UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

           [ ] 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, 2006

                                       OR

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

                                       OR
         [ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report
                                                  ______________________________

For the transition period from
                               _________________________________________________

Commission file number 0-22704

                       Ship Finance International Limited
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                       Ship Finance International Limited
--------------------------------------------------------------------------------
                 (Translation of Registrant's name into English)

                                     Bermuda
--------------------------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

       Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
                    (Address of principal executive offices)

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

       Title of each class                              Name of each exchange
  Common Shares, $1.00 Par Value                       New York Stock Exchange
---------------------------------                     -------------------------

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

                                      None
--------------------------------------------------------------------------------
                                (Title of Class)

<PAGE>

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

                                      None
--------------------------------------------------------------------------------
                                (Title of Class)

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

                    72,743,737 Common Shares, $1.00 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
                                                                  [X] Yes [ ] No

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
                                                                  [ ] Yes [X] No

Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                                  [X] Yes [ ] No

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

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

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.
                                                         [ ] Item 17 [X] Item 18

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
                                                                  [ ] Yes [X] No

<PAGE>
INDEX TO REPORT ON FORM 20-F
<TABLE>
<CAPTION>
                                                                                PAGE
<S>        <C>                                                                  <C>
PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ...........      1

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE .........................      1

ITEM 3.    KEY INFORMATION .................................................      1

ITEM 4.    INFORMATION ON THE COMPANY ......................................     16

ITEM 4A.   UNRESOLVED STAFF COMMENTS .......................................     34

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS ....................     34

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ......................     55

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ...............     58

ITEM 8.    FINANCIAL INFORMATION ...........................................     60

ITEM 9.    THE OFFER AND LISTING ...........................................     61

ITEM 10.   ADDITIONAL INFORMATION ..........................................     62

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......     76

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ..........     76

                                      PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES .................     77

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
           AND USE OF PROCEEDS .............................................     77

ITEM 15.   CONTROLS AND PROCEDURES .........................................     77

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT ................................     78

ITEM 16B.  CODE OF ETHICS ..................................................     78

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES ..........................     78

ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ......     79

ITEM 16E.  PURCHASE OF EQUITY SECURITIES BY ISSUER AND AFFILIATED
           PURCHASERS ......................................................     79

                                      PART III

ITEM 17.   FINANCIAL STATEMENTS ............................................     81

ITEM 18.   FINANCIAL STATEMENTS ............................................     81

ITEM 19.   EXHIBITS ........................................................     81
</TABLE>
<PAGE>

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

In addition to these important factors and matters discussed elsewhere herein,
important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
strength of world economies, fluctuations in currencies and interest rates,
general market conditions including fluctuations in charterhire rates and vessel
values, changes in demand in the markets in which we operate, changes in demand
resulting from changes in OPEC's petroleum production levels and world wide oil
consumption and storage, changes in market demand in countries which import
commodities and finished goods and changes in the amount and location of the
production of those commodities and finished goods, changes in our operating
expenses, including bunker prices, drydocking and insurance costs, performance
of our charterers and other counterparties with whom we deal, timely delivery of
vessels under construction within the contracted price, changes in governmental
rules and regulations or actions taken by regulatory authorities, potential
liability from pending or future litigation, general domestic and international
political conditions, potential disruption of shipping routes due to accidents
or political events, and other important factors described from time to time in
the reports filed by the Company with the Securities and Exchange Commission.

<PAGE>


                                     PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable

ITEM 3.   KEY INFORMATION

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

A. SELECTED FINANCIAL DATA

The selected income statement data of the Company with respect to the fiscal
years ended December 31, 2006, 2005 and 2004 and the selected balance sheet data
of the Company with respect to the fiscal years ended December 31, 2006 and 2005
have been derived from the Company's Consolidated Financial Statements included
in Item 18 of this annual report, prepared in accordance with United States
generally accepted accounting principles.

The selected combined income statement data for the fiscal years ended December
31, 2003 and 2002 has been derived from our audited predecessor combined
carve-out financial statements not included herein. The selected balance sheet
data as of December 31, 2004, 2003 and 2002 have been derived from consolidated
financial statements of the Company, and predecessor combined carve-out
statements not included herein. The following table should be read in
conjunction with Item 5. "Operating and Financial Review and Prospects" and the
Company's Consolidated Financial Statements and Notes thereto included herein.

<TABLE>
<CAPTION>
                                                                                         Predecessor combined
                                                                                               carve-out
                                                      Year Ended December 31,           Year Ended December 31,
                                                   2006         2005         2004          2003         2002
                                               -----------  -----------  -----------   -----------   ----------
                                                (in thousands of dollars except common share and per share data)
<S>                                            <C>          <C>          <C>           <C>           <C>
Income Statement Data:

Total operating revenues .....................     424,658      437,510      492,069       695,068      365,174
Net operating income (loss) ..................     293,697      300,662      347,157       348,816       86,091
Net income (loss) ............................     180,798      209,546      262,659       334,812       18,024
Earnings per share, basic and diluted ........ $      2.48  $      2.84  $      3.52    $     4.53   $     0.24
Cash dividends paid ..........................     149,123      148,863       78,905           n/a          n/a
Cash dividend paid per share ................. $      2.05  $      2.00  $      1.05           n/a          n/a

Balance Sheet Data (at end of period):
Cash and cash equivalents ....................      64,569       32,857       29,193        26,519       20,634
Vessels and equipment, net ...................     246,549      315,220      236,305     1,863,504    1,904,146
Investment in finance leases (including
   current portion) ..........................   2,109,183    1,925,354    1,718,642            --           --
Total assets .................................   2,553,677    2,393,913    2,152,937     2,156,348    2,123,607
Long term debt (including current portion) ...   1,915,200    1,793,657    1,478,894       991,610    1,106,847
Share capital.................................      72,744       73,144       74,901           n/a          n/a
Stockholders' equity (deficit) ...............     600,530      561,522      660,982       822,026      485,605
Common shares outstanding ....................  72,743,737   73,143,737   74,900,837           n/a          n/a
Weighted average common shares
   outstanding(1) ............................  72,764,287   73,904,465   74,610,946           n/a          n/a

Cash Flow Data:
Cash provided by operating activities ........     193,497      280,834      178,528       415,523      115,658
Cash provided by (used in) investing
   activities ................................    (110,706)    (269,573)      76,948       (51,632)    (261,779)
Cash provided by (used in) financing
   activities ................................     (51,079)      (7,597)    (226,283)     (358,006)     140,714
</TABLE>

(1) For all periods presented prior to June 16, 2004, per share amounts are
based on a denominator 73,925,837 common shares outstanding, which is the number
of issued common shares outstanding on June 16, 2004, the date that the
Company's shares were partially spun off. The Company's shares were listed on
the New York Stock Exchange on June 17, 2004.

B. CAPITALIZATION AND INDEBTEDNESS

Not Applicable

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable

D. RISK FACTORS

Our assets are primarily engaged in transporting crude oil and oil products,
drybulk and containerized cargos, and in offshore drilling and related
activities. The following summarizes some of the risks that may materially
affect our business, financial condition or results of operations. Unless
otherwise indicated in this Annual Report on Form 20-F, all information
concerning our business and our assets is as of June 15, 2007.

                         Risks Relating to Our Industry

The seaborne transportation industry is cyclical and volatile, and this may lead
to reductions in our charter rates, vessel values and results of operations.

The international seaborne transportation industry is both cyclical and volatile
in terms of charter rates and profitability. The degree of charter rate
volatility for vessels has varied widely. Fluctuations in charter rates result
from changes in the supply and demand for vessel capacity and changes in the
supply and demand for energy resources, commodities, semi-finished and finished
consumer and industrial products internationally carried at sea. The factors
affecting the supply and demand for vessels are outside of our control, and the
nature, timing and degree of changes in industry conditions are unpredictable.

   Factors that influence demand for vessel capacity include:

      o     supply and demand for energy resources, commodities, semi-finished
            and finished consumer and industrial products;

      o     changes in the production of energy resources, commodities,
            semi-finished and finished consumer and industrial products;

      o     the location of regional and global production and manufacturing
            facilities;

      o     the location of consuming regions for energy resources, commodities,
            semi-finished and finished consumer and industrial products;

      o     the globalization of production and manufacturing;

      o     global and regional economic and political conditions;

      o     developments in international trade;

      o     changes in seaborne and other transportation patterns, including the
            distance cargo is transported by sea;

      o     environmental and other regulatory developments;

      o     currency exchange rates;

      o     weather;

      o     the number of newbuilding deliveries;

      o     the scrapping rate of older vessels;

      o     the price of steel;

      o     changes in environmental and other regulations that may limit the
            useful lives of vessels;

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

      o     port or canal congestion.

We anticipate that the future demand for our vessels and charter rates will be
dependent upon continued economic growth in China, India and the rest of the
world, seasonal and regional changes in demand and changes to the capacity of
the world fleet. We believe the capacity of the world fleet is likely to
increase and there can be no assurance that economic growth will continue at a
rate sufficient to utilize this new capacity. Adverse economic, political,
social or other developments could negatively impact charter rates and therefore
have a material adverse effect on our business, results of operations and
ability to pay dividends.

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

Our fleet includes eleven non-double hull tankers.

The United States, the European Union and the International Maritime
Organization, or IMO, have all imposed limits or prohibitions on the use of
these types of tankers in specified markets after certain target dates,
depending on certain factors such as the size of the vessel and the type of
cargo. In the case of our non-double hull tankers, these phase out dates range
from 2010 to 2015. As of April 15, 2005, the Marine Environmental Protection
Committee of the IMO has amended the International Convention for the Prevention
of Pollution from Ships to accelerate the phase out of certain categories of
single hull tankers, including the types of vessels in our fleet, from 2015 to
2010 unless the relevant flag states extend the date.

This change could result in some or all of our non-double hull tankers being
unable to trade in many markets after 2010. In addition, single hull tankers are
likely to be chartered less frequently and at lower rates. Additional
regulations may be adopted in the future that could further adversely affect the
useful lives of our non-double hull tankers, as well as our ability to generate
income from them.

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

Our operations are affected by extensive and changing international, national,
state and local laws, regulations, treaties, conventions and standards in force
in international waters, the jurisdictions in which our tankers and other
vessels operate and the country or countries in which such vessels are
registered, including those governing the management and disposal of hazardous
substances and wastes, the cleanup of oil spills and other contamination, air
emissions, and water discharges and ballast water management. These regulations
include the U.S. Oil Pollution Act of 1990, or OPA, the International Convention
on Civil Liability for Oil Pollution Damage of 1969, International Convention
for the Prevention of Pollution from Ships, the IMO International Convention for
the Safety of Life at Sea of 1974, or SOLAS, the International Convention on
Load Lines of 1966 and the U.S. Marine Transportation Security Act of 2002.

In addition, vessel classification societies also impose significant safety and
other requirements on our vessels. In complying with current and future
environmental requirements, vessel owners and operators may also incur
significant additional costs in meeting new maintenance and inspection
requirements, in developing contingency arrangements for potential spills and in
obtaining insurance coverage. Government regulation of vessels, particularly in
the areas of safety and environmental requirements, can be expected to become
stricter in the future and require us to incur significant capital expenditures
on our vessels to keep them in compliance, or even to scrap or sell certain
vessels altogether.

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

Under local, national and foreign laws, as well as international treaties and
conventions, we could incur material liabilities, including cleanup obligations,
natural resource damages and third-party claims for personal injury or property
damages, in the event that there is a release of petroleum or other hazardous
substances from our vessels or otherwise in connection with our current or
historic operations. We could also incur substantial penalties, fines and other
civil or criminal sanctions, including in certain instances seizure or detention
of our vessels, as a result of violations of or liabilities under environmental
laws, regulations and other requirements. For example, OPA affects all vessel
owners shipping oil to, from or within the United States. OPA allows for
potentially unlimited liability without regard to fault for owners, operators
and bareboat charterers of vessels for oil pollution in United States waters.
Similarly, the International Convention on Civil Liability for Oil Pollution
Damage, 1969, as amended, which has been adopted by most countries outside of
the United States, imposes liability for oil pollution in international waters.
OPA expressly permits individual states to impose their own liability regimes
with regard to hazardous materials and oil pollution incidents occurring within
their boundaries. Coastal states in the United States have enacted pollution
prevention liability and response laws, many providing for unlimited liability.

An over-supply of container vessel capacity may lead to reductions in charter
hire rates and profitability.

The market supply of container vessels has been increasing, and the number of
container vessels on order have recently reached historic highs. An over-supply
of container vessel capacity may result in a reduction of charter hire rates. If
such a reduction occurs, the value of our container vessels may decrease and,
under certain circumstances, affect the ability of our customers who charter our
container vessels to make charterhire payments to us. This and other factors
affecting the supply and demand for container vessels and the supply and demand
for products shipped in containers are outside our control and the nature,
timing and degree of changes in the industry may affect the ability of our
charterers to make charterhire payments to us.

Our drill rig business depends on the level of activity in the offshore oil and
gas industry, which is significantly affected by volatile oil and gas prices and
other factors.

Our drill rig business depends on the level of activity in oil and gas
exploration, development and production in market sectors worldwide, with the
U.S. and international offshore areas being our primary market sectors. Oil and
gas prices and market expectations of potential changes in these prices
significantly affect this level of activity. However, higher commodity prices do
not necessarily translate into increased drilling activity since our customers'
expectations of future commodity prices typically drive demand for our rigs.
Also, increased competition for our customers' drilling budgets could come from,
among other areas, land-based energy markets in Africa, Russia, other former
Soviet Union states, the Middle East and Alaska. The availability of quality
drilling prospects, exploration success, relative production costs, the stage of
reservoir development and political and regulatory environments also affect our
customers' drilling campaigns. Worldwide military, political and economic events
have contributed to oil and gas price volatility and are likely to do so in the
future. Oil and gas prices are extremely volatile and are affected by numerous
factors, including the following:

      o     worldwide demand for oil and gas;

      o     the ability of OPEC to set and maintain production levels and
            pricing;

      o     the level of production in non-OPEC countries;

      o     the policies of various governments regarding exploration and
            development of their oil and gas reserves;

      o     advances in exploration and development technology; and

      o     the worldwide military and political environment, including
            uncertainty or instability resulting from an escalation or
            additional outbreak of armed hostilities or other crises in oil
            producing areas or further acts of terrorism in the United States,
            or elsewhere.

The drill rig business involves numerous operating hazards.

Our drilling operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blowouts, reservoir damage, loss of
production, loss of well control, punch-throughs, craterings, fires and natural
disasters such as hurricanes and tropical storms could damage or destroy our
drilling rigs. The occurrence of one or more of these events could result in the
suspension of drilling operations, damage to or destruction of the equipment
involved and injury or death to rig personnel. Operations also may be suspended
because of machinery breakdowns, abnormal drilling conditions, and failure of
subcontractors to perform or supply goods or services or personnel shortages. In
addition, offshore drilling operations are subject to perils peculiar to marine
operations, including capsizing, grounding, collision and loss or damage from
severe weather. Damage to the environment could also result from our operations,
particularly through oil spillage or extensive uncontrolled fires. We may also
be subject to property, environmental and other damage claims by oil and gas
companies. Similar to our vessel operating business our insurance policies and
contractual rights to indemnity may not adequately cover losses, and we do not
have insurance coverage or rights to indemnity for all risks.

Increased inspection procedures, tighter import and export controls and new
security regulations could increase costs and cause disruption of our container
shipping business.

International container shipping is subject to security and customs inspection
and related procedures in countries of origin, destination and trans-shipment
points. These security procedures can result in cargo seizure, delays in the
loading, offloading, trans-shipment, or delivery of containers and the levying
of customs duties, fines or other penalties against exporters or importers and,
in some cases, carriers.

Since the events of September 11, 2001, U.S. authorities have more than doubled
container inspection rates to approximately 5% of all imported containers.
Government investment in non-intrusive container scanning technology has grown,
and there is interest in electronic monitoring technology, including so-called
"e-seals" and "smart" containers that would enable remote, centralized
monitoring of containers during shipment to identify tampering with or opening
of the containers, along with potentially measuring other characteristics such
as temperature, air pressure, motion, chemicals, biological agents and
radiation.

It is unclear what changes, if any, to the existing security procedures will
ultimately be proposed or implemented, or how any such changes will affect the
container shipping industry. These changes have the potential to impose
additional financial and legal obligations on carriers and, in certain cases, to
render the shipment of certain types of goods by container uneconomical or
impractical. These additional costs could reduce the volume of goods shipped in
containers, resulting in a decreased demand for container vessels. In addition,
it is unclear what financial costs any new security procedures might create for
container vessel owners and operators. Any additional costs or a decrease in
container volumes could have an adverse impact on our customers that charter
container vessels from us and, under certain circumstances, may affect their
ability to make charterhire payments to us under the terms of our charters.

Our business has inherent operational risks, which may not be adequately covered
by insurance.

Our vessels and their cargoes are at risk of being damaged or lost because of
events such as marine disasters, bad weather, mechanical failures, human error,
environmental accidents, war, terrorism, piracy and other circumstances or
events. In addition, transporting cargoes across a wide variety of international
jurisdictions creates a risk of business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes and boycotts, the
potential for changes in tax rates or policies, and the potential for government
expropriation of our vessels. Any of these events may result in loss of
revenues, increased costs and decreased cash flows to our customers, which could
impair their ability to make payments to us under our charters.

In the event of a casualty to a vessel or other catastrophic event, we will rely
on our insurance to pay the insured value of the vessel or the damages incurred.
Through our management agreements with our vessel managers, we procure insurance
for the vessels in our fleet employed under time charters against those risks
that we believe the shipping industry commonly insures against. These insurances
include marine hull and machinery insurance, protection and indemnity insurance,
which include pollution risks and crew insurances, and war risk insurance.
Currently, the amount of coverage for liability for pollution, spillage and
leakage available to us on commercially reasonable terms through protection and
indemnity associations and providers of excess coverage is $1 billion per tanker
per occurrence.

We cannot assure you that we will be adequately insured against all risks. Our
vessel managers may not be able to obtain adequate insurance coverage at
reasonable rates for our vessels in the future. For example, in the past more
stringent environmental regulations have led to increased costs for, and in the
future may result in the lack of availability of, insurance against risks of
environmental damage or pollution. Additionally, our insurers may refuse to pay
particular claims. For example, the circumstances of a spill, including
non-compliance with environmental laws, could result in denial of coverage,
protracted litigation and delayed or diminished insurance recoveries or
settlements. Any significant loss or liability for which we are not insured
could have a material adverse effect on our financial condition. Under the terms
of our bareboat charters, the charterer is responsible for procuring all
insurances for the vessel.

Maritime claimants could arrest our vessels, which could interrupt our customers
or our cash flows.

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

Governments could requisition our vessels during a period of war or emergency
without adequate compensation, resulting in a loss of earnings.

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

As our fleet ages, the risks associated with older vessels could adversely
affect our operations.

In general, the costs to maintain a vessel in good operating condition increase
as the vessel ages. Due to improvements in engine technology, older vessels
typically are less fuel-efficient than more recently constructed vessels. Cargo
insurance rates increase with the age of a vessel, making older vessels less
desirable to charterers.

Governmental regulations, safety, environmental or other equipment standards
related to the age of tankers and other types of vessels may require
expenditures for alterations or the addition of new equipment to our vessels to
comply with safety or environmental laws or regulations that may be enacted in
the future. These laws or regulations may also restrict the type of activities
in which our vessels may engage or the geographic regions in which they may
operate. We cannot predict what alterations or modifications our vessels may be
required to undergo in the future or that as our vessels age, market conditions
will justify any required expenditures or enable us to operate our vessels
profitably during the remainder of their useful lives.

There may be risks associated with the purchase and operation of second-hand
vessels.

Our current business strategy includes additional growth through the acquisition
of both newbuildings and second-hand vessels. Although we generally inspect
second-hand vessels prior to purchase, this does not normally provide us with
the same knowledge about the vessels' condition that we would have had if such
vessels had been built for and operated exclusively by us.

Therefore, our future operating results could be negatively affected if some of
the vessels do not perform as we expect. Also, we do not receive the benefit of
warranties from the builders if the vessels we buy are older than one year.

                          Risks relating to our Company

We depend on our charterers and principally the Frontline Charterers for all of
our operating cash flows and for our ability to pay dividends to our
shareholders.

Most of the tanker vessels and oil bulk ore carriers or OBOs in our fleet are
chartered to Frontline Shipping Limited and Frontline Shipping II Limited or the
Frontline Charterers, subsidiaries of Frontline Ltd, or Frontline, while our
other vessels that have charters attached to them are chartered to our other
customers under medium to long-term time and bareboat charters, except one which
is on a short-term time charter through October 2007. The charter hire payments
that we receive from our customers constitute substantially all of our operating
cash flows. The Frontline Charterers have no business or sources of funds other
than those related to the chartering of our tanker fleet to third parties.

The Frontline Charterers are, at June 15, 2007 capitalized with $197.0 and $35.0
million, respectively, which serves to support the Frontline Charterers'
obligations to make charterhire payments to us. Neither Frontline nor any of its
affiliates guarantees the payment of charterhire or is obligated to contribute
additional capital to the Frontline Charterers at any time. Although there are
restrictions on the Frontline Charterers' rights to use their cash to pay
dividends or make other distributions, at any given time their available cash
may be diminished or exhausted, and the Frontline Charterers may be unable to
make charterhire payments to us. If the Frontline Charterers or any of our other
charterers are unable to make charterhire payments to us, our results of
operations and financial condition will be materially adversely affected and we
may not have cash available to pay debt service or for distributions to our
shareholders.

The amount of the profit sharing  payment we receive under our charters with the
Frontline  Charterers,  if any,  and our ability to pay our  ordinary  quarterly
dividend, may depend on prevailing spot market rates, which are volatile.

Most of our tanker vessels and our OBOs, operate under time charters to the
Frontline Charterers. These charter contracts provide for base charterhire and
profit sharing payments when the Frontline Charterers' earnings from deploying
our vessels exceed certain levels. The majority of our vessels chartered to the
Frontline Charterers are sub-chartered by the Frontline Charterers in the spot
market, which is subject to greater volatility than the long-term time charter
market. Accordingly, the amount of profit sharing payments that we receive, if
any, is primarily dependant on the strength of the spot market and we cannot
assure you that we will receive any profit sharing payments for any periods in
the future. Furthermore, our quarterly dividend may depend on the Company
receiving profit sharing payments or that we continue to expand our fleet so
that, in either case, we receive cash flows in addition to the cash flows we
receive from our base charterhire from the Frontline Charterers and charter
payments from other customers. As a result, we cannot assure you that we will
continue to pay quarterly dividends.

Volatility in the international shipping and offshore markets may cause our
customers to be unable to pay charterhire to us.

Our customers are subject to volatility in the shipping market that affects
their ability to operate the vessels they charter from us at a profit. Our
customers' successful operation of our vessels and rigs in the charter market
will depend on, among other things, their ability to obtain profitable charters.
We cannot assure you that future charters will be available to our customers at
rates sufficient to enable them to meet their obligations to make charterhire
payments to us. As a result, our revenues and results of operations may be
adversely affected. These factors include:

      o     global and regional economic and political conditions;

      o     supply and demand for oil and refined petroleum products, which is
            affected by, among other things, competition from alternative
            sources of energy;

      o     supply and demand for energy resources, commodities, semi-finished
            and finished consumer and industrial products;

      o     developments in international trade;

      o     changes in seaborne and other transportation patterns, including
            changes in the distances that cargoes are transported;

      o     environmental concerns and regulations;

      o     weather;

      o     the number of newbuilding deliveries;

      o     the phase-out of single hull tankers from certain markets pursuant
            to national and international laws and regulations;

      o     the scrapping rate of older vessels; and

      o     changes in production of crude oil, particularly by OPEC and other
            key producers.

Tanker charter rates also tend to be subject to seasonal variations, with demand
(and therefore charter rates) normally higher in winter months in the northern
hemisphere.

We depend on directors who are associated with affiliated companies which may
create conflicts of interest.

Currently, the chairman of our Board of Directors, Tor Olav Troim, and Kate
Blankenship, a member of our Board of Directors, are also directors of
Frontline, Golden Ocean Group Limited ("Golden Ocean"), and Seadrill Limited
("Seadrill"). All of these companies are indirectly controlled by John
Fredriksen who also controls our principal shareholders, Hemen Holding Limited
and Farahead Investment Inc. (collectively "Hemen"). Svein Aaser, a member of
our board of directors, acts as Executive Director for Seatankers Management Ltd
("Seatankers"), a company affiliated with Hemen. These three directors owe
fiduciary duties to the shareholders of each company and may have conflicts of
interest in matters involving or affecting us and our customers. In addition,
due to their ownership of Frontline, Golden Ocean or Seadrill common shares,
they may have conflicts of interest when faced with decisions that could have
different implications for Frontline, Golden Ocean, Seadrill or Seatankers than
they do for us. We cannot assure you that any of these conflicts of interest
will be resolved in our favor.

The agreements between us and affiliates of Hemen may be less favorable to us
than agreements that we could obtain from unaffiliated third parties.

The charters, management agreements, the charter ancillary agreements and the
other contractual agreements we have with companies affiliated with Hemen were
made in the context of an affiliated relationship and were not necessarily
negotiated in arms-length transactions. The negotiation of these agreements may
have resulted in prices and other terms that are less favorable to us than terms
we might have obtained in arm's-length negotiations with unaffiliated third
parties for similar services.

Hemen and its associated companies business activities may conflict with ours.

While Frontline has agreed to cause the Frontline Charterers to use their
commercial best efforts to employ our vessels on market terms and not to give
preferential treatment in the marketing of any other vessels owned or managed by
Frontline or its other affiliates, it is possible that conflicts of interests in
this regard will adversely affect us. Under our charter ancillary agreements
with the Frontline Charterers and Frontline, we are entitled to receive annual
profit sharing payments to the extent that the average time daily charter
equivalent, or TCE, rates realized by the Frontline Charterers exceed specified
levels. Because Frontline also owns or manages other vessels in addition to our
fleet, which are not included in the profit sharing calculation, conflicts of
interest may arise between us and Frontline in the allocation of chartering
opportunities that could limit our fleet's earnings and reduce the profit
sharing payments or charterhire due under our charters.

Our shareholders must rely on us to enforce our rights against our contract
counterparties.

Holders of our common shares and other securities have no direct right to
enforce the obligations of the Frontline Charterers, Frontline Management
(Bermuda) Ltd., or Frontline Management, Frontline, Golden Ocean and Seadrill or
any of our other customers under the charters, or any of the other agreements to
which we are party, including our management agreement with Frontline
Management. Accordingly, if any of those counterparties were to breach their
obligations to us under any of these agreements, our shareholders would have to
rely on us to pursue our remedies against those counterparties.

There is a risk that United States tax authorities could treat us as a "passive
foreign investment company," which would have adverse United States federal
income tax consequences to United States holders.

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

United States shareholders of a PFIC are subject to a disadvantageous United
States 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.

