as our fleet expands and our charters
  expire;




•
            our
      ability to benefit from new maritime regulations concerning the phase-out
      of single-hull vessels and the more restrictive regulations for the
      transport of certain products and
cargoes;




•
            the
      effective and efficient technical management of our
    vessels;




•
            Capital
      Maritime’s ability to obtain and maintain major international oil company
      approvals and to satisfy their technical, health, safety and compliance
      standards; and




•
            the
      strength of and growth in the number of our customer relationships,
      especially with major international oil companies and major commodity
      traders.




In
addition to the factors discussed above, we believe certain specific factors
have impacted, and will continue to impact, our combined and consolidated
results of operations. These factors include:




•
            the
      charterhire earned by our vessels under time charters and bareboat
      charters;




•
            our
      access to capital required to acquire additional vessels and/or to
      implement our business strategy;




•
            our
      ability to sell vessels at prices we deem
  satisfactory;




•
            our
      level of debt and the related interest expense and amortization of
      principal; and




•
            the
      level of any distribution on our common
units.




Please
read “Risk Factors” for a discussion of certain risks inherent in our
business.




Factors
to Consider When Evaluating Our Results




Our
historical results of operations and cash flows are not indicative of results of
operations and cash flows to be expected from any future period and our
financial statements and the financial statements of our predecessor are not
comparable, principally for the following reasons:




•
            Limited
      Operations.  The results of operations and cash flows
      presented in our audited consolidated and predecessor combined financial
      statements for the years ended December 31, 2007, 2006 and 2005 do not
      reflect operations of all the vessels comprising our fleet for the
      reporting period. As of December 31, 2007 our fleet was comprised of 13
      vessels. The results of operations for the year ended December 31, 2007
      include operations of the five vessels and the M/T Attikos which had been
      delivered as of December 31, 2006. The remaining seven vessels of our
      fleet were delivered from the shipyard between January and September of
      2007and are
      included in our results of operations and cash flows only as of their
      respective delivery dates. During the year ended December 31, 2006, our
      fleet was comprised of five vessels, which were in operation for only a
      part of the reporting period and the M/T Attikos which was in operation
      for the whole year. During the year ended December 31, 2005, our fleet was
      comprised of the M/T Attikos, which was in operation for the period from
      January 20, 2005 to December 31, 2005. The two vessels we have acquired or
      taken delivery of in the first quarter of 2008 are not reflected in our
      financial statements. Please read “—Accounting for Deliveries of Vessels”
      above and “—Different Statements of Income” below for a description of the
      financial treatment of vessel acquisitions, including of the M/T
      Attikos.






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•
            Different Sources of
      Revenues.  A portion of the revenues generated during the
      year ended December 31, 2006 and for the period ended April 3, 2007
      was derived from charters with different terms than the charters that are
      currently in place.




•
            Different Structure of
      Operating Expenses.  On April 3, 2007, we entered into a
      management agreement with Capital Ship Management pursuant to which
      Capital Ship Management agreed to provide commercial and technical
      management services to us for an initial term of approximately five years
      from when we take delivery of each vessel. Under the agreement we pay Capital Ship
      Management a fixed daily fee of $5,500 per vessel for our time chartered
      vessels which covers vessel operating expenses, including crewing, repairs
      and maintenance, insurance and the cost of any scheduled
      special/intermediate surveys for each vessel, and related drydocking, as
      applicable, and a fixed daily fee of $250 per bareboat chartered vessel.Operating expenses for the year ended December 31, 2006 and for the
      period ended April 3, 2007 for the initial vessels, and September 23, 2007
      for M/T Attikos, represent actual costs incurred by the vessel-owning
      subsidiaries and Capital Ship Management in the operation of the vessels
      that were operated as part of Capital Maritime’s
  fleet.




•
            Different Structure of General
      and Administrative Expenses.  Since our Offering we have
      incurred certain general and administrative expenses as a publicly traded
      limited partnership that we had not previously incurred. For the year
      ended December 31, 2006, we did not incur any similar general and
      administrative expenses.




•
            Different Financing
      Arrangements.  The vessels delivered to Capital Maritime
      during 2005 and 2006 were purchased under financing arrangements with
      terms that differ from those of the $370.0 million credit facility we
      entered into at the time of the Offering and which we used to finance the
      acquisition of the seven vessels we committed to purchase from Capital
      Maritime in 2007 and 2008. Importantly, under the financing arrangements
      entered into following our Offering, we are not required to make
      repayments of principal before June 2012. In addition, the historical bank
      debt bore interest at floating rates while we have entered into
      interest rate swap agreements to fix the LIBOR portion of our interest
      rate in connection with the debt drawn down under our existing credit
      facility. For a description of our non-amortizing revolving credit
      facility, please read “—Liquidity and Capital Resources—Revolving Credit
      Facilities” below.




•
            The Size of our Fleet
      Continues to Change. At the time of our Offering, our fleet
      consisted of eight vessels and we contracted to purchase an additional
      seven vessels from Capital Maritime. Between May and September 2007 we
      took delivery of four of the contracted vessels and also acquired the
      M/T Attikos from Capital Maritime. All of the vessels delivered
      between May and September 2007 were under long-term charters at the time
      of their delivery.An additional
      contracted vessel was delivered in January 2008 and the remaining two
      vessels we contracted to purchase are expected to be delivered by the end
      of the third quarter of 2008. In March 2008 we acquired an additional
      vessel from Capital Maritime which we had not contracted to purchase at
      the time of our Offering and we expect to acquire one additional
      non-contracted vessel from Capital Maritime during the second quarter of
      2008. We intend to continue to make strategic acquisitions in a prudent
      manner that is accretive to our distributable cash flow per
      unit.




•
              Statements of Income
      Retroactively Adjusted.Our statement of income for the year ended
      December 31, 2007 includes the results of operations of the eight vessels
      comprising our fleet at the time of our Offering, the four vessels we had
      contracted to purchase from Capital Maritime which were delivered during
      2007 and the M/T Attikos which was acquired from an entity under common
      control on September 24, 2007. Following the acquisition of the M/T
      Attikos, the statements of income for the years ended December 31, 2006
      and 2005 have been retroactively adjusted to reflect the results of
      operations of the M/T Attikos as if it were owned by us for the entire
      three-year period from its delivery to Capital Maritime.






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Results
of Operations




Because
we have a limited operating history, with the years ended December 31, 2007
and December 31, 2006 being the only periods with meaningful operations, other
period-to-period comparisons of our results of operations are not yet be
possible and may not be meaningful in the near future.




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




Revenues




Time and
bareboat charter revenues amounted to approximately $72.5 million for the year
ended December 31, 2007, as compared to $19.9 million for the year ended
December 31, 2006 primarily due to the higher number of vessels in our
fleet.




Time and
bareboat charter revenues are mainly comprised of the charter hire received from
unaffiliated third-party customers. Time and bareboat charter
revenues are affected by daily hire rates, the number of days our vessels
operate and the overall number of vessels in our fleet.For an explanation why
revenues for this period are not indicative of revenues to be expected from any
future period, please read “—Factors to Consider When Evaluating Our Results”
above. Please also read “Item 4: Business Overview—Our Fleet” and “—Our
Charters” for information about the charters on these vessels, including daily
charter rates.




Voyage
Expenses




Voyage
expenses amounted to $0.8 million for the year ended December 31, 2007, as
compared to $0.4 million for the year ended December 31, 2006 primarily due
to the higher number of vessels in our fleet.




Voyage
expenses are direct expenses to voyage revenues and primarily consist of
commissions, port expenses, canal dues and bunkers. Voyage costs, except for
commissions, are paid for by the charterer under time and bareboat charters. In
the case of our time charters with Morgan Stanley Capital Group Inc., the
charterer is also responsible for commissions.




Vessel
Operating Expenses




For the
year ended December 31, 2007, our vessel operating expenses amounted to
approximately $15.5 million, of which $12.3 million was paid to our
manager.For the
year ended December 31, 2006, vessel operating expenses amounted to
approximately $4.9 million, of which $0.9 million was paid to the
manager.




Vessel
operating expenses for the years ended December 31, 2007 and December 31, 2006
are not comparable. Vessel operating expenses for the period from April 4, 2007
to December 31, 2007 represent management fees payable to Capital Ship
Management pursuant to our management agreement. For each time chartered vessel
in our fleet as of December 31, 2007 we paid Capital Ship Management a fixed
daily fee of $5,500 for the provision of commercial and technical services such
as crewing, repairs and maintenance, insurance, stores, spares and lubricants.
The fee also includes expenses related to the next scheduled special and
intermediate survey, and related drydocking for each vessel. For each bareboat
chartered vessel we pay a fixed daily fee of $250 to Capital Ship Management
mainly for expenses to cover compliance costs, while the bareboat charterer is
responsible for all other operating expenses such as crewing, repairs and
maintenance, insurance, stores, spares, lubricantsand expenses related to
the next scheduled surveys and related drydocking of each vessel. The fee is payable for an
initial term of approximately five years from when we take delivery of each
vessel. For the year ended December 31, 2006 and for the period ended April
3, 2007 (and September 23, 2007 for the M/T Attikos), vessel operating expenses
represent actual costs incurred by the vessel-owning subsidiaries in the
operation of the vessels that were operated as part of Capital
Maritime.




General
and Administrative Expenses




General
and administrative expenses amounted to $1.5 million for the year ended December
31, 2007. General and administrative expenses include consultancy fees, board of
directors fees and expenses, audit fees, and other fees related to the expenses
of the publicly traded company. For the year ended December 31, 2006, we
did not incur any similar general and administrative expenses.




Depreciation
and Amortization




Depreciation
of fixed assets amounted to $13.1 million for the year ended December 31, 2007
as compared to $3.4 million for the year ended December 31,
2006.






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This
amount represents depreciation on six vessels for the whole year and on seven
vessels for a part of the year commencing from their delivery dates in January,
February, March, May, July and on two vessels in September of 2007,
respectively. The amount of depreciation for the year ended December 31, 2006
represents depreciation on one vessel for the whole year and on five vessels for
a part of the year commencing from their delivery dates in April, May, July,
August and November of 2006, respectively.




Depreciation
is expected to increase as our fleet grows.




Other
Income (Expense), Net




Other
income (expense), net for the year ended December 31, 2007 was
approximately $(13.9) million as compared to $(4.6) million for the year
ended December 31, 2006.




The 2007
amount represents interest expense and amortization of financing charges and
bank charges of $(14.6) million of which $(3.8) million represent a loss from
the transfer of interest rate swap agreements entered into by Capital Maritime
prior to April 4, 2007 and acquired by us on that date and interest income of
$0.7 million. The 2006 amount represents interest expense charged to the
vessel-owning companies and amortization of financing charges and bank charges
of $(4.6) million. Interest expense for the period ending December 31, 2006 is
not indicative of interest expense to be expected for any future period,
predominantly because the historical bank debt bore interest at floating rates
while we have entered into interest rate swap agreements to fix the LIBOR
portion of our interest rate in connection with the debt drawn down under our
credit facilities.




Net
Income




Net
income for the year ended December 31, 2007 amounted to $27.8 million
as compared to $6.6 million for the year ended December 31, 2006. For an
explanation of why our historical net income is not indicative of net income to
be expected in future periods, please refer to the discussion under “— Factors
to Consider When Evaluating Our Results,” “—Time and Bareboat Charter Revenues,”
“—Voyage Expenses”, and “—Vessel Operating Expenses” above.




Year Ended December 31, 2006
Compared to Year Ended December 31, 2005




The
results of operations for the years ended December 31, 2006 and December 31,
2005 are not necessarily indicative of the results that may be expected in the
future and as such we do not believe that a presentation of the comparison of
the results of operations for these years would be useful to our investors or
provide meaningful information regarding our current results of operations as
the number of vessels, chartering agreements, nature of operating expenses and
management and financing arrangements in place during these two years differ
significantly from the arrangements in place as of the time of our
Offering.




In
particular, for the year ended December 31, 2006, only six of the vessels in our
current fleet had been delivered to Capital Maritime. Five of these were
delivered between April and November 2006 and were in operation for only a
portion of the year. During the year ended December 31, 2005, the M/T Attikos
was the only vessel which had been delivered to Capital Maritime and was in
operation from its date of delivery, January 20, 2005. In addition, during the
years ended December 31, 2006 and 2005 these vessels were managed as part of
Capital Maritime’s fleet and operating expenses represented actual costs
incurred by the vessel-owning subsidiaries and Capital Ship Management in the
operation of the vessels. As of the time of our Offering, however, we entered
into a fixed fee agreement with Capital Ship Management for the provision of
technical and management services to our vessels for an initial term of
approximately five years from the date each vessel was delivered to us.
Furthermore, the vessels delivered to Capital Maritime during 2005 and 2006 were
purchased under financing arrangements with terms that differ from those of the
existing credit facility which we used to finance the acquisition of the
vessels. Importantly, under the financing arrangements entered into following
our Offering, we are not required to make repayments of principal before June
2012. In addition, the historical bank debt bore interest at floating rates
while we have currently entered into interest rate swap agreements to fix the
LIBOR portion of our interest rate in connection with the debt drawn down under
our existing credit facility. Finally, we do not believe that the presentation
of information regarding the charter agreements our vessels operated under in
2005 is useful to our investors as the M/T Attikos traded in the spot market
from the date of its delivery to May 2005, at which time it entered into a two
year time-charter with Canterbury Tankers Inc. on different terms from the
time-charter it is currently under with Trafigura Beheer B.V.




B.
Liquidity and Capital Resources




As at
December 31, 2007, total cash and cash equivalents were $19.9 million and total
liquidity including cash and undrawn long-term borrowings was
$115.4 million. As at December 31, 2006 total cash and cash equivalents
were $1.2 million. This increase is primarily due to the different financing
arrangements in place prior to the Offering and the increased number of vessels
in our fleet.






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We
anticipate that our primary sources of funds for our liquidity needs will be
cash flows from operations. Generally, our long-term sources of funds will be
from cash from operations, long-term bank borrowings and other debt or equity
financings. Because we distribute all of our available cash, we expect that we
will rely upon external financing sources, including bank borrowings and the
issuance of debt and equity securities, to fund acquisitions and expansion and
investment capital expenditures, including opportunities we may pursue under the
omnibus agreement with Capital Maritime.




We
believe that our working capital will be sufficient to meet our existing
liquidity needs for at least the next 12 months.




Cash
      Flows




Net
Cash Provided by Operating Activities




Net cash
provided by operating activities increased to $50.6 million for the year
ended December 31, 2007 from $9.5 million for the year ended December
31, 2006 primarily due to an increase in net income due to the higher number of
vessels in our fleet and an increase in hire received in advance from charterers
($8.6 million in 2007 as compared to $0.5 million in 2006). For an explanation
of why our historical net cash provided by operating activities is not
indicative of net cash provided by operating activities to be expected in future
periods, please read “—Factors to Consider when Evaluating our Results” as well
as “—Time and Bareboat Charter Revenues”, “—Voyage Expenses” and “—Vessel
Operating Expenses” above.




Net
Cash Used in Investing Activities




Net cash
used in investing activities amounted to $246.9 million for the year ended
December 31, 2007, up from $162.0 million for the year ended
December 31, 2006. Cash was used primarily for vessel acquisitions.
Specifically, for the year ended December 31, 2007, $243.7 million of the net
cash used was comprised of:




•
              $77.6
      million, representing advances to the shipyards paid by Capital Maritime
      between January 1, 2007 and April 3, 2007 with respect to the construction
      of three of the vessels in our initial fleet: the M/T Aiolos, the M/T Avax
      and the M/T Axios; and
 •
              $166.1
      million, representing the net book value at the time of their acquisition
      by us of five vessels we contracted to purchase from Capital Maritime at
      the time of our Offering that were delivered between May and September
      2007: the M/T Atrotos, the M/T Akeraios, the M/T Anemos I, the M/T
      Apostolos and the M/T
Attikos.




The
remaining $3.2 million represents restricted cash, which is the minimum amount
of free cash we are required to maintain at all times under our credit
facilities.




For the
year ended December 31, 2006, $142.8 million related to the acquisition of
the five newbuildings delivered to Capital Maritime in this period that were
then transferred to us at the time of our Offering (the M/T Atlantas, the M/T
Aktoras, the M/T Agisilaos, the M/T Assos and the M/T Arionas). The remaining
$19.2 million related to advances toward the other three initial vessels:
the M/T Aiolos, the M/T Avax and the M/T Axios.  For the year ended
December 31, 2006, there was no restricted cash.




Net
Cash Provided by Financing Activities




Net cash
provided by financing activities amounted to $215.0 million for the year ended
December 31, 2007, up from $153.8 million for the year ended
December 31, 2006.




During
the second and the third quarters of 2007 we acquired five additional vessels
from Capital Maritime: the M/T Atrotos, the M/T Akeraios, the M/T Apostolos, the
M/T Attikos and the M/T Anemos I, for a total purchase price of
$247.0 million. The excess of purchase price over book value of the
acquired vessels, $80.9 million, is presented in our cash flow statement under
net cash provided by financing activities as we recognize transfers of net
assets between entities under common control at Capital Maritime’s basis in the
net assets contributed.




Proceeds
from the issuance of long-term debt amounted to $344.4 million for the year
ended December 31, 2007, up from $77.4 million for the year ended December 31,
2006. The proceeds for the year ended December 31, 2007 consisted of $274.5
million from our credit facility entered into on March 22, 2007 and $69.9
million from credit facilities entered into by Capital Maritime and certain
vessel-owning subsidiaries prior to our Offering in order to finance the
construction of the M/T Aiolos, M/T Axios and M/T Avax.




There
were no proceeds from long-term debt due to related parties for the year ended
December 31, 2007 as compared to $82.3 million for the year ended December
31, 2006.






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Repayment
of debt amounted to $16.8 million for the year ended December 31, 2007,
down from $21.4 million for the year ended December 31, 2006, and comprised
of installment payments made prior to the Offering for vessels in our fleet and
the repayment of M/T Attikos’ loan on September 9, 2007 by Capital Maritime.
There was no repayment of related party debt for the year ended December 31,
2007 by us, as compared to the repayment of $2.3 million for the year ended
December 31, 2006. Relevant related party debt in the amount of $134.0 million
for the year ended December 31, 2007, was repaid by Capital Maritime from the
proceeds from our Offering.




Capital
contributions by Capital Maritime amounted to $13.7 million for the year ended
December 31, 2007 and relate to contributions made prior to the Offering in
connection with the acquisition of three initial vessels (the M/T Aiolos, M/T
Avax and M/T Axios). Capital contributions for the year ended December 31, 2006
were $17.9 million. This decrease is mainly due to the different financing
arrangements in place following our Offering.




Following
completion of our Offering on April 4, 2007, we paid a $25.0 million cash
dividend to Capital Maritime and also made distributions to unitholders in an
aggregate amount of $17.0 million for the second and third quarters of
2007.




Borrowings




Our
long-term third party borrowings are reflected in our audited consolidated and
predecessor combined balance sheet as “Long-term debt, net” and as current
liabilities in “Current portion of long-term debt.” As of December 31,
2007, long-term debt was $274.5 million and the current portion of long-term
debt was $0million
as compared to $59.3 million and $6.0 million, respectively, for the period
ended December 31, 2006. Related party debt is reflected in our combined balance
sheet as “Long-term related party debt” and as “Current portion of related party
debt.” As of December 31, 2007, there was no long-term related party and
there was no current portion of related party debt as compared to
$87.5 million and $8.0 million, respectively, for the year ended
December 31, 2006.




Revolving Credit
Facilities




Thefinancing
arrangements in place prior to our Offering are not indicative of our current or
future financing arrangements.The financingarrangements in existence at December 31, 2006 represent loans with four
separate banks in which Capital Maritime acted as the borrower and the
respective vessel-owning companies as the guarantors or, in one instance, the
vessel-owning company acted as the borrower and Capital Maritime as the
guarantor, for the financing of the construction of the eight vessels which
comprised our fleet at the time of our Offering. These loans were repaid in
their entirety by Capital Maritime with a portion of the proceeds from our
Offering and the vessels were transferred to us debt free.





On March
22, 2007, we entered into a non-amortizing revolving credit facility with a
syndicate of financial institutions, including HSH Nordbank AG, Hamburg, for up
to $370.0 million for the financing of the acquisition cost, or part thereof, of
up to seven medium range product tankers (the “existing credit
facility”).
This facility provided us with sufficient funds to
purchase the four newbuildings delivered in 2007, the newbuilding delivered in
January 2008 and to partly fund the purchase price for the remaining two
newbuildings we agreed to purchase from Capital Maritime at the time of our
Offering which are scheduled for delivery in June and August of 2008. The
loan agreement was amended on September 19, 2007 to include the financing of the
acquisition cost of the M/T Attikos. As of December 31, 2007, we had drawn down
$274.5 under our revolving credit facility. We drew down $48.0 million in
connection with the acquisition of the M/T Alexandros II in January 2008 and
expect to draw down all or a portion of the remaining balance of the loan in
connection with the expected delivery in June and August of 2008 of the M/T
Aristotelis II and the M/T Aris II, our remaining two contracted
vessels.  Please see Note5(Long-Term Debt)
toourconsolidated
and predecessor combined financial statementsfor more
information.




On March 19, 2008, we entered into a
new 10-year revolving credit facility of up to $350.0 million which is
non-amortizing until March 2013, with HSH Nordbank (the “new credit
facility”).
We may use this
facility to finance a portion of the acquisition price of certain
identified vessels currently in Capital Maritime’s fleet which we may elect to
acquire in the future. We may also use this facility to finance up to 50% of the
purchase price of any potential future purchases of modern tanker vessels from
Capital Maritime or any third parties.To date, we have used
$46.0million of this facility
to fund part of the acquisition price of the M/T Amore Mio II from Capital
Maritime and expect to use approximately $11.5 million in connection with the
acquisition of the M/T Aristofanis in the second quarter of 2008. The new
credit facility is subject to similar covenants and restrictions as those in our
existing facility described below.




Our obligations under both our credit
facilities are secured by first-priority mortgages covering each of our financed
vessels and are guaranteed by each vessel-owning subsidiary.




Borrowings under our $370.0 million
existing credit facility bear interest at a rate of 0.75% over US$ LIBOR. We may
continue to draw down amounts under this facility until June 2012, at which date
any amounts available for borrowing will automatically terminate and the
outstanding amount will automatically convert into a five-year term loan. In
addition, we are not required to make any repayments of the principal amounts
outstanding under the facility until June 2012 provided that we maintain an
aggregate market value of our financed vessels equal to 125% of the aggregate
amount outstanding under the facility. The final maturity date of this facility
is June 2017.






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Borrowings under our $350.0 million new
credit facility bear interest at a rate of 1.1% per annum over US$ LIBOR. We may
continue to draw amounts under this facility until March 2013,at which date any
amounts available for borrowing will automatically terminate and the outstanding
amount will automatically convert into a five-year term loan. In addition, we
are not required to make any repayments of the principal amounts outstanding
under the facility until March 2013, provided that we maintain an aggregate
market value of our financed vessels equal to 125% of the aggregate amount
outstanding under the facility. The final maturity date of this facility is
March 2018.




Our
credit facilities contain restrictive covenants that, subject to the approval of
our lenders, prohibit us from, among other things: incurring or guaranteeing
indebtedness; charging, pledging or encumbering the vessels; changing the flag,
class, management or ownership of our vessels; changing the commercial and
technical management of our vessels; selling or changing the beneficial
ownership or control of our vessels; and subordinating the obligations under our
existing credit facility to any general and administrative costs relating to the
vessels, including the fixed daily fee payable under the management
agreement.




Under the
terms of our credit facilities, we may not be able to pay distributions to our
unitholders if we are not in compliance with certain financial covenants or upon
the occurrence of an event of default or if the fair market value of our
financed vessels is less than 125% of the aggregate amount outstanding under
each credit facility.




In
addition, our credit facilities require us to maintain minimum free consolidated
liquidity (50% of which may be in the form of undrawn commitments under the
credit facility) of at least $500,000 per financed vessel, maintain a ratio of
EBITDA to net interest expense of at least 2.00 to 1.00 on a trailing
four-quarter basis and maintain a ratio of total indebtedness to the aggregate
market value of our total fleet of no more than 0.725 to 1.00. We are also
required to maintain an aggregate market value of our financed vessels equal to
125% of the aggregate amount outstanding under each credit
facility.





In
connection with our existing credit facility and in order to hedge our exposure
to interest rate changes, we have entered into eight interest rate swap
agreements to fix the LIBOR portion of our interest rate at 5.1325% for $326.0
million in borrowings, of which we have drawn down $302.0 million, under
the facility and into one interest swap agreement to fix the LIBOR portion of
our interest rate at 4.925% for $20.5 million in borrowing under the facility
for a period up to June 29, 2012. On March 27, 2008 we drew down $46.0
million under our new credit facility and entered into an interest rate swap
agreement to fix the LIBOR portion of our interest rate at 3.525% for a period
up to March 27, 2013.  We also intend to swap the
LIBOR portion of any further amounts drawn down under our new credit facility
into a fixed rate until the end of the non-amortizing period on March 30,
2013.




