The correct answer is A) Pocketing occurs at small angles of inclination when a tank is 98% full. This is correct because pocketing, which is the formation of free surface effects in a nearly full tank, can occur at small angles of inclination when the tank is approximately 98% full. This is due to the liquid not being able to fully flow and distribute itself evenly across the tank, resulting in a loss of stability. The other answer choices are incorrect. B) is incorrect because the specific gravity of the cargo does not affect the free surface effect - it is the volume of the liquid that matters. C) is incorrect because a lower surface permeability (40%) would actually result in a greater free surface effect compared to a higher permeability (60%). D) is incorrect because pocketing increases the free surface effect, not the loss of GM (metacentric height).