Under these rules, we should not be considered to be a PFIC if our income from
our time charters is considered to be income for the performance of services,
but we will be considered to be a PFIC if such income is considered to be rental
income. We have received an opinion from our counsel, Seward & Kissel LLP, that
it is more likely than not that our income from time charters will not be
treated as passive income for purposes of determining whether we are a PFIC.
Based on this opinion and our current method of operations, we do not believe we
are, nor do we expect to become, a PFIC with respect to any taxable year. Our
belief and the opinion are based principally upon the positions that (1) time
and voyage charter income constitutes services income, rather than rental income
and (2) Frontline Management which provides services to our vessels that are
chartered under time charters, will be respected as a separate entity from the
Frontline Charterers, with which it is affiliated.

There is no direct legal authority under the PFIC rules addressing our proposed
method of operation. In particular, there is no legal authority addressing the
situation where the charterer of a majority of the vessels in a company's fleet
is affiliated with the technical management provider for a majority of the
company's vessels. Accordingly, no assurance can be given that the Internal
Revenue Service, or IRS, or a court of law will accept our position, and there
is a significant risk that the IRS or a court of law could determine that we are
a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC
for any future taxable year if the nature and extent of our operations were to
change.

If the IRS were to find that we are or have been a PFIC for any taxable year,
our United States shareholders will face adverse United States tax consequences.
Individual shareholders will not be eligible for the 15% maximum tax rate on
dividends that we pay, and other adverse tax consequences will arise.

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

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

We expect that we and each of our subsidiaries qualify for this statutory tax
exemption and we will take this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption and
thereby become subject to United States federal income tax on our United States
source income. For example, Hemen owned 41.4% of our outstanding stock at June
15, 2007. There is therefore a risk that we could no longer qualify for
exemption under Code Section 883 for a particular taxable year if other
shareholders with a five percent or greater interest in our stock were, in
combination with Hemen, to own 50% or more of our outstanding shares of our
stock on more than half the days during the taxable year. Due to the factual
nature of the issues involved, we can give no assurances on our tax-exempt
status or that of any of our subsidiaries.

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

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

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

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

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

If our long-term time or bareboat charters or management agreements with respect
to our vessels employed on long-term time charters terminate, we could be
exposed to increased volatility in our business and financial results, our
revenues could significantly decrease and our operating expenses could
significantly increase.

If any of our charters terminate, we may not be able to re-charter those vessels
on a long-term basis with terms similar to the terms of our existing charters,
or at all. While the terms of our current charters for our tanker vessels to the
Frontline Charterers end between 2013 and 2027, the Frontline Charterers have
the option to terminate the charters of our non double hull tanker vessels from
2010.

The charters for the other vessels in our current fleet, other than the Front
Vanadis which is subject to a three and a half year hire-purchase contract, and
our 1,700 twenty foot equivalent units, or TEUs, container vessels, one of which
is on a time charter scheduled to terminate in May 2009 and the other of which
is on a time charter scheduled to terminate in October 2007, are generally
contracted to expire between six and 20 years, although we have granted some of
these charterers purchase options that, if exercised, may effectively terminate
our charters with these customers earlier. One or more of the charters with
respect to our vessels may also terminate in the event of a requisition for
title or a loss of a vessel.

In addition, under our vessel management agreements with Frontline Management,
for a fixed management fee Frontline Management is responsible for all of the
technical and operational management of the vessels chartered by the Frontline
Charterers, and will indemnify us against certain loss of hire and various other
liabilities relating to the operation of these vessels. We may terminate our
management agreements with Frontline Management for any reason at any time on 90
days' notice or that agreement may be terminated if the relevant charter is
terminated. We expect to acquire additional vessels in the future and we cannot
assure you that we will be able to enter into similar fixed price management
agreements with Frontline Management or another third party manager for those
vessels.

Therefore, to the extent that we acquire additional vessels, our cash flow could
be more volatile and we could be exposed to increases in our vessel operating
expenses, each of which could materially and adversely affect our results of
operations and business.

If the delivery of any of the vessels that we have agreed to acquire is delayed
or are delivered with significant defects, our earnings and financial condition
could suffer.

As at June 15, 2007, we have entered into agreements to acquire two additional
Suezmax tankers, two Capesize drybulk carriers, five additional container
vessels, one additional jack-up drilling rig and three seismic vessels. A delay
in the delivery of any of these vessels or the failure of the contract
counterparty to deliver any of these vessels could cause us to breach our
obligations under related charter agreements that we have entered into and could
adversely affect our revenues and results of operations. In addition, an
acceptance of any of these vessels with substantial defects could have similar
consequences.

Certain of our vessels are subject to purchase options held by the charterer of
the vessel, which, if exercised, could reduce the size of our fleet and reduce
our future revenues.

The market values of our vessels, which are currently at near historically high
levels, is expected to change from time to time depending on a number of
factors, including general economic and market conditions affecting the shipping
industry, competition, cost of vessel construction, governmental or other
regulations, prevailing levels of charter rates, and technological changes. We
have granted fixed price purchase options to certain of our customers with
respect to the vessels they have chartered from us, and these prices may be less
than the respective vessel's market value at the time the option is exercised.
In addition, we may not be able to obtain a replacement vessel for the price at
which we sell the vessel. In such a case, we could incur a loss and a reduction
in earnings.

We may incur losses when we sell vessels, which may adversely affect our
earnings.

During the period a vessel is subject to a charter, we will not be permitted to
sell it to take advantage of increases in vessel values without the charterers'
agreement. On the other hand, if the charterers were to default under the
charters due to adverse market conditions, causing a termination of the
charters, it is likely that the fair market value of our vessels would also be
depressed. If we were to sell a vessel at a time when vessel prices have fallen,
we could incur a loss and a reduction in earnings.

An increase in interest rates could materially and adversely affect our
financial performance.

As of December 31, 2006, we had approximately $1.5 billion in floating rate debt
outstanding under our credit facilities. Although we use interest rate swaps to
manage our interest rate exposure and have interest rate adjustment clauses in
some of our chartering agreements, we are exposed to fluctuations in the
interest rates. For a portion of our floating rate debt, if interest rates rise,
interest payments on our floating rate debt that we have not swapped into
effectively fixed rates would increase.

As of December 31, 2006, we have entered into interest rate swaps to fix the
interest on $738.7 million of our outstanding and committed indebtedness. As of
December 31, 2006, $166.4 million of these interest rate swaps relate to
committed but not outstanding debt. In addition we had entered into total return
bond swaps in respect of $52.0 million of our 8.5% senior notes as of December
31, 2006. The total return bond swaps effectively translate the underlying
principal amount into floating rate debt.

An increase in interest rates could cause us to incur additional costs
associated with our debt service, which may materially and adversely affect our
results of operations. For example, our net income for the year ended December
31, 2006 was reduced by a $2.8 million unrealized loss, representing the net
change in the fair value of these interest rate swaps. Our maximum exposure to
interest rate fluctuations on our outstanding debt and our outstanding total
return bond swaps at December 31, 2006 was $945.8 million. A one per cent change
in interest rates would at most increase or decrease interest expense by $9.5
million per year as of December 31, 2006. The maximum figure does not take into
account that certain of our charter contracts include interest adjustment
clauses, whereby the charter rate is adjusted to reflect the actual interest
paid on the outstanding debt related to the assets on charter. At December 31,
2006, $155.1 million of our floating rate debt was subject to such interest
adjustment clauses.

We may have difficulty managing our planned growth properly.

Since our original acquisitions from Frontline we have expanded and diversified
our fleet, and we have recently begun performing certain administrative services
through a wholly owned subsidiary company that were previously contracted to
Frontline.

The growth in the size and diversity of our fleet will continue to impose
additional responsibilities on our management, and may require us to increase
the number of our personnel. We may need to increase our customer base in the
future as we continue to grow our fleet. We cannot assure that we will be
successful in executing our growth plans or that we will not incur significant
expenses and losses in connection with our future growth.

We are highly leveraged and subject to restrictions in our financing agreements
that impose constraints on our operating and financing flexibility.

We have significant indebtedness outstanding under our senior notes. We have
also entered into loan facilities that we have used to refinance existing
indebtedness and to acquire additional vessels. We may need to refinance some or
all of our indebtedness on maturity of our senior notes and to acquire
additional vessels in the future. We cannot assure you we will be able to do so
on terms that are acceptable to us or at all. If we cannot refinance our
indebtedness, we will have to dedicate some or all of our cash flows, and we may
be required to sell some of our assets, to pay the principal and interest on our
indebtedness. In such a case, we may not be able to pay dividends to our
shareholders and may not be able to grow our fleet as planned. We may also incur
additional debt in the future.

Our loan facilities and the indenture for our senior notes subject us to
limitations on our business and future financing activities, including:

      o     limitations on the incurrence of additional indebtedness, including
            issuance of additional guarantees;

      o     limitations on incurrence of liens;

      o     limitations on our ability to pay dividends and make other
            distributions; and

      o     limitations on our ability to renegotiate or amend our charters,
            management agreements and other material agreements.

Further, our loan facilities contain financial covenants that require us to,
among other things:

      o     provide additional security under the loan facility or prepay an
            amount of the loan facility as necessary to maintain the fair market
            value of our vessels securing the loan facility at not less than
            specified percentages (ranging from 120% to 140%) of the principal
            amount outstanding under the loan facility;

      o     maintain available cash on a consolidated basis of not less than $25
            million;

      o     maintain positive working capital on a consolidated basis; and

      o     maintain a ratio of shareholder equity to total assets of not less
            than 20%.

Under the terms of our loan facilities, we may not make distributions to our
shareholders if we do not satisfy these covenants or receive waivers from the
lenders. We cannot assure you that we will be able to satisfy these covenants in
the future.

Due to these restrictions, we may need to seek permission from our lenders in
order to engage in some corporate actions. Our lenders' interests may be
different from ours and we cannot guarantee that we will be able to obtain our
lenders' permission when needed. This may prevent us from taking actions that
are in our best interest.

Our debt service obligations require us to dedicate a substantial portion of our
cash flows from operations to required payments on indebtedness and could limit
our ability to obtain additional financing, make capital expenditures and
acquisitions, and carry out other general corporate activities in the future.
These obligations may also limit our flexibility in planning for or reacting to,
changes in our business and the shipping industry or detract from our ability to
successfully withstand a downturn in our business or the economy generally. This
may place us at a competitive disadvantage to other less leveraged competitors.

                       Risks Relating to Our Common Shares

We are a holding company, and we depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial and other obligations.

We are a holding company, and have no significant assets other than the equity
interests in our subsidiaries. Our subsidiaries own all of our vessels, and
payments under our charter agreements are made to our subsidiaries. As a result,
our ability to make distributions to our shareholders depends on the performance
of our subsidiaries and their ability to distribute funds to us. The ability of
a subsidiary to make these distributions could be affected by a claim or other
action by a third party or by the law of their respective jurisdiction of
incorporation which regulates the payment of dividends by companies. If we are
unable to obtain funds from our subsidiaries, we will not be able to pay
dividends to our shareholders.

Because we are a foreign corporation, you may not have the same rights that a
shareholder in a United States corporation has.

We are a Bermuda exempted company. Bermuda law may not as clearly establish your
rights and the fiduciary responsibilities of our directors as do statutes and
judicial precedent in some United States jurisdictions. In addition, most of our
directors and officers are not resident in the United States and the majority of
our assets are located outside of the United States. As a result, investors may
have more difficulty in protecting their interests and enforcing judgments in
the face of actions by our management, directors or controlling shareholders
than would shareholders of a corporation incorporated in a jurisdiction in the
United States.

Our major shareholder, Hemen, may be able to influence us, including the outcome
of shareholder votes with interests may be different from yours.

As of June 15, 2007, Hemen owned approximately 41.4% of our outstanding common
shares. As a result of its ownership of our common shares, Hemen may influence
our business, including the outcome of any vote of our shareholders. Hemen also
currently beneficially owns substantial stakes in Frontline, Golden Ocean and
Seadrill. The interests of Hemen may be different from your interests.

If Frontline were to become insolvent, there is a risk that a bankruptcy court
could pool our or the Frontline Charterers' assets and liabilities with those of
Frontline under the equitable doctrine of substantive consolidation which may
adversely affect our future results.

Under United States bankruptcy law, the equitable doctrine of substantive
consolidation can permit a bankruptcy court to disregard the separateness of
related entities and to consolidate and pool the entities' assets and
liabilities and treat them as though held and incurred by one entity where the
interrelationship among the entities warrants such consolidation. Substantive
consolidation is an equitable remedy in bankruptcy that results in the pooling
of assets and liabilities of a debtor with one or more of its debtor affiliates
or, in rare circumstances, non-debtor affiliates, for the purposes of
administering claims and assets of creditors as part of the bankruptcy case,
including treatment under a reorganization plan.

Not all jurisdictions that could potentially have jurisdiction over an
insolvency or bankruptcy case involving Frontline, us, and/or any of our
respective affiliates recognize the substantive consolidation doctrine. For
example, we have been advised by our Bermuda counsel that Bermuda does not
recognize this doctrine. However, if Frontline or its creditors were to assert
claims of substantive consolidation or related theories in a Frontline
bankruptcy proceeding in a jurisdiction that recognizes the doctrine of
substantive consolidation, such as the United States, the bankruptcy court could
make our assets or the Frontline Charterers' assets available to satisfy
Frontline obligations to its creditors. This could have a material adverse
effect on us.

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

We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires
us to include in our annual report on Form 20-F our management's report on, and
assessment of the effectiveness of, our internal controls over financial
reporting. In addition, first effective in our annual report for the fiscal year
ended December 31, 2007, our independent registered public accounting firm will
be required to attest to and report on management's assessment of the
effectiveness of our internal controls over financial reporting. If we fail to
maintain the adequacy of our internal controls over financial reporting, we will
not be in compliance with all of the requirements imposed by Section 404. Any
failure to comply with Section 404 could result in an adverse reaction in the
financial marketplace due to a loss of investor confidence in the reliability of
our financial statements, which ultimately could harm our business and could
negatively impact the market price of our common stock. We believe the total
cost of our initial compliance and the future ongoing costs of complying with
these requirements may be substantial.

ITEM 4.   INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Company

We are Ship Finance International Limited, a Bermuda based shipping company that
is engaged primarily in the ownership and operation of vessels and offshore
related assets. We are also involved in the charter, purchase and sale of
assets. We were incorporated in Bermuda on October 10, 2003 (Company No.
EC-34296). Our registered and principal executive offices are located at
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and our
telephone number is +1 (441) 295-9500.

We operate through subsidiaries and partnerships located in Bermuda, Cyprus,
Isle of Man, Liberia, Norway, Delaware and Singapore.

We are an international ship owning company with one of the largest asset bases
across the maritime and offshore industries. Our assets currently consist of 35
oil tankers, eight OBOs currently configured to carry drybulk cargo, and one
drybulk carrier aggregating 10.7 million dwt, seven container vessels
aggregating 17,520 TEUs, and one jack-up drilling rig.

Additionally we have contracted to purchase the following newbuild vessels:

      o     a second jack-up drilling rig scheduled for delivery in 2007;

      o     three seismic vessels, scheduled for delivery in 2008;

      o     two Capesize drybulk carriers, scheduled for delivery in 2008-09;

      o     two Suezmax oil tankers, scheduled for delivery in 2009; and

      o     five container vessels, scheduled for delivery in 2010.

We have secured charter arrangements for each of our new acquisitions apart from
the two Suezmax tankers and the five container vessels, which we are currently
marketing for medium to long-term employment.

Our principal strategy is to generate stable and increasing cash flows by
chartering our assets under medium to long-term time or bareboat charters to
customers across a diverse group of maritime and offshore segments.

Currently, these customers include Frontline, Horizon Lines Inc. ("Horizon
Lines"), Golden Ocean, Seadrill, SCAN Geophyiscal ASA ("SCAN"), Great Elephant
Corporation ("Great Elephant"), Gold Star Line Ltd, and Heung-A. For most of our
vessels, our charters range from six to 20 years, providing us with significant,
stable base cash flows and high asset utilization. Some of our charters include
purchase options on behalf of the charterer, which if exercised would reduce our
remaining charter coverage and contracted cash flow.

Our primary objective is to continue to grow our business through accretive
acquisitions in diverse marine and offshore asset classes in order to increase
our dividend per share.

History of the Company

We were formed as a wholly owned subsidiary of Frontline, which is one of the
largest owners and operators of large crude oil tankers in the world. On May 28,
2004, Frontline announced the distribution of 25% of our common shares to its
ordinary shareholders in a partial spin off. Our common shares commenced trading
on the New York Stock Exchange under the ticker symbol "SFL" on June 17, 2004.
Frontline has subsequently made several further dividends of our shares to its
shareholders, including two distributions in 2004, two in 2005, one in 2006 and
a final distribution in 2007. Following the latest distribution in March 2007,
Frontline's ownership in our Company is less than 1%.

Pursuant to an agreement entered into in December 2003, we purchased from
Frontline a fleet of 47 crude oil tankers, comprising 23 Very Large Crude
Carriers, or VLCCs, including an option to acquire one VLCC, each having a
capacity of 275,000 to 308,000 dwt, and 24 Suezmax tankers, including eight
OBOs, each having a capacity of 142,000 to 169,000 dwt. We paid an aggregate
purchase price of $950.0 million excluding working capital to acquire this
initial fleet. We also assumed senior secured indebtedness with respect to this
fleet in the amount of approximately $1.158 billion, which we subsequently
refinanced with the proceeds of a senior notes issuance, a $1.058 billion credit
facility and a deemed equity contribution of $525.0 million from Frontline.

Since January 1, 2005, we have diversified our asset base from two asset types,
crude oil tankers and OBO carriers, to six asset types including container
vessels, drybulk carriers, jack-up drilling rigs and seismic vessels.

All of our tankers and OBOs, with the exception of the two vessels contracted
for delivery in 2009, and the VLCC Front Vanadis, are chartered to the Frontline
Charterers under longer term time charters that have remaining terms that range
from six to 20 years. The Frontline Charterers, in turn, charter our vessels to
third parties. The daily base charter rates payable to us under the charters
have been fixed in advance and will decrease as our vessels age, and the
Frontline Charterers have the right to terminate the charter for non double hull
vessels from 2010.

The daily charter rate that the Frontline Charterers pay to us is not dependant
on the revenue that they receive from chartering our vessels to third parties.
Frontline Shipping was initially capitalized with $250 million in cash provided
by Frontline to support its obligation to make payments to us under the
charters. Frontline Shipping II was capitalized with approximately $21.0 million
in cash. Due to sales and acquisitions, the current capitalization of the
Frontline Charterers is $197 million and $35 million, respectively.

We have entered into charter ancillary agreements with the Frontline Charterers,
our vessel owning subsidiaries that own our vessels and Frontline, which remain
in effect until the last long term charter with the relevant Frontline Charterer
terminates in accordance with its terms. Frontline has guaranteed the Frontline
Charterers' obligations under the charter ancillary agreements. Under the terms
of the charter ancillary agreements, beginning with the final 11-month period in
2004 and for each calendar year after that, the Frontline Charterers have agreed
to pay us a profit sharing payment equal to 20% of the charter revenues for the
applicable period, calculated annually on a TCE basis, realized by that
Frontline Charterer for our fleet in excess of the daily base charterhire. After
2010, all of our non-double hull vessels will be excluded from the annual profit
sharing payment calculation. For purposes of calculating bareboat revenues on a
TCE basis, expenses are assumed to equal $6,500 per day.

We have also entered into a fixed rate management agreement and an
administrative services agreement with Frontline Management to provide for the
operation and maintenance of our initial fleet of vessels and administrative
support services.

We refer you to Item 10 C. - Material Contracts for further discussion of the
agreements discussed above.

During the fourth quarter of 2006 and first quarter of 2007 we have reduced our
non-double hull fleet from 18 vessels to 11 vessels. The 11 non-double hull
vessels include the VLCC Front Vanadis which we have re-chartered on
hire-purchase terms, where the charterer has a purchase obligation at the end of
the charter. Five of the single hull vessels were sold to Frontline in
connection with Frontline's spin-off of Sealift Ltd., a dedicated heavy-lift
company, and the other vessels have been sold to unrelated third parties.

In addition, we also have a profit sharing arrangement for the vessels on
charter to the Frontline Charterers where we receive profit sharing payments in
times of relative market strength where the spot market rate exceeds our base
charter rate. This profit sharing agreement is calculated on an annual basis,
and in 2006 we received base charter payments of $437.2 million from the
Frontline Charterers and accrued profit sharing revenues of $78.9 million.

There are also profit sharing agreements relating to the charters of the jack-up
drilling rigs West Ceres and West Prospero, where we will receive profit shares
calculated as a percentage of the annual earnings above specified thresholds
relating to milestones set under the relevant charters.

The predictability and stability of our cash flows is enhanced by having
substantially all of the vessel operating expenses of our tankers and OBO
carriers fixed through our management services agreements with Frontline
Management. Under these agreements, we make fixed payments to Frontline
Management during the charter period to provide for the operation and
maintenance of our vessels.

The charters for our two jack-up drilling rigs to Seadrill, our three drybulk
carriers to Golden Ocean, our five container vessels to Horizon Lines and our
three seismic vessels to SCAN are all on bareboat terms, under which the
respective charterer will bear all operating and maintenance expenses.

Acquisitions and Disposals

We purchased our initial 46 vessel owning subsidiaries from Frontline on January
1, 2004 for a total purchase price of $1,061.8 million. The purchase price was
calculated as the book value of vessels owned by the subsidiaries of $2,048.4
million less related debt balances and other liabilities of $986.6 million which
we assumed. The purchase was partly funded by an equity contribution of $525.0
million from Frontline. Additionally we purchased Frontline's option to acquire
an additional VLCC for $8.4 million. This price represents the book value of the
option as recorded previously in Frontline's accounts.

Acquisitions

In the year ended December 31, 2005 the following vessels and vessel owning
entities were acquired or delivered to us as discussed below:

      o     In January 2005, we exercised an option to acquire the VLCC Oscilla
            and the vessel was delivered to us on April 4, 2005. The purchase
            price paid to acquire the vessel was equal to the outstanding
            mortgage debt under the four loan agreements between lenders and the
            vessel's owning company. In addition, we made a payment of $14.6
            million to Frontline to reflect the fact that the original purchase
            price was set assuming delivery to us on January 1, 2004, whereas
            delivery did not occur until April 4, 2005.

      o     Between January and March 2005, we acquired three additional double
            hull VLCCs from Frontline for an aggregate purchase price of $294
            million.

      o     In May 2005, we entered into an agreement with parties affiliated
            with Hemen to acquire two vessel owning companies, each owning one
            2005 built containership, for a total consideration of $98.6
            million.

      o     In May 2005, we agreed to acquire three Suezmax tankers from
            Frontline, the Front Traveller, Front Transporter, and Front Target,
            for an aggregate amount of $92.0 million.

      o     In June 2005, we entered into an agreement with parties affiliated
            with Hemen to acquire two vessel owning companies, each owning one
            2004 built VLCC, for total consideration of $184 million.

In the year ended December 31, 2006, the following vessels and vessel owning
entities were acquired or delivered to us:

      o     In January 2006, we acquired the VLCC Front Tobago from Frontline
            for consideration of $40.0 million.

      o     In April 2006, we entered into an arrangement with Horizon Lines
            under which we acquired five 2,824 TEU container vessels built at
            Hyundai Mipo yard in Korea for consideration of approximately $280.0
            million. Under this agreement the Horizon Hunter was delivered in
            November 2006, the Horizon Hawk in March 2007, Horizon Eagle and
            Horizon Falcon in April 2007 and the final vessel, Horizon Tiger in
            May 2007.

      o     In June 2006, we acquired, through our wholly owned subsidiary Rig
            Finance Ltd., or Rig Finance, the jack-up drilling rig West Ceres
            from SeaDrill Invest I Ltd., or SeaDrill Invest I, a wholly owned
            subsidiary of Seadrill, for total consideration of $210.0 million.

      o     In July 2006, we entered into an agreement to acquire, through our
            wholly owned subsidiary Front Shadow Inc., or Front Shadow, the
            Panamax drybulk carrier Golden Shadow from Golden Ocean for a total
            consideration of $28.4 million. The vessel was delivered to us in
            September 2006.

      o     In November 2006, we acquired two newbuilding Suezmax contracts from
            Frontline with delivery expected in the first quarter of 2009 and
            third quarter of 2009.

During 2007, we have so far agreed to acquire the following vessels or
newbuildings:

      o     In January 2007, we entered into an agreement, via our wholly owned
            subsidiary Rig Finance II Ltd, or Rig Finance II, to acquire a
            newbuilding jack-up drilling rig currently under construction from
            SeaDrill Invest II Ltd., or SeaDrill Invest II, a wholly owned
            subsidiary of Seadrill. The purchase price will be $210.0 million
            and delivery is expected to take place at the end of June 2007.

      o     In February 2007, we agreed to acquire two newbuilding Capesize
            vessels contracts from Golden Ocean for a total delivered cost of
            $160.0 million. Delivery from the shipyard is scheduled in the
            fourth quarter of 2008 and first quarter of 2009.

      o     In March 2007, we entered into an agreement to acquire three
            newbuilding seismic vessels, including complete seismic equipment,
            from SCAN for an aggregate amount of $210.0 million. The vessels are
            scheduled to be delivered in 2008.

      o     In June 2007, we agreed to acquire five newbuilding container
            vessels with scheduled delivery in 2010 for an aggregate
            construction cost of approximately $190 million.

      o     In June 2007 we acquired 10% of the equity of Seachange Maritime
            LLC, a Miami based company that owns and charters containerships.

Disposals

In the year ended December 31, 2005, we sold vessels and vessel owning entities
as discussed below:

      o     In January 2005, we sold a Suezmax tanker, the Front Fighter, to an
            unrelated third party for $68.3 million. The vessel was delivered to
            its new owner in March 2005.

      o     In May 2005, we sold the three Suezmax tankers, Front Lillo, Front
            Emperor and Front Spirit, for a total consideration of $92.0
            million. These vessels were delivered to their new owners in June
            2005.

      o     In August 2005, we sold a Suezmax tanker, the Front Hunter to an
            unrelated third party for net proceeds of $71.0 million.

      o     In November 2005, the bareboat charterer of the VLCC Navix Astral
            exercised an option to purchase the vessel for approximately $40.5
            million. The vessel was delivered to its new owner in January 2006.

In the year ended December 31, 2006 we sold vessels as discussed below:

      o     In December 2006, we sold the VLCC Front Tobago to an unrelated
            third party for $45.0 million.

During 2007, we have so far sold the following vessels:

      o     In January 2007, we sold the single-hull Suezmax tanker Front
            Transporter for $38.0 million. The vessel was delivered to its new
            owner in March 2007.

      o     In January 2007, we sold a total of five single-hull Suezmax tankers
            to Frontline for an aggregate amount of $183.7 million. The vessels
            were delivered to Frontline in March 2007.

      o     In May 2007, we re-chartered the single-hull VLCC Front Vanadis to
            an unrelated third party. The new charter is in the form of a
            hire-purchase agreement, where the vessel is chartered to the buyer
            for a 3.5 year period, with a purchase obligation at the end of the
            charter.