Purchase
of Vessels Following the Offering




The table
below summarizes certain information with respect to the vessels we have
purchased and have agreed to purchase from Capital Maritime in 2007 and 2008,
including their purchase prices and the date they were delivered or are expected
to be delivered to us.





Name of
      Vessel
            Delivery
      Date/(Expected Delivery Date)
            Expiration of
      Charter
            Daily Charter Rate
      (Net)
            OPEX
              (per
      day)
            Charterer
      (1)
            Purchase
      PriceAtrotos
            May
      2007
            April
      2010
            $20,000(2)
            $5,500
            MS
            $56,000,000Akeraios
            July
      2007
            June
      2010
            $20,000(2)
            $5,500
            MS
            $56,000,000Anemos
      I
            September
      2007
            August
      2010
            $20,000(2)
            $5,500
            MS
            $56,000,000Apostolos
            September
      2007
            August
      2010
            $20,000(2)
            $5,500
            MS
            $56,000,000Attikos
            September
      2007
            September
      2009
            $13,504(3)
            $5,500
            Trafigura
            $23,000,000Alexandros
      II
            January
      2008
            December
      2017
            $13,000(4)
            $250
            OSG
            $48,000,000Amore
      Mio II
            March
      2008
            January
      2011
            $36,000(2)(3)
            $8,500
            BP
            $95,000,000Aristofanis
            April-June
      2008 (E)
            March
      2010
            $12,952(3)
            $5,500
            Shell
            $23,000,000Aristotelis
      II
            June
      2008 (E)
            May
      2018
            $13,000(4)
            $250
            OSG
            $48,000,000Aris
      II
            August
      2008 (E)
            July
      2018
            $13,000(4)
            $250
            OSG
            $48,000,000


___________


(1)
            BP:
      BP Shipping Limited. Morgan Stanley: Morgan Stanley Capital
      Group Inc., OSG: certain subsidiaries of Overseas Shipholding
      Group Inc. Trafigura: Trafigura Beheer B.V.Shell: Shell
      International Trading & Shipping Company
  Ltd.


(2)
            Subject
      to 50/50 profit sharing arrangement. Please read “Item 4: Business —Time
      Charters—Profit Sharing” and “Item 4: Business —Our Fleet” above for more
      information on our profit sharing arrangements and relevant
      commissions.


(3)
            The
      rates quoted above are the net rates after we have paid commissions on the
      base rates. The rates for the M/T Attikos, the M/T Amore Mio II and the
      M/T Aristofanis are subject to 2.5%, 1.25% and 2.25% commissions,
      respectively.




(4)
              Under
      the charters with Overseas Shipholding Group Inc. for the three STX
      vessels to be delivered in 2008, Overseas Shipholding Group Inc. has
      an option to purchase each vessel at the end of the eighth, ninth or tenth
      year of the charter, for $38.0 million, $35.5 million and
      $33.0 million respectively, which option is exercisable six months
      before the date of completion of the eighth, ninth or tenth year of the
      respective charter. The expiration date above may therefore change
      depending on whether the charterer exercises its purchase
      option.










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 Table of Contents






E.
Off-Balance Sheet Arrangements




As of the
date of this Annual Report, we have not entered into any off-balance sheet
arrangements.




F.
Contractual Obligations and Contingencies


The
following table summarizes our long-term contractual obligations as of
December 31, 2007 (thousands of U.S. Dollars).





December
      31,2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalLong-term
      Debt Obligations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            13,725
            
            
            $
            260,775
            
            
            $
            274,500Interest
      Obligations (1)
            
            $
            16,373
            
            
            $
            16,328
            
            
            $
            16,329
            
            
            $
            16,329
            
            
            $
            16,227
            
            
            $
            54,200
            
            
            $
            135,786Vessel
      Purchase Commitments (2)(3)
            
            $
            144,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            144,000Total
            
            $
            160,373
            
            
            $
            16,328
            
            
            $
            16,329
            
            
            $
            16,329
            
            
            $
            29,952
            
            
            $
            314,975
            
            
            $
            554,286


___________




(1)
            Interest
      expense has been calculated based on the fixed interest rate of 5.1325%
      plus a margin of 0.75% for the amount of $254.0 million and 4.925% plus a
      margin of 0.75% for the amount of $20.5 million. The interest rate
      fixation resulted from the nine interest rate swap agreements that we
      entered into in order to reduce our exposure to cash flow risks from
      fluctuating interest rates and fully cover our
  debt.


(2)
            Purchase
      commitments represent outstanding purchase commitments relating to the
      acquisition of the final three MR product tankers (M/T Alexandros II, M/T
      Aristotelis II and M/T Aris II) to be delivered to us pursuant to the
      share purchase agreement we entered into with Capital Maritime.The M/T Alexandros
      II was delivered to us in January 2008 and the remaining two vessels are
      scheduled for delivery in June and August 2008
    respectively.


(3)
            On
      March 27, 2008, we entered into a share purchase agreement with Capital
      Maritime to acquire the M/T Amore Mio II for an aggregate purchase price
      of $95.0 million. Please read “Item 8B: Significant
      Changes” for more
      information regarding this
acquisition.




Critical
Accounting Policies




The
discussion and analysis of our financial condition and results of operations is
based upon our combined financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions.




Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a higher degree of
judgment and the methods of their application. For a description of all of our
significant accounting policies, see Note 2 (Significant Accounting
Policies) to our consolidated and predecessor combined financial statements
included elsewhere in this Annual Report. Please also refer to Note 2
(Significant Accounting Policies – Recent Accounting Pronouncements) for a
description of the most recent pronouncements issued by the Financial Accounting
Standards Board which apply to us.




Vessel
Lives and Impairment


The
carrying value of each of our vessels represents its original cost (contract
price plus initial expenditures) at the time of delivery or purchase less
accumulated depreciation or impairment charges. Depreciation is calculated
based on the vessel’s capitalized costs using the straight line method over an
estimated useful life of 25 years from the date the vessel was originally
delivered from the shipyard, after considering the estimated residual value.However, the actual life of a vessel may be different, with a shorter
life potentially resulting in an impairment loss.Vessels transferred from
Capital Maritime to us are transferred at their net book values because such
transfers are accounted for as transfers of assetsbetween entities under
common
control.We are not aware of any regulatory changes or environmental liabilities
that we anticipate will have a material impact on the vessel lives of our
current fleet. The carrying values of our vessels may not represent their fair
market value at any point in time since the market prices of second-hand vessels
tend to fluctuate with changes in charter rates and the cost of newbuildings.
Both charter rates and newbuilding costs tend to be cyclical in nature. We
review vessels and equipment for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
If impairment indicators are present, we measure the recoverability of an asset
by comparing its carrying amount to future undiscounted cash flows that the
asset is expected to generate over its remaining useful life. If we consider a
vessel or equipment to be impaired, we recognize impairment in an amount equal
to the excess of the carrying value of the asset over its fair market value. No
impairment loss was recorded for any of the periods presented in our audited
consolidated and predecessor combined financial statements.






48
 Table of Contents






Revenue
Recognition




We
generate revenues from charterers for the charterhire of our vessels which are
chartered either under time or bareboat charters.  All of our time
charters and bareboat charters are classified as operating leases. Revenues
under operating lease arrangements are recognized when a charter agreement
exists, the charter rate is fixed and determinable, the vessel is made available
to the lessee, and collection of the related revenue is reasonably assured.
Revenues are recognized ratably on a straight line basis as the average revenue
over the period of the respective time or bareboat charter agreement in
accordance with FASB 13 “Accounting for Leases”, paragraph 19b. We currently do
not enter into spot voyage arrangements with respect to any of our vessels but
may do so in the future. Although our charter revenues are fixed, and,
accordingly, little judgment is required to be applied to the amount of revenue
recognition, there is no certainty as to the daily charter rates or other terms
that will be available upon the expiration of our existing
charters.




Revenues
from profit sharing arrangements in time charters represent the portion of time
charter equivalent (voyage income less direct expenses divided by operating
days), that exceeds the agreed base rate and are recognized in the period
earned.




Interest
Rate Swap Agreements




We
designate our derivatives based upon the criteria established by SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities”, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133, as amended by SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities—An amendment of
SFAS 133 ("SFAS 138") and SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, ("SFAS 149"), requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value.  The accounting for the changes in the fair value of the
derivative depends on the intended use of the derivative and the resulting
designation.  For a derivative that does not qualify as a cash flow
hedge, the change in fair value is recognized at the end of each accounting
period on the income statement.  For a derivative that qualifies as a
cash flow hedge, the change in fair value is recognized at the end of each
reporting period in other comprehensive income/ (loss) (effective portion) until
the hedged item is recognized in income. The ineffective portion of a
derivative’s change in fair value is immediately recognized in the income
statement.




We
entered into eight interest rate swap agreements that were transferred from
Capital Maritime through novation agreements on April 4, 2007 in order to reduce
our exposure to cash flow risks from fluctuating interest rates for an amount of
$326.0 million in borrowings, of which we have drawn down $302.0 million, under
the facility we entered into on March 22, 2007. These swap agreements fix the
LIBOR portion of interest rate at 5.1325% for a period up to June 29, 2012. We
recognized a loss of $3.8 million in our income statement on April 4, 2007 as a
result of the valuation of the eight interest rate swap
agreements.  On September 20, 2007 we entered into an additional
interest rate swap agreement in order to reduce our exposure to cash flow risks
from fluctuating interest rates for an amount of $20.5 million drawn down under
the existing revolving credit facility in connection with the purchase of the
M/T Attikos.  The swap agreement fixes the LIBOR portion of interest
rate at 4.925% for a period up to June 29, 2012. As of December 31, 2007 our
nine interest rate swaps qualified as a cash flow hedge and the changes in their
fair value were recognized in accumulated other comprehensive gain/(loss). On
March 27, 2008 we entered into an additional interest rate swap agreement in
order to reduce our exposure to cash flow risks from fluctuating interest rates
with respect to $46.0 million drawn down under our new credit facility in
connection with the purchase of the M/T Amore Mio II. The swap agreement
fixes the LIBOR portion of interest rate at 3.525% for a period up to March 27,
2013. This swap agreement also qualifies as a cash flow hedge and any changes in
the fair value of the swap will be recorded in “other comprehensive
income”.






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 Table of Contents






Item 6.    Directors, Senior Management and
Employees.




A.
Directors and Senior Management




Management
of Capital Product Partners L.P.




Pursuant
to our partnership agreement, our general partner has delegated to our board of
directors the authority to oversee and direct our operations, management and
policies on an exclusive basis, and such delegation is binding on any successor
general partner of the partnership. Our general partner, Capital GP L.L.C., a
Marshall Islands limited liability company wholly owned by Capital Maritime,
manages our day-to-day activities consistent with the policies and procedures
adopted by our board of directors.




Our board
of directors consists of three persons who are designated by our general partner
in its sole discretion and four who are elected by the common unitholders.
Directors appointed by our general partner serve as directors for terms
determined by our general partner and directors elected by our common
unitholders are divided into three classes serving staggered three-year terms.
The initial four directors appointed by Capital Maritime and designated as
Class I, Class II and Class III elected directors will serve
until our annual meetings of unitholders in 2008, 2009 and 2010, respectively.
At each annual meeting of unitholders, directors will be elected to succeed the
class of directors whose terms have expired by a plurality of the votes of the
common unitholders (excluding common units held by Capital Maritime and its
affiliates). Directors elected by our common unitholders will be nominated by
the board of directors or by any limited partner or group of limited partners
that holds at least 10% of the outstanding common units.




Our
general partner owes a fiduciary duty to our unitholders and is liable, as
general partner, for all of our debts (to the extent not paid from our assets),
except for indebtedness or other obligations that are expressly non-recourse to
it. Whenever possible, the partnership agreement directs that we should incur
indebtedness or other obligations that are non-recourse to our general partner.
Officers of our general partner and other individuals providing services to us
or our subsidiaries may face a conflict regarding the allocation of their time
between our business and the other business interests of Capital Maritime. Our
general partner intends to cause its officers to devote as much time to the
management of our business and affairs as is necessary for the proper conduct of
our business and affairs. Our general partner’s Chief Executive Officer and
Chief Financial Officer, Ioannis E. Lazaridis, allocates his time between
managing our business and affairs and the business and affairs of Capital
Maritime. The amount of time Mr. Lazaridis allocates between our business
and the businesses of Capital Maritime varies from time to time depending on
various circumstances and needs of the businesses, such as the relative levels
of strategic activities of the businesses.




Directors
and Senior Management




Set forth
below are the names, ages and positions of our directors and director nominees
and our general partner’s executive officers.





Name
            Age
            
            PositionEvangelos
      M. Marinakis (1)
            40
            
            Director
      and Chairman of the BoardIoannis
      E. Lazaridis (1)
            40
            
            Chief
      Executive Officer and Chief Financial Officer and
  DirectorNikolaos
      Syntychakis (1)
            46
            
            DirectorRobert
      Curt (2)
            57
            
            Director
      (5)Abel
      Rasterhoff (3)
            67
            
            Director
      (5)Evangelos
      G. Bairactaris (4)
            37
            
            Director
      and SecretaryKeith
      Forman (4)
            49
            
            Director
      (5)





(1)
            Appointed
      by our general partner (term expires in 2010).(2)
            Appointed
      as initial Class I director (term expires in
  2008).


(3)
            Appointed
      as initial Class II director (term expires in
  2009).


(4)
            Appointed
      as initial Class III director (term expires in
  2010).


(5)
            Member
      of our Audit Committee and our Conflicts
  Committee.




Biographical
information with respect to each of our directors, our director nominees and our
general partner’s executive officers is set forth below. The business address
for our directors and executive officers is 3 Iassonos Street Piraeus, 18537
Greece.






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Evangelos
M. Marinakis, Director and Chairman of the Board.




Mr. Marinakis
joined our board of directors on March 13, 2007 and serves as the Chairman
of the Board. Mr. Marinakis has served as Capital Maritime’s President and
Chief Executive Officer and as a director since its incorporation in
March 2005. From 1992 to 2005, Mr. Marinakis was the Commercial
Manager of Capital Ship Management and oversaw the businesses of the group of
companies that form Capital Maritime. For the past 15 years,
Mr. Marinakis has also been active in various other family businesses, all
related to the shipping industry. During this time he founded Curzon Maritime
Limited and ESTC. Mr. Marinakis began his career as a Sale &
Purchase trainee broker at Harley Mullion in the UK, and then worked as a
chartering broker for Elders Chartering Limited, also in the UK.
Mr. Marinakis holds a B.A. in International Business Administration and an
MSC in International Relations from the United States International University
Europe, London.




Ioannis
E. Lazaridis, Chief Executive and Chief Financial Officer and
Director.




Mr. Lazaridis
has served as the Chief Executive and Chief Financial Officer of our general
partner since its formation in January 2007 and joined our board of directors on
March 13, 2007. Mr. Lazaridis has served as Capital Maritime’s Chief
Financial Officer and as a director since its incorporation in March 2005.
From 2004 to March 2005, Mr. Lazaridis was employed by our predecessor
companies. From 1996 to 2004, Mr. Lazaridis was employed by Credit Agricole
Indosuez Cheuvreux in London, where he worked in the equity department. From
1993 to 1996, Mr. Lazaridis was employed by Kleinwort Benson in equity
sales and from 1990 to 1993 was employed by Norwich Union Investment Management.
Mr. Lazaridis holds a B.A. degree in economics from the University of
Thessaloniki in Greece and an M.A. in Finance from the University of Reading in
the UK. He is also an Associate for the Institute of Investment Management and
Research in the UK.




Evangelos
G. Bairactaris, Director and Secretary.




Mr. Bairactaris
joined our board of directors on March 13, 2007 and has served as our
Secretary since our formation in January 2007. Mr. Bairactaris is a Greek
attorney at law and a member of the Piraeus Bar Association.
Mr. Bairactaris has been a partner in G.E.Bairactaris & Partners
since 2000 and has acted as managing partner since 2003. He has regularly
provided his professional services to our predecessor companies and many Greek
and international shipping companies and banks. Mr. Bairactaris holds a
degree in law from the Law School of the Kapodistrian University of Athens in
Greece.




Nikolaos
Syntychakis, Director.




Mr. Syntychakis
joined our board of directors on April 3, 2007. Mr. Syntychakis, Managing
Director of Capital Ship Management, joined Capital Ship Management in
January 2001 where he has served as Vetting Manager, Crew Manager and
Operations Manager. From 2000 to 2001, Mr. Syntychakis served as Fleet
Operator of Delfi S.A. in Piraeus, Greece and from 1988 to 1997, he worked as
the Chief Officer of Sougerka Maritime also in Piraeus, Greece.
Mr. Syntychakis has been involved in the shipping industry in various
capacities for over 25 years and has also been closely involved with
vetting matters, serving on Intertanko’s Vetting Committee for several
years.




Abel
Rasterhoff, Director.




Mr. Rasterhoff
joined our board of directors on April 3, 2007. He serves on our conflicts
committee and has been designated as the audit committee’s financial expert.
Mr. Rasterhoff joined Shell International Petroleum Maatschappij in 1967,
and worked for various entities of the Shell group of companies until his
retirement from Shell in 1997. From 1981 to 1984, Mr. Rasterhoff was
Managing Director of Shell Tankers B.V., Vice Chairman and Chairman-elect of the
Dutch Council of Shipping and a Member of the Dutch Government Advisory
Committee on the North Sea. From 1991 to 1997, Mr. Rasterhoff was Director
and Vice President Finance and Planning for Shell International Trading and
Shipping Company Limited. During this period he also served as a Board Member of
the Securities and Futures Authority (SFA) in London. From February 1998 to
2004, Mr. Rasterhoff has served as a member of the executive board and as
Chief Financial Officer of TUI Nederland, the largest Dutch tour operator. From
February 2001 to September 2001, Mr. Rasterhoff served as a
member of the executive board and as Chief Financial Officer of Connexxion, the
government owned public transport company. Mr. Rasterhoff was also on the
Supervisory Board of SGR and served as an advisor to the trustees of the TUI
Nederland Pension Fund. Mr. Rasterhoff served on the Capital Maritime Board
from May 2005 until his resignation in February 2007 as the chairman
of the audit committee. Mr. Rasterhoff is currently a director and audit
committee member of Aegean Marine Petroleum Network Inc., a company listed
on the New York Stock Exchange. Mr. Rasterhoff holds a graduate business
degree in economics from Groningen State University.




Keith
Forman, Director.




Mr.
Forman joined our board of directors on April 3, 2007and serves on our
conflicts committee and our audit committee. Mr. Forman is a member of the board
of directors of Kayne Anderson Energy Management, as investment company
investing primarily in energy companies, and is also a member of the board of
directors of Energy Solutions International Ltd., a supplier of oil and gas
pipeline software management systems. From January 2004 to July 2005,
he was Senior Vice President, Finance for El Paso Corporation, a leading
provider of natural gas services. Mr. Forman, who joined El Paso in 1998
upon their acquisition of the general partner of the Leviathan Gas Pipeline
Partners, also served as Vice President from 2001 to 2003, of El Paso Field
Services and from 1992 to 2003 he served as Chief Financial Officer, GulfTerra
Energy Partners L.P., a publicly traded master limited partnership. In his
position with GulfTerra, he was responsible for the financing activities of the
partnership, including its commercial and investment banking
relationships.






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Robert
P. Curt, Director




Mr. Curt
joined our board of directors on July 24, 2007 and serves on our conflicts
committee and our audit committee. He had been a career executive for more than
30 years with ExxonMobil, and was named General Manager of ExxonMobil’s Marine
Transportation department following the merger of Exxon and Mobil in 1999. In
2003, he was seconded to Qatargas to lead its LNG vessel acquisition program and
subsequently was appointed Managing Director of Qatar Gas Transport Company, the
world’s largest owner of LNG vessels. In 2006, he returned to the U.S., where he
served as Vice President in ExxonMobil’s SeaRiver subsidiary. Mr. Curt received
his B.S. degree in Marine Engineering from the U.S. Merchant Marine Academy,
Kings Point, and holds an MBA in Finance from Iona College.




B.
Compensation




Reimbursement
of Expenses of Our General Partner




Our
general partner does not receive any management fee or other compensation for
managing us. Our general partner and its other affiliates are reimbursed for
expenses incurred on our behalf. These expenses include all expenses necessary
or appropriate for the conduct of our business and allocable to us, as
determined by our general partner. Our general partner did not incur any such
expenses during 2006.





Executive
Compensation




We and
our general partner were formed in January 2007. Neither we nor our general
partner have paid any compensation to our directors or our general partner’s
officers nor accrued any obligations with respect to management incentive or
retirement benefits for our directors or our general partner’s officers prior to
April 3, 2007. Because our Chief Executive Officer and Chief Financial Officer,
Mr. Lazaridis, is an employee of Capital Maritime, his compensation is set and
paid by Capital Maritime, and we reimburse Capital Maritime for the cost of the
provided services.




We do not
have a retirement plan for our executive officers or directors. Officers and
employees of our general partner or its affiliates may participate in employee
benefit plans and arrangements sponsored by Capital Maritime, our general
partner or their affiliates, including plans that may be established in the
future.




Compensation
of Directors




Officers
of our general partner or Capital Maritime who also serve as our directors do
not receive additional compensation for their service as directors. Our
directors receive compensation for attending meetings of our board of
directors or committee meetings as well as for serving in the role of
committee chair. For the year ended December 31, 2007, our directors, excluding
our chairman, received an aggregate amount of $202,274.  In lieu of
any other compensation, our chairman receives an annual fee of $100,000 for
acting as a director and as the chairman of our board of
directors.  For the year ended December 31, 2007 this compensation
amounted to $80,205. In addition, each director is reimbursed for out–of–pocket
expenses in connection with attending meetings of the board of directors or
committees and is fully indemnified by us for actions associated with being a
director to the extent permitted under Marshall Islands law.




Employment
Agreement




Under the
three-year employment agreement entered into between our general partner and
Mr. Lazaridis at the time of our Offering, if a change in control occurs
within two years from the date of the agreement, Mr. Lazaridis may resign
within six months of such change in control.




C.
Board Practices




Our
general partner, Capital GP L.L.C., manages our day-to-day activities consistent
with the policies and procedures adopted by our board of directors which
currently consists of seven members, four of which are independent. Unitholders
are not entitled to elect the directors of our general partner or directly or
indirectly participate in our management or operation. There are no service
contracts between us and any of our directors providing for benefits upon
termination of their employment or service.






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Although
the Nasdaq Global Market does not require a listed limited partnership like us
to have a majority of independent directors on our board of directors or to
establish a compensation committee or a nominating/corporate governance
committee our board of directors has established an audit committee and a
conflicts committee comprised solely of independent directors. Each of the
committees operates under a written charter adopted by our board of directors
which is available under “Corporate Governance” in the Investor Relations tab of
our web site at www.capitalpplp.com. The membership and main functions of each
committee are described below




Audit Committee. The audit
committee of our board of directors is composed of three or more independent
directors, each of whom must meet the independence standards of the Nasdaq
Global Market, the SEC and any other applicable laws and regulations governing
independence from time to time. The audit committee is currently comprised of
directors Abel Rasterhoff (chair), Robert P. Curt and Keith Forman. All members
of the committee are financially literate and our board of directors has
determined that Mr. Rasterhoff qualifies as an “audit committee financial
expert” for purposes of the U.S. Sarbanes-Oxley Act. The audit committee, among
other things, reviews our external financial reporting, engages our external
auditors and oversees our internal audit activities and procedures and the
adequacy of our internal accounting controls.




Conflicts Committee.The
conflicts committee of our board of directors is composed of the same directors
constituting the audit committee, being Keith Forman (chair), Abel Rasterhoff
and Robert P. Curt. The members of our conflicts committee may not be officers
or employees of our general partner or directors, officers or employees of its
affiliates, and must meet the independence standards established by The Nasdaq
Global Market to serve on an audit committee of a board of directors and certain
other requirements. The conflicts committee reviews specific matters that the
board believes may involve conflicts of interest and determines if the
resolution of the conflict of interest is fair and reasonable to
us.  Any matters approved by the conflicts committee will be
conclusively deemed to be fair and reasonable to us, approved by all of our
partners, and not a breach by our directors, our general partner or its
affiliates of any duties any of them may owe us or our unitholders.




D.
Employees




We
currently do not have our own executive officers and expect to rely on the
officers of our general partner to manage our day-to-day activities consistent
with the policies and procedures adopted by our board of directors. All of the
executive officers of our general partner and three of our directors also are
executive officers, directors or affiliates of Capital Maritime.






E.
Share Ownership




Common Units
      Owned
            Subordinated Units
      Owned
            Percentage
      of
              Total
      Common and
              Subordinated
      UnitsName of Beneficial
      Owner
            Number
            %
            Number
            %Capital
      Maritime(1)(2)
            2,007,847
            12.9%
            8,805,522
            100
            43.6%All
      executive officers and directors as a group (7 persons)
      (2)
            0
            0
            8,805,522
            100
            36.2%


___________




(1)
            Excludes
      the 2% general partner interest held by our general partner, a wholly
      owned subsidiary of Capital
Maritime.