B. BUSINESS OVERVIEW

Our Business Strategies

Our primary objectives are to profitably grow our business and increase
distributable cash flow per share by pursuing the following strategies:

      o     Expand our asset base. We have increased, and intend to further
            increase, the size of our asset base through timely and selective
            acquisitions of additional assets that we believe will be accretive
            to long-term distributable cash flow per share. We will seek to
            expand our asset base through placing newbuilding orders, acquiring
            modern second-hand vessels and entering into medium or long-term
            charter arrangements. From time to time we may also acquire vessels
            with no or limited initial charter coverage. We believe that by
            entering into newbuilding contracts or acquiring modern second-hand
            vessels or rigs and leveraging the relationships with our existing
            customers, we can provide for long-term growth of our assets and
            continue to decrease the average age of our fleet. In addition, we
            will seek to enter into sale and lease back transactions with new
            customers, as we believe we can provide attractive alternatives for
            outsourcing of vessel ownership for these customers.

      o     Diversify our asset base. Since January 1, 2005, we have diversified
            our asset base from two asset types, crude oil tankers and OBO
            carriers, to six asset types including container vessels, drybulk
            carriers, jack-up drilling rigs and seismic vessels. We believe that
            there are several attractive markets that could provide us the
            opportunity to continue to diversify our asset base. These markets
            include vessels and assets that service the offshore oil exploration
            industry and vessels that are of long-term strategic importance to
            certain operators in the shipping industry. We believe that the
            expertise and relationships of our management and our relationship
            and affiliation with Mr. John Fredriksen could provide us with
            incremental opportunities to expand our asset base.

      o     Expand and diversify our customer relationships. Since January 1,
            2005, we have increased our customer base from one to eight
            customers and have expanded our relationship with our original
            customer, Frontline, through the purchase of additional vessels. Of
            these eight customers, Frontline, Golden Ocean and Seadrill are
            directly or indirectly controlled by Mr. John Fredriksen. We intend
            to continue to expand our relationships with our existing customers,
            as well as add new customers, as companies that service the
            international shipping and offshore oil exploration markets continue
            to expand their use of chartered-in assets to add capacity.

      o     Pursue medium to long-term, fixed-rate charters. We intend to
            continue to pursue medium to long-term, fixed rate charters, which
            provide us with stable future cash flows. Our customers typically
            employ long-term charters for strategic expansion as most of their
            assets are typically of strategic importance to certain operating
            pools, established trade routes or dedicated oil-field
            installations. We believe that we will be well positioned to
            participate in their growth. In addition, in markets where lower
            relative long-term charter rates are available, we will also seek to
            enter into charter agreements that provide for profit sharing so
            that we can generate incremental revenue and share in the upside
            during strong markets.

Customers

During 2006 and 2005, Frontline, through its subsidiaries, was our principal
customer with more than 80% of our operating revenues for the years ended
December 31, 2006 and December 31, 2005, being derived from the Frontline
Charterers. We anticipate the percentage of our business attributable to the
Frontline Charterers to diminish as we continue to expand our business and our
customer base.

Competition

We currently operate or will operate in several segments of the shipping and
offshore industry, including crude oil transportation, drybulk shipments,
container transportation, drilling rigs and seismic exploration.

The markets for international seaborne crude oil transportation services,
drybulk transportation services and container transportation services are highly
fragmented and competitive. Seaborne crude oil transportation services generally
are provided by two main types of operators: major oil companies or captive
fleets (both private and state-owned) and independent shipowner fleets. In
addition, several owners and operators pool their vessels together on an ongoing
basis, and such pools are available to customers to the same extent as
independently owned and operated fleets. Many major oil companies and other oil
trading companies also operate their own vessels and use such vessels not only
to transport their own crude oil but also to transport crude oil for third party
charterers in direct competition with independent owners and operators in the
tanker charter market. Similarly, drybulk commodity owners or traders use such
vessels not only to transport their own commodities but also to transport
commodities for third party charterers in direct competition with independent
owners and operators in the drybulk charter market.

Container vessels are generally operated by container logistics companies, where
the vessels are used as an integral part of their services. Therefore, container
vessels are typically chartered more on a period basis while single voyage
chartering is less common. As the market has grown significantly over the last
decades, we expect over time to see more vessels chartered by container
logistics companies on shorter term basis, particularly in the smaller segments.

Our jack-up drilling rigs and our seismic exploration vessels are chartered out
on long-term year charters to contractors, and we are therefore not directly
exposed to the short term fluctuation in these markets. Normally, jack-up
drilling rigs and seismic exploration vessels are charted by oil companies on a
shorter term basis linked to area-specific well drilling or oil exploration
activities, but there have also been longer period charters available when oil
companies want to cover their longer term requirements for drilling rigs and/or
seismic vessels. Seismic exploration vessels are self-propelled, and can
therefore easily move between geographic areas. Jack-up drilling rigs are not
self-propelled, but it is common to move these assets over long distances on
heavy-lift vessels. Therefore, the markets and competition for these rigs are
effectively world-wide.

Competition for charters in all the above segments is intense and is based upon
price, location, size, age, condition and acceptability of the vessel/rig and
its manager. Competition is also affected by the availability of other size
vessels/rigs to compete in the trades in which we engage.

Risk of Loss and Insurance

Our business is affected by a number of risks, including mechanical failure,
collisions, property loss to the vessels, cargo loss or damage and business
interruption due to political circumstances in foreign countries, hostilities
and labor strikes. In addition, the operation of any ocean-going vessel is
subject to the inherent possibility of catastrophic marine disaster, including
oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade.

Except for vessels whose charter specifies otherwise, Frontline Management and
our third-party managers are responsible for arranging for the insurance of our
vessels in line with standard industry practice. In accordance with that
practice, we maintain marine hull and machinery and war risks insurance, which
include the risk of actual or constructive total loss, and protection and
indemnity insurance with mutual assurance associations. From time to time we
carry insurance covering the loss of hire resulting from marine casualties in
respect of some of our vessels. Currently, the amount of coverage for liability
for pollution, spillage and leakage available to us on commercially reasonable
terms through protection and indemnity associations and providers of excess
coverage is $1 billion per vessel per occurrence. Protection and indemnity
associations are mutual marine indemnity associations formed by shipowners to
provide protection from large financial loss to one member by contribution
towards that loss by all members.

We believe that our current insurance coverage is adequate to protect us against
the accident-related risks involved in the conduct of our business and that we
maintain appropriate levels of environmental damage and pollution insurance
coverage, consistent with standard industry practice. However, there is no
assurance that all risks are adequately insured against, that any particular
claims will be paid or that we will be able to procure adequate insurance
coverage at commercially reasonable rates in the future.

Environmental and Other Regulations

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

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

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

International Maritime Organization

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

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

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

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

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

      o     all tankers will be subject to enhanced inspections.

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

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

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

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

Our vessels are also subject to regulatory requirements, including the phase-out
of single hull tankers, imposed by the IMO. Effective September 2002, the IMO
accelerated its existing timetable for the phase-out of single hull oil tankers.
At that time, these regulations required the phase-out of most single hull oil
tankers by 2015 or earlier, depending on the age of the tanker and whether it
has segregated ballast tanks.

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

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


<TABLE>
<CAPTION>
Category of Oil Tankers                                 Date or Year for Phase Out
-----------------------                                 --------------------------
<S>                                                     <C>
Category 1 oil tankers of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or       April 5, 2005 for ships delivered on April 5, 1982
lubricating oil as cargo, and of 30,000 dwt and above   or earlier; or
carrying other oils, which do not comply with the       2005 for ships delivered after April 5, 1982
requirements for protectively located segregated
ballast tanks

Category 2 - oil tankers of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or       April 5, 2005 for ships delivered on April 5, 1977
lubricating oil as cargo, and of 30,000 dwt and above   or earlier
carrying other oils, which do comply with the           2005 for ships delivered after April 5, 1977 but
protectively located segregated ballast tank            before January 1, 1978
requirements                                            2006 for ships delivered in 1978 and 1979
                                                        2007 for ships delivered in 1980 and 1981
and                                                     2008 for ships delivered in 1982
                                                        2009 for ships delivered in 1983
Category 3 - oil tankers of 5,000 dwt and above but     2010 for ships delivered in 1984 or later
less than the tonnage specified for Category 1 and 2
tankers.
</TABLE>

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

The following table summarizes the impact of such regulations on the Company's
single hull and double sided tankers:

<TABLE>
<CAPTION>
                                  Vessel                                   Flag state
  Vessel Name     Vessel type   Category(s)   Year Built   IMO phase out    exemption
---------------   -----------   -----------   ----------   -------------   ----------
<S>               <C>           <C>           <C>          <C>             <C>
Front Birch         Suezmax         DS           1991          2010           2016
Front Maple         Suezmax         DS           1991          2010           2016
Edinburgh             VLCC          DS           1993          2010           2018
Front Ace             VLCC          SH           1993          2010           2015
Front Duchess         VLCC          SH           1993          2010           2015
Front Duke            VLCC          SH           1992          2010           2015
Front Highness        VLCC          SH           1991          2010           2015
Front Lady            VLCC          SH           1991          2010           2015
Front Lord            VLCC          SH           1991          2010           2015
Front Sabang          VLCC          SH           1990          2010           2015
Front Vanadis         VLCC          SH           1990          2010           2015
</TABLE>

Under regulation 13G and as described below, regulation 13H, category 2 and 3
tankers fitted only with double bottoms or double sides may be allowed to
continue operations until their 25th anniversary.

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

Under MARPOL Regulation 13H, HGO means any of the following:

            1.    crude oils having a density at 15(degree)C higher than 900
                  kg/m(3);

            2.    fuel oils having either a density at 15(degree)C higher than
                  900 kg/ m(3) or a kinematic viscosity at 50(degree)C higher
                  than 180 mm(2)/s;

            3.    bitumen, tar and their emulsions.

Under MARPOL Regulation 13H, the flag state may allow continued operation of oil
tankers of 5,000 dwt and above, carrying crude oil with a density at 15(degree)C
higher than 900 kg/m(3) but lower than 945 kg/m(3), that conform to certain
technical specifications and, in the opinion of the such state, the ship is fit
to continue such operation, having regard to the size, age, operational area and
structural conditions of the ship and provided that the continued operation
shall not go beyond the date on which the ship reaches 25 years after the date
of its delivery. The flag state may also allow continued operation of a single
hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as
cargo, if, in the opinion of the such state, the ship is fit to continue such
operation, having regard to the size, age, operational area and structural
conditions of the ship, provided that the operation shall not go beyond the date
on which the ship reaches 25 years after the date of its delivery.

The 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
was ratified in May 2004, and became effective in May 2005. Annex VI sets limits
on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibit
deliberate emissions of ozone depleting substances, such as halons,
chlorofluorocarbons, emissions of volatile compounds from cargo tanks and
prohibition of shipboard incineration of specific substances. Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur emissions. We
believe that we are in substantial compliance with the Annex VI regulations.
Compliance with these regulations could require the installation of expensive
emission control systems and could have a financial impact on the operation of
our vessels. Additional or new conventions, laws and regulations may be adopted
that could adversely affect our ability to manage our vessels.

The operation of our vessels is also affected by the requirements set forth in
the IMO's Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat
charterers to maintain an extensive "Safety Management System" that includes the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation and describing procedures for
emergencies. The failure of a ship owner or a bareboat charterer to comply with
the ISM Code may subject such party to increased liability, may decrease
available insurance coverage for the affected vessels and may result in a denial
of access to, or detention in certain ports. We rely on the safety management
system that we and our third party technical managers have developed.

The ISM Code requires that vessel operators obtain a safety management
certificate for each vessel they operate. This certificate evidences compliance
by a vessel's management with the ISM Code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been awarded a
Document of Compliance, issued by each flag state, under the ISM Code. All of
our vessels and their operators have received ISM certification. The Manager is
required to renew these documents of compliance and safety management
certificates annually.

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

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

United States Requirements

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

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

      o     natural resource damages and related assessment costs;

      o     real and personal property damages;

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

      o     net cost of public services necessitated by a spill response, such
            as protection from fire, safety or health hazards; and loss of
            subsistence use of natural resources.

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

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

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

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

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

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

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

      o     describe crew training and drills; and

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

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

In addition, the United States Clean Water Act prohibits the discharge of oil or
hazardous substances in United States navigable waters and imposes strict
liability in the form of penalties for unauthorized discharges. The Clean Water
Act also imposes substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA and CERCLA, discussed
above. The United States Environmental Protection Agency, or EPA, has exempted
the discharge of ballast water and other substances incidental to the normal
operation of vessels in U.S. ports from Clean Water Act permitting requirements.
However, on March 31, 2005, a U.S. District Court ruled that the EPA exceeded
its authority in creating an exemption for ballast water. On September 18, 2006,
the court issued an order invalidating the exemption in 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 filed a notice of appeal of this
decision and, if the EPA's appeals are successful and exemption is repealed, our
vessels may be subject to Clean Water Act permit requirements that could include
ballast water treatment obligations that could increase the cost of operating in
the United States. For example, this could require the installation of equipment
on our 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.

Other Regulations

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

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

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

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

Our operations occasionally generate and require the transportation, treatment
and disposal of both hazardous and non-hazardous solid wastes that are subject
to the requirements of the U.S. Resource Conservation and Recovery Act, or RCRA,
or comparable state, local or foreign requirements. In addition, from time to
time we arrange for the disposal of hazardous waste or hazardous substances at
offsite disposal facilities. If such materials are improperly disposed of by
third parties, we may be held liable for clean up costs under applicable laws.

Vessel Security Regulations

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

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

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

      o     the development of vessel security plans;

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

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

      o     compliance with flag state security certification requirements.

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

C. ORGANIZATIONAL STRUCTURE

See Exhibit 8.1 for a list of our significant subsidiaries.

D. PROPERTY, PLANT AND EQUIPMENT

We own a substantially modern fleet of vessels. The following table sets forth
the fleet that we own or have contracted for delivery as of June 15, 2007.

<TABLE>
<CAPTION>
                                Approximate                              Charter
                             -----------------                         Termination
Vessel                       Built      Dwt.     Construction   Flag       Date
--------------------------   -----   ---------   ------------   ----   -----------
<S>                          <C>     <C>         <C>            <C>    <C>
VLCCs
Front Sabang                  1990    286,000     Single-hull     SG     2014 (1)
Front Vanadis                 1990    286,000     Single-hull     SG     2010 (2)
Front Highness                1991    284,000     Single-hull     SG     2015 (1)
Front Lady                    1991    284,000     Single-hull     SG     2015 (1)
Front Lord                    1991    284,000     Single-hull     SG     2015 (1)
Front Duke                    1992    284,000     Single-hull     SG     2014 (1)
Front Duchess                 1993    284,000     Single-hull     SG     2014 (1)
Front Edinburgh               1993    302,000     Double-side    LIB     2013 (1)
Front Ace                     1993    276,000     Single-hull    LIB     2014 (1)
Front Century                 1998    311,000     Double-hull     MI     2021
Front Champion                1998    311,000     Double-hull     BA     2022
Front Vanguard                1998    300,000     Double-hull     MI     2021
Front Vista                   1998    300,000     Double-hull     MI     2021
Front Circassia               1999    306,000     Double-hull     MI     2021
Front Opalia                  1999    302,000     Double-hull     MI     2022
Front Comanche                1999    300,000     Double-hull    FRA     2022
Golden Victory                1999    300,000     Double-hull     MI     2022
Ocana (ex Front Commerce)     1999    300,000     Double-hull    IoM     2022
Front Scilla (ex Oscilla)     2000    303,000     Double-hull     MI     2023
Ariake (tbn Oliva)            2001    299,000     Double-hull     BA     2023
Front Serenade                2002    299,000     Double-hull    LIB     2024
Otina (ex Hakata)             2002    298,465     Double-hull    IoM     2025
Front Stratus (tbn Ondina)    2002    299,000     Double-hull    LIB     2025
Front Falcon                  2002    309,000     Double-hull     BA     2025
Front Page                    2002    299,000     Double-hull    LIB     2025
Front Energy                  2004    305,000     Double-hull    CYP     2027
Front Force                   2004    305,000     Double-hull    CYP     2027

Suezmax OBO Carriers
Front Breaker                 1991    169,000     Double-hull     MI     2015
Front Climber                 1991    169,000     Double-hull     SG     2015
Front Driver                  1991    169,000     Double-hull     MI     2015
Front Guider                  1991    169,000     Double-hull     SG     2015
Front Leader                  1991    169,000     Double-hull     SG     2015
Front Rider                   1992    170,000     Double-hull     SG     2015
Front Striver                 1992    169,000     Double-hull     SG     2015
Front Viewer                  1992    169,000     Double-hull     SG     2015

Suezmaxes
Front Birch                   1991    150,000     Double-side     MI     2014 (1)
Front Maple                   1991    150,000     Double-side     MI     2014 (1)
Front Pride                   1993    150,000     Double-hull    NIS     2017
Front Glory                   1995    150,000     Double-hull    NIS     2018
Front Splendour               1995    150,000     Double-hull    NIS     2019
Front Ardenne                 1997    153,000     Double-hull    NIS     2020
Front Brabant                 1998    153,000     Double-hull    NIS     2021
Mindanao                      1998    159,000     Double-hull     SG     2021
SFL Heimdall (NB)             2009    156,000     Double-hull    n/a     n/a
SFL Baldur (NB)               2009    156,000     Double-hull    n/a     n/a

Panamax Drybulk Carrier
Golden Shadow                 1997     73,732         n/a         HK     2016 (2)

Containerships
Sea Alfa                      2005   1,700 TEU        n/a        CYP     2009
Sea Beta                      2005   1,700 TEU        n/a        CYP     2007
Horizon Hunter                2006   2,824 TEU        n/a        U.S.    2021 (2)
Horizon Hawk                  2007   2,824 TEU        n/a        U.S.    2022 (2)
Horizon Falcon                2007   2,824 TEU        n/a        U.S.    2022 (2)
Horizon Eagle                 2007   2,824 TEU        n/a        U.S.    2022 (2)
Horizon Tiger                 2006   2,824 TEU        n/a        U.S.    2022 (2)
SFL Avon (NB)                 2010   1,700 TEU        n/a         MI     n/a
SFL Clyde (NB)                2010   1,700 TEU        n/a         MI     n/a
SFL Dee (NB)                  2010   1,700 TEU        n/a         MI     n/a
SFL Humber (NB)               2010   2,500 TEU        n/a         MI     n/a
SFL Tamar (NB)                2010   2,500 TEU        n/a         MI     n/a

Capesize Drybulk Carrier
Golden Straits (NB)           2008    170,000         n/a        n/a     2023 (2)
Golden Island (NB)            2009    170,000         n/a        n/a     2024 (2)

Jack-Up Drilling Rigs
West Ceres                    2006     300 ft         n/a        PAN     2021 (2)
West Prospero (NB)            2007     300 ft         n/a        PAN     2022 (2)

Seismic
To be named (NB)              2008                    n/a        n/a     2020 (2)
To be named (NB)              2008                    n/a        n/a     2020 (2)
To be named (NB)              2008                    n/a        n/a     2020 (2)
</TABLE>

NB - Newbuilding

Key to Flags:

BA - Bahamas, CYP - Cyprus, FRA - France, IoM - Isle of Man, HK - Hong Kong, LIB
- Liberia, MI - Marshall Islands, NIS - Norwegian International Ship Register,
PAN - Panama, SG - Singapore, U.S - United States of America.

      (1)   Charter subject to termination at the Frontline Charterer's option
            from 2010.

      (2)   Charterer has purchase options during the term of the charter.

Other than our interests in the vessels and jack-up drilling rigs described
above, we do not own any material physical properties.

ITEM 4A UNRESOLVED STAFF COMMENTS

None

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with Item 3 "Selected
Financial Data", Item 4 "Information on the Company" and our audited
Consolidated Financial Statements and Notes thereto included herein.

Overview

Following our spin-off from Frontline, and purchase of our original fleet in
2004, we have established ourselves as a leading international maritime asset
owning company with one of the largest asset bases across the maritime and
offshore industries. A full fleet list is provided in Item 4.D "Information on
the Company" showing the assets that we currently own and charter to our
customers.

Factors Affecting Our Current and Future Results

Principal factors that have affected our results since 2004 and are expected to
affect our future results of operations and financial position include:

      o     the earnings of our vessels under time charters and bareboat
            charters to the Frontline Charterers;

      o     the amount we receive under the profit sharing arrangements with the
            Frontline Charters;

      o     the earnings and expenses related to any additional vessels that we
            acquire;

      o     vessel management fees and expenses;

      o     administrative expenses; and

      o     interest expenses.

Revenues

Our revenues since January 1, 2004 derive primarily from our long term, fixed
rate time charters. Most of the vessels that we have acquired from Frontline,
including vessels we have acquired since December 2003, are chartered to the
Frontline Charterers under long term charters that are generally accounted for
as finance leases.

We allocate $6,500 per day from each time charter payment from the Frontline
Charters as finance lease service revenue relating to these vessels. The balance
of each charter payment is allocated between finance lease interest income and
finance lease repayment in order to produce a constant periodic return on the
balance of our net investments in finance leases. As the balance of our net
investments in finance leases decreases, we will allocate less of each charter
payment as finance lease interest income and more as finance lease repayments.

Until April 2007, certain of our vessels acquired from Frontline remained on
charter to third parties, under charters which commenced before January 1, 2004,
(the date upon which our charter arrangements to the Frontline Charterers became
economically effective). Our arrangement with Frontline is that while our
vessels are completing performance of third party charters, we pay the Frontline
Charterers all revenues we earn under third party charters in exchange for the
Frontline Charterers paying us the agreed upon charterhire. We account for the
revenues received from these third party charters as time charter, bareboat or
voyage revenues, as applicable, and the subsequent payment of these amounts to
the Frontline Charterers as deemed dividends paid. We account for the charter
revenues received from the Frontline Charterers prior to the charters becoming
effective for accounting purposes, as deemed dividends received.

In March 2007, we announced the agreement to cancel the previous charter for the
single hull VLCC Front Vanadis. We have agreed to pay a $13.2 million
compensation to Frontline for the cancellation of the charter. The new
charterer, Great Elephant, a subsidiary of Taiwan Maritime Transportation, paid
a gross upfront payment of $12.5 million, and will pay a daily gross bareboat
charter hire of $25,000 per day for 42 months, starting May 2007. Great Elephant
has quarterly purchase options, and also has a purchase obligation of $3 million
at the end of the charter.

We have a profit sharing agreement for all vessels on charter to the Frontline
Charterers. We recognize profit sharing revenue for VLCC's and Suezmaxes/Suezmax
OBO's, respectively when the aggregate earnings on a TCE basis exceed the
maximum amount of base charterhire that these vessels are scheduled to earn for
the entire year. In 2006, this occurred in the second quarter of the year. We
therefore generally do not expect to recognize any profit sharing revenue in the
first quarter of any year. In addition, we expect stronger demand for crude oil
tankers and increased oil trading activity in the winter months in the northern
hemisphere to affect the amount and timing of our profit sharing revenue. We
also have profit sharing agreements relating to the jack-up drilling rigs West
Ceres and West Prospero, where we will receive 5% and 4%, respectively, of
the earning above certain thresholds. These profit sharing agreements will not,
however, become effective until 2009.

We own seven container vessels, of which three were in operation at December 31,
2006. Five of the seven vessels are vessels on long-term bareboat charters to
Horizon Lines, of which one vessel was delivered in 2006, and the remaining four
vessels have been delivered to us in 2007. Each vessel chartered to Horizon
Lines has an initial charter period of 12 years, plus three year extension
options for Horizon Lines. Horizon Lines also has purchase options for the
vessels, exercisable for the first time after five years from commencement of
the relevant charter.

Our two smaller container vessels are employed on short to medium time charters.
One of the vessels, Sea Alfa, is on a time charter to the Korean operator Heung
A until May 2009. The other vessel, Sea Beta, was on a bareboat charter to the
Australian operator Pan Logistics, but this company went into administration in
October 2006, and the charter was cancelled. Later in the year we secured a new
six month time charter for the vessel, commencing in January 2007 with two
three-month extension options for the charterer. The first of these extension
options has been exercised by the charterer. Our charter to Pan Logistics was
secured by a $2.7 million bank guarantee, and we have collected the full
guarantee amount in 2007. This amount, net of an amount of approximately
$800,000 to compensate the technical manager of the vessel, will be recognized
in the year 2007.

In June 2007, we announced an agreement to acquire five newbuilding container
vessels with scheduled delivery in 2010 for an aggregate construction cost of
approximately $190 million. Consistent with our strategy, it is our intention to
market these vessels for medium to long term contracts.

In September 2006, we took delivery of Golden Shadow, a Panamax drybulk carrier
built in 1997. This vessel has been bareboat chartered to Golden Ocean for a
period of 10 years. At the end of the charter we have a fixed price put option
to Golden Ocean, and Golden Ocean also has purchase options, exercisable for the
first time after three years. We have determined under FIN 46 (R) that we are
not the primary beneficiary of the vessel owning subsidiary and have accounted
for it using the equity method.

In February 2007, we announced an agreement to acquire two newbuilding Capesize
drybulk carriers from Golden Ocean. The vessels are scheduled to be delivered in
the fourth quarter of 2008 and first quarter of 2009, respectively, and will be
chartered for 15 years to Golden Ocean. Golden Ocean will have a purchase
option, starting after five years.

At the end of June 2006, we took delivery of the newbuilding jack-up drilling
rig, West Ceres, acquired from SeaDrill Invest I, a wholly owned subsidiary of
Seadrill. The rig has been bareboat chartered back to SeaDrill Invest I for a
period of 15 years, and SeaDrill Invest I has purchase options, exercisable for
the first time after three years. The charter is classified as a finance lease,
similar to the charters to the Frontline Charterers.

In January 2007, we also announced the agreement to acquire a second jack-up
drilling rig, the West Prospero, from SeaDrill Invest II, a wholly owned
subsidiary of Seadrill. This rig is scheduled to be delivered from the shipyard
at the end of June 2007, and will then commence a 15 year charter to SeaDrill
Invest II. SeaDrill Invest II will have purchase options for the rig,
exercisable for the first time after three years.

In March 2007, we announced the acquisition of three newbuilding seismic
vessels, including complete seismic equipment, from SCAN. The vessels are
scheduled to be delivered in 2008. Upon delivery the vessels will commence 12
year bareboat charters to SCAN. SCAN has been granted fixed purchase options for
each of the vessels after six, 10 and 12 years from commencement of the relevant
charters.

Expenses

Our expenses consist primarily of vessel management fees and expenses,
administrative expenses and interest expense. With respect to vessel management
fees and expenses, our vessel owning subsidiaries with vessels on charter to the
Frontline Charterers have entered into fixed rate management agreements with
Frontline Management under which Frontline Management is responsible for all
technical management of the vessels. Each of these subsidiaries pays Frontline
Management a fixed fee of $6,500 per day per vessel for all of the above
services.

In addition to the vessels on charter to the Frontline Charterers, we also have
two 1,700 TEU container vessels employed on time charters. We have outsourced
the technical management for these vessels, and we pay operating expenses for
these vessels as they are incurred. The remaining vessels we own that have
charters attached to them are employed on bareboat charters, where the charterer
pays all operating expenses, including maintenance, dry-docking and insurance.

We have entered into an administrative services agreement with Frontline
Management under which Frontline Management provides us with certain
administrative support services. For the year 2006, we and each of our vessel
owning subsidiaries paid Frontline Management a fixed fee of $20,000 for its
services under the agreement, and agreed to reimburse Frontline Management for
reasonable third party costs, if any, advanced on our behalf by Frontline. For
the year 2007, some of the compensation to Frontline Management will be based on
cost sharing for the services rendered based on actual incurred costs plus a
margin.