(2)
            The
      Marinakis family, including our chairman Mr. Marinakis, may be deemed to
      beneficially own all of our subordinated units through its ownership of
      Capital Maritime. None of our directors, director nominees or the officers
      of our general partner (other than Mr. Marinakis) may be deemed to
      beneficially own any of our subordinated
units.




Restricted
Units




We
currently have not adopted a long-term incentive plan for our employees and
directors. We expect, however, to establish an incentive compensation plan under
which we will be able to issue a limited number of restricted units to some of
our employees, affiliates or directors at a future date. Such number is not
anticipated to exceed 500,000 restricted units.






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Item 7.     Major Unitholders and
Related Party Transactions.




A.
Major Unitholders




The following table sets
forth as of March 31, 2008the beneficial ownership
of our common and subordinated units by each person we know beneficially owns
more than 5.0% or more of our common or subordinated units, and all of our
directors, director nominees and the executive officers of our general partner
as a group.  The number of units beneficially owned by each person is
determined under SEC rules and the information is not necessarily indicative of
beneficial ownership for any other purpose.  Under SEC rules a person
beneficially owns any units as to which the person has or shares voting or
investment power.





Common
      Units
              Owned
            Subordinated
      Units
      Owned
            Percentage
      of
              Total
      Common and
              Subordinated
      UnitsName of Beneficial
      Owner
            Number
            %
            Number
            %Capital
      Maritime (1)(2)
            2,007,847
            12.9%
            8,805,522
            100
            43.6%All
      executive officers and directors as a group (7 persons)
      (2)
            0
            0
            8,805,522
            100
            36.2%OppenheimerFunds,
      Inc., Oppenheimer Small- & Mid-Cap Value Fund (3)
            2,215,001
            14.3%
            0
            0
            9.1%Morgan
      Stanley, Morgan Stanley Strategic Investments, Inc. (4)
            1,417,284
            9.1%
            0
            0
            5.8%Lehman
      Brothers Holdings Inc.(5)
            978,500
            6.3%
            0
            0
            4.0%Swank
      Capital, LLC, Swank Energy Income Advisors, LP and Jerry V. Swank
      (6)
            1,386,000
            8.9%
            0
            0
            5.7%


___________




(1)
            Excludes
      the 2% general partner interest held by our general partner, a wholly
      owned subsidiary of Capital
Maritime.


(2)
            The
      Marinakis family, including our chairman Mr. Marinakis, may be deemed to
      beneficially own all of our subordinated units through its ownership of
      Capital Maritime. None of our directors, director nominees or the officers
      of our general partner (other than Mr. Marinakis) may be deemed to
      beneficially own any of our subordinated
units.


(3)
            Includes
      shared voting power and shared dispositive power as to 2,215,001 units
      (with respect to Oppenheimer Funds, Inc.) and 1,000,000 units (with
      respect to Oppenheimer Small- & Mid-Cap Value
      Fund).  Oppenheimer Funds, Inc. is an investment adviser and
      Oppenheimer Small- & Mid-Cap Value Fund is an investment company. This
      information is based on the Schedule 13G/A filed by these parties with the
      SEC on February 6, 2008.


(4)
            This
      information is based on the Schedule 13G filed by these parties with the
      SEC on March 24, 2008. These units are owned, or may be deemed to be
      beneficially owned, by Morgan Stanley Strategic Investments, Inc., a
      wholly-owned subsidiary of Morgan Stanley.(5)
            This
      information is based on the Schedule 13G/A filed by this person with the
      SEC on February 13, 2008.(6)
            Includes
      shared voting and shared dispositive power of Swank Energy Income
      Advisors, LP as to 1,386,000 units. Swank Capital LLC, as general partner
      of Swank Energy Income Advisors, LP, may direct voting or disposition of
      the 1,386,000 units held by Swank Energy Income Advisors, LP. Jerry V.
      Swank, as the principal of Swank Capital, LLC, may direct voting or
      disposition of the 1,386,000 units held by Swank Capital, LLC and Swank
      Energy Income Advisors, LP.  This information is based on the
      Schedule 13G filed by these parties with the SEC on February 14,
      2008.




Our
majority unitholders have the same voting rights as our other unitholders except
that if at any time, any person or group, other than our general partner, its
affiliates, their transferees, and persons who acquired such units with the
prior approval of our board of directors, owns beneficially 5% or more of any
class of units then outstanding, any such units owned by that person or group in
excess of 4.9% may not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders, calculating
required votes, except for purposes of nominating a person for election to our
board, determining the presence of a quorum or for other similar purposes under
our partnership agreement, unless otherwise required by law. The voting rights
of any such unitholders in excess of 4.9% will be redistributed pro rata among
the other common unitholders holding less than 4.9% of the voting power of all
classes of units entitled to vote. As of March 31, 2008 Capital Maritime owned
subordinated and common units representing a 43.6%interest in us and also
had a 2% general partner interest in us through its ownership of our general
partner, which gives it the ability to control the outcome of unitholder votes
on certain matters.We are not aware of any
arrangements, the operation of which may at a subsequent date result in a change
in control of Capital Product Partners L.P.





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B.
Related Party Transactions




Capital
Maritime, the sole member of our general partner, owns 2,007,847 common units
and 8,805,522 subordinated units, representing a 43.6% limited partner interest
in us. In addition, our general partner owns a 2% general partner interest in us
and all of the incentive distribution rights.  Capital Maritime’s
ability, as sole member of our general partner, to control the appointment of
three of the seven members of our board of directors and to approve certain
significant actions we may take and its ownership of all of the outstanding
subordinated units and its right to vote the subordinated units as a separate
class on certain matters, means that Capital Maritime, together with its
affiliates, will have the ability to exercise influence regarding our
management.




1.
            Contribution Agreement.Pursuant to a Contribution Agreement, entered into concurrently
      with the closing of our Offering, Capital Maritime sold us all of the
      outstanding capital stock of eight vessel-owning subsidiaries that owned
      the vessels in our initial fleet (Capital Maritime retained all assets of
      those subsidiaries other than the vessels, and paid off all debt of those
      subsidiaries), in exchange for:


a.
            the
      issuance to Capital Maritime of 11,750,000 common units and 8,805,522
      subordinated units,


b.
            the
      payment to Capital Maritime of a cash dividend in the amount of $25.0
      million at the closing of our
Offering,


c.
            the
      issuance to Capital Maritime of the right to receive an additional
      dividend of $30.0 million in cash or a number of common units
      necessary to satisfy the underwriters’ overallotment option or a
      combination thereof, and


d.
            the
      issuance of the 2% general partner interest in us and all of our incentive
      distribution rights to Capital GP L.L.C, a wholly owned subsidiary of
      Capital Maritime.





2.
            Omnibus Agreement.In
      connection with our Offering, we have entered into an omnibus agreement
      with Capital Maritime, Capital GP L.L.C., our general partner, and our
      operating subsidiary. The following discussion describes provisions of the
      omnibus agreement.





Noncompetition. Under the
omnibus agreement, Capital Maritime has agreed, and has caused its controlled
affiliates (other than us, our general partner and our subsidiaries) to agree,
not to acquire, own or operate medium range tankers under charter for two or
more years. This restriction will not prevent Capital Maritime or any of its
controlled affiliates (other than us and our subsidiaries) from:




a.
            acquiring,
      owning, chartering or operating medium range tankers under charter for
      less than two years;




b.
            acquiring
      one or more medium range tankers under charter for two or more years if
      Capital Maritime offers to sell to us the tanker for the acquisition price
      plus any administrative costs associated with transfer and re-flagging,
      including related legal costs, to Capital Maritime that would be required
      to transfer the medium range tankers and related charters to us at the
      time it is acquired or putting a medium range tanker that Capital Maritime
      owns or operates under charter for two or more years if Capital Maritime
      offers to sell the tanker to us for fair market value at the time it is
      chartered for two or more years and, in each case, at each renewal or
      extension of that charter for two or more
years;




c.
            acquiring
      one or more medium range tankers under charter for two or more years as
      part of the acquisition of a controlling interest in a business or package
      of assets and owning and operating or chartering those vessels provided,
      however, that:




i.
            if
      less than a majority of the value of the total assets or business acquired
      is attributable to those medium range tankers and related charters, as
      determined in good faith by the board of directors of Capital Maritime;
      Capital Maritime must offer to sell such medium range tankers and related
      charters to us for their fair market value plus any additional tax or
      other similar costs to Capital Maritime that would be required to transfer
      the medium range tankers and related charters to us separately from the
      acquired business.




ii.
            if
      a majority or more of the value of the total assets or business acquired
      is attributable to the medium range tankers and related charters, as
      determined in good faith by the board of directors of Capital Maritime.
      Capital Maritime shall notify us in writing, of the proposed acquisition.
      We shall, not later than the 10th calendar day following receipt of such
      notice, notify Capital Maritime if we wish to acquire the medium range
      tankers and related charters forming part of the business or package of
      assets in cooperation and simultaneously with Capital Maritime acquiring
      the Non-Medium Range Tankers (as defined below) and related charters
      forming part of that business or package of assets. If we do not notify
      Capital Maritime of our intent to pursue the acquisition within 10
      calendar days, Capital Maritime may proceed with the acquisition as
      provided in (i) above.




d.
            acquiring
      a non-controlling interest in any company, business or pool of
      assets;






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e.
            acquiring,
      owning or operating medium range tankers under charter for two or more
      years subject to the offers to us described in paragraphs (b) and
      (c) above (i) pending our determination whether to accept such
      offers and pending the closing of any offers we accept, or (ii) if we
      elect to acquire the medium range tankers and related
    charter;




f.
            providing
      ship management services relating to any vessel whatsoever, including to
      medium range tankers owned by the controlled affiliates of Capital
      Maritime; or




g.
            acquiring,
      operating or chartering medium range tankers under charter for two or more
      years if we have previously advised Capital Maritime that we consent to
      such acquisition, operation or
charter.




If
Capital Maritime or any of its controlled affiliates (other than us or our
subsidiaries) acquires, owns, operates and charters medium range tankers
pursuant to any of the exceptions described above, it may not subsequently
expand that portion of its business other than pursuant to those
exceptions.




In
addition, under the omnibus agreement we have agreed, and have caused our
subsidiaries to agree, to only acquire, own, operate or charter medium range
tankers with charters of two or more years (any vessels that are not medium
range tankers will in the following be referred to as the “Non-Medium Range
Tankers”). This restriction does not:




a.
            apply
      to any Non-Medium Range Tanker owned, operated or chartered by us or any
      of our subsidiaries, and the ownership, operation or chartering of any
      Non-Medium Range Tanker that replaces any of those Non-Medium Range
      Tankers in connection with the destruction or total loss of the original
      tanker; the tanker being damaged to an extent that makes repairing it
      uneconomical or renders it permanently unfit for normal use, as determined
      in good faith by our board of directors within 90 days after the
      occurrence of the damage; or the tanker’s condemnation, confiscation,
      requisition, seizure, forfeiture or a similar taking of title to or use of
      it that continues for at least six
months;




b.
            prevent
      us or any of our subsidiaries from acquiring Non-Medium Range Tankers and
      any related charters as part of the acquisition of a controlling interest
      in a business or package of assets and owning and operating or chartering
      those vessels, provided, however,
that:




i.
            if
      less than a majority of the value of the total assets or business acquired
      is attributable to Non-Medium Range Tankers and related charters, as
      determined in good faith by our board of directors we must offer to sell
      such Non-Medium Range Tankers and related charters to Capital Maritime
      within 30 days for their fair market value plus any additional tax or
      other similar costs to us that would be required to transfer the
      Non-Medium Range Tankers and related charters to Capital Maritime
      separately from the acquired
business;




ii.
            if
      a majority or more of the value of the total assets or business acquired
      is attributable to Non-Medium Range Tankers and related charters, as
      determined in good faith by our board of directors we shall notify Capital
      Maritime in writing of the proposed acquisition. Capital Maritime shall,
      not later than the 10th calendar day following receipt of such notice,
      notify us if it wishes to acquire the Non-Medium Range Tankers forming
      part of the business or package of assets in cooperation and
      simultaneously with the us acquiring the medium range tankers under
      charter for two or more years forming part of that business or package of
      assets. If Capital Maritime does not notify us of its intent to pursue the
      acquisition within 10 calendar days, we may proceed with the acquisition
      as provided in (i) above.




c.
            prevent
      us from acquiring a non-controlling interest in any company, business or
      pool of assets;




d.
            prevent
      us or any of our subsidiaries from owning, operating or chartering any
      Non-Medium Range Tankers subject to the offer to Capital Maritime
      described in paragraph (b) above, pending its determination whether
      to accept such offer and pending the closing of any offer it accepts;
      or




e.
            prevent
      us or any of our subsidiaries from acquiring, operating or chartering
      Non-Medium Range Tankers if Capital Maritime has previously advised us
      that it consents to such acquisition, operation or
  charter.




If we or
any of our subsidiaries owns, operates and charters Non-Medium Range Tankers
pursuant to any of the exceptions described above, neither we nor such
subsidiary may subsequently expand that portion of our business other than
pursuant to those exceptions.





Rights of First Offer on Medium
Range Tankers.Under the omnibus agreement, we and our subsidiaries have
granted to Capital Maritime a first offer on any proposed sale, transfer or
other disposition of any of our medium range tankers and related charters or any
Non-Medium Range Tankers and related charters owned or acquired by us. Likewise,
Capital Maritime has agreed (and has caused its subsidiaries to agree) to grant
a similar right of first offer to us for any medium range tankers under charter
for two or more years it might own. These rights of first offer will not apply
to a sale, transfer or other disposition of vessels between any affiliated
subsidiaries, or pursuant to the terms of any charter or other agreement with a
charter party.






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3.
            Management Agreement.
      We have entered into a Management Agreement with Capital Ship Management,
      a subsidiary of Capital Maritime, pursuant to which Capital Ship
      Management provides us with certain commercial and technical management
      services. These services will be provided in a commercially reasonable
      manner in accordance with customary ship management practice and under our
      direction. Capital Ship Management may provide these services to us
      directly or it may subcontract for certain of these services with other
      entities, including other Capital Maritime
  subsidiaries.




a.
            We
      pay Capital Ship Management a fixed daily fee of $5,500 per time chartered
      vessel ($8,500 for the M/T Amore Mio II) in our fleet to provide the
      commercial and technical management services and costs to such time
      chartered vessels, which includes the cost of the first special survey. We
      pay a fixed daily fee of $250 per bareboat chartered vessel in our fleet,
      mainly to cover compliance costs, which include those costs incurred by
      Capital Ship Management to remain in compliance with the oil majors’
      requirements, including vetting
requirements.


b.
            With
      respect to each vessel in our fleet at the time of our Offering, the
      management agreement has an initial term of approximately five years
      beginning from when each vessel commenced operations through and including
      the date of its next scheduled special or intermediate survey and includes
      the expenses for such special or intermediate survey, as applicable, and
      related drydocking. With respect to each vessel that has been or will be
      subsequently delivered the management agreement will have an initial term
      of approximately five years from when we take delivery of each
      vessel.


c.
            In
      addition to the fixed daily fees payable under the management agreement,
      Capital Ship Management is entitled to reasonable supplementary
      remuneration for extraordinary fees and costs of any direct and indirect
      expenses it incurs in providing these
services.





4.
            Administrative Services
      Agreement. We have entered into an administrative services
      agreement with Capital Ship Management, pursuant to which Capital Ship
      Management will provide certain administrative management services to us.
      The agreement has an initial term of five years from the closing date of
      our Offering. The services Capital Ship Management provides us with under
      the agreement include, among others (a) bookkeeping, audit and accounting
      services, (b) legal and insurance services, (c) administrative and
      clerical services, (d) banking and financial services, (e) advisory
      services and (f), client and investor relations services. We reimburse
      Capital Ship Management for reasonable costs and expenses incurred in
      connection with the provision of these services within 15 days after
      Capital Ship Management submits to us an invoice for such costs and
      expenses, together with any supporting detail that may be reasonably
      required.





5.
            Share Purchase
      Agreement. In connection with our Offering, we entered into a share
      purchase agreement with Capital Maritime to purchase its interests in the
      subsidiaries that owned the seven vessels and related charters that
      comprised our contracted fleet at the time of the Offering. At this time,
      we have completed the purchase of five of these vessels and expect
      delivery of the final two to take place in June and August of 2008
      respectively. Please read “Item 4: Business—Overview—Our Fleet” for more
      information on these acquisitions.





6.
            Related Party Loans.
      For the financing of the construction of five of the vessels in our
      initial fleet, the Atlantas, Aktoras, Avax, Aiolos and Assos, Capital
      Maritime had entered into loan agreements with three separate banks on
      behalf of the related vessel-owning subsidiaries. Capital Maritime acted
      as the borrower and the vessel-owning subsidiaries acted as guarantors in
      all of these loan agreements. The five vessels in our initial fleet
      described above had been financed in the aggregate amounts of $0, $15.5
      million and $95.5 million as of December 31, 2004, 2005 and
      2006, respectively. These loans were repaid in their entirety by Capital
      Maritime with a portion of the proceeds of our
  Offering.





7.
            Dividend to Capital
      Maritime. At the closing of our Offering, we borrowed
      $30.0 million under our existing credit facility, $5million of which
      we used for working capital purposes and $25.0 million of
      which we used to pay a cash dividend to Capital Maritime.  We
      also issued to Capital Maritime a number of common units necessary to
      satisfy the underwriters’ overallotment option. We accounted for the
      distribution to Capital Maritime of the common units necessary to satisfy
      the underwriters’ overallotment option as a common unit dividend, which
      had no net impact on partners’
equity.





8.
            Purchase of M/T
      Attikos. On September 24, 2007 we entered into a share purchase
      agreement with Capital Maritime pursuant to which we acquired all of
      Capital Maritime’s interests in the wholly owned subsidiary that owns the
      M/T Attikos. The aggregate purchase price for the vessel was $23.0
      million. The M/T Attikos, a 12,000 dwt, 2005 built double-hull product
      tanker, is chartered to Trafigura Beheer B.V., under a charter with an
      earliest scheduled expiration date of September 2010 at a gross rate of
      $13,850 per day (net rate $13,503). The transaction was approved by our
      board of directors following approval by the conflicts committee of
      independent directors.





9.
            Purchase of M/T Amore Mio
      II. On March 27,2008we entered into a
      share purchase agreement with Capital Maritime pursuant to which we
      acquired all of Capital Maritime’s interests in the wholly owned
      subsidiary that owns the M/T Amore Mio II. The aggregate purchase price
      for the vessel was $95.0 million. We funded a portion of the purchase
      price of the vessel through the issuance of 2,048,823common units to
      Capital Maritime at a price of $22.94 per unit, which was the weighted
      average unit price for the period from October 15, 2007 to February 15,
      2008, and the remainder through the incurrence of $46.0 million of debt
      under our new credit facility and $2.0 million in cash. The M/T Amore Mio
      II, a 159,982 dwt,2001 built,
      double-hull tanker, is chartered to BP Shipping Limited under a charter
      with an earliest scheduled expiration date of January 2011 at a base gross
      rate of $36,456 per day (net rate $36,000). The charter is also subject to
      a profit sharing arrangement which is calculated and settled monthly and
      which allows each party to share additional revenues above the base rate
      on a 50/50 basis. The transaction was approved by our board of directors
      following approval by the conflicts committee of independent
      directors.






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C.
Interest of Experts and Counsel




Not applicable.




Item 8.    Financial
Information.




See Item 18 for additional information
required to be disclosed under this Item 8.




Legal
Proceedings




Although
we may, from time to time, be involved in litigation and claims arising out of
our operations in the normal course of business, we are not at present party to
any legal proceedings and are not aware of any proceedings against us, or
contemplated to be brought against us. We maintain insurance policies with
insurers in amounts and with coverage and deductibles as our board of directors
believes are reasonable and prudent. We expect that these claims would be
covered by insurance, subject to customary deductibles. Those claims, even if
lacking merit, could result in the expenditure of significant financial and
managerial resources.




Cash
Distribution Policy




Rationale
for Our Cash Distribution Policy




Our cash
distribution policy reflects a basic judgment that our unitholders will be
better served by our distributing our cash available (after deducting expenses,
including estimated maintenance and replacement capital expenditures and
reserves) rather than retaining it. Because we believe we will generally finance
any expansion capital expenditures from external financing sources, we believe
that our investors are best served by our distributing all of our available
cash. Our cash distribution policy is consistent with the terms of our
partnership agreement, which requires that we distribute all of our available
cash quarterly (after deducting expenses, including estimated maintenance and
replacement capital expenditures and reserves).




Limitations
on Cash Distributions and Our Ability to Change Our Cash Distribution
Policy


There is
no guarantee that unitholders will receive quarterly distributions from us. Our
distribution policy is subject to certain restrictions and may be changed at any
time, including:




•
            Our
      unitholders have no contractual or other legal right to receive
      distributions other than the obligation under our partnership agreement to
      distribute available cash on a quarterly basis, which is subject to the
      broad discretion of our board of directors to establish reserves and other
      limitations.




•
            While
      our partnership agreement requires us to distribute all of our available
      cash, our partnership agreement, including provisions requiring us to make
      cash distributions contained therein, may be amended. Although during the
      subordination period, with certain exceptions, our partnership agreement
      may not be amended without the approval of non-affiliated common
      unitholders, our partnership agreement can be amended with the approval of
      a majority of the outstanding common units after the subordination period
      has ended.




•
            Even
      if our cash distribution policy is not modified or revoked, the amount of
      distributions we pay under our cash distribution policy and the decision
      to make any distribution is determined by our board of directors, taking
      into consideration the terms of our partnership agreement and the
      establishment of any reserves for the prudent conduct of our
      business.




•
            Under
      Section 51 of the Marshall Islands Limited Partnership Act, we may
      not make a distribution if the distribution would cause our liabilities to
      exceed the fair value of our
assets.






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•
            We
      may lack sufficient cash to pay distributions to our unitholders due to
      decreases in net revenues or increases in operating expenses, principal
      and interest payments on outstanding debt, tax expenses, working capital
      requirements, maintenance and replacement capital expenditures or
      anticipated cash needs.




•
            Our
      distribution policy will be affected by restrictions on distributions
      under our revolving credit facilitieswhich contain
      material financial tests and covenants that must be satisfied. Should we
      be unable to satisfy these restrictions included in our credit facilities
      or if we are otherwise in default under the credit agreements, our ability
      to make cash distributions to our unitholders, notwithstanding our stated
      cash distribution policy, would be materially adversely
      affected.




•
            If
      we make distributions out of capital surplus, as opposed to operating
      surplus, such distributions will constitute a return of capital and will
      result in a reduction in the quarterly distribution and the target
      distribution levels. We do not anticipate that we will make any
      distributions from capital surplus.




•
            If
      the ability of our subsidiaries to make any distribution to us is
      restricted by, among other things, the provisions of existing and future
      indebtedness, applicable partnership and limited liability company laws or
      any other laws and regulations, our ability to make distributions to our
      unitholders may be restricted.




Quarterly
Distributions




Our
common unitholders are entitled under our partnership agreement to receive a
quarterly distribution to the extent we have sufficient cash on hand to pay the
distribution after we establish cash reserves and pay fees and expenses.
Although we intend to continue to make strategic acquisitions and to take
advantage of our unique relationship with Capital Maritime in a prudent manner
that is accretive to our unitholders and to long-term distribution growth there
is no guarantee that we will pay a quarterly distribution on the common units
and subordinated units in any quarter. Even if our cash distribution policy is
not modified or revoked, the amount of distributions paid under our policy and
the decision to make any distribution is determined by our board of directors,
taking into consideration the terms of our partnership agreement and other
factors. We will be prohibited from making any distributions to unitholders if
it would cause an event of default, or an event of default is existing, under
our credit agreement.




Following
the completion of our initial public offering on April 3, 2007, the following
cash distributions have been declared and paid:


Distributions for
      Quarter Ended:
            Amount of Cash
      Distributions
            Cash Distributions per
      Unit


Jun.
      30, 2007*
            $8.3
      million
            $0.3626
      per unitSep.
      30, 2007
            $8.8
      million
            $0.385
      per unitDec.
      31, 2007
            $9.0
      million
            $0.395
      per unit


___________
              *
      Prorated for the period from April 4, 2007 to June 30,
    2007.




Subordination
Period




During
the subordination period applicable to the subordinated units held by Capital
Maritime. The common units have the right to receive quarterly distributions of
available cash from operating surplus, plus any arrearages in the payment of the
quarterly distribution on the common units from prior quarters, before any
distributions of available cash from operating surplus may be made on the
subordinated units. Distribution arrearages do not accrue on the subordinated
units. The purpose of the subordinated units is to increase the likelihood that
during the subordination period there will be available cash to be distributed
on the common units.