Other than the interest expense associated with our 8.5% senior notes, the
amount of our interest expense will be dependent on our overall borrowing levels
and may significantly increase when we acquire vessels or on the delivery of
newbuildings. Interest incurred during the construction of a newbuilding is
capitalized in the cost of the newbuilding. Interest expense may also change
with prevailing interest rates, although the effect of these changes may be
reduced by interest rate swaps or other derivative instruments that we enter
into.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements and combined financial
statements in accordance with accounting principles generally accepted in the
United States requires management to make estimates and assumptions affecting
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of our financial statements and the reported
amounts of revenues and expenses during the reporting period. The following is a
discussion of the accounting policies we apply that are considered to involve a
higher degree of judgment in their application. See Note 2 to our consolidated
financial statements for details of all of our material accounting policies.

Revenue Recognition

Revenues are generated from time charter and bareboat charterhires and are
recorded over the term of the charter as service is provided. Voyage charter
revenues have been included for the period prior to our vessels commencing
trading under their charters to Frontline. Under a voyage charter, the revenues
and associated voyage costs are recognized ratably over the estimated duration
of the voyage.

Profit sharing revenues are recorded when earned and realizable. We consider
profit sharing revenues to be earned and realizable to the extent that a
vessel's underlying earnings on a time charter equivalent basis exceed the
maximum amount of base charterhire the vessel could earn during the period. This
threshold is calculated as the number of days in the profit sharing period
multiplied by the daily profit sharing threshold rates. These threshold rates
represent the base charterhire rates specified in the individual time charter
agreements.

Vessels and Depreciation

The cost of vessels and rigs less estimated residual value are depreciated on a
straight line basis over their estimated remaining economic useful lives. The
estimated economic useful life of our vessels is 25 years except for single hull
tankers for which the useful life is either 25 years or the vessels' anniversary
date in 2015. We depreciate our rigs over 30 years. These are common life
expectancies applied in the shipping industry.

If the estimated economic useful life is incorrect, or circumstances change and
the estimated economic useful life has to be revised, an impairment loss could
result in future periods. We will continue to monitor the situation and revise
the estimated useful lives of those vessels as appropriate when new regulations
are implemented.

Leases

Leases of our vessels where we are the lessor are classified as either finance
leases or operating leases based on an assessment of the terms of the lease. For
the leases which have been classified as finance leases, the minimum lease
payments (net of amounts representing estimated executory costs including profit
thereon) plus the unguaranteed residual value are recorded as the gross
investment in the lease. The difference between the gross investment in the
lease and the sum of the present values of the two components of the gross
investment is recorded as unearned income which is amortized to income over the
lease term as finance lease interest income to produce a constant periodic rate
of return on the net investment in the lease.

Classification of a lease involves the use of estimates or assumptions about
fair values of leased vessels and expected future values of vessels. We
generally base our estimates of fair value on the average of three independent
broker valuations of a vessel. Our estimates of expected future values of
vessels are based on current fair values amortized in accordance with our
standard depreciation policy for owned vessels.

Deemed Dividends

Our charter arrangements with Frontline became effective on January 1, 2004.
Certain of our vessels were on fixed term charters to third parties as at
January 1, 2004 and the remainder were on spot voyages. As each of our vessels
completes its original charter in place on January 1, 2004, the finance leases
with Frontline become effective for accounting purposes. We account for the
revenues received from these third party charters as time charter, bareboat or
voyage revenues as applicable and the subsequent payment of these amounts to the
Frontline Charterers as deemed dividends paid. We account for the charter
revenues received from the Frontline Charterers prior to the charters becoming
effective for accounting purposes, as deemed equity contributions received. This
treatment has been applied due to the related party nature of the charter
arrangements.

The Company has accounted for the acquisition of assets from entities under
common control at the historical carrying value of the seller. The difference
between the purchase price and historical carrying value has been recorded as a
deemed dividend paid.

Deemed Equity Contributions

We have accounted for the difference between the historical cost of the vessels,
originally transferred to us by Frontline at Frontline's historical carrying
value, and the net investment in the lease as a deferred deemed equity
contribution. This deferred deemed equity contribution is presented as a
reduction in the net investment in finance leases in the balance sheet. This
results from the related party nature of both the original transfer of the
vessel and the subsequent finance lease. The deferred deemed equity contribution
is amortized as a credit to contributed surplus over the life of the new lease
arrangement as lease payments are applied to the principal balance of the lease
receivable.

Impairment of Long-lived Assets

The vessels and rigs held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In assessing the recoverability of carrying amounts, we
must make assumptions regarding estimated future cash flows. These assumptions
include assumptions about spot market rates, operating costs and the estimated
economic useful life of these assets. In making these assumptions we refer to
historical trends and performance as well as any known future factors. Factors
we consider important which could affect recoverability and trigger impairment
include significant underperformance relative to expected operating results, new
regulations that change the estimated useful economic lives of our vessels and
rigs and significant negative industry or economic trends.

Variable Interest Entities

A variable interest entity is a legal entity that lacks either (a) equity
interest holders as a group that lack the characteristics of a controlling
financial interest, including: decision making ability and an interest in the
entity's residual risks and rewards or (b) the equity holders have not provided
sufficient equity investment to permit the entity to finance its activities
without additional subordinated financial support. FASB Interpretation 46 (R)
requires a variable interest entity to be consolidated if any of its interest
holders are entitled to a majority of the entity's residual return or are
exposed to a majority of its expected losses.

In applying the provisions of Interpretation 46 (R), we must make assumptions in
respect of, but not limited to, the sufficiency of the equity investment in the
underlying entity. These assumptions include assumptions about the future
revenues, operating costs and estimated economic useful lives of assets of the
underlying entity.

In June 2006 we incorporated a wholly owned subsidiary, Rig Finance Ltd., for
the purpose of holding the jack-up drilling rig West Ceres. In applying the
provisions of FIN 46(R), we have determined that Rig Finance Ltd. meets the
definition of a variable interest entity. We have concluded that we are the
primary beneficiary. Accordingly we have consolidated the assets and liabilities
of Rig Finance effective December 31, 2006.

In August 2006 we incorporated a wholly owned subsidiary, Front Shadow Inc. for
the purpose of holding a Panamax drybulk carrier. In applying the provisions of
FIN 46(R), we have determined that Front Shadow Inc. meets the definition of a
variable interest entity. The vessel has been bareboat chartered to Golden Ocean
and the terms of the agreement are such that Ship Finance is not the primary
beneficiary. Accordingly we have equity accounted for our investment in Front
Shadow effective December 31, 2006

Recent accounting pronouncements

In March 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 156 Accounting for Servicing of
Financial Assets - an amendment to FAS 140 ("FAS 156"). FAS 156 requires that
all separately recognized servicing rights be initially measured at fair value
if practicable. The statement also permits an entity to choose between two
measurement methods for each class of separately recognized servicing assets and
liabilities. FAS 156 is effective for fiscal years beginning after September 15,
2006. The Company does not expect the adoption of FAS 156 to have an impact on
its financial statements.

In July 2006, the FASB issued Interpretation No. 48 Accounting for Uncertainty
in Income Taxes - an interpretation of FAS 109 ("FIN 48"). FIN 48 clarifies the
application of FAS 109 by defining the criterion that an individual tax position
must meet for any part of the benefit of that position to be recognized in an
entity's financial statements and also provides guidance on measurement,
de-recognition, classification, interest and penalties and disclosure. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company does
not expect the adoption of FIN 48 to have an impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157 Fair Value Measurements ("FAS 157"). FAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. FAS
157 applies under most other accounting pronouncements that require or permit
fair value measurements and does not require any new fair value measurements.
FAS 157 is effective for fiscal years beginning after November 15, 2007. The
Company has not yet determined the effect of adoption of FAS 157 on its
financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158 Employers' Accounting for Defined Benefit Pension and Other Post
Retirement Plans - an amendment of FAS 87, 88, 106, and 132R ("FAS 158"). FAS
158 requires that the funded status of defined benefit post retirement plans be
recognized in the statement of financial position and changes in the funded
status be reflected in comprehensive income. FAS 158 also requires the benefit
obligations to be measured as of the same date of the financial statements and
requires additional disclosures related to the effects of delayed recognition of
gains or losses, prior service costs or credits and transition assets or
obligation on net periodic benefit cost. FAS 158 is effective for fiscal years
ending after December 15, 2006 for employers without publicly traded securities.
The Company does not expect the adoption of FAS 158 to have an impact on its
financial statements.

In September 2006, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"), which provides interpretative guidance on how
registrants should quantify financial statement misstatements. Under SAB 108
registrants are required to consider both a "rollover" method, which focuses
primarily on the income statement impact of misstatements, and the "iron
curtain" method, which focuses primarily on the balance sheet impact of
misstatements. The effects of prior year uncorrected errors include the
potential accumulation of improper amounts that may result in material
misstatement on the balance sheet or the reversal of prior period errors in the
current period that result in a material misstatement of the current period
income statement amounts. Adjustments to current or prior period financial
statements would be required in the event that after application of various
approaches for assessing materiality of a misstatement in a current period
financial statements and consideration of all relevant quantitative and
qualitative factors, a misstatement is determined to be material. We adopted the
provisions of SAB 108 as of December 31, 2006 and this did not have a material
effect on the Company's results of operations or financial position.

Market Overview

The Oil Tanker Market

The tanker market strengthened in 2006 with demand having the greatest influence
on rates. The seasonal patterns for the Suezmax and VLCC sectors were quite
similar, though Suezmaxes witnessed more volatility. The year started at a TCE
of approximately $81,000 for VLCCs and approximately $70,000 for Suezmaxes
according to industry sources. Rates then followed the traditional seasonal
pattern by softening to approximately $33,000 for the VLCCs and approximately
$25,000 for Suezmaxes around the middle of April 2006. From this point, rates
began to firm against market predictions at the time and rose to approximately
$89,000 for VLCCs and approximately $75,000 for Suezmaxes by the end of August.
The fear of another active hurricane season in the US Gulf, geopolitical
uncertainty and increased risk of supply disruptions provided strong incentives
for building oil reserves throughout the summer. On-land storage capacity was in
some regions filled to capacity, driven by extraordinarily strong future rates,
as compared to market rates, resulting in the wide use of tankers for storage
purposes.

The build up in reserves triggered a sharp drop in crude prices, from $76 per
barrel in early August to $56 per barrel in early October. This led to the
market weakening with rates falling to approximately $45,000 for VLCCs and
approximately $30,000 for Suezmaxes by the middle of December 2006. Depending on
the source of information, the average TCE for the year was approximately
$63,000 for a double hull VLCC and approximately $50,000 for a double hull
Suezmax.

The increasing trend is for oil majors to discriminate against single hull
tonnage. Oil traders with crude or fuel oil cargoes often require double hull
tonnage in order to have full flexibility with regard to cargo delivery.
Therefore, single hull ships appear no longer able to trade efficiently compared
to double hull vessels, which implies a further gap in the already existing 'two
tier market' between the double hull and single hull vessels.

We believe it is likely that more single hull tankers will be either converted
or scrapped compared to recent years. We expect approximately 30 VLCCs and
approximately 25 Suezmaxes to be delivered from shipyards during 2007.

The Drybulk Shipping Market

The drybulk shipping market continued its strong performance in 2006, mainly
driven by Chinese imports and exports. Chinese iron ore, steam coal and grain
imports were all running at record high levels during the second half of 2006.
In addition to these trades, steel exports from China increased substantially
during 2006, and China is now a major exporter of steel.

In line with the continued  strong market,  contracting  for new drybulk vessels
has  increased in 2007.  The increase in the orderbook is likely to put pressure
on the current  strong rates as vessels start getting  delivered.  Further,  the
development of the drybulk market is expected to be dependent on the development
of the Chinese industrial economy. A slow-down in the Chinese industrial economy
could result in a softening of the market.

The Containership Market

The strong demand growth for containerships since 2003 has been supported by the
improving  world economy and  expanding  world trade.  Historically,  demand for
containerships has been highly sensitive to global economic growth.

Demand growth for  containerships  has been mainly driven by surging  exports by
Asian countries and increasing  imports by Europe and North America,  as well as
more  intra-Asian  trade.  With an expected  healthy outlook for global economic
growth,  it is expected  that demand for  containerships  will  continue to grow
steadily until 2010.

One concern, however, arises from the large orderbook for new ships entering the
market  over the next three to four  years.  Because of the many  orders for new
vessels,  the orderbook currently stands at close to half of the existing fleet.
Most of the  new  capacity  is  expected  in the  post-Panamax  vessel  segment.
Industry  sources  expect  that  this will  lead to an  annual  fleet  growth of
approximately  10% per annum until 2010,  similar to the historic average growth
rate for demand.

The Offshore Drilling Rig Market

The  substantial  oil price crash in 1998,  caused by the Asian crisis,  has for
many years  deterred  global oil majors from  making  significant  expansion  of
exploration  and  production  budgets.  However,  with the strong  upturn in oil
prices since 2003,  exploration  and  production  budgets have been increased to
meet  growing oil demand and  depletion of existing oil reserves in regions such
as the North Sea and the U.S. Gulf of Mexico.

The  increase  in the  average  oil price from $30 per barrel in 2003 to $60 per
barrel  in 2006 is  partly  a  result  of the  increased  oil  demand  by  Asian
developing  countries.  Oil producers have encountered  difficulties coping with
growth in the increase in  production  required to meet this increase in demand.
Depletion of North Sea and U.S.  Gulf of Mexico oil  reserves,  rising costs and
barriers to entry for foreign oil  companies  tapping  into Russian oil reserves
and  geopolitical  issues that  constantly  disrupt  steady oil supplies in West
Africa have led to increasing pressure on the limited spare capacity held by the
Middle East OPEC  producers.  As a  consequence,  oil majors have taken  serious
efforts to increase their budgets for oil exploration and production.

According to industry experts, it is estimated that offshore oil production will
continue to grow through 2010, with production from deepwater sources taking the
lead.  The focus of offshore  services is on the North Sea, U.S. Gulf of Mexico,
Brazil, West Africa and South East Asia.

Strong growth in offshore production volume has also significantly  improved the
demand  outlook for  offshore  drilling  rigs and supply  vessels.  The offshore
services  markets  have  experienced  tight  conditions  with fleet  utilization
staying at over 90% for offshore drilling rigs in main areas. As a result, there
has been an increase in the newbuilding  market for offshore  drilling units and
supply  vessels during the past two years.  In particular,  demand has increased
for drilling rigs capable of operating in harsh  environments  such as the North
Sea, boosting capacity utilization and consequently day rates.

With the estimated growth in demand and current orderbook, the offshore services
market is expected to continue to enjoy the high levels of  utilization  seen to
date in 2007.  The  market  balance  is  expected  to soften  gradually  as more
newbuildings  are delivered in 2008 and  afterwards.  Nevertheless  according to
industry sources, it is expected that the offshore market will continue to enjoy
a healthy outlook over the next four to five years.

However, market developments cannot always be predicted and may well differ from
our expectations.

Seasonality

Our tankers operate in markets that have historically exhibited seasonal
variations in demand and, therefore, charter rates. Tanker markets are typically
stronger in the winter months in the northern hemisphere due to increased oil
consumption. In addition, unpredictable weather patterns in the winter months
tend to disrupt vessel scheduling. The oil price volatility resulting from these
factors has historically led to increased oil trading activities and demand for
tankers. The change in demand for vessels may affect the charter rates that the
Frontline Charterers receive for our vessels. Seasonality may also affect the
amount and timing of our profit sharing revenues.

Inflation

Although inflation has had a moderate impact on our corporate overheads and our
ship operating expenses, we do not consider inflation to be a significant risk
to direct costs in the current and foreseeable economic environment. In
addition, in a shipping downturn, costs subject to inflation can usually be
controlled because shipping companies typically monitor costs to preserve
liquidity and encourage suppliers and service providers to lower rates and
prices in the event of a downturn.

Results of Operations

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

Operating revenues

--------------------------------------------------------------------------------
(in thousands of $)                                             2006       2005
--------------------------------------------------------------------------------

Time charter revenues                                         53,087     62,605
Bareboat charter revenues                                      3,986      7,325
Voyage charter revenues                                         (709)     9,745
Finance lease interest income                                182,580    177,474
Finance lease service revenues                               106,791     92,265
Profit sharing revenues                                       78,923     88,096
                                                            --------------------
Total operating revenues                                     424,658    437,510
                                                            --------------------

Total operating revenues decreased 3% in the year ended December 31, 2006
compared with 2005.

Time charter revenues consist mainly of revenues received as a result of
incomplete third party charters on vessels acquired from Frontline. As at
December 31, 2006 only two of the vessels originally acquired from Frontline
remained on such third party charters. During 2006, four third party charters
expired and the vessels commenced employment with the Frontline Charterers
operating under the fixed rate charter arrangements and are accounted for as
finance leases. During the period of third party employment, we recorded time
charter, bareboat charter, and voyage charter revenue for the vessels.
Subsequent to the completion of third party charters, vessels under finance
leases provide earnings in the form of lease interest income, lease service
revenue and profit share.

In 2005, two vessels accounted for a significant portion of voyage charter
revenues due to lucrative spot market rates prior to their employment with
Frontline.

Voyage charter revenues included demurrage, despatch, pool earnings and other
operating income which are subject to various adjustments, e.g. loss of hire,
vendor rebates and underperformance claims. These adjustments have resulted in a
negative figure in 2006.

The increase in finance lease interest income from 2005 to 2006 results from the
new leasing contracts with SeaDrill Invest I for the West Ceres jack-up drilling
rig, which commenced June 30, 2006. In addition, during 2006, four vessels were
redelivered following the completion of charters to third parties. On
redelivery, each commenced time charter contracts with the Frontline Charterers.

Finance lease service revenues, which are based on a fixed daily rate, increased
in 2006 because of the change in employment of the four above mentioned
vessels.

At December 31, 2006 all but two of our tankers had completed their
pre-acquisition charters to third parties. The remaining vessels on charter to
third parties completed their charters during the first half of 2007. After
these two charters completed in the second quarter of 2007, most revenues from
the tankers in our current fleet is derived from finance leases and our profit
sharing arrangement with the Frontline Charterers.

Each of the Frontline Charterers has agreed to pay us a profit sharing payment
equal to 20% of the charter revenues for the applicable period, calculated
annually on a TCE basis for the VLCCs Suezmaxes and OBOs, realized by that
Frontline Charterer for our vessels in excess of the base charterhire for those
vessels. For the year ended December 31, 2006 we earned total profit share
revenues from the Frontline Charterers in the amount of $78.9 million (2005:
$88.1 million). The decrease in profit sharing revenue is directly related to
decrease in average TCE earned by these vessels while employed by Frontline in
2006.

Cash flows arising from finance leases

The following table analyzes our cash flows from the charters to the Frontline
Charterers and SeaDrill Invest I during 2006 and 2005 and how they are accounted
for:

(in thousands of $)
                                                                2006       2005
Charterhire payments accounted for as:

   Finance lease interest income                             182,580    177,474
   Finance lease service revenues                            106,791     92,265
   Finance lease repayments                                  136,701     94,777
   Deemed equity contributions received                       31,741     50,560
                                                            --------------------
Total charterhire paid                                       457,813    415,076
                                                            --------------------

We allocate $6,500 per day from each time charter payment from the Frontline
Charterers as finance lease service revenue.

Certain of our vessels acquired as part of the original spin-off were on charter
to third parties as at January 1, 2004 when our charter arrangements with the
first of the Frontline Charterers became economically effective. Our charter
arrangements with the Frontline Charterers become economically effective on the
date of delivery of the vessel to Frontline Charterers. Our arrangement with the
Frontline Charterers is that while our vessels are completing performance of
third party charters, we pay the Frontline Charterers all revenues we earn under
third party charters in exchange for the Frontline Charterers paying us the
agreed upon charterhire rates. We account for the revenues received from these
third party charters as time charter, bareboat or voyage revenues as applicable
and the subsequent payment of these amounts to the Frontline Charterers as
deemed dividends paid. We account for the charter revenues received from the
Frontline Charterers prior to the charters becoming effective for accounting
purposes, as deemed dividends received. For the year ended December 31, 2006 we
paid deemed dividends in the amount of $7.2 million (2005: $16.5 million) to the
Frontline Charterers. The decrease in deemed dividends paid is due to the fact
that that all but two of our tankers had completed their respective third party
charters as of December 31, 2006.

Voyage expenses

Voyage expenses are derived from vessels which were on charter to third parties
on their delivery date to us. Voyage expenses have decreased in 2006 as fewer
vessels are on voyage charter to third parties. We do not expect to report
further significant voyage expenses.

Ship operating expenses

Ship operating expenses increased 7% from $110.2 million for the year ended
December 31, 2005 to $118.0 million for the year ended December 31, 2006
primarily due to the change in employment of our tankers. In 2006 four of our
tankers were redelivered from bareboat charters and resumed vessel management
with Frontline Management.

Ship operating expenses in 2006 are primarily comprised of our payments to
Frontline Management of $6,500 per day under the management contracts for our
tankers and OBOs chartered to the Frontline Charterers. They also include ship
operating expenses for two of our containerships that are managed by unrelated
third parties.

Administrative expenses

Administrative expenses increased from $2.5 million in 2005 to $6.6 million in
2006. This increase is primarily due to the establishment of our own management
organization in 2006 and consequent staff costs. Prior to 2006, all
administrative activities were outsourced to Frontline Management in conjunction
with our administrative services agreement and comprised a fee of $20,000 per
vessel owning subsidiary plus $20,000 paid by us. Fees payable under this
agreement amounted to $1.0 million in the year ended December 31, 2006 (December
31, 2005: $1.0 million). Frontline Management provides administrative services
under this agreement, which include accounting, corporate secretarial and other
services.

Additionally, we pay expenses that are not covered by this agreement which
include audit and legal fees, listing fees and other professional charges.
Commencing in 2007, some of the compensation to Frontline Management will be
based on cost sharing for the services rendered based on actual incurred costs
plus a margin.

Depreciation expense

Depreciation expenses for the year ended December 31, 2006 was $14.5 million
compared to $19.9 million for the year ended December 31, 2005. Depreciation
expenses relate to the vessels on charters accounted for as operating leases. In
2006, four such Frontline vessels were redelivered from third party charters and
are now being accounted for as finance leases, thus contributing to the decrease
in depreciation from 2005. We expect that our depreciation charge relating to
our tankers on charter to the Frontline Charterers will continue to decrease as
the remaining vessels have now completed their charters to third parties.
However, those decreases are likely to be offset as we expand our fleet.

Interest income

Interest income has increased by $0.6 million for the year ended December 31,
2006. The increase is a result of the increase in funds on deposit during the
year.

Interest expense

(in thousands of $)                                2006      2005    Change (%)

Interest on floating rate loans                  80,453    50,951           58%
Interest on 8.5% Senior Notes                    38,881    41,614           (7%)
Swap interest (income)                           (8,815)    2,846          n/a
Amortization of deferred charges                  3,069    16,524          (81%)
                                               ---------------------------------
                                                113,588   111,935            1%
                                               ---------------------------------

At December 31, 2006, we had total debt outstanding of $1,915.2 million
comprised of $449.1 million aggregate principal amount of 8.5% senior notes and
$1,466.1 million under floating rate secured credit facilities. At December 31,
2005 we had total debt outstanding of $1,793.7 million, $457.1 million related
to the 8.5% senior notes and $1,336.6 million of which was floating rate debt.

Overall, interest expense has increased due to increased underlying interest
rates. This has been partially offset by swap interest income, and by the
decrease in senior notes interest, as the Company repurchased and cancelled $8.0
million of the notes during 2006.

At December 31, 2006, we were party to interest rate swap contracts which
effectively fix our interest rate on $738.7 million of floating rate debt at a
weighted average rate of 4.15% per annum. At December 31, 2005 we were party to
interest rate swap contracts with a notional principal amount of $568.3 million.
Swap interest has decreased due to the increase in the three month LIBOR
throughout 2006.

Amortization of deferred charges decreased 81% in 2006 to $3.1 million because
2005 included the write off of deferred charges associated with a refinancing of
a $1,058.0 million credit facility

Other financial items

Other financial items consist of mark to market valuation changes on our
interest rate swap contracts and our bond swap. In 2006 we recorded an expense
of $2.8 million in relation to the mark to market as compared to income of $14.7
million in 2005. The significant change is primarily a result of five new swap
contracts entered into in association with the Horizon Lines arrangement. The
new swaps have a notional principal, at December 31, 2006, of $207.9 million and
fix our LIBOR debt at 5.65% per annum, which is significantly higher than the
weighted average of 3.56% per annum for the remaining swaps which bear a
combined notional principal of $530.8 million.

Equity in earnings of unconsolidated subsidiaries

As of December 31, 2006, we have accounted for one investment under the equity
method as discussed in Note 12 of the financial statements included herein.

Year ended December 31, 2005 compared with the year ended December 31, 2004

Operating revenues

(in thousands of $)                                           2005         2004

Time charter revenues                                       62,605       86,741
Bareboat charter revenues                                    7,325       27,453
Voyage charter revenues                                      9,745       49,707
Finance lease interest income                              177,474      140,691
Finance lease service revenues                              92,265       72,551
Profit sharing revenues                                     88,096      114,926
                                                         -----------------------
Total operating revenues                                   437,510      492,069
                                                         -----------------------

Total operating revenues decreased 11% in the year ended December 31, 2005
compared with 2004. The decrease in operating revenues in 2005 primarily
reflects the change in employment of our vessels in addition to reduced profit
share income received from the Frontline Charterers. In the first six months of
2004, the majority of our vessels were completing third party charters prior to
commencing employment with the Frontline Charterers, whereas in 2005, all but
six of our tankers had commenced full employment with the Frontline Charterers
and are now operating under the fixed rate charter arrangements and are
accounted for as finance leases.

As of December 31, 2005 18 of our 22 Suezmax tankers and 26 of our 28 VLCC
tankers had commenced employment with the Frontline Charterers under long term
charters that are accounted for as finance leases. Finance lease interest income
and finance lease services revenues increased by 26% and 27% respectively in the
year ended December 31, 2005. This increase is explained by the increase in the
number of vessels accounted for as finance leases, 44 in 2005 compared with 40
at December 31, 2004.

At December 31, 2005 all but six of our tankers had completed their charters to
third parties. The remaining vessels on charter to third parties completed their
charters during the first half of 2007. After these charters are completed all
revenues from our current fleet of tankers are derived from finance leases and
our profit sharing arrangement with the Frontline Charterers.

In addition to operating revenues from our tankers we also recorded time charter
revenues in connection with our two containerships which were on time charter to
unrelated third parties.

The following table analyzes our cash flows from the charters to the Frontline
Charterers during 2005 and 2004 and how they were accounted for:

(in thousands of $)
                                                              2005         2004
Frontline charterhire payments accounted for as:

   Finance lease interest income                           177,474      140,691
   Finance lease service revenues                           92,265       72,551
   Finance lease repayments                                 94,777       61,990
   Deemed equity contributions received                     50,560       97,118
                                                         -----------------------
Total charterhire paid                                     415,076      372,350
                                                         -----------------------

For the year ended December 31, 2005 we paid deemed dividends in the amount of
$16.5 million (2004: $59.0 million) to the Frontline Charterers. The significant
decrease in deemed dividends paid was due to the fact that the majority of our
fleet of tankers completed their respective third party charters in 2004.