Incentive
Distribution Rights




Incentive
distribution rights represent the right to receive an increasing percentage of
quarterly distributions of available cash from operating surplus (as defined in
our partnership agreement) after the minimum quarterly distribution and the
target distribution levels have been achieved. Our general partner currently
holds the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to restrictions in the
partnership agreement. Except for transfers of incentive distribution rights to
an affiliate or another entity as part of our general partner’s merger or
consolidation with or into, or sale of substantially all of its assets to such
entity, the approval of a majority of our common units (excluding common units
held by our general partner and its affiliates), voting separately as a class,
generally is required for a transfer of the incentive distribution rights to a
third party prior to March 31, 2017. Any transfer by our general partner of
the incentive distribution rights would not change the percentage allocations of
quarterly distributions with respect to such rights.






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Percentage
Allocations of Available Cash From Operating Surplus




The
following table illustrates the percentage allocations of the additional
available cash from operating surplus among the unitholders and our general
partner up to the various target distribution levels. The amounts set forth
under “Marginal Percentage Interest in Distributions” are the percentage
interests of the unitholders and our general partner in any available cash from
operating surplus we distribute up to and including the corresponding amount in
the column “Total Quarterly Distribution Target Amount,” until available cash
from operating surplus we distribute reaches the next target distribution level,
if any. The percentage interests shown for the unitholders and our general
partner for the minimum quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly distribution. The
percentage interests shown for our general partner assume that our general
partner maintains its 2% general partner interest and assume our general partner
has not transferred the incentive distribution rights.





Marginal Percentage
      Interest in DistributionsTotal Quarterly
      Distribution Target Amount
            Unitholders
            General
      PartnerMinimum
      Quarterly Distribution
            $0.3750
            98%
            2%First
      Target Distribution
            up
      to $0.4313
            98%
            2%Second
      Target Distribution
            above
      $0.4313 up to $0.4688
            85%
            15%Third
      Target Distribution
            above
      $0.4688 up to $0.5625
            75%
            25%Thereafter
            above
      $0.5625
            50%
            50%




B.
Significant Changes




No significant changes have occurred
since the date of our audited consolidated financial statements included herein
except for those set out below:





1.
            On
      January 28, 2008 we declared a dividend of $0.395 per unit to unitholders
      of record on February 5, 2008, which amounted to $9.0 million. The
      dividend was paid on February 15,
2008.




2.
            On
      January 29, 2008 we took delivery of the M/T Alexandros II, the first of
      the three 51,000 dwt newbuilding MR chemical/product tanker sister vessels
      we had contracted to purchase from Capital Maritime at a fixed purchase
      price of $48 million. The vessel is chartered to subsidiaries of Overseas
      Shipholding Group Inc. under a 10 year bareboat charter at a rate of
      $13,000 per day.




3.
            On
      March 19, 2008 we entered into a new 10-year revolving credit facility of
      up to $350.0 million which is non-amortizing until March 2013 with HSH
      Nordbank. The credit facility is intended to finance a portion of the
      acquisition price of the M/T Amore Mio II, the M/T Aristofanis and of two
      other vessels currently in Capital Maritime’s fleet which we may elect to
      acquire in the future. We may also use this facility to finance up to 50%
      of the purchase price of any potential future purchases of modern tanker
      vessels from Capital Maritime or any third parties. The loan facility is
      subject to similar covenants and restrictions as those in our existing
      facility.




4.
            On
      March 27,2008we entered into a
      share purchase agreement with Capital Maritime pursuant to which we
      acquired all of Capital Maritime’s interests in the wholly owned
      subsidiary that owns the M/T Amore Mio II, a 159,982 dwt,2001 built,
      double-hull tanker. A portion of the $95.0 million aggregate purchase
      price was funded through the issuance of 2,048,823common units to
      Capital Maritime at a price of $22.94 per unit, which was the weighted
      average unit price for the period from October 15, 2007 to February 15,
      2008, and the remainder was funded through the issuance of $46.0 million
      of debt under our new credit facility and $2.0 million in cash. The M/T
      Amore Mio II is chartered to BP Shipping Limited under a charter with an
      earliest scheduled expiration date of January 2011 at a base gross rate of
      $36,456 per day (net rate $36,000).




5.
            On
      March 31, 2008, Capital Maritime, which owns and controls our general
      partner, Capital GP L.L.C, made a capital contribution of 40,976 common
      units to our general partner, which our general partner in turn
      contributed to us in exchange for the issuance of 40.976 general partner
      units to our general partner in order for it to maintain its 2% general
      partner interest in us. Following the issuance of common units in
      connection with the purchase of the Amore Mio II and the capital
      contribution described above, Capital Maritime owns a 45.6% interest in
      us, including its 2% interest through its ownership of our general
      partner.




Please read Note 14 (Subsequent Events)
to our audited consolidated and predecessor combined financial statements
included elsewhere in this Annual Report for more information regarding the
events described above.






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Item 9.    The Offer and Listing.




Our common units started trading on the
Nasdaq Global Market under the symbol “CPLP” on March 30, 2007. The following
table sets forth the high and low closing sales prices in U.S. Dollars for our
common units for each of the periods indicated.




High
            LowYear Ended:December
      31,2007*
            32.50
            20.80Quarter
      Ended:March
      31, 2008
            24.93
            16.35December
      31, 2007
            27.75
            20.80September
      30, 2007
            32.50
            23.33June
      30, 2007*
            28.90
            24.08Month
      Ended:March  31,
      2008
            20.31
            16.34February
      29, 2008
            20.75
            19.05January
      31, 2008
            24.93
            17.52December
      31, 2007
            24.91
            20.80November
      30, 2007
            27.75
            20.98October
      31, 2007
            27.38
            22.66_________________
              *
      Period commenced on March 30, 2007.





Item 10.  Additional Information.




A.
Share Capital




Not applicable.




B.
Memorandum and Articles of Association




The information required to be
disclosed under Item 10B is incorporated by reference to the following sections
of the prospectus included in our Registration Statement on Form F-1 filed with
the SEC on March 19, 2007: “The Partnership Agreement,” “Description of the
Common Units – The Units,” “Conflicts of Interest and Fiduciary Duties” and “Our
Cash Distribution Policy and Restrictions on Distributions.”




C.
Material Contracts




The following is a summary of each
material contract, other than material contracts entered into in the ordinary
course of business, to which we or any of our subsidiaries is a party, for the
two years immediately preceding the date of this Annual Report, each of which is
included in the list of exhibits in Item 19.




Please
read “Item 7B: Related Party Transactions” for a summary of certain contract
terms.




•
              Share
      Purchase Agreement dated March 27, 2008with Capital
      Maritime to acquire all of its interest in the wholly owned subsidiary
      that owns the M/T Amore Mio II for an aggregate purchase price of $95.0
      million. A portion of the acquisition price was funded through the
      issuance of 2,048,823common units to
      Capital Maritime at a price of $22.94 per unit and the remainder through
      the issuance of $46.0 million of debt under our new credit facility and
      $2.0 million in cash. The transaction was approved by our board of
      directors following approval by the conflicts committee of independent
      directors.
 
 •
              Share
      Purchase Agreement dated September 24, 2007 with Capital Maritime to
      acquire all of its interest in the wholly owned subsidiary that owns the
      M/T Attikos for an aggregate purchase price of $23.0 million. The
      transaction was approved by our board of directors following approval by
      the conflicts committee of independent
  directors.
  •
              Revolving
      Facility Agreement, dated March 19, 2008, for a new 10-year revolving
      credit facility of up to $350.0 million with HSH Nordbank AG which is
      non-amortizing until March 2013. The credit facility bears interest at US$
      LIBOR plus a margin of 1.1%and may be
      usedto
      finance a portion of the acquisition price of certain identified vessels
      currently in Capital Maritime’s fleet which we may elect to acquire in the
      future. We may also use this facility to finance up to 50% of the purchase
      price of any potential future purchases of modern tanker vessels from
      Capital Maritime or any third parties. To date, we have used
      $46.0million
      of this facility to fund part of the acquisition price of the M/T Amore
      Mio II from Capital Maritime and expect to use approximately $11.5 million
      in connection with the acquisition of the M/T Aristofanis in the second
      quarter of 2008. Please read “Item 5: Management’s Discussion and Analysis
      of Financial Condition and Results of Operation—Liquidity and Capital
      Resources—Revolving Credit Facilities” for a full description of the new
      credit facility.
  •
              Revolving
      Facility Agreement, dated March 22, 2007, as amended September 19, 2007,
      for a 10-year revolving credit facility of up to $370.0millionwith HSH Nordbank
      AG which is non-amortizing until June 2012. The credit facility bears
      interest at US$ LIBOR plus a margin of 0.75%. The credit facility may be
      used for acquisitions and for general partnership purposes. Our
      obligations under the facility are secured by first-priority mortgages
      on14product tankers.
      Please read “Item 5: Management’s Discussion and Analysis of Financial
      Condition and Results of Operation—Liquidity and Capital
      Resources—Revolving Credit Facilities” for a full description of the
      existing credit facility.
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   •
              Omnibus
      Agreement with Capital Maritime & Trading Corp., Capital GP LLC, our
      general partner, and Capital Product Operating GP LLC dated April 3,
      2007.
  •
              Management
      Agreement with Capital Ship Management pursuant to which Capital Ship
      Management shall provide commercial and technical management services to
      us dated April 3, 2007, as amended on September 24, 2007 and March 27,
      2008 to reflect the acquisitions of the M/T Attikos and the M/T Amore Mio
      II, respectively.
  •
              Administrative
      Services Agreement with Capital Ship Management pursuant to which Capital
      Ship Management shall provide administrative support services to us dated
      April 3, 2007.
  •
              Contribution
      Agreement with Capital Maritime & Trading Corp., Capital GP LLC, our
      general partner, and Capital Product Operating GP LLC pursuant to which
      certain vessels were contributed to us at the time of our Offering dated
      April 3, 2007.
  •
              Share
      Purchase Agreement with Capital Maritime to purchase its interest in the
      subsidiaries that owned the seven vessels and related charters we agreed
      to purchase from Capital Maritime at the time of our Offering dated April
      3, 2007.


D.
Exchange Controls and Other Limitations Affecting Unitholders




We are not aware of any governmental
laws, decrees or regulations, including foreign exchange controls, in the
Republic of The Marshall Islands that restrict the export or import of capital,
or that affect the remittance of dividends, interest or other payments to
non-resident holders of our securities. We are not aware of any limitations on
the right of non-resident or foreign owners to hold or vote our securities
imposed by the laws of the Republic of The Marshall Islands or our Articles of
Incorporation and Bylaws.




E.
Taxation




Marshall
Islands Taxation




Because
we, our operating subsidiary and our controlled affiliates do not, and we do not
expect that we and our controlled affiliates will, conduct business or
operations in the Republic of The Marshall Islands, neither we nor our
controlled affiliates will be subject to income, capital gains, profits or other
taxation under current Marshall Islands law. As a result, distributions by our
operating subsidiary and our controlled affiliates to us will not be subject to
Marshall Islands taxation.




United
States Taxation


The following is a discussion of
material U.S. federal income tax considerations and is based upon provisions of
the U.S. Internal Revenue Code of 1986, as amended  (the “Code”),
Treasury Regulations, and current administrative rulings and court decisions,
all of which are subject to change, possibly with retroactive effect, all as of
the date of this Annual Report. Changes in these authorities may cause the tax
consequences to vary substantially from the consequences described
below.






Election to be
Taxed as A Corporation.  We have elected to be taxed as a
corporation for U.S. federal income tax purposes. As such, we will be subject to
U.S. federal income tax on our income to the extent it is from U.S. sources or
otherwise is effectively connected with the conduct of a trade or business in
the Unites States as discussed below.




Taxation of
Operating Income.  We expect that substantially all of our
gross income will be attributable to the transportation of crude oil and related
products. For this purpose, gross income attributable to transportation ("Transportation Income") includes income derived from, or in
connection with, the use (or hiring or leasing for use) of a vessel to transport
cargo, or the performance of services directly related to the use of any vessel
to transport cargo, and thus includes both time charter or bareboat charter
income.






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Transportation
Income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States ("U.S. Source International
Transportation Income") will be considered to be 50.0% derived from
sources within the United States. Transportation Income attributable to
transportation that both begins and ends in the United States ("U.S. Source Domestic Transportation
Income") will be considered to be 100.0% derived from sources within the
United States. Transportation Income attributable to transportation exclusively
between non-U.S. destinations will be considered to be 100% derived from sources
outside the United States. Transportation Income derived from sources outside
the United States generally will not be subject to U.S. federal income
tax.




Based on
our current operations, we do not expect to have U.S. Source Domestic
Transportation Income. However, certain of our activities give rise to U.S.
Source International Transportation Income, and future expansion of our
operations could result in an increase in the amount of U.S. Source
International Transportation Income, as well as give rise to U.S. Source
Domestic Transportation Income, all of which could be subject to U.S. federal
income taxation, unless the exemption from U.S. taxation under Section 883
of the Code (the "Section 883 Exemption")
applies.




The
Section 883 Exemption.  In general, the Section 883
Exemption provides that if a non-U.S. corporation satisfies the requirements of
Section 883 of the Code and the Treasury Regulations thereunder (the "Section 883
Regulations"), it will not be subject to the net basis and branch taxes
or 4.0% gross basis tax described below on its U.S. Source International
Transportation Income. The Section 883 Exemption only applies to U.S.
Source International Income. As discussed below, we believe that under our
current ownership structure, the Section 883 Exemption will apply and we
will not be taxed on our U.S. Source International Transportation Income. The
Section 883 Exemption does not apply to U.S. Source Domestic Transportation
Income.




We will
qualify for the Section 883 Exemption if, among other matters, we meet the
following three requirements:




•
            We
      are organized in a jurisdiction outside the United States that grants an
      equivalent exemption from tax to corporations organized in the United
      States (an "Equivalent
      Exemption");




•
            We
      satisfy the Publicly
      Traded Test (as described below);
and




•
            We
      meet certain substantiation, reporting and other
    requirements.




The
Publicly Traded Test requires that one or more classes of equity representing
more than 50.0% of the voting power and value in a non-U.S. corporation be
“primarily and regularly traded” on an established securities market either in
the United States or in a jurisdiction outside the United States that grants an
Equivalent Exemption. The Section 883 Regulations provide, in pertinent
part, that equity interests in a non-U.S. corporation will be considered to be
“primarily traded” on an established securities market in a given country if the
number of units of each class of equity that are traded during any taxable year
on all established securities markets in that country exceeds the number of
units in each such class that are traded during that year on established
securities markets in any other single country. Equity of a non-U.S corporation
will be considered to be “regularly traded” on an established securities market
under the Section 883 Regulations if one or more classes of equity of the
corporation that, in the aggregate, represent more than 50.0% of the combined
vote and value of the non-U.S corporation are listed on such market and certain
trading volume requirements are met or deemed met as described below. For this
purpose, if one or more “5.0% unitholders” (i.e., a unitholder holding, actually
or constructively, at least 5.0% of the vote and value of a class of equity) own
in the aggregate 50.0% or more of the vote and value of a class of equity, such
class of equity will not be treated as primarily and regularly traded on an
established securities market (the “Closely Held Block Exception”).




We are
organized under the laws of the Republic of The Marshall Islands. The U.S.
Treasury Department has recognized the Republic of The Marshall Islands as a
jurisdiction that grants an Equivalent Exemption. Consequently, our U.S. Source
International Transportation Income (including for this purpose, any such income
earned by our subsidiaries that have properly elected to be treated as
partnerships or disregarded as entities separate from us for U.S. federal income
tax purposes) will be exempt from U.S. federal income taxation provided we meet
the Publicly Traded Test.




Since our
common units will only be traded on the Nasdaq Global Market, which is
considered to be an established securities market, we believe that our common
units will be deemed to be “primarily traded” on an established securities
market. In addition, we believe our common units represent more than 50% of our
vote and more than 50% of our value, and thus will be considered to be
“regularly traded” on an established securities market. We believe that our
common units represent more than 50% of our value and intend to take that
position. These conclusions, however, are based upon legal authorities which do
not expressly contemplate an organization structure such as ours. In particular,
although we have elected to be treated as a corporation for U.S. federal income
tax purposes, for corporate law purposes we are organized as a limited
partnership under Marshall Islands law and our general partner will be
responsible for managing our business and affairs and has been granted certain
veto rights over decisions of our board of directors. Accordingly, it is
possible that the IRS could assert that our common units do not meet the
“regularly traded” test.






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We
believe we will meet the trading volume requirements described previously
because the pertinent regulations provide that trading volume requirements will
be deemed to be met with respect to a class of equity traded on an established
securities market in the United States where, as will be the case for our common
units, the units are regularly quoted by dealers who regularly and actively make
offers, purchases and sales of such common units to unrelated persons in the
ordinary course of business.




In
addition, we expect that our common units will not lose eligibility for the
Section 883 Exemption as a result of the Closely Held Block Exception,
because our partnership agreement provides that the voting rights of any 5.0%
unitholders are limited to a 4.9% voting interest in us regardless of how many
common units are held by that 5.0% unitholder. Thus, although the matter is not
free from doubt, we believe that we will satisfy the Publicly Traded Test.
Should any of the facts described above cease to correct, our ability to satisfy
the test will be compromised.




The Net Basis Tax
and Branch Profits Tax.  If we earn U.S. Source International
Transportation Income and the Section 883 Exemption does not apply, the
U.S. source portion of such income may be treated as effectively connected with
the conduct of a trade or business in the United States ("Effectively Connected
Income") if we have a fixed place of business in the United States and
substantially all of our U.S. Source International Transportation Income is
attributable to regularly scheduled transportation or, in the case of bareboat
charter income, is attributable to a fixed place of business in the United
States. Based on our current operations, none of our potential U.S. Source
International Transportation Income is attributable to regularly scheduled
transportation or is received pursuant to bareboat charters. As a result, we do
not anticipate that any of our U.S. Source International Transportation Income
will be treated as Effectively Connected Income. However, there is no assurance
that we will not earn income pursuant to regularly scheduled transportation or
bareboat charters attributable to a fixed place of business in the United States
in the future, which would result in such income being treated as Effectively
Connected Income. In addition, any U.S. Source Domestic Transportation Income
generally will be treated as Effectively Connected Income.




Any
income we earn that is treated as Effectively Connected Income would be subject
to U.S. federal corporate income tax (the highest statutory rate is currently
35.0%). In addition, a 30.0% branch profits tax imposed under Section 884
of the Code also would apply to such income, and a branch interest tax could be
imposed on certain interest paid or deemed paid by us.




On the
sale of a vessel that has produced Effectively Connected Income, we could be
subject to the net basis corporate income tax and to the 30.0% branch profits
tax with respect to our gain not in excess of certain prior deductions for
depreciation that reduced Effectively Connected Income. Otherwise, we would not
be subject to U.S. federal income tax with respect to gain realized on the sale
of a vessel, provided the sale is considered to occur outside of the United
States under U.S. federal income tax principles.




The 4.0% Gross
Basis Tax.  If the Section 883 Exemption does not apply
and the net basis tax does not apply, we would be subject to a 4.0% U.S. federal
income tax on the U.S. source portion of our gross U.S. Source International
Transportation Income, without benefit of deductions.




U.S.
Federal Income Taxation of U.S. Holders




As used
herein, the term U.S.
Holder means a beneficial owner of our common units that:




•
            is
      an individual U.S. citizen or resident (as determined for U.S. federal
      income tax purposes), a corporation or other entity organized under the
      laws of the United States or its political subdivisions and classified as
      a corporation for U.S. federal income tax purposes, an estate the income
      of which is subject to U.S. federal income taxation regardless of its
      source, or a trust if a court within the United States is able to exercise
      primary jurisdiction over the administration of the trust and one or more
      U.S. persons have the authority to control all substantial decisions of
      the trust;




•
            owns
      the common units as a capital asset, generally, for investment purposes;
      and




•
            owns
      less than 10% of our common units for United States federal income tax
      purposes.




Distributions


Subject
to the discussion of the rules applicable to passive foreign investment
companies ("PFICs")
below, any distributions made by us with respect to our common units to a U.S.
Holder generally will constitute dividends, which may be taxable as ordinary
income or “qualified dividend income” as described in more detail below, to the
extent of our current and accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess of our earnings and
profits will be treated first as a nontaxable return of capital to the extent of
the U.S. Holder’s tax basis in its common units on a dollar-for-dollar basis and
thereafter as capital gain. U.S. Holders that are corporations generally will
not be entitled to claim a dividend received deduction with respect to any
distributions they receive from us. Dividends paid with respect to our common
units generally will be treated as “passive category income” for purposes of
computing allowable foreign tax credits for U.S. federal income tax
purposes.






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Dividends
paid on our common units to a U.S. Holder who is an individual, trust or estate
(a "U.S. Individual
Holder") will be treated as “qualified dividend income” that is taxable
to such U.S. Individual Holder at preferential capital gain tax rates (through
2010) provided that: (i) our common units are readily tradable on an
established securities market in the United States (such as the Nasdaq Global
Market on which we expect our common units to be traded); (ii) we are not a
PFIC for the taxable year during which the dividend is paid or the immediately
preceding taxable year (which we do not believe we are, have been or will be, as
discussed below); (iii) the U.S. Individual Holder has owned the common
units for more than 60 days in the 121-day period beginning 60 days
before the date on which the common units become ex-dividend; and (iv) the
U.S. Individual Holder is not under an obligation to make related payments with
respect to positions in substantially similar or related property. There is no
assurance that any dividends paid on our common units will be eligible for these
preferential rates in the hands of a U.S. Individual Holder, and any dividends
paid on our common units that are not eligible for these preferential rates will
be taxed as ordinary income to a U.S. Individual Holder. In the absence of
legislation extending the term of the preferential tax rates for qualified
dividend income, all dividends received by a taxpayer in tax years beginning
January 1, 2011 or later will be taxed at rates applicable to ordinary
income.




Special
rules may apply to any “extraordinary dividend” paid by us. An extraordinary
dividend is, generally, a dividend with respect to a common unit if the amount
of the dividend is equal to or in excess of 10 percent of a unitholder’s
adjusted basis (or fair market value in certain circumstances) in such common
unit. If we pay an “extraordinary dividend” on our common units that is treated
as “qualified dividend income,” then any loss derived by a U.S. Individual
Holder from the sale or exchange of such common units will be treated as
long-term capital loss to the extent of the amount of such
dividend.




In
addition, under previously proposed legislation, the preferential rate of
federal income tax currently imposed on qualified dividend income would be
denied with respect to dividends received form a non-U.S. corporation,
unless the non-U.S. corporation either is eligible for benefits of a
comprehensive income tax treaty with the United States or is created or
organized under the laws of a foreign country which has a comprehensive income
tax system. Because the Marshall Islands has not entered into a comprehensive
income tax treaty with the United States and imposes only limited taxes on
corporations organized under its laws, it is unlikely that we could satisfy
either of these requirements. Consequently, if this legislation were enacted the
preferential tax rates imposed on qualified dividend income may no longer be
applicable to dividends received from us. Any dividends paid on our common
shares that are not eligible for the preferential rate will be taxed as ordinary
income to a U.S. Individual Holder. As of the date hereof, it is not possible to
predict with any certainty whether this previously proposed legislation will be
reintroduced or enacted.




Sale,
Exchange or other Disposition of Common Units


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




PFIC
Status and Significant Tax Consequences


Special
and adverse U.S. federal income tax rules apply to a U.S. Holder that owns an
equity interest in a non-U.S. entity taxed as a corporation and classified as a
PFIC for U.S. federal income tax purposes. In general, we will be treated as a
PFIC with respect to a U.S. Holder if, for any taxable year in which such holder
held our common units, either:




•
            at
      least 75.0% of our gross income (including the gross income of our
      vessel-owning subsidiaries) for such taxable year consists of passive
      income (e.g., dividends, interest, capital gains and rents derived other
      than in the active conduct of a rental business),
  or




•
            at
      least 50.0% of the average value of the assets held by us (including the
      assets of our vessel-owning subsidiaries) during such taxable year
      produce, or are held for the production of, passive
  income.




Income
earned, or deemed earned, by us in connection with the performance of services
would not constitute passive income. By contrast, rental income would generally
constitute “passive income” unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or
business.






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Provided
we meet certain statutory requirements, we will not be treated as a PFIC in the
first year in which we have taxable income even if we satisfy the income test or
asset test set out in the bullet points above. Based on our current and
projected methods of operation, we do not believe that we will be a PFIC with
respect to any taxable year. Although there is no legal authority directly on
point, and we are not obtaining a ruling from the IRS on this issue, our
counsel’s opinion is based principally on the position that, for purposes of
determining whether we are a PFIC, the gross income we derive or are deemed to
derive from the time chartering activities of our wholly owned subsidiaries
should constitute services income, rather than rental income. Correspondingly,
such income should not constitute passive income, and the assets that we or our
wholly owned subsidiaries own and operate in connection with the production of
such income, in particular, the vessels we or our subsidiaries own that are
subject to time charters, should not constitute passive assets for purposes of
determining whether we were a PFIC. We expect that at least five out of the
eight vessels in our initial fleet and four of the seven newbuildings we have
committed to purchase will be engaged in time chartering activities and intend
to treat our income from those activities as non-passive income, and the vessels
engaged in those activities as non-passive assets. The remainder of our fleet
will be engaged in activities that may be characterized as passive for PFIC
purposes and the income from that portion of our fleet may be treated as passive
income for PFIC purposes. We believe that there is substantial legal authority
supporting our position consisting of case law and IRS pronouncements concerning
the characterization of income derived from time charters as services income for
other tax purposes. However, in the absence of any legal authority specifically
relating to the statutory provisions governing PFICs, the IRS or a court could
disagree with this position. In addition, although we intend to conduct our
affairs in a manner to avoid being classified as a PFIC with respect to any
taxable year, we cannot assure you that the nature of our operations will not
change in the future.