Each of the Frontline Charterers has agreed to pay us a profit sharing payment
equal to 20% of the charter revenues for the applicable period, calculated
annually on a TCE basis, realized by that Frontline Charterer for our fleet in
excess of the base charterhire. For the year ended December 31, 2005 we earned
total profit share revenues from the Frontline Charterers in the amount of $88.1
million (2004: $114.9 million). The decrease in profit sharing revenue was
directly related to decrease in average TCE earned by the fleet while employed
by Frontline in 2005.

Voyage expenses

Voyage expenses of $3.6 million in 2005 were derived from vessels which were on
charter to third parties on the delivery date to the Company. Voyage expenses
have decreased 64% from $10.0 million for the year ended December 31, 2004, as
fewer vessels were on charter to third parties during the period.

Ship operating expenses

Ship operating expenses have increased 14% from $96.5 million for the year ended
December 31, 2004 to $110.2 million for the year ended December 31, 2005
primarily due to the increase in our fleet of tankers and the addition of two
containerships. Ship operating expenses in 2005 were primarily comprised of our
payments to Frontline Management of $6,500 per day under the management
contracts for our tankers. They also included ship operating expenses for our
two containerships that are managed by unrelated third parties. The management
fees are payable on each of our vessels, except those that Frontline Charterers
elect to bareboat charter from us. At December 31, 2005, five of our vessels
were bareboat chartered.

Administrative expenses

Administrative expenses in 2005 comprised a fee of $20,000 per vessel owning
subsidiary plus $20,000 paid by us to Frontline Management under the terms of
our administrative service agreement. Fees payable under this agreement amounted
to $1.0 million in the year ended December 31, 2005 (December 31, 2004: $0.9
million).

Depreciation expense

Depreciation expense for the year ended December 31, 2005 was $19.9 million
compared to $34.6 million for the year ended December 31, 2004. Depreciation
expenses relate to the vessels on charters to third parties that are accounted
for as operating leases. The reduction in 2005 was due to the fact that in 2004
we recorded depreciation on vessels during the period before they commenced
employment with the Frontline Charterers under long term charters. In 2005 we
recorded the majority of depreciation on the six vessels trading on third party
time charters.

Interest income

Interest income increased by $0.8 million for the year ended December 31, 2005
as a result of the increase in funds on deposit during the year.

Interest expense

(in thousands of $)                                2005       2004       Change

Interest on floating rate loans                  50,951     26,723          91%
Interest on 8.5% Senior Notes                    41,614     47,180         (12%)
Swap interest                                     2,846     12,545         (77%)
Amortization of deferred charges                 16,524      9,485          74%
                                              ----------------------------------
                                                111,935     95,933          17%
                                              ----------------------------------

At December 31, 2005, we had total debt outstanding of $1,793.7 million
comprised of $457.1 million aggregate principal amount of 8.5% senior notes and
$1,336.6 million under floating rate secured credit facilities. At December 31,
2004 we had total debt outstanding of $1,478.9 million, $530.3 million related
to the 8.5% senior notes and $948.6 million of which was floating rate debt.
Interest costs related to floating rate debt increased in 2005 due to the rising
LIBOR and also due to an increase in debt outstanding as the Company financed
the purchase of five VLCC's during the period. The increase in floating rate
interest costs was offset by the decrease in senior notes interest, as the
Company bought back and cancelled $73.2 million of the notes during 2005.

At December 31, 2005, we were party to interest rate swap contracts which
effectively fixed our interest rate on $568.3 million of floating rate debt at a
weighted average rate of 3.7%. At December 31, 2004 we were party to interest
rate swap contracts with a notional principal amount of $581.4 million. Swap
interest decreased due to the increase in the three month LIBOR throughout 2005.

Amortization of deferred charges increased by $7.0 million in 2005 compared with
2004 due to the write off of deferred charges associated with the refinancing of
the $1,058.0 million credit facility. In addition, deferred charges related to
the repurchase of $73.2 million in senior notes were written off during the
year.

Other financial items

In 2005 and 2004, other financial items primarily consisted of mark to market
valuation changes on our interest rate swap contracts of $14.7 million and $9.3
million, respectively.

Liquidity and Capital Resources

We operate in a capital intensive industry. Our purchase of the tankers in the
initial transaction with Frontline was financed through a combination of debt
issuances, an equity contribution from Frontline and borrowings from commercial
banks. Our subsequent transactions have been financed through a combination of
our own equity and borrowings from commercial banks. Our liquidity requirements
relate to servicing our debt, funding the equity portion of investments in
vessels, funding working capital requirements and maintaining cash reserves
against fluctuations in operating cash flows. Revenues from our time charters
and bareboat charters are received monthly in advance, quarterly in advance or
monthly in arrears. Management fees are payable monthly in advance.

Our funding and treasury activities are conducted within corporate policies to
maximize investment returns while maintaining appropriate liquidity for our
requirements. Cash and cash equivalents are held primarily in U.S. dollars, with
minimal amounts held in Norwegian Kroner.

Our short-term liquidity requirements relate to servicing our debt and funding
working capital requirements (including required payments under our management
agreements and administrative services agreements). Sources of short-term
liquidity include cash balances, restricted cash balances, short-term
investments, available amounts under a revolving credit facility and receipts
from our charters. We believe that our cash flow from the charters will be
sufficient to fund our anticipated debt service and working capital requirements
for the short and medium term.

Our long term liquidity requirements include funding the equity portion of
investments in new vessels, and repayment of long term debt balances including
those relating to our 8.5% senior notes due 2013, our $1,131.4 million secured
credit facility due 2011, our $350.0 million secured term loan facility due
2012, our $165.0 million secured term loan facility due 2012, our $170.0 million
secured term loan facility due 2013, our $120 million secured term loan facility
due 2014, our $22.7 million secured term loan facility due 2016 and our $210.0
million secured term loan facility due 2019. To the extent we decide to acquire
additional vessels, we may consider additional borrowings and equity and debt
issuances.

At December 31, 2006, the Company had contractual commitments relating to
newbuilding contracts and vessel acquisitions totaling $362.5 million.

We expect that we will require additional borrowings or issuances of equity in
the long term to meet our capital requirements.

As of December 31, 2006 and December 31, 2005, we had cash and cash equivalents
(including restricted cash) of $77.5 million and $34.4 million, respectively. In
the year ended December 31, 2006, we generated cash from operations of $193.5
million, used $110.7 million in investing activities and used $51.1 million in
financing activities.

During the year ended December 31, 2006 we paid cash dividends of $2.05 per
common share (December 31, 2005: $2.00), or a total of $149.1 million. In the
first half of 2007 we paid cash dividends of $0.54 and $0.55 per share for a
total of $39.3 million, and $40.0 million respectively.

Borrowings

As of December 31, 2006 and December 31, 2005, we had total long term debt
outstanding of $1,915.2 million and $1,793.7 million, respectively. In addition,
our wholly owned subsidiary Front Shadow had long term debt of $22.7 million
outstanding as of December 31, 2006. Front Shadow is accounted for using the
equity method, and the outstanding long term debt does not appear in our
consolidated balance sheet.

As at December 31, 2006, we had $449.1 million outstanding from our issue in
2003 of $580.0 million 8.5% senior notes due 2013.

In February 2005, we refinanced our existing $1,058.0 million secured credit
facility with a new $1,131.4 million secured credit facility. This facility
bears interest at LIBOR plus a margin of 0.70% per annum, is repayable over a
term of six years and has similar security terms to the repaid facility. In
September 2006, we signed an agreement whereby the existing debt facility which
had been partially repaid, was increased by $219.7 million to the original
outstanding amount of $1,131.4 million. The increase is available on a revolving
basis. At December 31, 2006, the outstanding amount on this facility was $953.3
million. This facility contains a minimum value covenant, which requires that
the aggregate value of our vessels secured as collateral exceed 140% of the
outstanding amount of the facility. The new facility also contains covenants
that require us to maintain certain minimum levels of free cash, working capital
and equity ratios.

In June 2005, we entered into a combined $350.0 million senior and junior
secured term loan facility with a syndicate of banks. At December 31, 2006, the
outstanding amount on this facility was $316.1 million. The proceeds of the
facility were used to partly fund the acquisition of five VLCCs. The facility
bears interest at LIBOR plus a margin of 0.65% per annum for the senior loan and
LIBOR plus a margin of 1.00% per annum for the junior loan. The facility is
repayable over a term of seven years has similar security terms as the $1,131.4
million facility. This facility contains a minimum value covenant, which
requires that the aggregate value of our vessels exceed 140% of the outstanding
amount of the senior loan and, for as long as any amount is outstanding under
the junior loan, 125% of the total outstanding loan. The facility also contains
covenants that require us to maintain certain minimum levels of free cash,
working capital and equity ratios.

In April 2006, five vessel owning subsidiaries entered into a $210 million
secured term loan facility with a syndicate of banks. The facility is non
recourse to Ship Finance International Limited, as the holding company does not
guarantee this debt. The proceeds of the facility were used to partly fund the
acquisition of five newbuilding container vessels in connection with our
long-term bareboat charters to Horizon Lines. At December 31, 2006, the
outstanding amount under this facility was $41.6 million relating to the first
vessel, which was delivered during the fourth quarter 2006. The second vessel
was delivered during the first quarter of 2007, and the remaining three vessels
were delivered during the second quarter of 2007.

The facility bears interest at LIBOR plus a margin of 1.40% per annum, is
repayable over a term of 12 years and is secured by the vessel owning
subsidiaries' assets. The facility contains a minimum value covenant, which
requires that the aggregate value of our vessels exceed 120% of the outstanding
loan if there is a default under any of the charters. The vessel owning
subsidiaries have entered into 12 year interest rate swaps with a combined
notional principal amount of $207.9 million at rates of approximately 5.65% per
annum.

In June 2006, our subsidiary Rig Finance, entered into a $165 million secured
term loan facility with a syndicate of banks. The proceeds of the facility were
used to partly fund the acquisition of a newbuilding jack-up drilling rig. At
December 31, 2006, the outstanding amount under this facility was $155.1
million.

The facility bears interest of LIBOR plus a margin of 1.15% per annum as long as
the rig is employed under an initial sub-charter to a third party, but in no
event longer than the first 36 months, and LIBOR plus a margin of 1.20% per
annum thereafter. The facility contains a minimum value covenant, which requires
that the value of the rig exceed 120% of the outstanding loan during the period
up to six months prior to expiry of the initial sub-charter to the third party,
and 140% thereafter. The facility is repayable over six years and is secured by
the rig owning subsidiary's assets. The lenders have limited recourse to Ship
Finance International Limited as the holding company only guarantees $10 million
of this debt. The facility contains covenants that require us to maintain
certain minimum levels of free cash, working capital and equity ratios.

In June 2006, we entered into a $25 million secured revolving credit facility.
The proceeds of the facility were used to partly fund a VLCC acquired in January
2006. The facility was repaid in full in December 2006, when the vessel was sold
to an unrelated third party.

In September 2006, our subsidiary Front Shadow entered into a $22.7 million
secured term loan facility. The proceeds of the facility were used to partly
fund the acquisition of a 1997 built Panamax drybulk carrier. At December 31,
2006, the outstanding amount under this facility was $22.7 million. The facility
bears interest of LIBOR plus a margin of 0.59% per annum. The facility contains
a minimum value covenant, which requires that the value of the vessel exceed
110% of the outstanding loan during the first four years, and 125% thereafter.
The facility is repayable over ten years and is secured by the vessel owning
subsidiary's assets. The lenders have limited recourse to Ship Finance
International Limited as the holding company guarantees $2.1 million of this
debt.

In February 2007, our subsidiary, Rig Finance II, entered into a $170 million
pre- and post-delivery secured term loan facility with a syndicate of banks. The
proceeds of the facility will be used to partly fund the acquisition of a
newbuilding jack-up drilling rig. $85.6 million of the facility is available for
drawdown during the period before delivery of the rig from the yard, with the
remaining $84.4 million being available for drawdown upon delivery of the rig.
The facility bears interest of LIBOR plus a margin of 1.20% per annum up to and
including the delivery date of the rig. Following delivery, the facility bears
interest of LIBOR plus a margin based upon a grid between 0.90% per annum and
1.20% per annum depending on the ratio of the value of the rig to the
outstanding loan under the facility. The facility contains a minimum value
covenant, which requires that the value of the rig exceeds 120% of the
outstanding loan during the period up to six months prior to expiry of an
initial sub-charter to a third party, and 130% thereafter. The facility is
repayable over six years and is secured by the rig owning subsidiary's assets.
The lenders have limited recourse to Ship Finance International Limited as the
holding company only guarantees $30 million of this debt until the delivery from
the shipyard and $20 million thereafter. The facility contains covenants that
require us to maintain certain minimum levels of free cash, working capital and
equity ratios.

In March 2007, three vessel owning subsidiaries entered into a $120.0 million
secured term loan and guarantee facility with a syndicate of banks. The facility
is divided into a $48.5 million pre-delivery guarantee facility and a $120
million term loan facility, and will be used to partly fund the acquisition of
three newbuilding seismic vessels. The guarantee facility is for the purpose of
guaranteeing obligations under the construction contracts with the yard. The
proceeds from the term loan facility will be used to partly fund the acquisition
of the vessels upon delivery from the yard. The facility bears interest of LIBOR
plus a margin of 1.50% per annum for the first two years from delivery of the
first vessel, and thereafter bears interest of LIBOR plus a margin based upon a
grid between 1.25% per annum and 1.50% per annum depending on the ratio of the
aggregate value of the vessels to the outstanding loan under the facility. The
facility contains a minimum value covenant, which requires that the aggregate
value of our vessels, including seismic equipment, exceeds 130% of the
outstanding loan. The facility is repayable over six years and is secured by the
vessel owning subsidiaries' assets. The lenders have limited recourse to Ship
Finance International Limited as the holding company has provided a guarantee of
$48.5 million prior to delivery from the shipyard and $30 million of the debt
thereafter. The facility contains covenants that require us to maintain certain
minimum levels of free cash, working capital and equity ratios.

We were in compliance with all loan covenants at December 31, 2006. At December
31, 2006, three month LIBOR was 5.36%.

At December 31, 2006, we had entered into interest rate swap contracts with a
combined notional principal amount of $738.7 million at rates between 3.32% per
annum and 6.24% per annum. The overall effect of these swaps is to fix the
interest rate on $738.7 million of floating rate debt at a weighted average
interest of 4.15% per annum. At December 31, 2006, $166.4 million of the
interest rate swaps relate to committed but not outstanding debt on vessels not
yet delivered to us. Several of our charter contracts also contain interest
adjustment clauses, whereby the charter rate is adjusted to reflect the actual
interest paid on the outstanding loan, effectively transferring the interest
rate exposure to the counterparty under the charter contract. At December 31,
2006, $155.1 million of our outstanding debt was subject to such interest
adjustment clauses. At December 31, 2006, we had also entered into total return
bond swaps in respect of $52 million of our 8.5% debentures, which effectively
translates the underlying principle amount into floating rate debt

At December 31, 2006, our net exposure to interest rate fluctuations on our
outstanding debt was $790.6 million, compared with $768.3 million at December
31, 2005. Our net exposure to interest fluctuations is based on our total
floating rate debt outstanding at December 31, 2006, plus the outstanding under
the bond swap line at December 31, 2006, less the outstanding floating rate debt
subject to interest adjustment clauses and the notional principal of our
floating to fixed interest rate swaps outstanding at December 31, 2006.

In addition, the outstanding debt of $22.7 million at December 31, 2006 in our
subsidiary Front Shadow, which is accounted for using the equity method, is
subject to an interest adjustment clause under the charter contract.

We use financial instruments to reduce the risk associated with fluctuations in
interest rates. We do not currently hold or issue instruments for speculative or
trading purposes.

In 2006 we repurchased and cancelled 8.5% senior notes with a total principal
amount of $8.0 million. In February 2006 we entered into a total return bond
swap line with a bank in which the bank buys our senior notes, and we compensate
the bank for its funding cost plus a margin. Through this arrangement, we are
able to realize profits, but guarantee against losses for the bank. During 2006
the bank acquired senior notes with a total principal amount of $52.0 million
under this bond swap line. In February 2007, we entered into an additional bond
swap line with a second bank and we hold bonds with a principal amount of $5.0
million under this arrangement as of June 15, 2007.

Equity

During 2006 we repurchased and cancelled 400,000 common shares.  The shares were
repurchased at an average price of $18.03 for a total amount of $7.2 million.

As each of the vessels  acquired  from  Frontline  during the  initial  spin-off
completes the third party  charters  that were in place on January 1, 2004,  the
finance leases with the relevant Frontline Charterer, entered into on January 1,
2004,  become  effective  for  accounting  purposes.  We have  accounted for the
difference  between the historical  cost of the vessel and the net investment in
the lease as a deferred deemed equity contribution.  The difference is presented
as a reduction in the net  investment  in finance  leases in the balance  sheet.
This results from the related party nature of both the original  transfer of the
vessel  and  the  subsequent  sales  type  lease.  The  deferred  deemed  equity
contribution  is amortized as a credit to  contributed  surplus over the life of
the new lease arrangement as lease payments are applied to the principal balance
of the lease  receivable.  In the year ended  December 31, 2006 we accounted for
$30.0 million as amortization of such deemed equity  contributions  (2005:  $9.2
million). The increase over 2005 is partially because the unamortized portion of
the deferred equity contribution for Front Tobago ($7.5 million) was credited to
contributed  surplus  because the Company sold the vessel to an unrelated  third
party in December 2006. Also in June 2006 Frontline  decided not to exercise the
right to sell a  newbuilding  VLCC to the Company to replace  Front Hunter which
was sold to an  unrelated  third party in 2005.  As a result,  we  credited  the
remaining  deferred  equity  contribution  for this  vessel  ($6.1  million)  to
contributed surplus in 2006.

Following these transactions, as of December 31, 2006, our issued and fully paid
share capital balance was $72.7 million and our contributed surplus balance was
$464.5 million.

Contractual Commitments

At December 31, 2006, we had the following contractual obligations and
commitments:

<TABLE>
<CAPTION>
                                                       Payment due by period
                                       Less than                            After
                                         1 year    1-3 years   3-5 years   5 years     Total
                                       -------------------------------------------------------
                                                        (in thousands of $)
<S>                                    <C>         <C>         <C>         <C>       <C>
8.5% Senior Notes due 2013                   --          --          --    449,080     449,080
Floating rate debt                      144,451     278,524     732,384    310,761   1,466,120
                                       -------------------------------------------------------
Total contractual cash
obligations under existing loans        144,451     278,524     732,384    759,841   1,915,200
                                       -------------------------------------------------------
Obligations under newbuilding
contracts and vessel
acquisitions                            234,700     127,800          --         --     362,500
                                       -------------------------------------------------------
Total contractual cash
obligations                             379,151     406,324     732,384    759,841   2,277,700
                                       -------------------------------------------------------
</TABLE>

Trend information

Our charters with the Frontline Charterers provide that daily rates decline over
the terms of the charters as discussed in Item 4.B "Our Fleet".

We pay daily management fees, which are payable by us monthly in advance, for
365 days per year (366 days in a leap year) for each of our vessels on charter
to the Frontline Charterers in the amount of $6,500.

Since December 31, 2006, we have entered into several new agreements for both
the acquisition and sale of assets. In January 2007, we entered in to an
agreement to acquire a newbuilding jack-up drilling rig currently under
construction, with expected delivery at the end of June 2007. In February 2007,
we entered into an agreement to acquire two newbuilding Capesize drybulk
carriers, with expected delivery in 2008 and 2009. In March 2007, we entered
into an agreement to acquire three newbuilding seismic vessels, including
complete seismic equipment, with expected delivery in 2008. We have also
rechartered one single hull VLCC tanker in a hire-purchase agreement and sold
six single hull Suezmax tankers in 2007.

The trend is that prices for both second-hand vessels and newbuilding contracts
are increasing. The same is the case for drilling rigs. This is in line with the
current strong markets in most sectors in which we operate, and also reflects
market expectations going forward. Available yard capacity for additional
newbuildings over the next years is also limited. New contracts generally
provide for delivery from the builder from 2010 and after.

Interest rates have increased since December 31, 2006, which will increase our
interest expenses on our floating rate debt. We have effectively locked in part
of our interest exposure on our floating rate debt through swap agreements with
banks. Several of our charter contracts also include interest adjustment
clauses, whereby the charter rate is adjusted to reflect the actual interest
paid on the outstanding loan relating to the asset, effectively transferring the
interest rate exposure to our counterparty under the charter contract.

So far in 2007, market rates for spot chartered tankers have on average
generally decreased compared to the same period in 2006. Our tanker vessels on
charter to the Frontline Charterers are subject to long term charters that
provide for both a fixed base charterhire and a profit sharing payment that
applies once the applicable Frontline Charterer earns daily rates from our
vessels that exceed certain levels. If market rates for spot market chartered
vessels decrease, our profit sharing revenues will likewise decrease for the
vessels operated by the Frontline Charterers in the spot market. The charter
contracts for the two jack-up drilling rigs on charter to Seadrill also include
profit sharing payments above certain base levels from certain dates. The
current market for jack-up rigs is strong, but should the market decrease, we
may not receive any revenues from the profit sharing agreements once they
commence.

Off balance sheet arrangements

At December 31, 2006 we were not party to any arrangements which are considered
to be off balance sheet arrangements.

ITEM 6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth information regarding our executive officers and
directors and certain key officers of our wholly owned subsidiary Ship Finance
Management AS, ("SFMAS"), who are responsible for overseeing our management.

Name                           Age   Position
----                           ---   --------
Tor Olav Troim ............    44    Director and Chairman of the Board
Paul Leand ................    40    Director of the Company
Svein Aaser ...............    60    Director of the Company
Kate Blankenship ..........    42    Director of the Company and Chairperson of
                                     the Audit Committee
Lars Solbakken ............    50    Chief Executive Officer of Ship Finance
                                     Management AS
Ole B. Hjertaker ..........    40    Chief Financial Officer of Ship Finance
                                     Management AS

Under our constituent documents, we are required to have at least one
independent director on our Board of Directors whose consent will be required to
file for bankruptcy, liquidate or dissolve, merge or sell all or substantially
all of our assets.

Certain biographical information about each of our directors and executive
officers is set forth below.

Tor Olav Troim has been the Chairman of the Board since October 2003. He has
been Vice-President and a director of Frontline since November 3, 1997. He
previously served as Deputy Chairman of Frontline from July 4, 1997. Until April
2000, Mr. Troim was the Chief Executive Officer of Frontline Management AS, a
company which supports the Company in the implementation of decisions made by
the Board of Directors. Mr. Troim graduated as M.Sc Naval Architect from the
University of Trondheim, Norway in 1985. His experience includes Portfolio
Manager Equity in Storebrand ASA (1987-1990) and Chief Executive Officer for the
Norwegian Oil Company DNO AS (1992-1995). Since 1995, Mr. Troim has been a
director of SeaTankers Management in Cyprus. In this capacity, he has acted as
Chief Executive Officer for the public companies Knightsbridge Tankers Limited
and Golar LNG Limited (NASDAQ). Mr. Troim was also Chief Executive Officer of
Seadrill until the takeover and integration of Smedvig ASA. Mr. Troim is
currently Vice Chairman of these three companies and in addition is a member of
the Boards in the public companies Golden Ocean Group Limited (OSE), Aktiv
Kapital ASA (OSE) and Marine Harvest ASA (OSE).

Paul Leand Jr., serves as a Director of the Company. Mr. Leand is the Chief
Executive Officer and Director of AMA Capital Partners LLC, or AMA, an
investment bank specializing in the maritime industry. From 1989 to 1998 Mr.
Leand served at the First National Bank of Maryland where he managed the Bank's
Railroad Division and its International Maritime Division. He has worked
extensively in the U.S. capital markets in connection with AMA's restructuring
and mergers and acquisitions practices. Mr. Leand serves as a member of American
Marine Credit LLC's Credit Committee and served as a member of the Investment
Committee of AMA Shipping Fund I, a private equity fund formed and managed by
AMA.

Svein Aaser, serves as a Director of the Company. Mr. Aaser is the former
President and Chief Executive Officer of DnB NOR ASA. Prior to his position in
DnB NOR, Mr Aaser had a long career as a top executive in several companies,
including Nycomed Amersham plc., Storebrand Skade AS and Stabburet AS. Mr. Aaser
currently serves as a director on several boards, including Marine Harvest ASA,
Deep Sea Supply Plc and Laerdal Medical AS. Mr. Aaser acts as Executive Director
for Seatankers, a company indirectly controlled by Mr. Fredriksen.

Kate Blankenship has been a director of the Company since October 2003. Ms.
Blankenship served as the Company's Chief Accounting Officer and Company
Secretary from October 2003 to October 2005. Ms. Blankenship has been a director
of Frontline since August 2003, a director of Golar LNG Limited since 2003 and a
director of Golden Ocean since October 2004. Ms. Blankenship has served as a
director of Seadrill since May 2005.

Lars Solbakken has been employed as Chief Executive Officer of Ship Finance
Management AS since May 1, 2006. In the period from June 1997 until April 2006,
Mr. Solbakken was employed as General Manager of Fortis Bank in Norway and was
also responsible for the bank's shipping and oil service activities in
Scandinavia. From 1987 to 1997 Mr. Solbakken served in several positions in
Nordea Bank Norge ASA (previously Christiania Bank). He was Senior Vice
President and Deputy for the shipping, offshore and aviation group, head of
equity issues and merger & acquisition activities and General Manager for the
Seattle Branch. Prior to joining Nordea Bank Norge ASA, Mr. Solbakken worked
five years in Wilh. Wilhelmsen ASA as Finance Manager.

Ole B. Hjertaker has served as Chief Financial Officer of Ship Finance
Management AS since September 2006. Prior to joining Ship Finance, Mr. Hjertaker
was a director in the Corporate Finance division of DnB NOR Markets, one of the
world's leading shipping and offshore banks. Mr. Hjertaker has 12 years
corporate and investment banking experience, mainly within the
Maritime/Transportation industries.

B. COMPENSATION

During the year ended December 31, 2006, we paid to our directors and executive
officers aggregate cash compensation of $3.1 million and an aggregate amount of
$0.2 million for pension and retirement benefits. We reimburse directors for
reasonable out of pocket expenses incurred by them in connection with their
service to us.

In addition to cash compensation, during 2006 we also recognized an expense of
$0.1 million related to the issue of 150,000 stock options to one of our
executive officers. The options vest over a three year period, with the first of
these options vesting in November 2007, and expire in November 2011. The
exercise price of the options is $22.85 per share.

The employment contract for one of our executive officers contains a share-based
bonus provision. Under the terms of the contract, the share based bonus is
calculated based on the annual increase in the share price of the Company, plus
any dividend per share paid, multiplied by a notional share holding of 200,000
shares. Any bonus related to the increase in share price is payable at the end
of each calendar year, while any bonus linked to dividend payments is payable on
the relevant dividend payment date. The share-based bonus fair value of $1.7
million at December 31, 2006 was recorded as a liability.