As
discussed more fully below, if we were to be treated as a PFIC for any taxable
year, a U.S. Holder would be subject to different taxation rules depending on
whether the U.S. Holder makes an election to treat us as a “Qualified Electing
Fund”, which election we refer to as a “QEF election”. As an alternative to
making a QEF election, a U.S. Holder should be able to make a “mark-to-market”
election with respect to our common units, as discussed below.




Taxation
of U.S. Holders Making a Timely QEF Election


If a U.S.
Holder makes a timely QEF election, which U.S. Holder we refer to as an
“Electing Holder”, the Electing Holder must report each year for U.S. federal
income tax purposes his pro rata share of our ordinary earnings and our net
capital gain, if any, for our taxable year that ends with or within the taxable
year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder’s adjusted tax
basis in the common units will be increased to reflect taxed but undistributed
earnings and profits. Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the adjusted tax
basis in the common units and will not be taxed again once distributed. An
Electing Holder would generally recognize capital gain or loss on the sale,
exchange or other disposition of our common units. A U.S. Holder would make a
QEF election with respect to any year that we are a PFIC by filing one copy of
IRS Form 8621 with his U.S. federal income tax return and a second copy in
accordance with the instructions to such form. If we were to be treated as a
PFIC for any taxable year, we would provide each U.S. Holder with all necessary
information in order to make the QEF election described above.




Taxation
of U.S. Holders Making a “Mark-to-Market” Election


Alternatively,
if we were to be treated as a PFIC for any taxable year and, as we anticipate,
our units were treated as “marketable stock,” a U.S. Holder would be allowed to
make a “mark-to-market” election with respect to our common units, provided the
U.S. Holder completes and files IRS Form 8621 in accordance with the
relevant instructions and related Treasury Regulations. If that election is
made, the U.S. Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of the common units at the end
of the taxable year over such holder’s adjusted tax basis in the common units.
The U.S. Holder would also be permitted an ordinary loss in respect of the
excess, if any, of the U.S. Holder’s adjusted tax basis in the common units over
the fair market value thereof at the end of the taxable year, but only to the
extent of the net amount previously included in income as a result of the
mark-to-market election. A U.S. Holder’s tax basis in his common units would be
adjusted to reflect any such income or loss amount. Gain realized on the sale,
exchange or other disposition of our common units would be treated as ordinary
income, and any loss realized on the sale, exchange or other disposition of the
common units would be treated as ordinary loss to the extent that such loss does
not exceed the net mark-to-market gains previously included by the U.S.
Holder.




Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election


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






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•
            the
      excess distribution or gain would be allocated ratably over the
      Non-Electing Holder’s aggregate holding period for the common
      units;




•
            the
      amount allocated to the current taxable year and any year prior to the
      year we were first treated as a PFIC with respect to the Non-Electing
      Holder would be taxed as ordinary income;
and




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




These
penalties would not apply to a qualified pension, profit sharing or other
retirement trust or other tax-exempt organization that did not borrow money or
otherwise utilize leverage in connection with its acquisition of our common
units. If we were treated as a PFIC for any taxable year and a Non-Electing
Holder who is an individual dies while owning our common units, such holder’s
successor generally would not receive a step-up in tax basis with respect to
such units.




U.S.
Federal Income Taxation of Non-U.S. Holders




A
beneficial owner of our common units (other than a partnership, including any
entity or arrangement treated as a partnership for U.S. federal income tax
purposes) that is not a U.S. Holder is a "Non-U.S.
Holder".




Distributions


Distributions
we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or
withholding tax if the Non-U.S. Holder is not engaged in a U.S. trade or
business. If the Non-U.S. Holder is engaged in a U.S. trade or business,
distributions we pay will be subject to U.S. federal income tax to the extent
those distributions constitute income effectively connected with that Non-U.S.
Holder’s U.S. trade or business. However, distributions paid to a Non-U.S.
Holder who is engaged in a trade or business may be exempt from taxation under
an income tax treaty if the income represented thereby is not attributable to a
U.S. permanent establishment maintained by the Non-U.S. Holder.




Disposition
of Units


The U.S.
federa l income
taxation of Non-U.S. Holders on any gain resulting from the disposition of our
common units is generally the same as described above regarding distributions.
However, individual Non-U.S. Holders may be subject to tax on gain resulting
from the disposition of our common units if they are present in the United
States for 183 days or more during the taxable year in which those shares
are disposed and meet certain other requirements.




Backup
Withholding and Information Reporting




In
general, payments of distributions or the proceeds of a disposition of common
units to a non-corporate U.S. Holder will be subject to information reporting
requirements. These payments to a non-corporate U.S. Holder also may
be subject to backup withholding, if the non-corporate
U.S. Holder:




•
            fails
      to provide an accurate taxpayer identification
  number;




•
            is
      notified by the IRS that he has failed to report all interest or corporate
      distributions required to be shown on its U.S. federal income tax returns;
      or




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




Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding on payments within the United States by certifying their
status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.




Backup
withholding is not an additional tax. Rather, a unitholder generally may obtain
a credit for any amount withheld against his liability for U.S. federal income
tax (and a refund of any amounts withheld in excess of such liability) by filing
a return with the IRS.




F.
Dividends and Paying Agents




Not applicable.






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G.
Safe Harbor




Not applicable.




H.
Documents on Display




We have
filed with the SEC a registration statement on Form F-1 regarding the
common units. This Annual Report does not contain all of the information found
in the registration statement. For further information regarding us and our
common units, you may wish to review the full registration statement, including
its exhibits. The registration statement, including the exhibits, may be
inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. Copies of this material can also be
obtained upon written request from the Public Reference Section of the SEC at
100 F Street, N.E, Washington, D.C. 20549, at prescribed rates or from the SEC’s
web site on the Internet at http://www.sec.gov free of charge. Please call the
SEC at 1-800-SEC-0330 for further information on public reference room. Our
registration statement can also be inspected and copied at the offices of the
Nasdaq Global Market, One Liberty Plaza, New York, New York 10006.




I.
Subsidiary Information




Please
see Exhibit 8.1 to this Annual Report for a list of our significant subsidiaries
as of December 31, 2007.




Item 11. Quantitative and Qualitative Disclosures About Market
Risk.





Our
Risk Management Policy




Our
policy is to continuously monitor our exposure to business risks, including the
impact of changes in interest rates and currency rates on earnings and cash
flows. We intend to assess these risks and, when appropriate, take measures to
minimize our exposure to the risks.




Foreign
Exchange Risk


Wedo not have a material
currency exposure risk.We generate
all of our revenues in U.S. Dollars and incur less than 5% of our expenses in
currencies other than U.S. Dollars. For accounting purposes, expenses incurred
in Euros are translated into U.S. Dollars at the exchange rate prevailing on the
date of each transaction. At December 31, 2007, less than 5% of liabilities were
denominated in currencies other than U.S. Dollars (mainly in Euros). These
liabilities were translated into U.S. Dollars at the exchange rate prevailing on
December 31, 2007. We have not hedged currency exchange risks and our operating
results could be adversely affected as a result.




Interest
Rate Risk


The
international tanker industry is capital intensive, requiring significant
amounts of investment, a significant portion of which is provided in the form of
long-term debt. Our current debt contains interest rates that fluctuate with
LIBOR. Our existing credit facility of $370.0 million bears floating interest of
0.75% per annum over US$LIBOR. Our $350.0 million new credit facility bears
floating interest of 1.10% per annum over US$LIBOR. Therefore, we are exposed to
the risk that our interest expense may increase if interest rates
rise.





In order
to hedge our exposure to interest rate changes, we have entered into eight
interest rate swap agreements to fix the LIBOR portion of our interest rate at
5.1325% for $326.0 million in borrowings, of which we have drawn down $302.0
million, under our existing facility and into one interest swap agreement
to fix the LIBOR portion of our interest rate at 4.925% for $20.5 million in
borrowing under our existing credit facility for a period up to June 29,
2012. On March 27, 2008 we entered into an interest rate swap agreement to fix
the LIBOR portion of our interest rate at 3.525% for $46.0 million in
borrowings, under our new non-amortizing credit facility entered into on March
19, 2008, for a period of up to March 27, 2013. We intend to swap the
LIBOR portion of any further amounts drawn down under our new credit facility
into a fixed rate until the end of the non-amortizing period on March 31, 2013.As our
interest rate is fixed under the swap agreements changes in LIBOR would not
affect our interest expense.





Please
read Note 2 (Significant Accounting Policies – Interest Rate Swap
Agreements) and Note 5 (Long-Term Debt) to our consolidated and predecessor
combined financial statements included elsewhere in this Annual Report, which
provide additional information with respect to our derivative financial
instruments and existing debt agreements.




Concentration
of Credit Risk




Financial
instruments, which potentially subject us to significant concentrations of
credit risk, consist principally of cash and cash equivalents, and trade
accounts receivable. We place our cash and cash equivalents, consisting mostly
of deposits, with financial institutions with high credit ratings. We perform
periodic evaluations of the relative credit standing of those financial
institutions. As of December 31, 2007, 76% of our revenue was derived from
two charterers. We do not obtain rights to collateral to reduce our credit
risk.






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Inflation




Inflation
has had a minimal impact on vessel operating expenses, drydocking expenses and
general and administrative expenses. Our management does not consider inflation
to be a significant risk to direct expenses in the current and foreseeable
economic environment. However, in the event that inflation becomes a significant
factor in the global economy, inflationary pressures would result in increased
operating, voyage and financing costs.




Item 12. Description of Securities Other than Equity
Securities.




Not Applicable.




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PART II




Item 13. Defaults, Dividend, Arrearages and
Delinquencies.




None.




Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds.




No
material modifications to the rights of security holders.





We
completed our Offering on April 3, 2007. We did not receive any proceeds from
the sale of our common units by Capital Maritime. Capital Maritime used the
proceeds from our Offering to repay the existing debt on the eight vessels that
made up our fleet at the time of our Offering. Capital Maritime also paid the
offering expenses, underwriting discounts, selling commissions and brokerage
fees incurred in connection with the Offering.




Item 15. Controls and Procedures.




As of
December 31, 2007, our management (with the participation of our chief executive
officer and chief financial officer) conducted an evaluation pursuant to Rule
13a-15 and 15d-15 promulgated under the U.S. Securities Exchange Act of 1934, as
amended (the “Exchange Act”), of the effectiveness of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our chief
executive officer and chief financial officer concluded that as of December 31,
2007, such disclosure controls and procedures (which include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports we file or submit under the Exchange Act is
accumulated and communicated to the management, including our chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure) were effective to provide reasonable assurance
that information required to be disclosed by us in reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange
Commission. There have been no changes in internal controls over financial
reporting that occurred during the year covered by this annual report that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.




Item 16A. Audit Committee Financial Expert.




Our board
of directors has determined that director Abel Rasterhoff, the chairman of our
audit committee, qualifies as an audit committee financial expert for purposes
of the U.S. Sarbanes-Oxley Act and is independent under applicable Nasdaq Global
Market and SEC standards.







Item 16B. Code of Ethics




Our board
of directors has adopted a Code of Business Conduct and Ethics that includes a
Code of Ethics that applies to our chief executive officer, chief financial
officer, principal accounting officer and persons performing similar functions.
This document is available under “Corporate Governance” in the Investor
Relations area of our web site (www.capitalpplp.com).  We will also
provide a hard copy of our code of ethics free of charge upon written request.
We intend to disclose, under “Corporate Governance” in the Investor Relations
area of our web site, any waivers to or amendments of the Code of Business
Conduct and Ethics for the benefit of any of our directors and executive
officers.




Item 16C. Principal Accountant Fees and Services.




Our
principal accountant for 2007 and 2006 was Deloitte Hadjipavlou, Sofianos &
Cambanis S.A. (“Deloitte”). The following table shows the fees we paid or
accrued for audit services provided by Deloitte for 2007 and 2006 (thousands of
U.S. Dollars).





Fees
            
            2007
            
            
            
            2006*Audit
      Fees (1)
            
            $
            227
            
            
            $
            -Audit-Related
      Fees
            
            
            -
            
            
            
            -Tax
      Fees
            
            
            -
            
            
            
            -Total
            
            $
            227
            
            
            
            -






*
            Capital
      Maritime was responsible for all fees payable to Deloitte for the year
      ended December 31, 2006.(1)
            Audit
      fees represent fees for professional services provided in connection with
      the audit of our consolidated financial statements, review of our
      quarterly consolidated financial statements and audit services provided in
      connection with other regulatory filings. Fees in connection with the
      review of our regulatory filings for our Offering of common units in April
      2007 amounted to $1.0 million and were paid by Capital Maritime with
      part of the proceeds from the offering.






70
 Table of Contents





The audit
committee of our board of directors has the authority to pre-approve permissible
audit-related and non-audit services not prohibited by law to be performed by
our independent auditors and associated fees. Engagements for proposed services
either may be separately pre-approved by the audit committee or entered into
pursuant to detailed pre-approval policies and procedures established by the
audit committee, as long as the audit committee is informed on a timely basis of
any engagement entered into on that basis. The audit committee separately
pre-approved all engagements and fees paid to our principal accountant in
2007.




Item 16D. Exemptions from the Listing Standards for Audit
Committees.




None.




Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.




On
March 27, 2008, we issued 2,048,823common units to Capital
Maritime at a price of $22.94 per unit, which was the weighted average unit
price for the period from October 15, 2007 to February 15, 2008, in order to
finance a portion of the acquisition price of the M/T Amore Mio II which we
acquired from Capital Maritime on the same date. On March 31, 2008, Capital
Maritime, which owns and controls our general partner, Capital GP L.L.C, made a
capital contribution of 40,976 common units to our general partner, which our
general partner then contributed to us in exchange for the issuance of 40,976
general partner units to our general partner in order for it to maintain its 2%
general partner interest in us.




Following the issuance of common units
and the capital contribution described above, Capital Maritime owns 2,007,847
common units and 8,805,522 subordinated units, representing a 43.6% limited
partner interest in us. In addition, our general partner, which is owned and
controlled by Capital Maritime, owns a 2% general partner interest in us and all
of the incentive distribution rights.





71
 Table of Contents






PART III




Item 17. Financial Statements




Not Applicable.




Item 18. Financial Statements









INDEX
      TO FINANCIAL STATEMENTS
            PageCAPITAL
      PRODUCT PARTNERS L.P.Report
      of Independent Registered Public Accounting Firm
            F-1Consolidated
      and Predecessor Combined Balance Sheets as of December 31, 2007 and
      2006
            F-2Consolidated
      and Predecessor Combined Statements of Income for the years ended December
      31, 2007, 2006 and 2005
            F-3Consolidated
      and Predecessor Combined Statement of Changes in Partners’/ Stockholders’
      Equity for the years ended December 31, 2007, 2006, 2005 and
      2004
            F-4Consolidated
      and Predecessor Combined Statements of Cash Flows for the years ended
      December 31, 2007, 2006 and 2005
            F-5Notes
      to the Consolidated and Predecessor Combined Financial
      Statements
            F-6









72
 Table of Contents




Item 19. Exhibits






The
following exhibits are filed as part of this Annual Report:











Exhibit
      No.
            
            Description1.1
            
            Certificate
      of Limited Partnership of Capital Product Partners L.P.
  (1)1.2
            
            First
      Amended and Restated Agreement of Limited Partnership of Capital Product
      Partners L.P.  (2)1.3
            
            Certificate
      of Formation of Capital GP L.L.C. (1)1.4
            
            Limited
      Liability Company Agreement of Capital GP L.L.C. (1)1.5
            
            Certificate
      of Formation of Capital Product Operating GP L.L.C. (1)4.1
            
            Revolving
      $370.0 Million Credit Facility dated March 22, 2007 (1)4.2
            
            Amendment
      to Revolving $370.0 million Credit Facility dated September 19,
      20074.3
            
            Omnibus
      Agreement (1)4.4
            
            Management
      Agreement with Capital Ship Management  (1)4.5
            
            Amendment
      1 to  Management Agreement with Capital Ship Management dated
      September 24, 20074.6
            
            Amendment
      2 to Management Agreement with Capital Ship Management  dated
      March 27, 20084.7
            
            Administrative
      Services Agreement with Capital Ship Management (1)4.8
            
            Contribution
      and Conveyance Agreement for Initial Fleet (1)4.9
            
            Share
      Purchase Agreement for 2007 and 2008 Vessels (1)4.10
            
            Revolving
      $350.0 Million Credit Facilitydated March 19,
      20084.11
            
            Share
      Purchase Agreement for M/T Attikos datedSeptember 24,
      20074.12
            
            Share
      Purchase Agreement for M/T Amore Mio II datedMarch 27,
      20088.1
            
            List
      of Subsidiaries of Capital Product Partners L.P.12.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief
      Executive Officer12.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Capital Product Partners L.P.’s Chief
      Financial Officer13.1
            
            Capital
      Product Partners L.P. Certification of Ioannis E. Lazaridis, Chief
      Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002







(1)
            Previously
      filed as an exhibit to Capital Product Partners L.P.’s Registration
      Statement on Form F-1 (File No. 333-141422), filed with the SEC on March
      19, 2007 and hereby incorporated by reference to such Registration
      Statement.




(2)
            Previously
      filed as Appendix A to the Partnership’s Rule 424(b)(4) Prospectus filed
      with the SEC on March 30, 2007, and hereby incorporated by reference to
      this Annual Report.






73
 Table of Contents





SIGNATURE





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.







CAPITAL
      PRODUCT PARTNERS L.P.,By:
            
            Capital
      GP L.L.C., its general partnerBy:
            
            /s/
      Ioannis E. LazaridisName:  Ioannis
      E. LazaridisTitle:   
      Chief Executive Officer and Chief Financial Officer of Capital GP
      L.L.C.







Dated:  April
4, 2008








74




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Unitholders of Capital Product Partners L.P., Majuro,
Republic of the Marshall Islands.
 
 We have
audited the accompanying consolidated and predecessor combined balance sheets of
Capital Product Partners L.P. (the “Partnership”) as of December 31, 2007 and
2006, and the related consolidated and predecessor combined statements of
income, changes in partners’/stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2007.  These
financial statements are the responsibility of the Partnership’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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  The Partnership 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 Partnership’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, such consolidated and predecessor combined financial statements present
fairly, in all material respects, the financial position of Capital Product
Partners L.P. as of December 31, 2007 and 2006, and the results of their
operations and their 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.
 
 As
discussed in Note 1 to the consolidated and predecessor combined financial
statements, on January 16, 2007, Capital Product Partners L.P. was formed for
the purpose of acquiring interests in eight wholly owned subsidiaries of Capital
Maritime & Trading Corp. On April 4, 2007 the acquisition was completed and
Capital Product Partners L.P. began operating as a separate company. Through
April 4, 2007 the accompanying predecessor combined financial statements have
been prepared from the separate records maintained by Capital Maritime &
Trading Corp. and may not necessarily be indicative of the conditions that would
have existed or the results of operations if the Partnership had been operated
as an unaffiliated entity.
 
 The
consolidated and predecessor combined financial statements give retroactive
effect to the September 23, 2007 acquisition by Capital Product Partners L.P. of
Ross Shipmanagement Co., the owner of M/T Attikos which, as a combination of
entities under common control, has been accounted for similar to a pooling of
interests as described in Note 1 to the consolidated and predecessor combined
financial statements. Also as described in Note 1 to the consolidated and
predecessor combined financial statements, through September 23, 2007, the
portion of the accompanying consolidated and predecessor combined financial
statements attributable to Ross Shipmanagement Co., have been prepared from the
separate records maintained by Capital Maritime & Trading Corp. and may not
necessarily be indicative of the conditions that would have existed or the
results of operations if Ross Shipmanagement Co. had been operated as an
unaffiliated entity.
 
 
 
 April 2,
2008
 /s/
Deloitte.
 Hadjipavlou,
Sofianos & Cambanis S.A.
 Athens,
Greece
 
  F-1
  
 Capital
Product Partners L.P.
 Consolidated
and Predecessor Combined Balance Sheets (Note 1)
 (In
thousands of United States dollars, except number of shares)
 
 
 December
      31, 2007
              
              
              December
      31, 2006AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              19,917
              
              
              $
              1,239Trade
      accounts receivable
              
              
              1,488
              
              
              
              771Insurance
      claims
              
              
              -
              
              
              
              69Due
      from related parties (Note 3)
              
              
              -
              
              
              
              4,954Prepayments
      and other assets
              
              
              140
              
              
              
              172Inventories
              
              
              -
              
              
              
              259Total
      current assets
              
              
              21,545
              
              
              
              7,464Fixed
      assetsVessels
      under construction (Note 4)
              
              
              -
              
              
              
              29,225Vessels,
      net (Note 4)
              
              
              429,171
              
              
              
              178,803Total
      fixed assets
              
              
              429,171
              
              
              
              208,028Other
      non-current assetsDeferred
      finance charges, net (Note 7)
              
              
              948
              
              
              
              632Restricted
      cash (Note 2,5)
              
              
              3,250
              
              
              
              -Total
      non-current assets
              
              
              433,369
              
              
              
              208,660Total
      assets
              
              $
              454,914
              
              
              $
              216,124Liabilities
      and Partners’ / Stockholders’ EquityCurrent
      liabilitiesCurrent
      portion of long-term debt  (Note 5)
              
              
              -
              
              
              $
              6,029Current
      portion of related party debt (Note 3)
              
              
              -
              
              
              
              8,042Trade
      accounts payable
              
              $
              257
              
              
              
              1,539Due
      to related parties (Note 3)
              
              
              28
              
              
              
              1,899Accrued
      loan interest (Note 6)
              
              
              -
              
              
              
              1,513Accrued
      other liabilities (Note 6)
              
              
              249
              
              
              
              478Deferred
      revenue
              
              
              3,200
              
              
              
              475Total
      current liabilities
              
              
              3,734
              
              
              
              19,975Long-term
      liabilitiesLong-term
      debt (Note 5)
              
              
              274,500
              
              
              
              59,254Long-term
      related party debt (Note 3)
              
              
              -
              
              
              
              87,498Deferred
      revenue
              
              
              690
              
              
              
              -Derivative
      instruments (Note 2)
              
              
              14,051
              
              
              
              -Total
      long-term liabilities
              
              
              289,241
              
              
              
              146,752Total
      liabilities
              
              
              292,975
              
              
              
              166,727Commitments
      and contingencies (Note 13)
              
              
              
              
              
              
              -Stockholders’
      EquityCommon
      stock (par value $0; 3,500 shares  issued and outstanding at
      December 31, 2006)
              
              
              -
              
              
              
              -Additional
      paid in capital - Predecessor
              
              
              -
              
              
              
              41,857Retained
      earnings - Predecessor
              
              
              -
              
              
              
              7,540Partners’
      EquityGeneral
      Partner interest
              
              
              3,444
              
              
              
              -Limited
      Partners·Common
      (13,512,500 units issued and outstanding at Dec. 31, 2007)
              
              
              102,130
              
              
              
              -·Subordinated(8,805,522 units
      issued and outstanding at Dec. 31, 2007)
              
              
              66,653
              
              
              
              -Accumulated
      other comprehensive loss (Note 2)
              
              
              (10,288
              )
              
              
              -Total
      partners’ / stockholders’ equity
              
              
              161,939
              
              
              
              49,397Total
      liabilities and partners’ / stockholders’ equity
              
              $
              454,914
              
              
              $
              216,124
 
 
 The
accompanying notes are an integral part of these
 consolidated
and predecessor combined financial statements.
  