C. BOARD PRACTICES

In accordance with our Bye-laws the number of Directors shall be such number not
less than two as the Company by Ordinary Resolution may from time to time
determine and each Director shall hold office until the next annual general
meeting following his election or until his successor is elected. We have four
Directors.

We currently have an audit committee, which is responsible for overseeing the
quality and integrity of the Company's financial statements and its accounting,
auditing and financial reporting practices, the Company's compliance with legal
and regulatory requirements, the independent auditor's qualifications,
independence and performance and the Company's internal audit function.

As a foreign private issuer we are exempt from certain requirements of the New
York Stock Exchange that are applicable to U.S. listed companies. For a listing
and further discussion of how our corporate governance practices differ from
those required of U.S. companies listed on the New York Stock Exchange, please
visit the corporate governance section of our website at www.shipfinance.bm.

Our officers are elected by the Board of Directors as soon as possible following
each Annual General Meeting and shall hold office for such period and on such
terms as the Board may determine.

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

D. EMPLOYEES

We currently employ four persons. We have contracted with Frontline Management
and other third parties for certain managerial responsibility for our fleet and
with Frontline Management for some administrative services, including accounting
and corporate services.

E. SHARE OWNERSHIP

The beneficial interests of our Directors and officers in our common shares as
of June 15, 2007, were as follows:

                                                    Percentage of Common
Director or Officer   Common Shares of $1.00 each    Shares Outstanding
-------------------   ---------------------------   --------------------
  Tor Olav Troim                203,132                      *
    Paul Leand                       --                     --
 Kate Blankenship                 3,980                      *
    Svein Aaser                   3,000                      *
  Lars Solbakken                 10,000                      *
  Ole B Hjertaker                 4,000                      *

* Less than one percent.

As of June 15, 2007, Ole B. Hjertaker holds 150,000 options to acquire common
shares in the Company. The options were granted under the Ship Finance
International Limited Share Option Scheme, which was approved by the board on
November 27, 2006. The options begin to vest in November 2007 and expire in
November 2011. The exercise price of the options is $22.85.

ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

The following table presents certain information regarding the current ownership
of our Common Shares with respect to (i) each person who we know to own more
than five percent of our outstanding Common Shares; and (ii) all directors and
officers as a group as of June 15, 2007.

            Owner             Amount of Common Shares   Percent of Common Shares
            -----             -----------------------   ------------------------
Hemen Holding Ltd.                   18,128,176                 24.92%
Farahead Investments Inc.            12,000,000                  16.5%
All Directors and Officers
as a group (eight persons)              224,112                  0.31%

Hemen Holding Ltd. is a Cyprus holding company, and Farahead Investments Inc. is
a Liberian company, both indirectly controlled by Mr. John Fredriksen.

The Company's major shareholders have the same voting rights as other
shareholders of the Company.

As at June 15, 2007, the Company had 291 holders of record in the United States.
We had a total of 72,743,737 of Commmon Shares and outstanding as of June 15,
2007.

We are not aware of any arrangements, the operation of which may at a subsequent
date result in a change in control.

B. RELATED PARTY TRANSACTIONS

We have acquired the majority of our assets from Frontline. As of June 15, 2007
our fleet consists of 65 vessels, 13 of which are under construction. The
majority of our operations are conducted through contractual relationships
between us and parties indirectly controlled by Hemen. In addition, the majority
of our directors are also directors of companies related to Hemen. We refer you
to Item 10.C "Material Contracts" for discussion of the material contractual
arrangements that we have with affiliates of Hemen.

As of June 15, 2006, we charter 42 of our vessels to the Frontline Charterers
under long-term leases, most of which were given economic effect from January 1,
2004. In connection with these charters to the Frontline Charterers, we have
recognized the inception of net investments in finance leases of $1,876.5
million, additions during 2006 of $137.0 million (2005: $647.8 million) and
disposals during 2006 of $34.4 million (2005: $160.8 million). At December 31,
2006 the balance of net investments in finance leases to Frontline was $1,910.4
million (2005: $1,925.4 million) of which $126.9 million (2005: $107.0 million)
represents short-term maturities.

We pay Frontline Management a management fee of $6,500 per day per vessel for
all vessels chartered to the Frontline Charterers resulting in expenses of
$116.1 million for the year ended December 31, 2006 (2005: $105.2 million). The
management fees have been classified as ship operating expenses.

We have an administrative services agreement with Frontline Management under
which Frontline Management provides us with certain administrative support
services. For the year 2006, we and each of our vessel owning subsidiaries paid
Frontline Management a fixed fee of $20,000 per year for its services under the
agreement, and agree to reimburse Frontline Management for reasonable third
party costs, if any, advanced on our behalf by Frontline. For the year 2007,
some of the compensation to Frontline Management will be based on cost sharing
for the services rendered based on actual incurred costs plus a margin.

The Frontline Charterers pay us profit sharing on 20% of earnings above average
base charter rates for the 11 month period beginning February 1, 2004, and each
year thereafter. During the year ended December 31, 2006, we earned and
recognized revenue of $78.9 million (2005: $88.1 million) under this
arrangement.

In June 2005, we sold the Suezmax Front Hunter to an unrelated third party for a
net gain of $25.3 million which was deferred. The charter and management
agreements with Frontline relating to this vessel were terminated, and we paid
Frontline a $3.8 million termination fee, in addition to Frontline having the
right to sell to Ship Finance a newbuilding VLCC and charter it back at reduced
charter rates. In June 2006, the parties agreed to cancel the agreement, and to
split the profit in accordance with the profit share agreement (80% to Frontline
and 20% to us), but adjusted for the residual value belonging to us. The
cancellation of this agreement resulted in net payment of $16.3 million to
Frontline, in addition to the earlier termination payment of $3.8 million. We
have booked a net gain of $9 million relating to the sale of Front Hunter and
the cancellation of the option agreement in 2006.

In January 2006 we acquired the VLCC Front Tobago from Frontline for
consideration of $40.0 million. The vessel was subsequently sold in December
2006 to an unrelated third party for $45.0 million. At the time of the sale the
vessel was on lease with one of the Frontline Charterers, and we paid a
termination fee of $9.6 million to Frontline to terminate the lease.

In April 2006, we entered into an agreement with Horizon Lines under which we
acquired five 2,824 TEU container vessels under construction at Hyundai Mipo
yard in Korea for consideration of approximately $280.0 million. The vessels
have been chartered back to Horizon Lines under 12-year bareboat charters with
three-year renewal options on the part of Horizon Lines. Horizon Lines has
options to buy the vessels after five, eight, 12 and 15 years. As part of this
transaction, Horizon Lines paid a commission to AMA for brokerage and financial
advice. One of our board members is associated with AMA.

In June 2006, Rig Finance, our wholly owned subsidiary, purchased the
newbuilding jack-up drilling rig West Ceres from SeaDrill Invest I, for a total
consideration of $210 million. Upon delivery to Rig Finance the rig was
immediately bareboat chartered back to SeaDrill Invest I for a period of 15
years. The charter party is fully guaranteed by Seadrill, the ultimate parent
company of SeaDrill Invest I. SeaDrill Invest I has been granted fixed price
purchase options after three, five, seven, 10, 12 and 15 years. The first
purchase option after three years is at $135.5 million and the last purchase
option after 15 years is at $60 million.

In July 2006, we entered into an agreement to acquire the 1997 built Panamax
drybulk carrier Golden Shadow for $28.4 million from Golden Ocean. The vessel
was chartered back to the seller for a period of 10 years upon delivery to us in
September 2006. As part of the agreement, Golden Ocean has provided an interest
free and non-amortizing seller's credit of $2.6 million. Golden Ocean has been
granted fixed purchase options after three, five, seven and 10 years. At the end
of the charter, we also have an option to sell the vessel back to Golden Ocean
at an agreed fixed price of $10.4 million, including the $2.6 million seller's
credit. We have secured a $22.7 million debt facility in connection with the
acquisition, of which $2.1 million is guaranteed by Ship Finance.

In November 2006, we announced that we had assumed two newbuilding Suezmax
tanker contracts from Frontline. The Suezmax vessels, of 156,000 dwt each, will
be built at Jiangsu Rongsheng Heavy Industries Group Co. Ltd. in China with
scheduled delivery in the first quarter of 2009 and third quarter of 2009. We
expect to market these vessels for medium to long-term employment.

In January 2007, we announced that Rig Finance II, a wholly owned subsidiary of
the Company had entered into an agreement to acquire the newbuilding jack-up
drilling rig West Prospero, from SeaDrill Invest II Ltd., or SeaDrill Invest II.
The purchase price for the drilling rig is $210.0 million and expected delivery
from Keppel Fels in Singapore is at the end of June 2007. Upon delivery, the rig
will be bareboat chartered back to SeaDrill Invest II for a period of 15 years.
The charter party is fully guaranteed by Seadrill, the ultimate parent company
of SeaDrill Invest II. SeaDrill Invest II has been granted fixed price purchase
options after three, five, seven, 10, 12 and 15 years. The first purchase option
after three years is at $142 million and the last purchase option after 15 years
is at $60 million.

In February 2007, we entered into an agreement to acquire two newbuilding
Capesize drybulk carriers from Golden Ocean. Delivery from the shipyard is
scheduled in the fourth quarter of 2008 and first quarter of 2009. Upon delivery
the vessels will commence fifteen year bareboat charter contracts to Golden
Ocean. Golden Ocean has been granted fixed price purchase options after five, 10
and 15 years at $61 million, $44 million and $24 million respectively.

In January 2007, we sold five single hull Suezmax tankers to Frontline. The
gross sales price for the vessels was $183.7 million, and the Company receiving
approximately $119.2 million in cash after paying compensation of approximately
$64.5 million to Frontline for the termination of the charters. The vessels were
delivered to Frontline in March of 2007.

In January 2007, we sold the single-hull Suezmax tanker Front Transporter to an
unrelated third party for a gross sales price of $38.0 million. The vessel was
delivered to its new owner in March 2007, and we have agreed to pay a
termination fee of $14.9 million to Frontline for the termination of the related
charter.

In May 2007, we re-chartered the single-hull VLCC Front Vanadis to an unrelated
third party. The new charter is in the form of a hire-purchase agreement, where
the vessel is chartered to the buyer for a 3.5 year period, with a purchase
obligation at the end of the charter. We have agreed to pay a compensation
payment of approximately $13.2 million to Frontline for the termination of the
charter.

C. INTERESTS OF EXPERTS AND COUNSEL

Not Applicable.

ITEM 8.     FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18.

Legal Proceedings

Our shipowning subsidiaries are routinely party, as plaintiff or defendant, to
claims and lawsuits in various jurisdictions for demurrage, damages, off hire
and other claims and commercial disputes arising from the operation of their
vessels, in the ordinary course of business or in connection with its
acquisition activities. We believe that resolution of such claims will not have
a material adverse effect on our operations or financial conditions.

Dividend Policy

Our Board of Directors adopted a policy in May, 2004, in connection with our
public listing, whereby we would seek to have a regular quarterly dividend, the
amount of which is based on our contracted revenues and growth prospects. Our
goal is to increase our quarterly dividend as we grow the business, but the
timing and amount of dividends, if any, is at the discretion of our Board of
Directors and will depend upon our results of operations, financial condition,
cash requirements, restrictions in financing arrangements and other relevant
factors.

We have paid the following cash dividends since our public listing in June 2004:

Payment Date                                           Amount per Share
------------                                           ----------------

2004
July 9, 2004                                                 $0.25
September 13, 2004                                           $0.35
December 7, 2004                                             $0.45

2005
March 18, 2005                                               $0.50
June 24, 2005                                                $0.50
September 20, 2005                                           $0.50
December 13, 2005                                            $0.50

2006
March 20, 2006                                               $0.50
June 26, 2006                                                $0.50
September 18, 2006                                           $0.52
December 21, 2006                                            $0.53

On February 27, 2007 the Board declared a dividend of $0.54 per share that was
paid on March 22, 2007. On May 29, 2007, the Board declared a dividend of $0.55
per share that was paid on June 21, 2007.

B. SIGNIFICANT CHANGES

We were incorporated in Bermuda in October 2003 as a wholly owned subsidiary of
Frontline for the purpose of acquiring certain of our shipping assets. During
2004, Frontline distributed approximately 48.3% of its shares in us to its
shareholders and at December 31, 2004 held 50.8% in the Company. See Item 4.
"Information on the Company."

In February and March 2005, Frontline spun off a further 35% of its shares in
Ship Finance to its shareholders and at December 31 2005 Frontline held 16.2% of
Ship Finance. In February 2006, a further 5% of Frontline's interest in Ship
Finance was spun off after which Frontline held approximately 11.1% of our
shares as at December 31, 2006. These shares were distributed by Frontline to
its shareholders on March 22, 2007 following which Frontline holds a minimal
number of shares in Ship Finance.

ITEM 9.     THE OFFER AND LISTING

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

The Company's common shares were listed on the New York Stock Exchange, or NYSE,
on June 15, 2004 and commenced trading on that date under the symbol "SFL".

The following table sets forth the fiscal years high and low prices for the
common shares on the NYSE since the date of listing.

                                                  High        Low
                                                 ------      ------
Fiscal year ended December 31
2006                                             $23.80      $16.33
2005                                             $24.00      $16.70
2004                                             $26.16      $11.55

The following table sets forth, for each full financial quarter for the two most
recent fiscal years, the high and low prices of the common shares on the NYSE
since the date of listing.

                                                  High        Low
                                                 ------      ------
Fiscal year ended December 31, 2006
First quarter                                    $18.75      $16.70
Second quarter                                   $17.64      $16.33
Third quarter                                    $21.00      $17.91
Fourth quarter                                   $23.80      $19.31

                                                  High        Low
                                                 ------      ------
Fiscal year ended December 31, 2005
First quarter                                    $24.00      $18.41
Second quarter                                   $20.79      $18.05
Third quarter                                    $20.83      $17.67
Fourth quarter                                   $20.25      $16.70

The following table sets forth, for the most recent six months, the high and low
prices for the common shares on the NYSE.

                                                  High         Low
                                                 ------      ------
May 2007                                         $31.07      $29.29
April 2007                                       $29.94      $27.44
March 2007                                       $27.90      $25.15
February 2007                                    $26.10      $23.86
January 2007                                     $23.86      $22.24
December 2006                                    $23.80      $22.22

ITEM 10.    ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not Applicable

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

The Memorandum of Association of the Company has previously been filed as
Exhibit 3.1 to the Company's Registration Statement on Form F-4/A, (Registration
No. 333-115705) filed with the Securities and Exchange Commission on May 25,
2004, and is hereby incorporated by reference into this Annual Report.

At the 2006 Annual General Meeting of the Company the shareholders voted to
amend the Company's Bye-Law 104. The purpose of this amendment was to provide
for a change to the requirements for the form and signatories to the seal of the
Company. These amended Bye-Laws of the Company as adopted by shareholders on
December 1, 2006 are filed as Exhibit 1.4 to this Annual Report.

The purposes and powers of the Company are set forth in Items 6(1) and 7(a)
through (h) of our Memorandum of Association and in the Second Schedule of the
Bermuda Companies Act of 1981 which is attached as an exhibit to our Memorandum
of Association. These purposes include exploring, drilling, moving, transporting
and refining petroleum and hydro-carbon products, including oil and oil
products; the acquisition, ownership, chartering, selling, management and
operation of ships and aircraft; the entering into of any guarantee, contract,
indemnity or suretyship and to assure, support, secure, with or without the
consideration or benefit, the performance of any obligations of any person or
persons; and the borrowing and raising of money in any currency or currencies to
secure or discharge any debt or obligation in any manner.

Bermuda law permits the Bye-laws of a Bermuda company to contain a provision
eliminating personal liability of a director or officer to the company for any
loss arising or liability attaching to him by virtue of any rule of law in
respect of any negligence default, breach of duty or breach of trust of which
the officer or person may be guilty. Bermuda law also grants companies the power
generally to indemnify directors and officers of the company if any such person
was or is a party or threatened to be made a party to a threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is or
was a director and officer of the company or was serving in a similar capacity
for another entity at the company's request.

Our shareholders have no pre-emptive, subscription, redemption, conversion or
sinking fund rights. Shareholders are entitled to one vote for each share held
of record on all matters submitted to a vote of our shareholders. Shareholders
have no cumulative voting rights. Shareholders are entitled to dividends if and
when they are declared by our Board of Directors, subject to any preferred
dividend right of holders of any preference shares. Directors to be elected by
shareholder require a plurality of votes cast at a meeting at which a quorum is
present. For all other matters, unless a different majority is required by law
or our bye-laws, resolutions to be approved by shareholders require approval by
a majority of votes cast at a meeting at which a quorum is present.

Upon our liquidation, dissolution or winding up, shareholders will be entitled
to receive, rateably, our net assets available after the payment of all our
debts and liabilities and any preference amount owed to any preference
shareholders. The rights of shareholders, including the right to elect
directors, are subject to the rights of any series of preference shares we may
issue in the future.

Under our bye-laws annual meetings of shareholders will be held at a time and
place selected by our Board of Directors each calendar year. Special meetings of
shareholders may be called by our Board of Directors at any time and must be
called at the request of shareholders holding at least 10% of our paid-up share
capital carrying the right to vote at general meetings. Under our bye-laws five
days' notice of an annual meeting or any special meeting must be given to each
shareholder entitled to vote at that meeting. Under Bermuda law accidental
failure to give notice will not invalidate proceedings at a meeting. Our Board
of Directors may set a record date at any time before or after any date on which
such notice is dispatched.

Special rights attaching to any class of our shares may be altered or abrogated
with the consent in writing of not less than 75% of the issued and shares of
that class or with the sanction of a resolution passed at a separate general
meeting of the holders of such shares voting in person or by proxy.

Our Bye-laws do not prohibit a director from being a party to, or otherwise
having an interest in, any transaction or arrangement with the Company or in
which the Company is otherwise interested. Our Bye-laws provide our Board of
Directors the authority to exercise all of the powers of the Company to borrow
money and to mortgage or charge all or any part of our property and assets as
collateral security for any debt, liability or obligation. Our directors are not
required to retire because of their age, and our directors are not required to
be holders of our common shares. Directors serve for one year terms, and shall
serve until re-elected or until their successors are appointed at the next
annual general meeting.

Our Bye-laws provide that no director, alternate director, officer, person or
member of a committee, if any, resident representative, or his heirs, executors
or administrators, which we refer to collectively as an indemnitee, is liable
for the acts, receipts, neglects, or defaults of any other such person or any
person involved in our formation, or for any loss or expense incurred by us
through the insufficiency or deficiency of title to any property acquired by us,
or for the insufficiency of deficiency of any security in or upon which any of
our monies shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency, or tortuous act of any person with whom any monies,
securities, or effects shall be deposited, or for any loss occasioned by any
error of judgment, omission, default, or oversight on his part, or for any other
loss, damage or misfortune whatever which shall happen in relation to the
execution of his duties, or supposed duties, to us or otherwise in relation
thereto. Each indemnitee will be indemnified and held harmless out of our funds
to the fullest extent permitted by Bermuda law against all liabilities, loss,
damage or expense (including but not limited to liabilities under contract, tort
and statute or any applicable foreign law or regulation and all reasonable legal
and other costs and expenses properly payable) incurred or suffered by him as
such director, alternate director, officer, person or committee member or
resident representative (or in his reasonable belief that he is acting as any of
the above). In addition, each indemnitee shall be indemnified against all
liabilities incurred in defending any proceedings, whether civil or criminal, in
which judgment is given in such indemnitee's favor, or in which he is acquitted.
We are authorized to purchase insurance to cover any liability it may incur
under the indemnification provisions of its Bye-laws.

C. MATERIAL CONTRACTS

Fleet Purchase Agreement

On December 11, 2003 we entered into a fleet purchase agreement with Frontline
pursuant to which we acquired our initial fleet of 46 vessel owning subsidiaries
and one subsidiary with an option to acquire an additional vessel. We paid an
aggregate purchase price of $950.0 million, excluding working capital and other
intercompany balances retained by us. We also assumed senior secured
indebtedness with respect to its fleet in the amount of approximately $1.158
billion. The purchase price and the refinancing of the existing senior secured
indebtedness on those vessels, which was completed in January of 2004, were
financed through a combination of the net proceeds from our issuance of $580
million of 8.5% senior notes, due 2013, funds from a $1.058 billion senior
secured credit facility and a deemed equity contribution of $525.0 million from
Frontline.

Frontline Time Charters

We have chartered the tankers we acquired from Frontline to the Frontline
Charterers under long term time charters, which will extend for various periods
depending on the age of the vessels, ranging from approximately six to 20 years.
We refer you to Item 4.B., "Our Fleet", for the relevant charter termination
dates for each of our vessels. The daily base charter rates payable to us under
the charters have been fixed in advance and will decrease as our vessels age,
and the Frontline Charterers have the right to terminate a charter for a non
double hull vessel beginning on each vessel's anniversary date in 2010.

With the exceptions described below, the daily base charter rates for our
charters with the Frontline Charterers, which are payable to us monthly in
advance for a maximum of 360 days per year (361 days per leap year), are as
follows:

Year                                                            VLCC    Suezmax
----                                                          -------   -------

2003 to 2006 ..............................................   $25,575   $21,100
2007 to 2010 ..............................................   $25,175   $20,700
2011 and beyond ...........................................   $24,175   $19,700

The daily base charter rates for vessels that reach their 18th delivery date
anniversary, in the case of non-double hull vessels, or their 20th delivery date
anniversary, in the case of double hull vessels, will decline to $18,262 per day
for VLCCs and $15,348 for Suezmax tankers after such dates, respectively.

The daily base charterhire for our vessels that are chartered to Frontline
Shipping II, which is also payable to us monthly in advance for a maximum of 360
days per year (361 days per leap year), is as follows:

                                                                       2019 and
Vessel                    2005 to 2006   2007 to 2010   2011 to 2018    beyond
-------                   ------------   ------------   ------------   --------

Front Champion              $31,340         $31,140        $30,640     $28,464
Front Century               $31,501         $31,301        $30,801     $28,625
Golden Victory              $33,793         $33,793        $33,793     $33,793
Front Energy                $30,014         $30,014        $30,014     $30,014
Front Force                 $29,853         $29,853        $29,853     $29,853

In addition, the base charter rate for our non-double hull vessels will decline
to $7,500 per day on each vessels anniversary date in 2010, at which time the
relevant Frontline Charterer will have the option to terminate the charters for
those vessels. Each charter also provides that the base charter rate will be
reduced if the vessel does not achieve the performance specifications set forth
in the charter. The related management agreement provides that Frontline
Management will reimburse us for any such reduced charter payments. The
Frontline Charterers have the right under a charter to direct us to bareboat
charter the related vessel to a third party. During the term of the bareboat
charter, the Frontline Charterer will continue to pay us the daily base charter
rate for the vessel, less $6,500 per day. The related management agreement
provides that our obligation to pay the $6,500 fixed fee to Frontline Management
will be suspended for so long as the vessel is bareboat chartered.

Under the charters we are required to keep the vessels seaworthy, and to crew
and maintain them. Frontline Management performs those duties for us under the
management agreements described below. If a structural change or new equipment
is required due to changes in classification society or regulatory requirements,
the Frontline Charterers may make them, at its expense, without our consent, but
those changes or improvements will become our property. The Frontline Charterers
are not obligated to pay us charterhire for off hire days in excess of five off
hire days per year per vessel calculated on a fleet-wide basis, which include
days a vessel is unable to be in service due to, among other things, repairs or
drydockings. However, under the management agreements described below, Frontline
Management will reimburse us for any loss of charter revenue in excess of five
off hire days per vessel, calculated on a fleet-wide basis.

The terms of the charters do not provide the Frontline Charterers with an option
to terminate the charter before the end of its term, other than with respect to
our non-double hull vessels after the vessels anniversary dates in 2010. We may
terminate any or all of the charters in the event of an event of default under
the charter ancillary agreement that we describe below. The charters may also
terminate in the event of (1) a requisition for title of a vessel or (2) the
total loss or constructive total loss of a vessel. In addition, each charter
provides that we may not sell the related vessel without relevant Frontline
Charterers consent.

Charter Ancillary Agreement

We have entered into charter ancillary agreements with each of the Frontline
Charterers, our relevant vessel owning subsidiaries and Frontline. The charter
ancillary agreements remain in effect until the last long term charter with the
Frontline Charterers terminates in accordance with its terms. Frontline has
guaranteed the Frontline Charterers' obligations under the charter ancillary
agreements, except for the Frontline Charterers' obligations to pay charterhire.

Charter Service Reserve. Frontline Shipping was initially capitalized with $250
million in cash provided by Frontline to support its obligation to make payments
to us under the charters. Frontline Shipping II was initially capitalized with
approximately $21.0 million in cash. Due to sales and acquisitions, the current
capitalization in Frontline Shipping and Frontline Shipping II are $197.0
million and $35.0 million respectively. These funds are being held as a charter
service reserve to support each Charterer's obligation to make charter payments
to us under the charters. The Frontline Charterer's are entitled to use the
charter service reserve only (1) to make charter payments to us and (2) for
reasonable working capital to meet short term voyage expenses. The Frontline
Charterers are required to provide us with monthly certifications of the
balances of and activity in the charter service reserve.

Material Covenants. Pursuant to the terms of the charter ancillary agreement,
each Frontline Charterer has agreed not to pay dividends or other distributions
to its shareholders or loan, repay or make any other payment in respect of its
indebtedness or any of its affiliates (other than us or our wholly owned
subsidiaries), unless (1) the relevant Frontline Charterer is then in compliance
with its obligations under the charter ancillary agreement, (2) after giving
effect to the dividend or other distribution, (A) the Frontline Charterer
remains in compliance with such obligations, (B) the balance of the charter
service reserve equals at least $197.0 million, in the case of Frontline
Shipping, or $35.0 million in the case of Frontline Shipping II (which threshold
will be reduced by $5.3 million and $7.0 million in the case of Frontline
Shipping and Frontline Shipping II, respectively, in each event that a charter
to which the Frontline Charterer is a party is terminated other than by reason
of a default by the Frontline Charterer), which we refer to as the "Minimum
Reserve", and (C) it certifies to us that it reasonably believes that the
charter service reserve will be equal to or greater than the Minimum Reserve
level for at least 30 days after the date of that dividend or distribution,
taking into consideration it's reasonably expected payment obligations during
such 30-day period, (3) any charterhire payments deferred pursuant to the
deferral provisions described below have been fully paid to us and (4) any
profit sharing payments deferred pursuant to the profit sharing payment
provisions described below have been fully paid to us. In addition, each
Frontline Charterer has agreed to certain other restrictive covenants, including
restrictions on its ability to, without our consent:

      o     amend its organizational documents in a manner that would adversely
            affect us;

      o     violate its organizational documents;

      o     engage in businesses other than the operation and chartering of our
            vessels (not applicable for Frontline Shipping II);

      o     incur debt, other than in the ordinary course of business;

      o     sell all or substantially all of its assets or the assets of the
            relevant Frontline Charterer and its subsidiaries taken as a whole,
            or enter into any merger, consolidation or business combination
            transaction;

      o     enter into transactions with affiliates, other than on an
            arm's-length basis;

      o     permit the incurrence of any liens on any of its assets, other than
            liens incurred in the ordinary course of business;

      o     issue any capital stock to any person or entity other than
            Frontline; and

      o     make any investments in, provide loans or advances to, or grant
            guarantees for the benefit of any person or entity other than in the
            ordinary course of business.