   F-2
  Capital
Product Partners L.P.
 Consolidated
and Predecessor Combined Statements of Income (Note 1)
 (In
thousands of United States dollars, except number of units and earnings per
unit)
 
 For
      the year ended December 31,2007
              
              
              2006
              
              
              2005Revenues
              
              $
              72,543
              
              
              $
              19,913
              
              
              $
              4,377Expenses:Voyage
      expenses  (Note 8)
              
              
              770
              
              
              
              373
              
              
              
              520Vessel
      operating expenses - related party (Note 3 and Note 8)
              
              
              12,283
              
              
              
              890
              
              
              
              216Vessel
      operating expenses (Note 8)
              
              
              3,196
              
              
              
              4,043
              
              
              
              1,932General
      and administrative expenses
              
              
              1,477
              
              
              
              -
              
              
              
              -Depreciation
      and amortization (Note 4, 7)
              
              
              13,109
              
              
              
              3,370
              
              
              
              360Operating
      income
              
              
              41,708
              
              
              
              11,237
              
              
              
              1,349Other
      income (expense), net:Interest
      expense and finance cost
              
              
              (10,809
              )
              
              
              (4,584
              )
              
              
              (389
              )Loss
      on interest rate agreements
              
              
              (3,763
              )
              
              
              -
              
              
              
              -Interest
      income
              
              
              710
              
              
              
              13
              
              
              
              1Foreign
      currency gain/(loss), net
              
              
              (19
              )
              
              
              (56
              )
              
              
              9Total
      other expense, net
              
              
              (13,881
              )
              
              
              (4,627
              )
              
              
              (379
              )Net
      income
              
              $
              27,827
              
              
              $
              6,610
              
              
              $
              970Less:Net
      income attributable to predecessor operationsInitial
      vessels’ net income from January 1, 2007 to April 3, 2007
              
              
              (5,328
              )
              
              
              -
              
              
              
              -Attikos
      net income from January 1, 2007 to September 23, 2007
              
              
              (928
              )
              
              
              -
              
              
              
              -Partnership’s
      net income
              
              
              21,571
              
              
              
              -
              
              
              
              -General
      Partner’s interest in Partnership’s net income
              
              $
              431
              
              
              
              -
              
              
              
              -Limited
      Partners’ interest in Partnership’s net income
              
              
              21,140
              
              
              
              -Net
      income per:·Common
      unit (basic and diluted)
              
              
              1.11
              
              
              
              -
              
              
              
              -·Subordinated
      unit (basic and diluted)
              
              
              0.70
              
              
              
              -
              
              
              
              -·Total
      unit (basic and diluted)
              
              
              0.95
              
              
              
              -
              
              
              
              -Weighted-average
      units outstanding:·Common
      units (basic and diluted)
              
              
              13,512,500
              
              
              
              -
              
              
              
              -·Subordinated
      unit (basic and diluted)
              
              
              8,805,522
              
              
              
              -
              
              
              
              -·Total
      units (basic and diluted)
              
              
              22,318,022
              
              
              
              -
              
              
              
              -
  
  The
accompanying notes are an integral part of these
 consolidated
and predecessor combined financial statements.
  
 F-3
  Capital
Product Partners L.P.
 Consolidated
and Predecessor Combined Statements of Partners' / Stockholders'
Equity
 (In
thousands of United States dollars)
 Partners’
      CapitalComprehensive
      Income
              
              
              Common
      Stockholders’
                Equity
              
              
              Common
              
              
              Subordinated
              
              
              General
      Partner
              
              
              Total
              
              
              Accumulated
      Other Comprehensive
                Loss
              
              
              TotalBalance
      at December 31, 2004
              
              $
              -
              
              
              $
              19,658
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              19,658Additional
      paid in capital
              
              
              -
              
              
              
              4,212
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,212Net
      Income
              
              
              970
              
              
              
              970
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              970Comprehensive
      income
              
              
              970Balance
      at December 31, 2005
              
              
              
              
              
              
              24,840
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              24,840Additional
      paid in capital
              
              
              -
              
              
              
              17,947
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,947Net
      Income
              
              
              6,610
              
              
              
              6,610
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,610Comprehensive
      income
              
              
              6,610Balance
      at December 31, 2006
              
              
              
              
              
              
              49,397
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              49,397Additional
      paid in capital “Initial Vessels” up to April 3, 2007
              
              
              -
              
              
              
              13,679
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,679Net
      income “Initial Vessels” predecessor operations
              
              
              5,328
              
              
              
              5,328
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,328Comprehensive
      income
              
              
              5,328Balance
      at April 3, 2007
              
              
              -
              
              
              
              68,404
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              68,404Distribution
      of “Initial Vessels” retained earnings as of April 3, 2007, to previous
      owners
              
              
              -
              
              
              
              (9,919
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (9,919
              )Balance
      at April 3, 2007
                Allocation
      of predecessor’s “Initial Vessels” equity to unit holders
              
              
              -
              
              
              
              (55,073
              )
              
              
              32,658
              
              
              
              21,313
              
              
              
              1,102
              
              
              
              55,073
              
              
              
              -
              
              
              
              -Contributions
      to the Partnership
              
              
              -
              
              
              
              -
              
              
              
              129,556
              
              
              
              84,550
              
              
              
              4,369
              
              
              
              218,475
              
              
              
              -
              
              
              
              218,475Excess
      of purchase price over book value of vessels acquired from entity under
      common control (Note 4)
              
              
              -
              
              
              
              -
              
              
              
              (47,954
              )
              
              
              (31,295
              )
              
              
              (1,617
              )
              
              
              (80,866
              )
              
              
              -
              
              
              
              (80,866
              )Dividend
      to CMTC
              
              
              -
              
              
              
              -
              
              
              
              (14,825
              )
              
              
              (9,675
              )
              
              
              (500
              )
              
              
              (25,000
              )
              
              
              -
              
              
              
              (25,000
              )Dividends
      paid (Note 11)
              
              
              -
              
              
              
              -
              
              
              
              (10,096
              )
              
              
              (6,589
              )
              
              
              (341
              )
              
              
              (17,026
              )
              
              
              -
              
              
              
              (17,026
              )Attikos
      net income January 1, 2007 through September 23, 2007 – predecessor
      operations
              
              
              928
              
              
              
              928
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              928Distribution
      of retained earnings as of September 23, 2007, “M/T Attikos”, to previous
      owners
              
              
              -
              
              
              
              (3,877
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,877
              )Distribution
      of paid in capital of “M/T Attikos” to previous owners
              
              
              -
              
              
              
              (463
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (463
              )Net
      Partnership income April 4, 2007 through December 31, 2007
              
              
              21,571
              
              
              
              -
              
              
              
              12,791
              
              
              
              8,349
              
              
              
              431
              
              
              
              21,571
              
              
              
              -
              
              
              
              21,571Other
      comprehensive income:·Unrealized
      loss on derivative instruments
              
              
              (10,288
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,288
              )
              
              
              (10,288
              )Comprehensive
      income
              
              
              12,211Balance
      at December 31, 2007
              
              
              
              
              
              $
              -
              
              
              $
              102,130
              
              
              $
              66,653
              
              
              $
              3,444
              
              
              $
              172,227
              
              
              $
              (10,288
              )
              
              $
              161,939
  The
accompanying notes are an integral part of these consolidated and predecessor
combined financial statements.
  F-4
  Capital
Product Partners L.P.
 Consolidated
and Predecessor Combined Statements of Cash Flows (Note 1)
 (In
thousands of United States dollars)
 
   For
      the Year Ended December 31,2007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Net
      income
              
              $
              27,827
              
              
              $
              6,610
              
              
              $
              970Adjustments to reconcile net
      income to net cash  provided by operating
      activities:Vessel
      depreciation
              
              
              13,017
              
              
              
              3,370
              
              
              
              360Amortization
      of deferred charges
              
              
              204
              
              
              
              41
              
              
              
              4Loss
      on interest rate swap agreement
              
              
              3,763
              
              
              
              -
              
              
              
              -Changes
      in operating assets and liabilities:Trade
      accounts receivable
              
              
              (2,757
              )
              
              
              (734
              )
              
              
              (36
              )Insurance
      claims
              
              
              (1
              )
              
              
              (65
              )
              
              
              (3
              )Due
      from related parties
              
              
              (2,644
              )
              
              
              (4,247
              )
              
              
              (705
              )Prepayments
      and other assets
              
              
              (325
              )
              
              
              (141
              )
              
              
              (31
              )Inventories
              
              
              (69
              )
              
              
              (229
              )
              
              
              (30
              )Dry
      docking cost
              
              
              (921
              )
              
              
              -
              
              
              
              -Trade
      accounts payable
              
              
              1,113
              
              
              
              1,386
              
              
              
              152Due
      to related parties
              
              
              3,646
              
              
              
              1,131
              
              
              
              694Accrued
      loan interest
              
              
              (1,476
              )
              
              
              1,433
              
              
              
              81Accrued
      other liabilities
              
              
              577
              
              
              
              479
              
              
              
              -Deferred
      revenue
              
              
              8,628
              
              
              
              463
              
              
              
              12Net
      cash provided by operating activities
              
              
              50,582
              
              
              
              9,497
              
              
              
              1,468Cash
      flows from investing activities:Vessel
      acquisitions
              
              
              (243,688
              )
              
              
              (142,795
              )
              
              
              (9,523
              )Vessel
      advances – new buildings
              
              
              -
              
              
              
              (19,252
              )
              
              
              (15,036
              )Increase
      of restricted cash
              
              
              (3,250
              )
              
              
              -
              
              
              
              -Net
      cash used in investing activities
              
              
              (246,938
              )
              
              
              (162,047
              )
              
              
              (24,559
              )Cash
      flows from financing activities:Proceeds
      from issuance of long-term debt
              
              
              344,361
              
              
              
              77,426
              
              
              
              10,000Proceeds
      from related party debt/financing
              
              
              -
              
              
              
              82,341
              
              
              
              15,453Payments
      of long-term debt
              
              
              (16,841
              )
              
              
              (21,393
              )
              
              
              (750
              )Payments
      of related party debt/financing
              
              
              -
              
              
              
              (2,254
              )
              
              
              (5,436
              )Loan
      issuance costs
              
              
              (1,022
              )
              
              
              (285
              )
              
              
              (392
              )Excess
      of purchase price over book value of vessels acquired from entity under
      common control (Note 4)
              
              
              (80,866
              )
              
              
              -
              
              
              
              -Dividends
      paid
              
              
              (42,026
              )
              
              
              -
              
              
              
              -Cash
      balance as of April 3, 2007 that was distributed to the previous
      owner
              
              
              (2,251
              )
              
              
              -
              
              
              
              -Capital
      contributions by predecessor
              
              
              13,679
              
              
              
              17,947
              
              
              
              4,212Net
      cash provided by financing activities
              
              
              215,034
              
              
              
              153,782
              
              
              
              23,087Net
      increase in cash and cash equivalents
              
              
              18,678
              
              
              
              1,232
              
              
              
              (4
              )Cash
      and cash equivalents at beginning of period
              
              
              1,239
              
              
              
              7
              
              
              
              11Cash
      and cash equivalents at end of period
              
              $
              19,917
              
              
              $
              1,239
              
              
              $
              7Supplemental
      Cash Flow informationCash
      paid for interest
              
              $
              12,250
              
              
              $
              4,713
              
              
              $
              223
 
 The
accompanying notes are an integral part of these
 consolidated
and predecessor combined financial statements.
  F-5
   Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
   1.
              Basis
      of Presentation and General
Information
  CAPITAL
PRODUCT PARTNERS L.P. (the “Partnership” or “CPP”) was formed on January 16,
2007 under the laws of the Marshall Islands for the purpose of acquiring
interests in eight wholly owned subsidiaries of Capital Maritime & Trading
Corp. (“CMTC”), each of which owned a newly built, double-hull medium-range
product tanker (the “Initial Vessels”).
 
 The
Partnership is engaged in the seaborne transportation services of crude oil and
refined petroleum products, edible oils and soft chemicals, by chartering its
vessels under medium to long-term time and bareboat charters.
 
 On April
4, 2007 the Initial Public Offering (the “IPO”or the “Offering”) of CPP on the
NASDAQ Global Market was completed successfully. Upon completion of the IPO CMTC
contributed the shares of the Initial Vessel owning companies to the
Partnership. In exchange for the vessels, CMTC received 11,750,000 common units
and 8,805,522 subordinated units of the Partnership. Capital GP L.L.C. (“CGP”),
a wholly owned subsidiary of CMTC that acts as the Partnership’s general
partner, received 419,500 general partner units. The net proceeds of the IPO
were $236,330 (after underwriters’ discount) and were used by CMTC in order to
repay the existing debt of the Initial Vessels’ of $213,917 (including interest
of $74) and all the expenses relating to the IPO. The Partnership issued an
additional 1,762,500 common units to the underwriters in connection with the
exercise of their over-allotment option. CMTC sold these units to the public
(through the underwriters) receiving an additional amount of $34,143. In
connection with the exercise of the over-allotment option the Partnership issued
an additional 35,970 general partner units to CGP in order to maintain its 2%
ownership. Following the Offering the Partnership remitted a cash dividend of
$25,000 to CMTC.
 
 Upon
completion of the IPO, the Partnership entered into several new agreements,
including:
 
 ·
              An
      omnibus agreement with CMTC, CGP and others governing, among other things,
      the circumstances under which the Partnership and CMTC can compete with
      each other and certain rights of first offer on medium range product
      tankers;
 
 ·
              A
      management agreement with Capital Shipmanagement Corp. (the “Manager” or
      “CSM”), a wholly owned subsidiary of CMTC, pursuant to which the
      Manager agreed to provide commercial and technical management services to
      the Partnership;
 
 ·
              An
      administrative services agreement with the Manager pursuant to which the
      Manager agreed to provide administrative management services to the
      Partnership; and
 
 ·
              A
      share purchase agreement with CMTC to purchase for a total consideration
      of $368,000 its interests in seven wholly owned subsidiaries each of which
      owns a newly built, double-hull medium-range product tanker (the
      “Committed Vessels”). The Committed Vessels have been or will be
      transferred to the Partnership at historical cost and all assets and
      liabilities of vessel owning subsidiaries other than vessels at the
      transfer date were or will be assumed by CMTC. On May 8, July 13,
      September 20, and September 28, 2007 the Partnership remitted to CMTC the
      amount of $224,000 in exchange for the acquisition of the shares in the
      vessel-owning companies of the vessels: “Motor Tanker (“M/T”) Atrotos”,
      “M/T Akeraios”, “M/T Apostolos”, and “M/T Anemos I”, (four of the seven
      Committed Vessels) respectively.  On September 24, 2007 the
      partnership remitted to CMTC the amount of $23,000 in exchange for the
      acquisition of the shares in the vessel owning company of M/T Attikos,
      (this vessel was not part of the Committed Vessels) a 2005-built double
      hull product tanker which has a capacity of 12,000
  DWT.
 
 ·
              Revolving
      credit facility of up to $370,000 and swapped the interest portion for
      $346,500 in order to reduce the exposure of interest rates fluctuations
      (Note 2);
 
 Since
April 4, 2007, CMTC, the Partnership’s ultimate parent as determined by the
provision of Emerging Issues Task Force Issue (“EITF”) No. 04-5, “Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights” was deemed to have control over the Partnership and included the
Partnership’s accounts, balances results of operations in its consolidated
financial statements.
  F-6
 Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 1.
              Basis
      of Presentation and General Information –
  Continued
 
 Following
the guidance provided by the provision of EITF No. 87-21 “Change of Accounting
Basis in Master Limited Partnerships” the “Initial Vessels” were transferred to
the partnership at historical cost at the date of transfer and accounted for as
a combination of entities under common control.  All assets,
liabilities and equity other than the relevant vessel, related charter agreement
and related permits, of these vessels’ ship-owning companies were retained
by CMTC.
 
 As
required by the provision of Statement of Financial Accounting Standards No.
141, “Business Combinations” (“SFAS No. 141”), the Partnership accounted for the
acquisition of the vessel owning company of M/T Attikos as a transfer of net
assets between entities under common control. For combinations of entities under
common control, the purchase cost provisions (as they relate to purchase
business combinations involving unrelated entities) of SFAS No. 141 explicitly
do not apply; instead the method of accounting prescribed by SFAS No. 141 for
such transfers is similar to pooling -of-interests method of accounting. Under
this method, the carrying amount of net assets recognized in the balance sheets
of each combining entity are carried forward to the balance sheet of the
combined entity, and no other assets or liabilities are recognized as a result
of the combination (that is, no recognition is made for a purchase premium or
discount representing any difference between the cash consideration paid and the
book value of the net assets acquired).
 
 Following
the acquisition of the shipowning company of M/T Attikos from CMTC the
Partnership recognized the vessel acquired at its carrying amounts (historical
cost) in the accounts of CMTC (the transferring entity) at the date of transfer.
In addition, transfers of net assets between entities under common control are
accounted for as if the transfer occurred at the beginning of the period, and
prior years are retroactively adjusted to furnish comparative information
similar to the pooling method. The amount of the purchase price in excess of
CMTC’s basis in the net assets is recognized as a reduction to partners’
equity.
 
 The
acquisition of the Committed Vessels through the acquisition of the shares of
the vessel owning companies represents acquisition of assets (“vessels”), as the
vessels were built by an unrelated party. The vessels were delivered to CMTC
from the shipyard and on the same date the Partnership acquired the shares of
the vessel owning companies. These vessel owning companies did not have an
operating history, as such, there is no information to retroactively restate
that should be considered. Accordingly the four Committed Vessels (M/T Atrotos,
M/T Akeraios, M/T Apostolos, and M/T Anemos I) were transferred to the
Partnership at historical cost of CMTC at the date of transfer. All assets,
other than the vessels, liabilities and equity that the shipowning companies of
the Committed Vessels had at the time of the transfer were retained by
CMTC.
 
 Predecessor
combined information presented in these financial statements reflect the
historical carrying costs of the contributed companies, as each vessel owning
company was under the common control of CMTC, and is collectively referred to as
“Predecessor Combined” financial statements, which include the balance sheet at
December 31, 2006 of the Initial Vessels and M/T Attikos and results of
operations and cash flows of the Initial Vessels from January 01, 2005 to April
03, 2007 and of the M/T Attikos from January 01, 2005 to September 23, 2007.
Financial statements presented reflecting Partnerships’ balance sheet at
December 31, 2007 and results of operations and cash flows from April 4, 2007
(Offering closing date) to December 31, 2007 are referred to as “consolidated”
financial statements.
 
 As of
December 31, 2007, CMTC owned 8,805,522 subordinated units directly and 455,470
subordinated units indirectly, through CGP, which represent a 40.7% interest in
the Partnership including a 2% participation through CGP.
  F-7
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 1.
              Basis
      of Presentation and General Information –
  Continued
 
 The
consolidated and predecessor combined financial statements include the following
vessel owning companies and management company which were all incorporated under
the laws of the Marshall Islands.
 
 Subsidiary/
                Vessel Owing
      Company
              Date
      of
                Incorporation
              Name
      of Vessel
                Owned
      by
                Subsidiary
              DWT
              Delivery
                Date
      from ShipyardCapital
      Product Operating GP
              01/16/2007
              -
              -
              -Shipping
      Rider Co.
              09/16/2003
              M/T
      Atlantas
              36,760
              04/26/2006Canvey
      Shipmanagement Co.
              03/18/2004
              M/T
      Assos
              47,872
              05/17/2006Centurion
      Navigation Limited
              08/27/2003
              M/T
      Aktoras
              36,759
              07/12/2006Polarwind
      Maritime S.A.
              10/10/2003
              M/T
      Agisilaos
              36,760
              08/16/2006Carnation
      Shipping Company
              11/10/2003
              M/T
      Arionas
              36,725
              11/02/2006Apollonas
      Shipping Company
              02/10/2004
              M/T
      Avax
              47,834
              01/12/2007Tempest
      Maritime Inc.
              09/12/2003
              M/T
      Aiolos
              36,725
              03/02/2007Iraklitos
      Shipping Company
              02/10/2004
              M/T
      Axios
              47,872
              02/28/2007Epicurus
      Shipping Company
              02/11/2004
              M/T  Atrotos
              47,786
              05/08/2007Laredo
      Maritime Inc.
              02/03/2004
              M/T
      Akeraios
              47,781
              07/13/2007Lorenzo
      Shipmanagement Inc.
              05/26/2004
              M/T
      Apostolos
              47,782
              09/20/2007Splendor
      Shipholding S.A.
              07/08/2004
              M/T
      Anemos I
              47,782
              09/28/2007Ross
      Shipmanagement Co.
              12/29/2003
              M/T
      Attikos
              12,000
              01/20/2005
  F-8
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 2.
              Significant Accounting
      Policies
  
 (a)
              Principles
      of Consolidation and Combination: The accompanying consolidated and
      predecessor combined financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of
      America (“U.S. GAAP”), and include the accounts of the legal entities
      comprising the Partnership as discussed in Note 1. Intra-group balances
      and transactions have been eliminated upon consolidation and
      combination.  Intercompany balances and transactions with CMTC
      and its affiliates have not been eliminated, but are presented as balances
      and transactions with related
parties.
 
 (b)
              Use of
      Estimates:The preparation of consolidated and predecessor combined
      financial statements in conformity with U.S. GAAP requires management to
      make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the amounts of revenues and expenses
      recognized during the reporting period. Actual results could differ from
      those estimates. Additionally, these consolidated financial statements
      include allocations for certain expenses, including corporate overhead
      expenses that are normally incurred by a listed company, such expenses
      have not incurred in the periods covered by the Predecessor Combined
      financial statements.
 
 (c)
              Other
      Comprehensive Income (Loss):The Partnership follows the provisions
      of Statement of Financial Accounting Standards (“SFAS”) No. 130 “Statement
      of Comprehensive Income” ("SFAS 130") which requires separate presentation
      of certain transactions, which are recorded directly as components of
      partners’ / stockholders’ equity. For the year ended December 31, 2007 the
      Partnership had accumulated other Comprehensive Loss of $10,288, related
      to the change of the fair value of derivatives that qualify for cash flow
      hedge accounting.
 
 (d)
              Accounting
      for Revenue, Voyage and Operating Expenses: The Partnership
      generates its revenues from charterers for the charterhire of its
      vessels.  Vessels are chartered using either time charters or
      bareboat charters.  A time charter is a contract for the use of
      a vessel for a specific period of time and a specified daily charterhire
      rate, which is generally payable monthly in advance.  Some of
      the Partnership’s time charters also include profit sharing provisions,
      under which the Partnership can realize additional revenues in the event
      that spot rates are higher than the base rates in these time charters. A
      bareboat charter is a contract in which the vessel owner provides the
      vessel to the charterer for a fixed period of time at a specified daily
      rate, which is generally payable monthly in advance, and the customer
      generally assumes all risk and costs of operation during the lease
      term.
 
 All of
the Partnership’s time charters and bareboat charters are classified as
operating leases. Revenues under operating lease arrangements are recognized
when a charter agreement exists, charter rate is fixed and determinable, the
vessel is made available to the lessee, and collection of the related revenue is
reasonably assured. Revenues are recognized ratably on a straight line basis
over the period of the respective time or bareboat charter agreement in
accordance with SFAS No. 13 “Accounting for Leases”, paragraph 19b. Revenues
from profit sharing arrangements in time charters represent 50 % portion of time
charter equivalent (voyage income less direct expenses divided by operating
days), that exceeds the agreed base rate and are recognized in the period
earned. Deferred revenue represents cash received in advance of being earned.
The portion of the deferred revenue that will be earned within the next twelve
months is classified as current liability and the rest as long term
liability.
 
 Vessel
voyage expenses are direct expenses to voyage revenues and primarily consist of
commissions, port expenses, canal dues and bunkers. Commissions are expensed
over the related charter period and all the other voyage expenses are expensed
as incurred. Under the Partnership’s time and bareboat charter agreements, all
voyages expenses, except commissions, are assumed by the charterer. With the
exception of our Morgan Stanley Capital Group Inc. time charter agreements where
the charterer is responsible for the commissions, we are liable for commissions
on all of our time and bareboat charter agreements.
 
 Vessel
operating expenses presented in the consolidated financial statements consist of
management fees payable to the Manager. The Manager provides commercial and
technical services such as crewing, repairs and maintenance, insurance, stores,
spares, lubricants through a management agreement for a fixed daily fee of $5.5
per vessel for the time chartered vessels. The fee also includes expenses
related to the next scheduled special or intermediate survey as applicable and
related drydocking for each vessel.  For bareboat chartered vessels,
the bareboat charterer is responsible for operating expenses such as crewing,
repairs and maintenance, insurance, stores, spares, lubricants and the
Partnership pays a fixed daily fee of $0.3 to the Manager for expenses mainly to
cover compliance costs. Vessel operating expenses presented in the predecessor
combined financial statements consist of all expenses relating to the operation
of the vessels including crewing, repairs and maintenance, insurances, stores
and lubricants, management fees and miscellaneous expenses.
  F-9
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
   2.
              Significant Accounting Policies –
      Continued
  (d)
              Accounting
      for Revenue, Voyage and Operating Expenses (continued): Vessel
      operating expenses are expensed as
incurred.
 
 (e)
              Foreign
      Currency Transactions:The functional currency of the Partnership
      is the U.S. dollar because the Partnership’s vessels operate in
      international shipping markets that utilize the U.S. dollar as the
      functional currency. The accounting records of the Partnership are
      maintained in U.S. dollars.  Transactions involving other
      currencies during the year are converted into U.S. dollars using the
      exchange rates in effect at the time of the transactions.  At
      the balance sheet dates, monetary assets and liabilities, which are
      denominated in currencies other than the U.S. dollar, are translated into
      the functional currency using the exchange rate at that
      date.  Gains or losses resulting from foreign currency
      transactions and translations are included in foreign currency gains and
      losses, net in the accompanying consolidated and predecessor combined
      statements of income.
 
 (f)
              Cash and
      Cash Equivalents:The Partnership considers highly liquid
      investments such as time deposits and certificates of deposit with an
      original maturity of three months or less to be cash
      equivalents.
 
 (g)
              Restricted
      Cash:In order for the Partnership to comply with the
      debt covenants under its credit facility it must maintain a minimum cash
      at bank available at all times. Such amount is considered by the
      Partnership as restricted cash. As of December 31, 2007, restricted cash
      amounted to $3,250 and is presented under other non current
      assets.
 
 (h)
              Trade
      Accounts Receivable:The amount shown as trade accounts receivable
      primarily consists of profit share earned but not yet collected. At each
      balance sheet date all potentially uncollectible accounts are assessed
      individually for purposes of determining the appropriate provision for
      doubtful accounts. No allowance for doubtful accounts was established at
      December 31, 2007 and 2006.
 
 (i)
              Inventories:Inventories consist of consumable bunkers, lubricants, spares and
      stores and are stated at the lower of cost or market value. The cost is
      determined by the first-in, first-out
method.
 
 (j)
              Fixed
      Assets:Fixed assets consist of vessels and vessels under
      construction. The vessels are stated at cost, less accumulated
      depreciation.  Vessel cost consists of the contract price for
      the vessel and any material expenses incurred upon their construction
      (improvements and delivery expenses, on-site supervision costs incurred
      during the construction periods, as well as capitalized interest expense
      during the construction period). The cost of each of the Partnership’s
      vessels is depreciated beginning when the vessel is ready for its intended
      use, on a straight-line basis over the vessels’ remaining economic useful
      life, after considering the estimated residual value. Management estimates
      the useful life to be 25 years.
 
 (k)
              Impairment
      of Long-lived Assets: The Partnership applies SFAS No. 144,
      “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS
      144”) which addresses financial accounting and reporting for the
      impairment or disposal of long-lived assets. SFAS 144 requires that
      long-lived assets and certain identifiable intangibles held and used or
      disposed of by an entity be reviewed for impairment whenever events or
      changes in circumstances indicate that the carrying amount of the assets
      may not be recoverable. An impairment loss for an asset held for use is
      recognized when the estimate of undiscounted cash flows expected to be
      generated by the use and eventual disposition of the asset is less than
      its carrying amount. Measurement of the impairment loss is based on the
      fair value of the asset. The Partnership regularly assesses whether
      impairment indicators are present. No impairment loss was recorded for any
      of the periods presented.
 
 (l)
              Deferred
      Finance Charges:Fees paid to lenders for obtaining new loans or
      refinancing existing loans are capitalized as deferred finance charges and
      amortized to interest expense over the term of the respective loan using
      the effective interest rate method.
 
 (m)
              Pension and
      Retirement Benefit Obligations:The vessel-owning companies
      included in the consolidated and predecessor combined financial statements
      employ the crew on board under short-term contracts (usually up to seven
      months) and accordingly, they are not liable for any pension or post
      retirement benefits.
  F-10
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 2.
              Significant
      Accounting Policies – Continued
  (n)
              Concentration
      of Credit Risk:Financial instruments, which potentially subject
      the Partnership to significant concentrations of credit risk, consist
      principally of cash and cash equivalents and trade accounts receivable.
      The Partnership places its cash and cash equivalents, consisting mostly of
      deposits, with financial institutions with high credit ratings. The
      Partnership performs periodic evaluations of the relative credit standing
      of those financial institutions. Most of the Partnership’s revenues were
      derived from a few charterers. For the year ended December 31, 2007
      British Petroleum Shipping Limited and Morgan Stanley Capital Group Inc.
      accounted for 64% and 28% of Partnership’s revenue,
      respectively.
 
 For the
year ended December 31, 2006 British Petroleum Shipping Limited, Morgan Stanley
Capital Group Inc. and Canterbury Tankers Inc accounted for 53%, 23% and 24% of
the Predecessor revenue, respectively.  For the year ended December
31, 2005 the charterers Canterbury Tankers Inc., and Pacific International
accounted for 69% and 16%, of the Predecessor's revenue, respectively. The
Partnership does not obtain rights of collateral from its charterers to reduce
its credit risk.
 
 (o)
              Fair Value
      of Financial Instruments:The carrying value
      of trade receivables, accounts payable, current accrued liabilities and
      interest rates swaps approximates fair value. The fair values of long-term
      variable rate bank loans approximate the recorded values, due to their
      variable interest rates.
 
 (p)
              Interest
      Rate Swap Agreements:  The Partnership designates its
      derivatives based upon the criteria established by SFAS No. 133 Accounting
      for derivative instruments and hedging activities which establishes
      accounting and reporting standards for derivative instruments, including
      certain derivative instruments embedded in other contracts, and for
      hedging activities. SFAS 133, as amended by Statement of Financial
      Accounting Standards No. 138, Accounting for Certain Derivative
      Instruments and Certain Hedging Activities—An amendment of SFAS 133,
      ("SFAS 138") and Statement of Financial Accounting Standards No. 149,
      Amendment of Statement 133 on Derivative Instruments and Hedging
      Activities, ("SFAS 149"), requires that an entity recognize all
      derivatives as either assets or liabilities in the statement of financial
      position and measure those instruments at fair value.  The
      accounting for the changes in the fair value of the derivative depends on
      the intended use of the derivative and the resulting
      designation.  For a derivative that does not qualify as a hedge,
      the change in fair value is recognized at the end of each accounting
      period on the income statement.  For a derivative that qualifies
      as a cash flow hedge, the change in fair value is recognized at the end of
      each reporting period in other comprehensive income/ (loss) (effective
      portion) until the hedged item is recognized in income. The ineffective
      portion of a derivative’s change in fair value is immediately recognized
      in the income statement.
 
 The
Partnership entered into eight interest rate swap agreements that were
transferred from CMTC through novation agreements on April 4, 2007, (“Novation
Date”) in order to reduce its exposure to cash flow risks from fluctuating
interest rates for an amount of $326,000, of which we have drawn down
$302,000, arising from the revolving credit facility that the Partnership
entered into on March 22, 2007. These swap agreements fix the LIBOR portion of
interest rate at 5.1325% for a period up to June 29, 2012. The Partnership at
the Novation Date recognized a loss of $3,763 in its income statement which
resulted from the valuation of the eight interest rate swap
agreements.
 
 On
September 20, 2007 the Partnership entered into an additional interest rate swap
agreement in order to reduce its exposure to cash flow risks from fluctuating
interest rates for an amount of $20,500 arising from the drawn-down under the
existing revolving credit facility for the purchase of “M/T
Attikos”.  The swap agreement fixes the LIBOR portion of interest rate
at 4.925% for a period up to June 29, 2012.
 
  F-11
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 2.
              Significant
      Accounting Policies – Continued
  (p)
              Interest
      Rate Swap Agreements (continued):  As of December 31,
      2007 the Partnership’s nine interest rate swaps qualify as a cash flow
      hedge and the changes in their fair value are recognized in accumulated
      other comprehensive (loss).
 
 Bank
              Currency
              Notional
    Amount
              Fixed
                rate
              Trade
                date
              Value
                date
              Maturity
                date
              Fair market
                value as of
                Dec.31,
2007HSH Nordbank
    AG
              USD
              30,000
              5.1325%
              02.20.2007
              04.04.2007
              06.29.2012
              $(1,246)HSH Nordbank
    AG
              USD
              56,000
              5.1325%
              02.20.2007
              05.08.2007
              06.29.2012
              (2,326)HSH Nordbank
    AG
              USD
              56.000
              5.1325%
              02.20.2007
              07.13.2007
              06.29.2012
              (2,326)HSH Nordbank
    AG
              USD
              56,000
              5.1325%
              02.20.2007
              09.28.2007
              06.29.2012
              (2,326)HSH Nordbank
    AG
              USD
              56,000
              5.1325%
              02.20.2007
              09.20.2007
              06.29.2012
              (2,266)HSH Nordbank
    AG
              USD
              24,000
              5.1325%
              02.20.2007
              01.15.2008
              06.29.2012
              (1,004)HSH NordbankAG
              USD
              24,000
              5.1325%
              02.20.2007
              01.15.2008
              06.29.2012
              (1,004)HSH Nordbank
    AG
              USD
              24,000
              5.1325%
              02.20.2007
              08.15.2008
              06.29.2012
              (891)HSH Nordbank
    AG
              USD
              20,500
              4.9250%
              09.20.2007
              09.24.2007
              06.29.2012
              (662)Total derivative instruments fair
      value
              
              
              
              
              $(14,051)
 
 
 (q)
              Net Income
      (loss) Per Limited Partner Unit:Basic and diluted net income per
      limited partner unit is calculated by dividing limited partners’ interest
      in net income, less pro forma general partner incentive distributions
      under EITF Issue No. 03-6, “Participating Securities and the Two — Class
      Method Under FASB Statement No. 128”, or EITF 03-6, by the
      weighted-average number of outstanding limited partner units during the
      period (Note 12). Diluted net income per limited partner unit reflects the
      potential dilution that could occur if securities or other contracts to
      issue common stock were exercised. The Partnership had no dilutive
      securities outstanding during the year ended
      December 31, 2007.
 
 (r)
              Income
      Taxes:The Partnership is
      not subject to the payment of any income tax on its income. Instead, a tax
      is levied based on the tonnage of the vessels, which is included in
      operating expenses (Note 9).
 
 (s)
              Segment
      Reporting:The Partnership
      reports financial information and evaluates its operations by charter
      revenues and not by the length or type of ship employment for its
      customers, i.e. time or bareboat charters. The Partnership does not use
      discrete financial information to evaluate the operating results for each
      such type of charter. Although revenue can be identified for these types
      of charters, management cannot and does not identify expenses,
      profitability or other financial information for these charters. As a
      result, management, including the chief operating decision maker, reviews
      operating results solely by revenue per day and operating results of the
      fleet and thus the Partnership has determined that it operates under one
      reportable segment.Furthermore, when
      the Partnership charters a vessel to a charterer, the charterer is free to
      trade the vessel worldwide and, as a result, the disclosure of geographic
      information is impracticable.
 
 (t)
              Recent
      Accounting Pronouncements: In September 2006 the FASB issued
      SFAS No. 157,“Fair Value Measurement”(“SFAS 157”). SFAS 157 addresses
      standardizing the measurement of fair value for companies that are
      required to use a fair value measure of recognition for recognition or
      disclosure purposes. The FASB defines fair value as“the price that would be received
      to sell an asset or paid to transfer a liability in an orderly transaction
      between market participants at the measure date.”SFAS 157is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007.  The Partnership is currently
      evaluating the impact, if any, of SFAS 157 on its financial position,
      results of operations and cash
flows.
  F-12
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 2.
              Significant
      Accounting Policies – Continued
 
 (t)
              Recent
      Accounting Pronouncements (continued):In February 2007, the FASB issued
      SFAS No. 159,“The Fair Value Option for
      Financial Assets and Financial Liabilities”(“SFAS No. 159”).  SFAS No. 159 permits
      entities to choose to measure many financial instruments and certain other
      items at fair value, with changes in fair value recognized in
      earnings.  SFAS No. 159 is effective as of the beginning of the
      first fiscal year that begins after November 15, 2007. On January 01, 2008
      the Partnership did not make any fair value
    elections.
 
 In December 2007, the FASB issued SFAS
No. 141(R),“Business Combinations”(“SFAS No. 141(R)”).  SFAS No. 141(R) supersedes
SFAS No. 141 and establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquired. The Statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The effective date of this Statement is the same as that of
the related FASB Statement No. 160, Non controlling Interests in Consolidated
Financial Statements,an
amendment of ARB No. 51”(“SFAS No. 160”).The Partnership is currently evaluating
the effect, if any, this statement may have on future financial
statements.
 
 In December 2007, the FASB issued SFAS
No. 160. This Statement establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. The guidance will become effective as of the beginning of a
company’s fiscal year beginning after December
15, 2008. The Partnership is currently evaluating the effect that this statement
may have on future financial statements.
 
 In March 2008, the FASB issued FASB
Statement No. 161,“Disclosures about Derivative Instruments
and Hedging Activities”. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The Partnership is currently evaluating the effect that
this statement may have on future financial statements.
  F-13
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 3.
              Transactions
      with Related Parties
 
 Since
April 4, 2007, the Partnership and its subsidiaries, have related party
transactions only with the Manager, a wholly-owned subsidiary of CMTC, which
provides management services to the Partnership for a total daily fixed fee of
$5.5 and $0.3 for the time and bare boat chartered vessels respectively. The
daily fixed fee for the time chartered vessels also includes expenses related to
the next scheduled special or intermediate survey as applicable and related
drydocking for each vessel.  Total management fees charged by the
Manager for the period from April 4, to December 31, 2007 were $11,573 and are
included in “Vessel operating expenses – related party” in the consolidated
income statement.
 
 On April
4, 2007, the Partnership entered into an administrative services agreement with
the Manager, pursuant to which the Manager will provide certain administrative
management services to the Partnership such as accounting, auditing, legal,
insurance, clerical, and other administrative services. The Partnership
reimburses the Manager for reasonable costs and expenses incurred in connection
with the provision of these services within 15 days after the Manager
submits to the Partnership an invoice for such costs and expenses, together with
any supporting detail that may be reasonably required. The Manager did not
charge any fees in connection with this agreement for the year ended December
31, 2007.
 
 However,
the Manager invoiced the Partnership for payments that it made on the
Partnership’s behalf. As of December 31, 2007, the total outstanding amount due
to Manager was $28.
 
 The
vessel owning companies of the Initial Vessels and the vessel owning company of
M/T Attikos had related party transactions with CMTC and its subsidiaries before
their acquisition by CPP mainly for the following reasons:
 
 ·
              Loan
      agreements that CMTC entered into, acting as the borrower, for the
      financing of the construction of  five of the Initial
      Vessels,
 ·
              Manager
      payments on behalf of the vessel owning companies and hire receipts from
      charterers,
 ·
              Manager
      fixed monthly fees, (which were based on agreements with different terms
      and conditions than those in the Partnership’s administrative and
      management agreements) for providing services such as chartering,
      technical support and maintenance, insurance, consulting, financial and
      accounting services, (Note 8),
 ·
              Funds
      advanced/received to/from entities with common ownership,
    and
 ·
              Loan
      draw downs in excess of the advances made to the shipyard by the Manager
      for the funding of vessels’ extra
costs.
 
 Balances
with related parties consisted of the following:
 
 As
      of
                December
      31, 2007
              
              
              Predecessor
                Combined
      Balance as of
                December
      31, 2006I.    
      Due From:Vessels’
      operation (a)
              
              $
              -
              
              
              $
              4,429Manager
      - loan surplus (b)
              
              
              -
              
              
              
              500Other
      affiliated companies (c)
              
              
              -
              
              
              
              25Total
      due from:
              
              $
              -
              
              
              $
              4,954II.    
      Due To:CMTC
      –  loans current portion (d)
              
              $
              -
              
              
              $
              8,042CMTC
      – loans long-term portion  (d)
              
              
              -
              
              
              
              87,498Manager
      – payments on behalf of vessel-owning companies (e)
              
              
              -
              
              
              
              1,867Manager
      – payments on behalf of Capital Product Partners
      L.P.  (f)
              
              
              28
              
              
              
              -Other
      affiliated companies  (c)
              
              
              -
              
              
              
              32Total
      due to:
              
              $
              28
              
              
              $
              97,439
 
  F-14
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 3.
              Transactions
      with Related Parties – Continued
 
 (a)
              Vessels’
      Operation:The balance in
      this line-item relates to funds that are received from charterers less
      disbursements made by the Manager on behalf of the vessel-owning
      subsidiaries with operations.  As of December 31, 2007 and
      December 31 2006, this line item balance amounted to $0 and $4,429
      respectively.
 
 (b)
              Manager -
      Loan Surplus:The balance in this line-item related to the loan
      proceeds of M/T Axios in excess of advances made to the shipyard by the
      Manager. This excess was used in 2007 for the vessel’s extra costs in
      accordance with the loan agreement.
 
 (c)
              Other
      Affiliated Companies: The balance in this line-item related to
      funds advanced/received to/from entities with common
      ownership.
 
 (d)
              CMTC
      Loans: For the financing of the construction of the M/T Atlantas,
      M/T Aktoras, M/T Aiolos, M/T Avax M/T Assos, CMTC was the borrower under
      loan agreements with three separate banks and the vessel-owning companies
      acted as guarantors under these loans (related party
    loans).
 
 As of
December 31, 2006, the balance on these loans was $95,540.  A summary
of the CMTC loans is shown below:
 
 Vessel
              
              As
      of
                December
      31, 2007
              
              
              Predecessor
      Combined Balances as of
                December
      31, 2006(i)
              Issued
      on November 25, 2005
                Maturing
      in April, 2017
              M/T
      Atlantas
              
              
              -
              
              
              $
              25,190(ii)
              Issued
      on December 23, 2005
                Maturing
      in  July, 2016
              M/T
      Aktoras
              
              
              -
              
              
              
              25,283(iii)
              Issued
      on October 18, 2005
                Maturing
      in February, 2017
              M/T
      Aiolos
              
              
              -
              
              
              
              6,920(iv)
              Issued
      on December 23, 2005
                Maturing
      in  May, 2016
              M/T
      Assos
              
              
              -
              
              
              
              30,477(v)
              Issued
      on October 18, 2005
                Maturing
      in  January, 2017
              M/T
      Avax
              
              
              -
              
              
              
              7,670Total
              
              
              
              -
              
              
              $
              95,540Less:
      Current portion
              
              
              
              -
              
              
              
              8,042Long-term
      portion
              
              
              
              -
              
              
              $
              87,498
 
 All of
the above bank loans bore interest at LIBOR plus a margin between 90 and 95
basis points payable quarterly or semi-annually. Each bank loan is secured by a
first preferred mortgage on the respective vessel or vessels and a general
assignment of the earnings, insurances, mortgage interest insurance, and
requisition compensation of the respective vessel or vessels. The weighted
average interest rate for the year ended December 31, 2006 was 6.18%. Interest
expense for related party loans amounted to $1,839, $3,144 and $81 for the year
ended December 31, 2007, 2006 and 2005 respectively.
 
 The loan agreements contained other
customary ship finance covenants, including restrictions as to: changes in
management and ownership of
the mortgaged vessels, the incurrence of additional indebtedness, the mortgaging
of vessels, the minimum cash requirement, as well as minimum requirements as to
the applicable vessels’market value and insured value in
relation to the outstanding balance of the applicable loan. Also the
borrower may pay dividends or make distributions when no event of default has
occurred and the payment of such dividend or distribution has not resulted in a
breach of any of the financial covenants. As of December31, 2006, we were in compliance with all
debt covenants.
 
 On April 4, 2007, following completion
of the IPO, CMTC settled all outstanding loanbalances onthe M/T Atlantas, M/T Aktoras, M/T
Aiolos, M/T Avax and M/T Assos, amounting to $133,958, with the proceeds of the IPO. These vessels were
contributed debt-free to the Partnership.
 
 (e)
              Manager -
      Payments on Behalf of Vessel-owning Companies:This payable
      includes the settlement of vessel obligations related to pre-delivery
      expenses and amounted to $1,867 as of December 31,
  2006.
 
  F-15
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 3.
              Transactions
      with Related Parties – Continued
  (f)
              Manager -
      Payments on Behalf of Capital Product Partners L.P.:Following the
      IPO, the Manager is invoicing the Partnership for payments that it makes
      on behalf of the Partnership and its subsidiaries. The Partnership’s total
      outstanding balance due to Manager as of December 31, 2007 amounted to
      $28.
   4.
              Vessels
      and Vessels under Construction
 
 An
analysis of vessels and vessels under construction is as follows:
 
 As
      of
                December
      31, 2007
              
              
              Predecessor
                Combined
      Balances as of
                December
      31, 2006Cost:Vessels
              
              $
              445,918
              
              
              $
              182,533Advances
      for vessels under construction
              
              
              -
              
              
              
              29,225Total
      cost
              
              
              445,918
              
              
              
              211,758Accumulated
      depreciation
              
              
              (16,747
              )
              
              
              (3,730
              )Vessels,
      net
              
              $
              429,171
              
              
              $
              178,803Vessels
      under construction
              
              $
              -
              
              
              $
              29,225
 
 The Partnership’s vessels (M/T Atlantas, M/T Aktoras,
M/T Agisilaos, M/T Arionas, M/T Aiolos, M/T Avax,  M/T Axios, M/T
Attikos,  M/T Atrotos M/T Akeraios, M/T Assos, M/T Apostolos, and M/T
Anemos I), having total net
book value $429,171 as of December 31, 2007 have been provided as collateral to
secure the revolving credit facility of up to $370,000.
 
 In the table above, the capitalized
interest for the years ended December 31, 2007, 2006 and 2005 amounted to $223, $1,455 and $81,
respectively.
 
 On May 8, July 13, September 20,
September 24, and September 28, 2007 the Partnership acquired from CMTC the
shares of vessel owning companiesof M/T Atrotos, M/T Akeraios, M/T Apostolos,
M/T Attikos, andM/T Anemos
I, respectively for a total purchase price of $247,000. The vessels have been
recorded in the Partnership’s financial statements at the amount of
$166,134 which represents net book value of vessels reflected in CMTC
consolidated financial statements at the time of transfer to the
Partnership. The amount of the purchase price in excess of CMTC’s basis of the assets of $80,866 was
recognized as a reduction of partners’equity and is presented as a financing
activity in the statement of cash flows.
 
  F-16
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 5.
              Long-Term
      Debt
 
 Long-term
debt consists of the following:
 
 Bank
      Loans
              Vessel
      Entity
              
              As
      of
                December
      31, 2007
              
              
              Predecessor
                Combined
      Balances
                as
      of
                December
      31, 2006(i)
              Issued
      on October 31, 2006
                Maturing
      in October 2016
              M/T
      Arionas
              
              $
              -
              
              
              $
              26,180(ii)
              Issued
      on August 14, 2006
                Maturing
      in August 2016
              M/T
      Agisilaos
              
              
              -
              
              
              
              25,740(iii)
              Pre-delivery
      facility issued on
                July
      18, 2006 and refinanced on February 28, 2007
                (Vessel’s
      delivery date)
              M/T
      Axios
              
              
              -
              
              
              
              5,613(iv)
              Issued
      on March 4, 2005
                Maturing March 4, 2015
              M/T
      Attikos
              
              
              -
              
              
              
              7,750(v)
              Issued
      on April 4, 2007
                maturing
      on June 30, 2017
              Capital
      Product
                Partners
      L.P.
              
              
              274,500
              
              
              
              -Total
              
              
              $
              274,500
              
              
              $
              65,283Less:
      Current portion
              
              
              
              -
              
              
              
              6,029Long-term
      portion
              
              
              $
              274,500
              
              
              $
              59,254
 
 
 On April
4, 2007, the M/T Arionas’, M/T Agisilaos’ and M/T Axios’ outstanding loan
balances, which amounted to $79,885, were settled in full by the Offering
proceeds (Note 1). Furthermore, on September 6, 2007 the M/T Attikos outstanding
loan balance, which amounted to $7,000, was fully paid by CMTC. Interest expense
for the M/T Agisilaos, M/T Axios, M/T Arionas and M/T Attikos amounted to
$1,313, $1,389 and $381 for the years ended December 31, 2007, 2006 and
2005.
 
 On March
22, 2007, the Partnership entered into a loan agreement with a syndicate of
financial institutions including HSH Nordbank AG, Hamburg for a revolving credit
facility, of up to $370 million for the financing of the acquisition cost, or
part thereof, up to fifteen medium range product tankers.  The loan
agreement was amended on September 19, 2007 to include the financing of the
acquisition cost of “M/T Attikos”. The credit facility (as amended) is divided
into four Tranches. Tranche A amounting to $30,000 was drawn on April 4, 2007.
Tranche B amounting to $224,000 was drawn in four installments of $56,000 each
on May 8, July 13, September 20, and September 28 2007. Tranche C amounting to
$86,000 will be utilized to partly finance the acquisition of the last three
“Committed Vessels” during 2008, and Tranche D amounting to $30,000 of which
$20,500 have been drawn-down on September 24, 2007 was utilized to partly
finance the acquisition of M/T Attikos.
  As of
December 31, 2007, the Partnership recorded interest expense of $7,400 relating
to its revolving credit facility. As of December 31, 2007, $86,000 from Tranche
C and $9,500 from Tranche D of the revolving credit facility had not been drawn
down. Loan commitment fees are calculated at 0.20% p.a. on any amount not
drawn-down and are paid quarterly.
 
 Borrowings
under this credit facility are jointly and severally secured by the owning
companies of the fifteen vessels (Initial and Committed Vessels) and the M/T
Attikos and bear interest at a rate of 0.75% per annum over US$
LIBOR.  The loan will be repaid in twenty equal consecutive three
month instalments commencing on September 30, 2012 plus a balloon payment due in
June, 2017.
 