In addition, Frontline has agreed that it will cause the Frontline Charterers at
all times to remain its wholly owned subsidiaries.

Deferral of Charter Payments. For any period during which the cash and cash
equivalents held by Frontline Shipping are less than $75 million, Frontline
Shipping is entitled to defer from the payments payable to us under each charter
up to $4,600 per day for each of our vessels that is a VLCC and up to $3,400 per
day for each of our vessels that is a Suezmax, in each case without interest.
However, no such deferral with respect to a particular charter may be
outstanding for more than one year at any given time. Frontline Shipping will be
required to immediately use all revenues that Frontline Shipping receives that
are in excess of the daily charter rates payable to us to pay any deferred
amounts at such time as the cash and cash equivalents held by Frontline Shipping
are greater than $75 million, unless Frontline Shipping reasonably believes that
the cash and cash equivalents held by Frontline Shipping will not exceed $75
million for at least 30 days after the date of the payment.

Profit Sharing Payments. Under the terms of the charter ancillary agreements,
beginning with the final 11-month period in 2004 and for each calendar year
after that, the Frontline Charterers have agreed to pay us a profit sharing
payment equal to 20% of the charter revenues for the applicable period,
calculated annually on a TCE basis, realized by the relevant Frontline Charterer
for our fleet in excess of the daily base charterhire. After 2010, all of our
non-double hull vessels will be excluded from the annual profit sharing payment
calculation. For purposes of calculating bareboat revenues on a TCE basis,
expenses are assumed to equal $6,500 per day. Each of the Frontline Charterers
has agreed to use its commercial best efforts to charter our vessels on market
terms and not to give preferential treatment to the marketing of any other
vessels owned or managed by Frontline or its affiliates.

The Frontline Charterers are entitled to defer, without interest, any profit
sharing payment to the extent that, after giving effect to the payment, the
charter service reserve would be less than the Minimum Reserve. The Frontline
Charterers are required to immediately use all revenues that the Frontline
Charterers receive that are in excess of the daily charter rates payable to us
to pay any deferred profit sharing amounts at such time as the charter service
reserve exceeds the minimum reserve, unless the relevant Frontline Charterer
reasonably believes that the charter service reserve will not exceed the minimum
reserve level for at least 30 days after the date of the payment. In addition,
the Frontline Charterers will not be required to make any payment of deferred
profit sharing amounts until the payment would be at least $2 million.

Collateral Arrangements. The charter ancillary agreements provides that the
obligations of the Frontline Charterers to us under the charters and the charter
ancillary agreements are secured by a lien over all of the assets of the
Frontline Charterers and a pledge of the equity interests in the Frontline
Charterers.

Default. An event of default shall be deemed to occur under the charter
ancillary agreement if:

      o     the relevant Frontline Charterer materially breaches any of its
            obligations under any of the charters, including the failure to make
            charterhire payments when due, subject to Frontline Shipping's
            deferral rights explained above;

      o     the relevant Frontline Charterer or Frontline materially breaches
            any of its obligations under the applicable charter ancillary
            agreement or the Frontline performance guarantee;

      o     Frontline Management materially breaches any of its obligations
            under any of the management agreements; or

      o     Frontline Shipping and Frontline Shipping II fails at any time to
            hold at least $55 million or $7.5 million in cash and cash
            equivalents, respectively.

Upon the occurrence of any event of default under a charter ancillary agreement
that continues for 30 days after we give the relevant Frontline Charterer notice
of such default, we may elect to:

      o     terminate any or all of the relevant charters with the relevant
            Frontline Charterer; and

      o     foreclose on any or all of our security interests described above
            with respect to the relevant Frontline Charterer; and/or

      o     pursue any other available rights or remedies.

Frontline Performance Guarantee

Frontline has issued a performance guarantee with respect to the charters, the
charter ancillary agreements, the management agreements and the administrative
services agreement. Pursuant to the performance guarantee, Frontline has
guaranteed the following obligations of the Frontline Charterers and Frontline
Management:

      o     the performance of the obligations of the Frontline Charterers under
            the charters with the exception of payment of charter hire, which is
            not guaranteed;

      o     the performance of the obligations of the Frontline Charterers under
            the charter ancillary agreement;

      o     the performance of the obligations of Frontline Management under the
            management agreements, provided, however, that Frontline's
            obligations with respect to indemnification for environmental
            matters shall not extend beyond the protection and indemnity
            insurance coverage with respect to any vessel required by us under
            the management agreements; and

      o     the performance of the obligations of Frontline Management under the
            administrative services agreement.

Frontline's performance guarantee shall remain in effect until all obligations
of the Frontline Charterers or Frontline Management, as the case may be, that
have been guaranteed by Frontline under the performance guarantee have been
performed and paid in full.

Vessel Management Agreements

Our tanker owning subsidiaries that we acquired from Frontline entered into
fixed rate management agreements with Frontline Management effective January 1,
2004. Under the management agreements, Frontline Management is responsible for
all technical management of the vessels, including crewing, maintenance, repair,
certain capital expenditures, drydocking, vessel taxes and other vessel
operating expenses. In addition, if a structural change or new equipment is
required due to changes in classification society or regulatory requirements,
Frontline Management will be responsible for making them, unless Frontline
Shipping does so under the charters. Frontline Management outsources many of
these services to third party providers.

Frontline Management is also obligated under the management agreements to
maintain insurance for each of our vessels, including marine hull and machinery
insurance, protection and indemnity insurance (including pollution risks and
crew insurances) and war risk insurance. Frontline Management will also
reimburse us for all lost charter revenue caused by our vessels being off hire
for more than five days per year on a fleet-wide basis or failing to achieve the
performance standards set forth in the charters. Under the management
agreements, we will pay Frontline Management a fixed fee of $6,500 per day per
vessel for all of the above services, for as long as the relevant charter is in
place. If Frontline Shipping exercises its right under a charter to direct us to
bareboat charter the related vessel to a third party, the related management
agreement provides that our obligation to pay the $6,500 fixed fee to Frontline
Management will be suspended for so long as the vessel is bareboat chartered.
Both we and Frontline Management have the right to terminate any of the
management agreements if the relevant charter has been terminated and in
addition we have the right to terminate any of the management agreements upon 90
days prior written notice to Frontline Management.

Frontline has guaranteed to us Frontline Management's performance under these
management agreements.

Administrative Services Agreement

We have an administrative services agreement with Frontline Management under
which Frontline Management provides us with certain administrative support
services. For the year 2006, we and each of our vessel owning subsidiaries paid
Frontline Management a fixed fee of $20,000 per year for its services under the
agreement, and agree to reimburse Frontline Management for reasonable third
party costs, if any, advanced on our behalf by Frontline. For the year 2007,
some of the compensation to Frontline Management will be based on cost sharing
for the services rendered based on actual incurred costs plus a margin.

Frontline guarantees to us Frontline Management's performance under this
administrative services agreement.

D. EXCHANGE CONTROLS

We are classified by the Bermuda Monetary Authority as a non-resident of Bermuda
for exchange control purposes.

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

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

E. TAXATION

United States Taxation

The following discussion is based upon the provisions of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S.
Treasury Department regulations, administrative rulings, pronouncements and
judicial decisions, all as of the date of this Annual Report. Unless otherwise
noted, references to the "Company" include the Company's Subsidiaries. This
discussion assumes that we do not have an office or other fixed place of
business in the United States.

Taxation of the Company's Shipping Income: In General

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

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

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

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

Application of Code Section 883

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

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

      (ii)  It can satisfy any one of the following two (2) stock ownership
            requirements for more than half the days during the taxable year:

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

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

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

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

For the 2006 tax year, the Company satisfied the Publicly-Traded Test since, on
more than half the days of the taxable year, the Company's stock was primarily
and regularly traded on the New York Stock Exchange.

Final regulations interpreting Section 883 became effective for calendar year
taxpayers such as the Company and its subsidiaries beginning with the calendar
year 2005.

Taxation in Absence of Internal Revenue Code Section 883 Exemption

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

Gain on Sale of Vessels

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

Taxation of U.S. Holders

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

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

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

Distributions

Subject to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common stock to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary income or
"qualified dividend income" as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States 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 his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us.

Dividends paid on our common stock to a U.S. Holder who is an individual, trust
or estate (a "U.S. Individual Holder") will generally be treated as "qualified
dividend income" that is taxable to such U.S. Individual Holders at preferential
tax rates (through 2010) provided that (1) the common stock is readily tradable
on an established securities market in the United States (such as the New York
Stock Exchange); (2) we are not a passive foreign investment company 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); and (3) the
U.S. Individual Holder has owned the common stock for more than 60 days in the
121-day period beginning 60 days before the date on which the common stock
becomes ex-dividend.

There is no assurance that any dividends paid on our common stock will be
eligible for these preferential rates in the hands of a U.S. Individual Holder.
Legislation has been recently introduced in the U.S. Congress which, if enacted
in its present form, would preclude our dividends from qualifying for such
preferential rates prospectively from the date of the enactment. Any dividends
paid by the Company which are not eligible for these preferential rates will be
taxed as ordinary income to a U.S. Individual Holder.

Sale, Exchange or other Disposition of Common Stock

Assuming we do not constitute a passive foreign investment company for any
taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a
sale, exchange or other disposition of our common stock in an amount equal to
the difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder's holding period is greater than one year at the time of the sale,
exchange or other disposition. A U.S. Holder's ability to deduct capital losses
is subject to certain limitations.

Passive Foreign Investment Company Status and Significant Tax Consequences

Special United States federal income tax rules apply to a U.S. Holder that holds
stock in a foreign corporation classified as a passive foreign investment
company, or a PFIC, for United States federal income tax purposes. In general,
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 stock, either at least 75% of our
gross income for such taxable year consists of passive income (e.g., dividends,
interest, capital gains and rents derived other than in the active conduct of a
rental business), or at least 50% of the average value of the assets held by the
corporation during such taxable year produce, or are held for the production of,
passive income.

For purposes of determining whether we are a PFIC, we will be treated as earning
and owning our proportionate share of the income and assets, respectively, of
any of our subsidiary corporations in which we own at least 25 percent of the
value of the subsidiary's stock. 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.

Based on our current operations and future projections, we do not believe that
we are, nor do we expect to become, a PFIC with respect to any taxable year.
Although there is no legal authority directly on point, our belief 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 and voyage chartering activities of our wholly-owned subsidiaries
should constitute services income, rather than rental income. Correspondingly,
we believe that such income does 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, do not constitute passive
assets for purposes of determining whether we are a PFIC. We believe there is
substantial legal authority supporting our position consisting of case law and
Internal Revenue Service pronouncements concerning the characterization of
income derived from time charters and voyage charters as services income for
other tax purposes. However, in the absence of any legal authority specifically
relating to the statutory provisions governing passive foreign investment
companies, the Internal Revenue Service or a court could disagree with our
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 stock, 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 United
States 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 stock 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 stock 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 stock.

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 stock is treated as "marketable stock," a U.S. Holder would
be allowed to make a "mark-to-market" election with respect to our common stock.
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 stock at the end of the taxable year over such holder's adjusted tax
basis in the common stock. 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 stock over its fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder's tax basis in his common
stock would be adjusted to reflect any such income or loss amount. Gain realized
on the sale, exchange or other disposition of our common stock would be treated
as ordinary income, and any loss realized on the sale, exchange or other
disposition of the common stock 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 stock 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 stock), and (2)
any gain realized on the sale, exchange or other disposition of our common
stock. Under these special rules:

      o     the excess distribution or gain would be allocated ratably over the
            Non-Electing Holders' aggregate holding period for the common stock;

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

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

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

Backup Withholding and Information Reporting

In general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to "backup withholding" if you are a non-corporate
U.S. Holder and you:

      o     fail to provide an accurate taxpayer identification number;

      o     are notified by the Internal Revenue Service that you have failed to
            report all interest or dividends required to be shown on your
            federal income tax returns; or

      o     in certain circumstances, fail to comply with applicable
            certification requirements.

If you sell your common shares to or through a U.S. office or broker, the
payment of the proceeds is subject to both U.S. backup withholding and
information reporting unless you establish an exemption. If you sell your common
shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are
paid to you outside the United States then information reporting and backup
withholding generally will not apply to that payment. However, U.S. information
reporting requirements, but not backup withholding, will apply to a payment of
sales proceeds, including a payment made to you outside the United States, if
you sell your common stock through a non-U.S. office of a broker that is a U.S.
person or has some other contacts with the United States. Backup withholding is
not an additional tax. Rather, you generally may obtain a refund of any amounts
withheld under backup withholding rules that exceed your income tax liability by
filing a refund claim with the U.S. Internal Revenue Service.

Bermuda Taxation

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

Liberian Taxation

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

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

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

F. DIVIDENDS AND PAYING AGENTS

Not Applicable

G. STATEMENT BY EXPERTS

Not Applicable

H. DOCUMENTS ON DISPLAY

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

I. SUBSIDIARY INFORMATION

Not Applicable

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rates and foreign
currency fluctuations. We use interest rate swaps to manage interest rate risk.
Several of our charter contracts also contain interest adjustment clauses,
whereby the charter rate is adjusted to reflect the actual interest paid on the
outstanding debt, effectively transferring the interest rate exposure on the
counterparty under the charter contract. We may enter into derivative
instruments from time to time for speculative purposes.

Our exposure to interest rate risk relates primarily to our debt and related
interest rate swaps. The majority of this exposure derives from our floating
rate debt, which totalled $1,466.1 million at December 31, 2006 (2005: $1,336.6
million). We have entered into interest rate swap agreements to manage this
exposure to interest rate changes by swapping floating interest rates with fixed
interest rates. At December 31, 2006, we had fourteen swaps with a total
notional principal of $738.7 million (2005: $568.3 million). At December 31,
2006, $166.4 million (2005: $nil) of the interest rate swaps relate to
committed, but not outstanding, debt on vessels not yet delivered to us. The
swap agreements mature between February 2009 and May 2019, and we estimate that
we would receive $9.1 million to terminate these agreements as of December 31,
2006 (2005: $18.4 million). At December 31, 2006, $155.1 million (2005: $nil) of
our outstanding debt was also subject to interest adjustment clauses under
charter contracts with the relevant charterers. At December 31, 2006, we had
also entered into total return bond swaps in respect of $52 million (2005: $nil)
of our 8.5% debentures, which effectively translates the underlying principal
amount into floating rate debt.

At December 31, 2006, our net exposure to interest rate fluctuations on our
outstanding debt was $790.6 million (2005: $768.3 million). Our net exposure to
interest fluctuations is based on our total floating rate debt outstanding at
December 31, 2006, plus the outstanding under the bond swap line at December 31,
2006, less the outstanding floating rate debt subject to interest adjustment
clauses and the notional principal of our floating to fixed interest rate swaps
outstanding at December 31, 2006. A one per cent change in interest rates would
increase or decrease interest expense by $7.9 million per year as of December
31, 2006 (2005: $7.7 million). This net figure takes into account that we would
be compensated for the increase or decrease in interest expenses under the
related charter contracts that include interest adjustment clauses.

The fair market value of our fixed rate debt was $448.8 million as of December
31, 2006 (2005: $427.3 million). The majority of our transactions, assets and
liabilities are denominated in U.S. dollars, our functional currency. One of our
subsidiaries had charter contracts denominated in Yen. The charterer also had an
option to buy the vessel for (Y)4,666 million in January 2006, this option was
exercised. The option was settled on January 17, 2006. Since this date, we do
not have any direct Yen exposure in the Company.

ITEM 12.    DESCRIPTION OF SECURITIES

Not Applicable
<PAGE>
                                     PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

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

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

None

ITEM 15.    CONTROLS AND PROCEDURES

a)    Disclosure Controls and Procedures

Management assessed the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15(e) of the
Securities Exchange Act of 1934, as of the end of the period covered by this
annual report as of December 31, 2006. Based upon that evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company's
disclosure controls and procedures are effective as of the evaluation date.

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

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

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

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

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

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

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

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

Our management with the participation of our Principal Executive Officer and
Principal Financial Officer assessed the effectiveness of the design and
operation of the Company's internal controls over financial reporting pursuant
to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2006.
Based upon that evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that the Company's internal controls over financial
reporting are effective as of December 31, 2006.

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

c)    Changes in internal control over financial reporting

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

ITEM 16 A.  AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that our Audit Committee has one Audit
Committee Financial Expert. Kate Blankenship is an independent Director and is
the Audit Committee Financial Expert.

ITEM 16 B.  CODE OF ETHICS

We have adopted a Code of Ethics that applies to all entities controlled by us
and our employees, directors, officers and agents of the Company. The Code of
Ethics has previously been filed as Exhibit 11.1 to the our Annual Report on
Form 20-F for the fiscal year ended December 31 2004, filed with the Securities
and Exchange Commission on June 30, 2005, and is hereby incorporated by
reference into this Annual Report.

We have posted a copy of our Code of Ethics on our website at www.shipfinance.bm
We will provide any person, free of charge, a copy of our Code of Ethics upon
written request to our registered office.

ITEM 16 C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our principal accountant for 2006 and 2005 was Moore Stephens, P.C. The
following table sets forth the fees related to audit and other services provided
by Moore Stephens, P.C.

                                                2006       2005
                                             ---------   --------

                    Audit Fees (a)            $300,000   $300,000
                    Audit-Related Fees (b)    $ 43,771   $ 38,000
                    Tax Fees (c)                    --         --
                    All Other Fees (d)              --         --
                    Total                     $343,771   $338,000

(a) Audit Fees

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

(b) Audit-Related Fees

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

(c) Tax Fees

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

(d) All Other Fees

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

Our Board of Directors has adopted pre-approval policies and procedures in
compliance with paragraph (c) (7)(i) of Rule 2-01 of Regulation S-X that require
the Board to approve the appointment of our independent auditor before such
auditor is engaged and approve each of the audit and non-audit related services
to be provided by such auditor under such engagement by the Company. All
services provided by the principal auditor in 2006 and 2005 were approved by the
Board pursuant to the pre-approval policy.

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

Not applicable

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

<TABLE>
<CAPTION>
                                  Average Price    Total Number of Shares (or      Maximum Number (or Approximate
                Total Number of      Paid per     Units) Purchased as Part of    Dollar Value) of Shares (or Units)
               Shares (or Units)    Share (or     Publicly Announced Plans or   that May Yet Be Purchased Under the
    Period         Purchased          Units)               Programs                      Plans or Programs
-------------------------------------------------------------------------------------------------------------------
<S>            <C>                <C>             <C>                           <C>
06/01/05 to
  06/30/05         300,000 (1)        $19.58                  --                                --

10/01/05 to
  10/31/05         336,400 (1)        $19.43                  --                                --

11/01/05 to
  11/30/05         520,700 (1)        $18.95                  --                                --

12/01/05 to
  12/31/05         600,000 (1)        $18.01                  --                                --

01/10/06 to
  01/20/06         400,000 (1)        $18.03                  --                                --

   Total         2,157,100 (1)        $18.68                  --                                --
</TABLE>

(1) The shares repurchased in the period were not part of a publicly announced
plan or program. The repurchases were made in open-market transactions.
<PAGE>

                                    PART III

ITEM 17.    FINANCIAL STATEMENTS

Not Applicable

ITEM 18.   FINANCIAL STATEMENTS

The following financial statements listed below and set forth on pages      F-1
through F-27 are filed as part of this annual report:

Report of Independent Registered Public Accounting Firm                     F-2

Consolidated Statements of Operations for the years ended December 31,
   2006, 2005 and 2004                                                      F-3

Consolidated Balance Sheets as of December 31, 2006 and 2005                F-4

Consolidated Statements of Cash Flows for the years ended December 31,
   2006, 2005 and 2004                                                      F-5

Consolidated Statement of Changes in Stockholders' Equity and
   Comprehensive Income for the years ended December 31, 2006, 2005
   and 2004                                                                 F-6

Notes to Consolidated Financial Statements                                  F-7



ITEM 19.    EXHIBITS

Number      Description of Exhibit

1.1*        Memorandum of Association of Ship Finance International Limited (the
            "Company") incorporated by reference to Exhibit 3.1 of the Company's
            Registration Statement, SEC File No. 333-115705, filed on May 21,
            2004 (the "Original Registration Statement").

1.4         Amended and Restated Bye-laws of the Company as adopted on
            December 1, 2006.

2.1*        Form of Common Stock Certificate of the Company incorporated by
            reference to Exhibit 4.1 of the Company's Original Registration
            Statement.

2.2         Share Option Scheme.

4.1*        Indenture relating to 8.5% Senior Notes due 2013, dated December 18,
            2003 incorporated by reference to Exhibit 4.4 of the Company's
            Original Registration Statement.

4.2*        Form of $1.058 billion Credit Facility incorporated by reference to
            Exhibit 10.1 of the Company's Original Registration Statement.

4.3*        Fleet Purchase Agreement dated December 11, 2003 incorporated by
            reference to Exhibit 10.2 of the Company's Original Registration
            Statement.

4.4*        Form of Performance Guarantee issued by Frontline Ltd. incorporated
            by reference to Exhibit 10.3 of the Company's Original Registration
            Statement.

4.5*        Form of Time Charter incorporated by reference to Exhibit 10.4 of
            the Company's Original Registration Statement.

4.6*        Form of Vessel Management Agreements incorporated by reference to
            Exhibit 10.5 of the Company's Original Registration Statement.

4.7*        Form of Charter Ancillary Agreement incorporated by reference to
            Exhibit 10.6 of the Company's Original Registration Statement.

4.8*        Form of Administrative Services Agreement incorporated by reference
            to Exhibit 10.7 of the Company's Original Registration Statement.

4.9         $1.131 billion Term Loan Facility, dated February 5, 2005.

4.10        Amendment to $1.131 billion Term Loan Facility, dated September 18,
            2006.

8.1         Subsidiaries of the Company.

11.1*       Code of Ethics.

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

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

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

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

* Incorporated herein by reference.

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                  Ship Finance International Limited
                                  ----------------------------------
                                              (Registrant)

Date July 2, 2007              By   /s/  Ole B. Hjertaker
                                   ---------------------------
                                         Ole B. Hjertaker
                                         Principal Financial Officer

<PAGE>


Ship Finance International Limited

<TABLE>
<S>                                                                                          <C>
Report of Independent Registered Public Accounting Firm                                      F-2

Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004   F-3

Consolidated Balance Sheets as of December 31, 2006 and 2005                                 F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004   F-5

Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the
years ended December 31, 2006, 2005 and 2004                                                 F-6

Notes to Consolidated Financial Statements                                                   F-7
</TABLE>

Index to Consolidated Financial Statements

<PAGE>
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Ship Finance International Limited

We have audited the consolidated balance sheets of Ship Finance International
Limited and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ship Finance
International Limited and subsidiaries as of December 31, 2006 and 2005, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.

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

June 22, 2007
<PAGE>
                       Ship Finance International Limited

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              for the years ended December 31, 2006, 2005 and 2004
                  (in thousands of $, except per share amounts)

<TABLE>
<CAPTION>
                                                                      2006       2005      2004
<S>                                                                 <C>        <C>        <C>
Operating revenues
      Time charter revenues                                           53,087     62,605    86,741
      Bareboat charter revenues                                        3,986      7,325    27,453
      Voyage charter revenues                                           (709)     9,745    49,707
         Finance lease interest income from related parties          177,840    176,030   140,691
         Finance lease interest income from non-related parties        4,740      1,444        --
                                                                   -------------------------------
      Total finance lease interest income                            182,580    177,474   140,691
                                                                   -------------------------------

      Finance lease service revenues from related parties            106,791     92,265    72,551

      Profit sharing revenues from related parties                    78,923     88,096   114,926
--------------------------------------------------------------------------------------------------
Total operating revenues                                             424,658    437,510   492,069

Profit / (loss) on sale of assets                                      9,806       (654)       --

Operating expenses
      Voyage expenses and commission                                   1,736      3,600     9,978
         Ship operating expenses to related parties                  116,362    108,957    96,392
         Ship operating expenses to non-related parties                1,595      1,283       113
      Total ship operating expenses                                  117,957    110,240    96,505
      Depreciation and amortization                                   14,490     19,907    34,617

      Selling, general and administrative expenses
         To related parties                                            1,184      1,013     2,852
         To non-related parties                                        5,400      1,434       960
--------------------------------------------------------------------------------------------------
Net operating income                                                 293,697    300,662   347,157

Non-operating income / (expense)
      Interest income                                                  3,978      3,343     2,567
      Interest expense                                              (113,588)  (111,935)  (95,933)
      Other financial items, net                                      (3,556)    17,476     8,868
--------------------------------------------------------------------------------------------------
Net income before equity in earnings of associated companies         180,531    209,546   262,659
      Equity in earnings of unconsolidated subsidiaries                  267         --        --

--------------------------------------------------------------------------------------------------
Net income                                                           180,798    209,546   262,659
==================================================================================================

Per share information:

Basic and diluted earnings per share                               $    2.48  $    2.84  $   3.52
Cash dividends paid                                                $    2.05  $    2.00  $   1.05
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                       Ship Finance International Limited

                           CONSOLIDATED BALANCE SHEETS
                  As of December 31, 2006 and December 31, 2005
                               (in thousands of $)

<TABLE>
<CAPTION>
                                                                                  2006        2005
<S>                                                                          <C>         <C>
ASSETS

Current assets

      Cash and cash equivalents                                                 64,569      32,857
      Restricted cash                                                           12,937       1,575
      Accounts receivable
      Trade                                                                        491         382
      Due from related parties                                                  63,024      79,416
      Other receivables                                                          3,906       1,409

      Inventories                                                                  331         185
      Prepaid expenses and accrued income                                          180         106
      Investment in finance leases to related parties, current portion         150,492     107,010
      Other current assets                                                      11,223          --
---------------------------------------------------------------------------------------------------
   Total current assets                                                        307,153     222,940

      Property plant and equipment - at cost
      Newbuilding contracts                                                      7,658          --
      Vessels and equipment                                                    308,313     481,732
      Accumulated depreciation and amortization                                (69,422)   (166,512)
                                                                             ---------   ---------
                                                                               246,549     315,220

      Investment in finance leases with related parties, long-term portion   1,958,691   1,818,344
      Investment in associated companies                                         3,698           -
      Mark to market valuation of derivatives                                   20,738      19,563
      Deferred charges                                                          16,848      17,846
---------------------------------------------------------------------------------------------------
   Total assets                                                              2,553,677   2,393,913
===================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
      Short-term debt and current portion of long-term debt                    144,451     122,519
      Trade accounts payable                                                       533         978
      Due to related parties                                                    14,411           -
      Accrued expenses                                                          11,262       9,908
      Other current liabilities                                                  2,998       1,315
---------------------------------------------------------------------------------------------------
   Total current liabilities                                                   173,655     134,720
Long-term liabilities
      Long-term debt                                                         1,770,749   1,671,138
      Mark to market valuation of derivatives                                    8,743       1,196
      Other long-term liabilities                                                   --      25,337
---------------------------------------------------------------------------------------------------
Total liabilities                                                            1,953,147   1,832,391
Commitments and contingent liabilities
Stockholders' equity
      Share capital                                                             72,744      73,144
      Contributed surplus                                                      464,478     441,105
      Accumulated other comprehensive loss                                         (71)         --
      Retained earnings                                                         63,379      47,273
---------------------------------------------------------------------------------------------------
Total stockholders' equity                                                     600,530     561,522
---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                   2,553,677   2,393,913
===================================================================================================
</TABLE>