 The
credit facility has a general assignment of the earnings, insurances and
requisition compensation of the respective vessel or vessels. Each also requires
additional security, including: pledge and charge on current account; corporate
guaranteed from each of the sixteen vessel owning companies, and mortgage
interest insurance. Following the
swap agreementsthat the Partnership entered into upon the Offering
completion (Note 2) the interest rate for period from April 4, 2007 to December
31, 2007 is fixed at 5.1325% for Tranches A and B and 4.9250% for Tranche
D.  The fixed interest rate of 5.1325% and 4.9250% will be valid up to
June 29, 2012.
  F-17
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 5.
              Long-Term
      Debt – Continued
 
 The loan agreement also contains other
customary ship finance covenants, including restrictions as to: changes in
management and ownership of the mortgaged vessels, the incurrence of additional
indebtedness, the mortgaging of vessels, the ratio of EBITDA to Net Interest
Expenses shall be no less than 2:1, minimum cash requirement of $500 per vessel
of which 50% may be constituted by undrawn commitments under the revolving
facility as well as minimum requirements as to the applicable
vessels’market value and insured value in
relation to the outstanding balance of the applicable loan. Also the vessel
owning companies may pay dividends or make distributions when no event of
default has occurred and the payment of such dividend or distribution has not
resulted in a breach of any of the financial covenants. As of December 31, 2007,
the Partnership was in compliance with all debt covenants.
 
 The
required annual loan payments to be made subsequent to December 31, 2007 are as
follows:
 
 Year
      ending December 31
              
              Bank
      Loan Repayment Schedule2008
              
              $
              -2009
              
              
              -2010
              
              
              -2011
              
              
              -2012
              
              
              13,725Thereafter
              
              
              260,775Total
              
              $
              274,500
 
 
 6.
              Accrued
      Liabilities
 
 Accrued
liabilities consist of the following:
 
 As
      of
                December
      31, 2007
              
              
              Combined
      Balances
                as
      of
                December
      31, 2006 PredecessorAccrued
      loan interest and loan fees
              
              $
              2
              
              
              $
              1,513Accrued
      wages and crew expenses
              
              
              -
              
              
              
              248Accrued
      other operating expenses
              
              
              -
              
              
              
              172Accrued
      voyage expenses and commission
              
              
              184
              
              
              
              35Accrued
      insurance
              
              
              -
              
              
              
              23Accrued
      general and administrative
              
              
              63
              
              
              
              -Total
              
              $
              249
              
              
              $
              1,991
 
 
  F-18
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 7.
              Deferred
      Charges
 
 Deferred
charges are analyzed as follows:
 
 Deferred
                Finance
      ChargesPredecessor
      Combined Balance as of January 1, 2005
              
              
              -Additions
              
              
              392Amortization
              
              
              (4
              )Predecessor
      Combined Balance as of December 31, 2005
              
              $
              388Additions
              
              
              285Amortization
              
              
              (41
              )Predecessor
      Combined Balance as of December 31, 2006
              
              
              632Amortization
      for the period from January 1, 2007 to April 3, 2007 for the Initial
      Vessels
              
              
              (20
              )Amortization
      for the period from January 1, 2007 to September 23, 2007 for M/T
      Attikos
              
              
              (18
              )Deferred
      loan fees assumed by CMTC on April 3, 2007
              
              
              (594
              )Additions
      (new credit facility of up to $370 million)
              
              
              1,022Amortization
      of new credit facility loan fees
              
              
              (74
              )Balance
      as of December 31, 2007
              
              $
              948
 
 
 Deferred
                Dry
      DockingPredecessor
      Combined Balance as of December 31, 2006
              
              
              -Addition
      Dry Docking of M/T Attikos
              
              
              921Amortization
      for the period from July to September 23, 2007
              
              
              (92
              )Deferred
      Dry Docking assumed by CMTC on September 23, 2007
              
              
              (829
              )Balance
      as of December 31, 2007
              
              $
              -
 
  F-19
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 8.
              Voyage
      Expenses and Vessel Operating
Expenses
 
 Voyage
expenses and vessel operating expenses consist of the following:
 
 For
      the year ended December 31,2007
                (Note
      1)
              
              
              2006
                (Note
      1)
              
              
              2005
                (Note
      1)Voyage
      expenses
              
              $
              770
              
              
              $
              373
              
              
              $
              520Voyage
      expenses consist of:Commissions
              
              
              695
              
              
              
              339
              
              
              
              134Port
      expenses
              
              
              -
              
              
              
              -
              
              
              
              218Bunkers
              
              
              -
              
              
              
              -
              
              
              
              164Other
              
              
              75
              
              
              
              34
              
              
              
              4Total
              
              
              770
              
              
              
              373
              
              
              
              520Vessel
      operating expenses
              
              
              3,196
              
              
              
              4,043
              
              
              
              1,932Vessel
      operating expenses – related parties (Note 3)
              
              
              12,283
              
              
              
              890
              
              
              
              216Total
              
              
              15,479
              
              
              
              4,933
              
              
              
              2,148Vessel
      operating expenses consist of:Crew
      costs and related costs
              
              
              1,895
              
              
              
              2,000
              
              
              
              705Insurance
              
              
              218
              
              
              
              421
              
              
              
              96Spares,
      repairs, maintenance   and other
              
              
              593
              
              
              
              706
              
              
              
              756Stores
      and lubricants
              
              
              329
              
              
              
              714
              
              
              
              309Management
      fees(Note 3)
              
              
              12,283
              
              
              
              890
              
              
              
              216Other
      operating expenses
              
              
              161
              
              
              
              202
              
              
              
              66Total
              
              $
              15,479
              
              
              $
              4,933
              
              
              $
              2,148
 
 
 9.
              Income
      Taxes
 
 Under the
laws of the countries of the vessel-owning subsidiaries’ incorporation and/or
vessels’ registration, these companies are not subject to tax on international
shipping income. However, they are subject to registration and tonnage taxes,
which have been included in vessel operating expenses in the accompanying
predecessor combined statements of operations.
 
 Based on
its current operations, the Partnership does not expect to have U.S. source
domestic transportation income.  However, certain of the Partnership’s
activities give rise to U.S. Source International Transportation Income, and
future expansion of the Partnership’s operations could result in an increase in
the amount of U.S. source international transportation income, as well as give
rise to U.S. Source Domestic Transportation Income, all of which could be
subject to U.S. federal income taxation, unless the exemption from U.S. taxation
under Section 883 of the Code applies.
 
  F-20
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 10.
              Cash
      Flow
 
 The
following assets, liabilities and equity accounts were retained by CMTC on April
3, 2007 and September 23, 2007, when the shares of the initial vessels’ owning
companies and M/T Attikos owning company were transferred from CMTC to the
Partnership respectively (Note 1). The cash flow for the year ended December 31,
2007 is adjusted accordingly to exclude the following assets, liabilities and
equity accounts as they did not result in cash inflows or outflows in
consolidated and predecessor combined financial statements:
 
 Balances
      assumed
                by
      CMTC on September 23,
      2007
              
              
              Balances
      assumed
                by
      CMTC on
                April 3, 2007Cash
      and cash equivalents
              
              $
              -
              
              
              $
              2,251Trade
      receivables
              
              
              118
              
              
              
              1,922Insurance
      claims
              
              
              1
              
              
              
              70Due
      from related parties
              
              
              -
              
              
              
              7,598Prepayments
      and other
              
              
              116
              
              
              
              241Inventories
              
              
              54
              
              
              
              274Deferred
      charges
              
              
              829
              
              
              
              594Total
      assets
              
              
              1,118
              
              
              
              12,950Trade
      accounts payable
              
              
              651
              
              
              
              1,744Accrued
      interest and other liabilities
              
              
              273
              
              
              
              570Due
      to related parties
              
              
              5,153
              
              
              
              364Deferred
      revenue
              
              
              228
              
              
              
              4,985Long
      term debt
              
              
              -
              
              
              
              213,843Total
      liabilities
              
              
              6,305
              
              
              
              221,506Net
      liabilities assumed by CMTC
              
              
              5,187
              
              
              
              208,556Contribution
      to the Partnership
              
              
              (9,064
              )
              
              
              (218,475
              )Retained
      earnings assumed by CMTC
              
              
              3,877
              
              
              
              9,919Net  Partners’
      / Stockholders’ Equity contributed by CMTC
              
              $
              (5,187
              )
              
              $
              (208,556
              )
 
 The cash
and cash equivalents of $2,251 as of April 3, 2007 is presented as cash dividend
in the accompanying cash flow statement for the year ended December 31,
2007.
 
 
  F-21
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 11.
              Partnership
      Equity and Distributions
  General:
The partnership agreement requires that within approximately 45 days after the
end of each quarter, beginning with the quarter ending June 30, 2007, all of the
Partnership’s available cash will be distributed to unitholders of record on the
applicable record date.
 
 Definition of
Available Cash:  Available Cash, for each fiscal quarter,
consists of all cash on hand at the end of the quarter:
 
 ·
              less
      the amount of cash reserves established by our board of directors
      to:
 o
              provide
      for the proper conduct of Partnership’ s business (including reserves for
      future capital expenditures and for our anticipated credit
      needs);
 o
              comply
      with applicable law, any of Partnership’s  debt instruments, or
      other agreements; or
 o
              provide
      funds for distributions to Partnership’s unitholders and to general
      partner for any one or more of the next four
  quarters;
 
 ·
              plus
      all cash on hand on the date of determination of available cash for the
      quarter resulting from working capital borrowings made after the end of
      the quarter. Working capital borrowings are generally borrowings that are
      made under our credit agreement and in all cases are used solely for
      working capital purposes or to pay distributions to
    partners.
 
 General Partner
Interest and Incentive Distribution Rights: The General Partner has a 2%
interest in the Partnership as well as the incentive distribution
rights.
 
 Incentive
distribution rights represent the right to receive an increasing percentage of
quarterly distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution levels have been
achieved. The Partnership’s general partner as of December 31, 2007, holds the
incentive distribution rights.
  The
following table illustrates the percentage allocations of the additional
available cash from operating surplus among the unitholders and general partner
up to the various target distribution levels. The amounts set forth under
‘‘Marginal Percentage Interest in Distributions’’ are the percentage interests
of the unitholders and general partner in any available cash from operating
surplus that is being distributed up to and including the corresponding amount
in the column ‘‘Total Quarterly Distribution Target Amount,’’ until available
cash from operating surplus we distribute reaches the next target distribution
level, if any. The percentage interests shown for the unitholders and general
partner for the minimum quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution.
  Marginal
      Percentage Interest
                  in
      DistributionsTotal
      Quarterly
                Distribution Target Amount
              
              Unitholders
              
              General
      PartnerMinimum
      QuarterlyDistribution
              
              $0.3750
              
              
              98%
              
              2%First Target
      Distribution
              up
to
              $0.4313
              
              
              98%
              
              2%Second Target
      Distribution
              above
              $0.4313
              up to
      $0.4688
              
              85%
              
              15%Third Target
      Distribution
              above
              $0.4688
              up to
      $0.5625
              
              75%
              
              25%Thereafter
              above
              $0.5625
              
              
              50%
              
              50%
  Subordinated
Units: All of the Partnership’s subordinated units are held by CMTC. The
Partnership agreement provides that, during the subordination period, the common
units will have the right to receive distributions of available cash from
operating surplus in an amount equal to the minimum quarterly distribution of
$0.3750 per quarter, plus any arrearages in the payment of the minimum quarterly
distribution on the common units from prior quarters, before any distributions
of available cash from operating surplus may be made on the subordinated units.
Distribution arrearages do not accrue on the subordinated units. The purpose of
the subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be distributed on the
common units.
 
   F-22
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 11.
              Partnership
      Equity and Distributions –
Continued
 
 Distributions of
Available Cash From Operating Surplus During the Subordination
Period:The Partnership
agreement requires that  we will make distributions of available cash
from operating surplus for any quarter during the subordination period in the
following manner:
  ·
              first,
      98% to the common unitholders, pro rata, and 2.0% to our general partner,
      until we distribute for each outstanding common unit an amount equal to
      the minimum quarterly distribution for that
  quarter;
  ·
              second,
      98% to the common unitholders, pro rata, and 2.0% to our general partner,
      until we distribute for each outstanding common unit an amount equal to
      any arrearages in payment of the minimum quarterly distribution on the
      common units for any prior quarters during the subordination
      period;
  ·
              third,
      98% to the subordinated unitholders, pro rata, and 2.0% to our general
      partner, until we distribute for each subordinated unit an amount equal to
      the minimum quarterly distribution for that quarter;
  and
  Thereafter,
in the manner described in the above table under section “General Partner
Interest and Incentive Distribution Rights”.
  Distributions of
Available Cash From Operating Surplus After the Subordination Period:Our Partnership
agreement requires that we will make distributions of available cash from
operating surplus for any quarter after the subordination period in the
following manner:
  ·
              first,
      98% to all unitholders, pro rata, and 2.0% to our general partner, until
      we distribute for each outstanding unit an amount equal to the minimum
      quarterly distribution for that quarter;
and
  Thereafter,
in the manner described in the above table under section “General Partner
Interest and Incentive Distribution Rights”.
  
 As of
December 31, 2007 our partners’ capital included the following
units:
 
 As
      of
                December 31, 2007Common
      units
              
              
              13,512,500Subordinated
      units
              
              
              8,805,522Number
      of limited partners’ units outstanding
              
              
              22,318,022General
      Partners units
              
              
              455,470Total
      partnership’s units
              
              
              22,773,492
 
 As of
December 31, 2007, the Partnership’s common units consisted of 13,512,500 units
held by third parties, 8,805,522 subordinated units held by CMTC and 455,470
general partner units held by CGP a wholly owned subsidiary of
CMTC.
 
 On August
14, 2007, the Partnership paid a cash distribution of $0.3626 per unit to all
unitholders of record on August 6, 2007 which amounted to $8,258. That
distribution presented the pro-rata portion of our minimum quarterly
distribution of $0.3750 per unit for the period from April 4, 2007 to June 30,
2007 (88 days).
 
 On
November 15, 2007, the partnership paid a cash distribution of $0.385 per unit
to all unitholders of record on November 7, 2007 which amounted to
$8,768.
 
 
  F-23
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 12.
              Net
      Income (loss) Per Unit
  As
required by EITF Issue No. 03-6, “Participating Securities and Two-Class Method
under FASB Statement No. 128”, “Earnings Per Share”, the general partner’s,
common unit holders’ and subordinated unitholders’ interests in net income are
calculated as if all net income for periods subsequent to April 4, 2007 were
distributed according to the terms of the Partnership’s Agreement, regardless of
whether those earnings would or could be distributed. The Partnership Agreement
does not provide for the distribution of net income; rather, it provides for the
distribution of available cash (Note 11), which is a contractually defined term
that generally means all cash on hand at the end of each quarter after
establishment of cash reserves established by the Capital Product Partners L.P.
board of directors to provide for the proper resources for the Partnership’s
business. Unlike available cash, net income is affected by non-cash items. Net
income for the period from April 4, 2007 to December 31 2007 was $21,571. The
limited partners’ interest in net income for this period was
$21,140.
 
 Under the
Partnership Agreement, the holder of the incentive distribution rights in the
Partnership, which is currently the CGP, assuming that there are no cumulative
arrearages on common unit distributions, has the right to receive an increasing
percentage of cash distributions after the minimum quarterly distribution (Note
11). During the period from April 4, 2007 to December 31, 2007 the Partnership’s
net income did not exceed the First Target Distribution level, and as a result,
the assumed distribution of net income did not result in the use of increasing
percentages to calculate the CGP’s interest in net income.
 
 Furthermore
the Partnership’s net income did not exceed the minimum required quarterly
distribution of $0.375 per common unit ($0.3626 prorated for the period from
April 4, 2007 to June 30, 2007) and consequently, the assumed distribution of
net income resulted in an unequal distribution of net income between the
subordinated unit holders and common unit holders.
 
 The
amount of historical earnings per unit for the years ended December 31,
2005 and 2006 and the period from January 1, 2007 to April 3, 2007 giving
retroactive impact to the number of common and subordinated units (and the 2%
general partner interest) that were issued upon the completion of the Offering
on April 3, 2007 is not presented in the Predecessor Combined Statements of
Income. A presentation of such earnings per unit for the above periods would not
be meaningful to investors as the vessels comprising the initial fleet were
under construction and only M/T Attikos, which was delivered in January 2005,
was under operation for the year ended December 31, 2005. In addition, during
the year ended December 31, 2006 only six of the 13 vessels the Partnership
owned as of December 31, 2007 had been delivered to the Partnership and only the
M/T Attikos was in operation for the full year ended December 31, 2006, while
the other five vessels were in operation for only part of the period (the
vessels were delivered in April, May, July, August and November 2006,
respectively) and a portion of the revenues generated during 2006 was derived
from charters with different terms and conditions from those in the charters in
place during 2007.
 
 
 13.         Commitments
and Contingencies
 
 Commitments:
 
 The
Partnership is party to legal proceedings, claims and complaints in the
ordinary course of its business but does not expect the outcome of any
proceedings, claims or complaints individually or in the aggregate, to have
a material adverse effect on the Partnership’s financial position, results of
operations or liquidity.
 
 (a)
              Vessel
      Purchase Commitments:As of December 31, 2007 the Partnership had
      outstanding purchase commitments relating to the acquisition of the three
      remaining Committed Vessels amounting to $144,000. An analysis of the
      purchase commitments is as follows:
 
 Vessel-owning
      Company
              Date
      of
                Incorp.
              DWT
              Expected
                Delivery
                Date
              Name
      of
                Vessel
                Owned
      by
                Subsidiary
              Vessel
                Purchase
                PriceSorrel
      Shipmanagement Inc.
              02/07/2006
              51,000
              01/2008
              M/T
      Alexandros II
              $48,000Wind
      Dancer Shipping Inc.
              02/07/2006
              51,000
              06/2008
              M/T
      Aristotelis II
              $48,000Belerion
      Maritime Co.
              01/24/2006
              51,000
              08/2008
              M/T
      Aris II
              $48,000
 
  F-24
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 13.         Commitments
and Contingencies – Continued
 
 (b)
              Lease
      Commitments:The vessel-owning subsidiaries owning the Initial and
      Committed Vessels have entered into time and bareboat charter agreements,
      which are summarized below:
 
 Vessel  Name
              Time
      Charter (TC)/
                Bare
      Boat Charter
                (BC)
                (Years)
              Commencement
      of Charter
              Charterer
              Profit
                Sharing
      (1)
              Gross
      Daily Hire Rate
                (Without
      Profit Sharing)M/T
      Atlantas
                (British
      Ensign)
              5+3
      BC
              04/2006
              B.P.
      Shipping Ltd
              -
              $15.2
      (5y) &
                $13.5
      (3y)M/T
      Aktoras
                (British
      Envoy)
              5+3
      BC
              07/2006
              B.P.
      Shipping Ltd
              -
              $15.2
      (5y) &
                $13.5
      (3y)M/T
      Agisilaos
              2.5
      TC
              08/2006
              B.P.
      Shipping Ltd
              50/50
              $17.7M/T
      Arionas
              2+0.5
      TC
              11/2006
              B.P.
      Shipping Ltd
              50/50
              $21.3
      (2y) &
                $19.2
      (0.5y)M/T
      Aiolos
                (British
      Emissary)
              5+3
      BC
              03/2007
              B.P.
      Shipping Ltd
              -
              $15.2
      (5y) &
                $13.5
      (3y)M/T
      Avax
              3
      TC
              06/2007
              B.P.
      Shipping Ltd
              50/50
              $20.8
      (3y)M/T
      Axios
              3
      TC
              03/2007
              B.P.
      Shipping Ltd
              50/50
              $20.8M/T
      Assos
              3
      TC
              11/2006
              Morgan
      Stanley
              50/50
              $20.0M/T
      Atrotos
              3
      TC
              05/2007
              Morgan
      Stanley
              50/50
              $20.0M/T
      Akeraios
              3
      TC
              07/2007
              Morgan
      Stanley
              50/50
              $20.0M/T
      Anemos I
              3
      TC
              09/2007
              Morgan
      Stanley
              50/50
              $20.0M/T
      Apostolos
              3
      TC
              09/2007
              Morgan
      Stanley
              50/50
              $20.0M/T
      Alexandros II
              10
      BC
              01/2008
              O.S.G.
      (2)
              -
              $13.0M/T
      Aristotelis II
              10
      BC
              06/2008
              O.S.G.
      (2)
              -
              $13.0M/T
      Aris II
              10
      BC
              08/2008
              O.S.G.
      (2)
              -
              $13.0M/T
      Attikos
              2.2
      to 2.3 TC
              07/2007
              Trafigura
      Beheer B.V.
              -
              $13.9
 
 (1)
              Profit
      sharing refers to an arrangement between vessel-owning companies and
      charterers to share a predetermined percentage voyage profit in excess of
      the basic rate.
 (2)
              OSG
      has an option to purchase each of the three STX vessels delivered or to be
      delivered in 2008 at the end of the eighth, ninth or tenth year of the
      charter, for $38.0 million, $35.5 million and
      $33.0 million, respectively, which option is exercisable six months
      before the date of completion of the eighth, ninth or tenth year of the
      charter. The expiration date above may therefore change depending on
      whether the charterer exercises its purchase
  option.
 
 Future
minimum rental receipts, excluding any profit share revenue that may arise,
based on vessels committed to non-cancelable long-term time and bareboat charter
contracts, as of December 31, 2007 will be:
 
 Year
      ending December 31
              
              Amount2008
              
              $
              96,3082009
              
              
              87,0092010
              
              
              49,1632011
              
              
              30,1572012
              
              
              29,202Thereafter
              
              
              71,842Total
              
              $
              363,681
 
  F-25
  Capital
Product Partners L.P.
 Notes
to the Consolidated and Predecessor Combined Financial Statements
 (In
thousands of United States dollars, except number of shares
and units)
 14.         Subsequent
Events
  (a)
              Dividends:
      On January 28, 2008 the Partnership declared a dividend of $0.395 per unit
      to all unitholders of record on February 5, 2008, which amounted to
      $8,996. The dividend was paid on February 15,
  2008.
  (b)
              Delivery of
      new buildings: On January 29, 2008 M/T Alexandros II (M/T Overseas
      Serifos), the fifth Committed Vessel was delivered to the Partnership
      through CMTC for a total consideration of $48,000. The acquisition of M/T
      Alexandros II was financed in full by a draw down on Tranche C of the
      existing revolving credit facility.
 
 
 (c)
              Commitment
      for a new credit facility:On March 19, 2008 the Partnership
      entered into a loan agreement with a syndicate of financial institutions
      including HSH Nordbank AG (the “Agent”), for a non amortizing credit
      facility, of up to $350,000 for the financing
  of:
 ·
              Partial
      acquisition cost of up to $57,500 for Amore Mio, and Aristofanis (Tranche
      A)
 ·
              50%
      of the acquisition cost of up to $52,500 for M/T Alkiviadis and M/T
      Aristidis (Tranche B)
 ·
              50%
      of the acquisition cost of up to $240,000 for any further modern tanker
      (Tranche C)
 
 Borrowings
under this credit facility will be jointly and severally secured by the owning
companies of the Collateral vessels  and will bear interest at a rate
of 1.10% per annum over US$ LIBOR.  The credit facility will be repaid
by twenty equal consecutive three month installments commencing on June 30, 2013
plus a balloon payment due in March 2018.
 
 The
credit facility will have a general assignment of the earnings, insurances and
requisition compensation of the respective vessel or vessels and will include
the following financial covenants:
  ·The ratio
of EBITDA to Net Interest Expenses shall be no less than
2:1,
 ·Minimum cash requirements of $500 per vessel,
 ·The total indebtedness shall not be greater than 0.725 to
1 of the aggregate fair market value of the vessels.
  On March
27, 2008 the Partnership drew down $46,000 under its new credit facility in
order to partially fund the acquisition of the shares of the vessel owning
company of M/T Amore Mio II.
 On the
same date the Partnership entered into an interest rate swap agreement to fix
the LIBOR portion of interest rate at 3.5250% until March 27, 2013.
 
 (d)
              Vessel
      acquisition:On March 27, 2008 the Partnership entered into share
      purchase agreement with CMTC for the acquisition of the shares of the
      vessel owning company (Baymont Enterprises Incorporated) of M/T Amore Mio
      II, a 159,982 dwt, 2001 built, double hull tanker from CMTC and took
      delivery of the vessel on the same date. The total purchase price for the
      shares of the vessel owning company of M/T Amore Mio II is $95,000. All
      assets, liabilities and equity other than the vessel, related charter
      agreement and related permits, at the date of the acquisition were assumed
      by CMTC. The acquisition of the shares of the vessel owning company was
      funded by $2,000 from available cash, $46,000 through a drawn down from
      the new revolving $350,000 credit facility, and the remaining amount
      through the issuance of 2,048,823 common units to CMTC at a price of
      $22.94 per unit which equals the volume weighted average price of the
      common units for the period from October 15, 2007 to February 15, 2008.
      M/T Amore Mio is chartered to BP Shipping Limited under a charter with an
      earliest scheduled expiration date of January 2011 at a base gross rate of
      $36.5 per day (net rate $36), and is subject to profit
      sharing.  The combination of the vessel owning company of M/T
      Amore Mio II with the Partnership will be accounted for as a combination
      of entities under common control in accordance with guidance provided in
      SFAS 141 which prescribes the method of accounting for such transfers is
      similar to the pooling-of-interest method of
  accounting.
    F-26