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

<PAGE>


                       Ship Finance International Limited

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              for the years ended December 31, 2006, 2005 and 2004
                               (in thousands of $)

<TABLE>
<CAPTION>
                                                                                2006         2005         2004
<S>                                                                           <C>        <C>          <C>
Operating activities
Net income                                                                     180,798      209,546      262,659
      Adjustments to reconcile net income to net cash provided by
         operating activities:
      Depreciation                                                              14,490       19,907       34,617
      Amortization of deferred charges                                           3,069       16,524        9,485
      Share of results of associated companies                                  (4,205)          --           --
      Unrealized foreign exchange (gain)                                            --           --         (164)
      (Gain)/ loss on sale of assets                                           (26,469)         654           --
      Adjustment of derivatives to market value                                  6,375      (14,732)      (9,289)
      Other                                                                     (5,091)      (4,708)      (1,146)
Changes in operating assets and liabilities, net of effect of acquisitions
      Trade accounts receivable                                                  3,455        6,241         (256)
      Other receivables                                                            525          940           --
      Inventories                                                                  352        3,191           --
      Other current assets                                                     (12,245)       5,266           --
      Prepaid expenses and accrued income                                          (74)         129          199
      Trade accounts payable                                                      (445)      (1,291)         180
      Accrued expenses                                                             476       (2,139)       1,750
      Amount due from parent company                                            30,803       40,374     (119,892)
      Other current liabilities                                                  1,683          932          385
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                      193,497      280,834      178,528

Investing activities
      Repayments from investments in finance leases                            136,760       94,777       61,990
      Acquisition of subsidiaries, net of cash acquired                        (34,810)    (518,182)    (536,793)
      Additions to new buildings and vessel purchase options                    (7,658)          --       (8,370)
      Purchase of vessels                                                     (266,750)     (79,772)          --
      Proceeds from sales of vessels                                            75,606      229,800           --
      Investments in associated companies                                          508           --           --
      Purchase of other investments                                             (3,000)          --           --
      Net (placement)/maturity of restricted cash                              (11,362)       3,804      560,121
      Short-term loan advances to parent company                                    --           --      (55,254)
      Short-term loan repayments from parent company                                --           --       55,254
-----------------------------------------------------------------------------------------------------------------
Net cash (used in) /provided by investing activities                          (110,706)    (269,573)      76,948

Financing activities
      Proceeds from issuance of shares                                              --           --       24,696
      Repurchases of shares                                                     (7,212)     (33,083)     (14,713)
      Proceeds from issuance of long-term debt                                 312,588    1,571,429    1,017,100
      Repayments of long-term debt                                            (190,716)  (1,253,503)  (1,099,707)
      Debt fees paid                                                            (1,047)      (7,347)     (15,760)
      Cash dividends paid                                                     (149,123)    (148,863)     (78,905)
      Deemed dividends paid                                                    (15,569)    (136,230)     (58,994)
-----------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities                                        (51,079)      (7,597)    (226,283)
-----------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents                                         31,712        3,664       29,193
Cash and cash equivalents at start of the year                                  32,857       29,193           --
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year                                    64,569       32,857       29,193
=================================================================================================================

Supplemental disclosure of cash flow information:

      Interest paid, net of capitalized interest                               111,823       92,315       81,992
=================================================================================================================
</TABLE>

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

<PAGE>


                       Ship Finance International Limited

          CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
              for the years ended December 31, 2006, 2005 and 2004
                  (in thousands of $, except number of shares)

<TABLE>
<CAPTION>
                                                                   2006         2005         2004
<S>                                                          <C>          <C>          <C>
Number of shares outstanding
At beginning of year                                         73,143,737   74,900,837       12,000
Shares issued from contributed surplus                               --           --   73,913,837
Shares issued for cash                                               --           --    1,600,000
Shares repurchased and cancelled                               (400,000)  (1,757,100)    (625,000)
--------------------------------------------------------------------------------------------------
At end of year                                               72,743,737   73,143,737   74,900,837
--------------------------------------------------------------------------------------------------

Share capital
At beginning of year                                             73,144       74,901           12
Shares issued from contributed surplus                               --           --       73,914
Shares issued for cash                                               --           --        1,600
Shares repurchased and cancelled                                   (400)      (1,757)        (625)
--------------------------------------------------------------------------------------------------
At end of year                                                   72,744       73,144       74,901
--------------------------------------------------------------------------------------------------

Contributed surplus
At beginning of year                                            441,105      463,261           --
Equity contribution from parent company                              --           --      525,000
Shares issued from contributed surplus                               --           --      (73,914)
Shares issued for cash                                               --           --       23,096
Shares repurchased and cancelled                                 (6,811)     (31,327)     (14,088)
Employee stock options issued                                        49           --           --
Amortization of deferred equity contributions                    30,135        9,171        3,167
--------------------------------------------------------------------------------------------------
At end of year                                                  464,478      441,105      463,261
--------------------------------------------------------------------------------------------------

Accumulated other comprehensive income (loss)
At beginning of year                                                 --           --           --
Other comprehensive income (loss)                                   (71)          --           --
--------------------------------------------------------------------------------------------------
At end of year                                                      (71)          --           --
--------------------------------------------------------------------------------------------------

Retained earnings (deficit)
At beginning of year                                             47,273      122,820       (1,937)
Net income                                                      180,798      209,546      262,659
Cash dividends paid                                            (149,123)    (148,863)     (78,905)
Deemed dividends paid                                           (15,569)    (136,230)     (58,997)
--------------------------------------------------------------------------------------------------
At end of year                                                   63,379       47,273      122,820
--------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                      600,530      561,522      660,982
--------------------------------------------------------------------------------------------------

Comprehensive income
Net income                                                      180,798      209,546      262,659
--------------------------------------------------------------------------------------------------
Other comprehensive income (loss)                                   (71)          --           --
--------------------------------------------------------------------------------------------------
Comprehensive income                                            180,727      209,546      262,659
--------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE>

                       SHIP FINANCE INTERNATIONAL LIMITED
                 Notes to the Consolidated Financial Statements

1.    GENERAL

      Ship Finance International Limited ("Ship Finance" or the "Company"), a
      publicly listed company on the New York Stock Exchange (ticker SFL), was
      incorporated in Bermuda in October 2003 as a subsidiary of Frontline Ltd.
      ("Frontline") for the purpose of acquiring certain of the shipping assets
      of Frontline. In December 2003, Ship Finance issued $580 million of 8.5%
      senior notes and in the first quarter of 2004, the Company used the
      proceeds of the notes issue, together with a refinancing of existing debt,
      to fund the acquisition of a fleet of 47 crude oil tankers (including one
      purchase option for a VLCC) from Frontline and has chartered each of the
      ships back to two Frontline subsidiaries, Frontline Shipping Limited and
      Frontline Shipping II Limited (the "Frontline Charterers") for most of
      their estimated remaining lives. The Company also entered into fixed rate
      management and administrative services agreements with Frontline to
      provide for the operation and maintenance of the Company's tankers and
      administrative support services. The charters and the management
      agreements were each given economic effect as of January 1, 2004 (See Note
      17). Subsequently, the Company has acquired other assets.

      As of December 31, 2006, the Company owned 27 very large crude oil
      carriers ("VLCCs"), 14 Suezmax crude oil carriers, eight oil/bulk/ore
      carriers ("OBOs"), one Panamax drybulk carrier, three container vessels
      and one jack-up drilling rig. In addition, as of December 31, 2006, the
      Company had contracted to acquire two Suezmax tankers and four container
      vessels. Subsequently, Ship Finance has contracted to acquire an
      additional jack-up drilling rig, two Capesize drybulk carriers, three
      seismic vessels and five container vessels. Further, the Company has sold
      six single-hull Suezmax tankers and entered into a hire purchase agreement
      for a single-hull VLCC.

      Since its incorporation in 2003 and listing in 2004, Ship Finance has
      established itself as a leading international shipowning company,
      expanding both its asset and customer base. The Company's principal
      strategy is to generate stable and increasing cash flows by chartering its
      assets under medium to long-term time or bareboat charters to customers
      across a diverse group of maritime segments.

2.    ACCOUNTING POLICIES

      Basis of Accounting

      The consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States ("US GAAP").
      The consolidated financial statements include the assets and liabilities
      of the Company and its subsidiaries. All inter-company balances and
      transactions have been eliminated on consolidation.

      Consolidation of variable interest entities.

      A variable interest entity is defined by Financial Accounting Standards
      Board Interpretation ("FIN") 46(R) as a legal entity where either (a)
      equity interest holders as a group lack the characteristics of a
      controlling financial interest, including: decision making ability and an
      interest in the entity's residual risks and rewards or (b) the equity
      holders have not provided sufficient equity investment to permit the
      entity to finance its activities without additional subordinated financial
      support, or where (c) the voting rights of some investors are not
      proportional to their obligations to absorb the expected losses of the
      entity, their rights to receive the expected residual returns of the
      entity, or both and substantially all of the entity's activities either
      involve or are conducted on behalf of an investor that has
      disproportionately few voting rights.

      FIN 46(R) requires a variable interest entity to be consolidated if any of
      its interest holders are entitled to a majority of the entity's residual
      return or are exposed to a majority of its expected losses.

      We evaluate our subsidiaries, and any other entity in which we hold a
      variable interest in order to determine whether we are the primary
      beneficiary of the entity, and where it is determined that we are the
      primary beneficiary we fully consolidate the entity.

      Investments in associated companies

      Investments in companies over which the Company exercises significant
      influence but does not consolidate, are accounted for using the equity
      method. The Company records its investments in equity-method investees on
      the consolidated balance sheets as "Investments in associated companies"
      and its share of the investees' earnings or losses in the consolidated
      statements of operations as "Equity in earnings of unconsolidated
      subsidiaries". The excess, if any, of purchase price over book value of
      the Company's investments in equity method investees is included in the
      accompanying consolidated balance sheets in "Investment in associated
      companies".

      Use of accounting estimates

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

      Foreign currencies

      The Company's functional currency is the U.S. dollar as the majority of
      revenues are received in U.S. dollars and a majority of the Company's
      expenditures are made in U.S. dollars. The Company's reporting currency is
      U.S. dollars. Most of the Company's subsidiaries report in U.S. dollars.
      Transactions in foreign currencies during the year are translated into
      U.S. dollars at the rates of exchange in effect at the date of the
      transaction. Foreign currency monetary assets and liabilities are
      translated using rates of exchange at the balance sheet date. Foreign
      currency non-monetary assets and liabilities are translated using
      historical rates of exchange. Foreign currency transaction gains or losses
      are included in the consolidated statements of operations.

      Revenue and expense recognition

      Revenues and expenses are recognized on the accrual basis. Revenues are
      generated from freight billings, time charter hire, bareboat charter hire,
      finance lease interest income, finance lease service revenues and profit
      sharing revenues. The operating results of voyages in progress are
      estimated and recorded pro-rata on a per day basis in the consolidated
      statements of operations. Probable losses on voyages are provided for in
      full at the time such losses can be estimated. Time charter and bareboat
      charter revenues are recorded over the term of the charter as service is
      provided.

      Finance lease service revenues represent services provided to the lessee
      to operate vessels and are recognized on a daily accrual basis.

      Profit sharing revenues are recorded when earned and realizable. The
      Company considers profit sharing revenues to be earned and realizable to
      the extent that the underlying earnings on a time charter equivalent basis
      exceed the profit sharing threshold for the profit sharing period. This
      threshold is calculated as the number of days in the profit sharing period
      multiplied by the daily profit sharing threshold rates for the applicable
      vessels. The Frontline Charterers have agreed to pay us a profit sharing
      payment equal to 20% of the charter revenues for the applicable period,
      calculated annually on an average daily time charter equivalent ("TCE")
      basis, realized by the relevant Frontline Charterer for our fleet, in
      excess of the daily base charterhire.

      Cash and cash equivalents

      For the purposes of the statement of cash flows, all demand and time
      deposits and highly liquid, low risk investments with original maturities
      of three months or less are considered equivalent to cash.

      Vessels and equipment

      The cost of fixed assets less estimated residual value is depreciated on a
      straight-line basis over the estimated remaining economic useful life of
      the asset. The estimated economic useful life of the Company's vessels is
      25 years, but for single hull vessels it is either 25 years or the
      vessel's anniversary date in 2015. For the rigs it is 30 years.

      Newbuildings

      The carrying value of the vessels under construction ("newbuildings")
      represents the accumulated costs to the balance sheet date which the
      Company has had to pay by way of purchase installments and other capital
      expenditures together with capitalized loan interest and associated
      finance costs. During the year ended December 31, 2006, we capitalized
      $0.3 million of interest. No charge for depreciation is made until the
      vessel is put into operation.

      Leases

      Leases of our vessels where we are the lessor are classified as either
      finance leases or operating leases based on an assessment of the terms of
      the lease. For the long term charters classified as finance type leases
      the minimum lease payments (net of amounts representing estimate executory
      costs including profit thereon) plus the unguaranteed residual value are
      recorded as the gross investment in the lease. The difference between the
      gross investment in the lease and the sum of the present values of the two
      components of the gross investment is recorded as unearned income which is
      amortized to income over the lease term as finance lease interest income
      to produce a constant periodic rate of return on the net investment in the
      lease.

      Deemed Dividends

      Certain of the Company's vessels acquired in 2005 were on charter to third
      parties at the delivery date to the Company and certain of its vessels
      acquired as part of the original purchase of vessels from Frontline were
      on charter to third parties as at January 1, 2004 when the charter
      arrangements with the Frontline Charterers became economically effective.
      The Company's arrangement with the Frontline Charterers is that while the
      vessels are completing performance of third party charters, the Company
      pays the Frontline Charterers all revenues earned under third party
      charters in exchange for the Frontline Charterers paying the Company the
      charter rates under the charter agreements with the Frontline Charterers.
      The revenues received from these third party charters are accounted for as
      time charter, bareboat or voyage revenues as applicable and the subsequent
      payment of these amounts to the Frontline Charterers as deemed dividends
      paid. The Company accounts for the charter revenues received from the
      Frontline Charterers prior to the charters becoming effective for
      accounting purposes, as deemed equity contributions received. This
      treatment has been applied due to the related party nature of the charter
      arrangements.

      The Company has accounted for the acquisition of vessels from Frontline at
      the historical carrying value of Frontline. The difference between the
      purchase price and historical carrying value has been recorded as a deemed
      dividend paid.

      Deemed Equity Contributions

      The Company has accounted for the difference between the historical cost
      of the vessels transferred to the Company from Frontline at Frontline's
      historical carrying value, and the net investment in the lease as a
      deferred deemed equity contribution. This deferred deemed equity
      contribution is presented as a reduction in the net investment in finance
      leases in the balance sheet. This results from the related party nature of
      both the transfer of the vessel and the subsequent finance lease. The
      deferred deemed equity contribution is amortized as a credit to
      contributed surplus over the life of the new lease arrangement, as lease
      payments are applied to the principal balance of the lease receivable.

      Impairment of long-lived assets

      The carrying value of long-lived assets that are held and used by the
      Company are reviewed whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable. The Company
      assesses recoverability of the carrying value of the asset by estimating
      the future net cash flows expected to result from the asset, including
      eventual disposition. If the future net cash flows are less than the
      carrying value of the asset, an impairment loss is recorded equal to the
      difference between the asset's carrying value and fair value. In addition,
      long-lived assets to be disposed of are reported at the lower of carrying
      amount and fair value less estimated costs to sell.

      Deferred charges

      Loan costs, including debt arrangement fees, are capitalized and amortized
      on a straight line basis over the term of the relevant loan. The straight
      line basis of amortization approximates the effective interest method in
      the Company's statement of operations. Amortization of loan costs is
      included in interest expense. If a loan is repaid early, any unamortized
      portion of the related deferred charges is charged against income in the
      period in which the loan is repaid.

      Financial Instruments

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

      Derivatives

      The Company enters into interest rate swap transactions from time to time
      to hedge a portion of its exposure to floating interest rates. These
      transactions involve the conversion of floating rates into fixed rates
      over the life of the transactions without an exchange of underlying
      principal. The fair values of the interest rate swap contracts are
      recognized as assets or liabilities with changes in fair values recognized
      in the consolidated statements of operations.

      When the interest rate swap qualifies for hedge accounting under Statement
      of Financial Accounting Standards ("FAS") 133, and the Company has
      formally designated the swap instrument to the underlying loan, and when
      the hedge is effective, the changes in the fair value of the swap will be
      recognized in other comprehensive income.

      Drydocking provisions

      Normal vessel repair and maintenance costs are charged to expense when
      incurred. The Company recognizes the cost of a drydocking at the time the
      drydocking takes place, that is, it applies the "expense as incurred"
      method. The expense as incurred method is considered an appropriate method
      of recognizing drydocking costs as it eliminates the uncertainty
      associated with estimating the cost and timing of future drydockings.

      Earnings per share

      Basic earnings per share ("EPS") is computed based on the income available
      to common stockholders and the weighted average number of shares
      outstanding for basic EPS. Diluted EPS includes the effect of the assumed
      conversion of potentially dilutive instruments.

      Stock-based compensation

      Effective January 1, 2006 the Company adopted FAS 123(R) Share-Based
      Payment. Under FAS 123(R) we are required to expense the fair value of
      stock options issued to employees over the period the options vest.

3.    RECENTLY ISSUED ACCOUNTING STANDARDS

      In March 2006, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 156 Accounting for Servicing of Financial Assets - an amendment
      to FAS 140 ("SFAS 156"). SFAS 156 requires that all separately recognized
      servicing rights be initially measured at fair value if practicable. The
      statement also permits an entity to choose between two measurement methods
      for each class of separately recognized servicing assets and liabilities.
      SFAS 156 is effective for fiscal years beginning after September 15, 2006.
      The Company does not expect the adoption of SFAS 156 to have an impact on
      its financial statements.

      In July 2006, the FASB issued Interpretation No. 48 Accounting for
      Uncertainty in Income Taxes - an interpretation of FAS 109 ("FIN 48"). FIN
      48 clarifies the application of SFAS 109 by defining the criterion that an
      individual tax position must meet for any part of the benefit of that
      position to be recognized in an entity's financial statements and also
      provides guidance on measurement, de-recognition, classification, interest
      and penalties and disclosure. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company does not expect the
      adoption of FIN 48 to have an impact on its financial statements.

      In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements
      ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles and
      expands disclosures about fair value measurements. SFAS 157 applies under
      most other accounting pronouncements that require or permit fair value
      measurements and does not require any new fair value measurements. SFAS
      157 is effective for fiscal years beginning after November 15, 2007. The
      Company has not yet determined the effect of adoption of SFAS 157 on its
      financial statements.

      In September 2006, the FASB issued SFAS No. 158 Employers' Accounting for
      Defined Benefit Pension and Other Post Retirement Plans - an amendment of
      SFAS 87, 88, 106, and 132R ("SFAS 158"). SFAS 158 requires that the funded
      status of defined benefit post retirement plans be recognized in the
      statement of financial position and changes in the funded status be
      reflected in comprehensive income. SFAS 158 also requires the benefit
      obligations to be measured as of the same date of the financial statements
      and requires additional disclosures related to the effects of delayed
      recognition of gains or losses, prior service costs or credits and
      transition assets or obligation on net periodic benefit cost. SFAS 158 is
      effective for fiscal years ending after December 15, 2006 for employers
      without publicly traded securities. The Company does not expect the
      adoption of SFAS 158 to have an impact on its financial statements.

      In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements ("SAB 108"), which
      provides interpretative guidance on how registrants should quantify
      financial statement misstatements. Under SAB 108 registrants are required
      to consider both a "rollover" method, which focuses primarily on the
      income statement impact of misstatements, and the "iron curtain" method,
      which focuses primarily on the balance sheet impact of misstatements. The
      effects of prior year uncorrected errors include the potential
      accumulation of improper amounts that may result in material misstatement
      on the balance sheet or the reversal of prior period errors in the current
      period that result in a material misstatement of the current period income
      statement amounts. Adjustments to current or prior period financial
      statements would be required in the event that after application of
      various approaches for assessing materiality of a misstatement in a
      current period financial statements and consideration of all relevant
      quantitative and qualitative factors, a misstatement is determined to be
      material. The Company adopted the provisions of SAB 108 as of December 31,
      2006. The adoption of SAB 108 did not have an effect on the Company's
      results of operations or financial position.

4.    SEGMENT INFORMATION

      The Company has only one reportable segment.

5.    TAXATION

      Bermuda

      Under current Bermuda law, the Company is not required to pay taxes in
      Bermuda on either income or capital gains. The Company has received
      written assurance from the Minister of Finance in Bermuda that, in the
      event of any such taxes being imposed, the Company will be exempted from
      taxation until the year 2016.

      United States

      The Company does not accrue U.S. income taxes as, in the opinion of U.S.
      counsel, the Company is not engaged in a U.S. trade or business and is
      exempted from a gross basis tax under Section 883 of the U.S. Internal
      Revenue Code.

      A reconciliation between the income tax expense resulting from applying
      the U.S. Federal statutory income tax rate and the reported income tax
      expense has not been presented herein as it would not provide additional
      useful information to users of the financial statements as the Company's
      net income is subject to neither Bermuda nor U.S. tax.

      Other Jurisdictions

      Certain of the Company's subsidiaries in Singapore are subject to
      taxation. The tax paid by subsidiaries of the Company that are subject to
      taxation is not material.

6.    EARNINGS PER SHARE

      The computation of basic EPS is based on the weighted average number of
      shares outstanding during the year. Diluted EPS includes the effect of the
      assumed conversion of potentially dilutive instruments.

      The components of the numerator for the calculation of basic and diluted
      EPS are as follows:

      --------------------------------------------------------------------------
      (in thousands of $)                           Year ended December 31,
      --------------------------------------------------------------------------
                                                       2006     2005     2004

      Net income available to stockholders          180,798  209,546  262,659
      --------------------------------------------------------------------------

      The components of the denominator for the calculation of basic diluted EPS
      are as follows:

      --------------------------------------------------------------------------
      (in thousands)                                  Year ended December 31
      --------------------------------------------------------------------------
                                                       2006     2005     2004
      Weighted average number of common shares
      outstanding                                    72,764   73,904   74,611

7.    OPERATING LEASES

      Rental income

      The minimum future revenues to be received under the Company's
      non-cancelable operating leases as of December 31, 2006 are as follows:

      --------------------------------------------------------------------------
      Year ending December 31,
      (in thousands of $)
      --------------------------------------------------------------------------
      2007                                                             41,186
      2008                                                             42,383
      2009                                                             36,004
      2010                                                             32,035
      2011                                                             29,878
      Thereafter                                                        7,532
      --------------------------------------------------------------------------
      Total minimum lease revenues                                    189,018
      --------------------------------------------------------------------------

      The cost and accumulated depreciation of vessels leased to third parties
      on operating leases at December 31, 2006 and 2005 were as follows:

      --------------------------------------------------------------------------
      (in thousands of $)                                      2006      2005
      --------------------------------------------------------------------------
      Cost                                                  308,313   481,732
      Accumulated depreciation                               69,422   166,512

8.    RESTRICTED CASH

      --------------------------------------------------------------------------
      (in thousands of $)                                      2006      2005
      --------------------------------------------------------------------------
      Restricted cash                                        12,937     1,575

      Restricted cash is mainly comprised of deposits held as collateral by the
      relevant banks in connection to interest rate swap and bond swap
      arrangements. At December 31, 2006 restricted cash balance also contained
      a deposit held by courts in Australia in connection with settlement of a
      claim made by the technical manager of the Sea Beta, resulting from the
      bankruptcy of the charterer of the vessel.

9.    TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

      Trade accounts receivable

      Trade accounts receivable are presented net of allowances for doubtful
      accounts. There is no provision made for doubtful debt as of December 31,
      2006 and 2005.

      Other receivables

      Other receivables are presented net of allowances for doubtful accounts.
      As of December 31, 2006 and 2005 there was no allowance.

10.   VESSELS AND EQUIPMENT, NET

      --------------------------------------------------------------------------
      (in thousands of $)                                      2006      2005
      --------------------------------------------------------------------------
      Cost                                                  308,313   481,732
      Accumulated depreciation                               69,422   166,512
      --------------------------------------------------------------------------
      Net book value                                        238,891   315,220
      --------------------------------------------------------------------------

      Depreciation expense was $14.5 million, $19.9 million and $34.6 million
      for the years ended December 31, 2006, 2005 and 2004, respectively.

11.   INVESTMENTS IN FINANCE LEASES

      Most of the Company's VLCCs, Suezmaxes and OBOs are chartered on long
      term, fixed rate charters to the Frontline Charterers which extend for
      various periods depending on the age of the vessels, ranging from
      approximately six to 20 years. The terms of the charters do not provide
      the Frontline Charterers with an option to terminate the charter before
      the end of its term, other than with respect to the Company's non-double
      hull vessels for which there are termination options commencing in 2010.

      The Company's jack-up drilling rig West Ceres is chartered on a long term
      bareboat charter to SeaDrill Invest I Ltd ("SeaDrill Invest I"). The terms
      of the charter provide the charterer with various call options throughout
      the charter period which expires in 2021.

      As of December 31, 2006, 48 of the Company's assets were accounted for as
      sales type leases. The following lists the components of the investments
      in finance leases as of December 31, 2006:

      --------------------------------------------------------------------------
      (in thousands of $)                                   2006         2005
      --------------------------------------------------------------------------
      Total minimum lease payments to be received      4,330,607    4,060,056
      Less: amounts representing estimated            (1,165,139)  (1,019,259)
         executory costs including profit thereon,
         included in total minimum lease payments
      --------------------------------------------------------------------------
      Net minimum lease payments receivable            3,165,468    3,040,797
      Estimated residual values of leased property       644,188      596,697
         (unguaranteed)
      Less: unearned income                           (1,425,740)  (1,429,445)
      --------------------------------------------------------------------------
                                                       2,383,916    2,208,049
      Less: deferred deemed equity contribution         (237,208)    (240,430)
      --------------------------------------------------------------------------
      Less: unamortized gains                            (37,525)     (42,265)
      --------------------------------------------------------------------------
                                                       2,109,183    1,925,354
      --------------------------------------------------------------------------

      Current portion                                    150,492      107,010
      Long-term portion                                1,958,691    1,818,344
      --------------------------------------------------------------------------
                                                       2,109,183    1,925,354
      --------------------------------------------------------------------------

12.   INVESTMENT IN ASSOCIATED COMPANIES

      At December 31, 2006, the Company has the following participation in an
      investment that is recorded using the equity method:

      --------------------------------------------------------------------------
                                                            2006         2005
      --------------------------------------------------------------------------
      Front Shadow Inc.                                   100.00%          --

      Summarized balance sheet information of the Company's equity method
      investee is as follows:

      --------------------------------------------------------------------------
      (in thousands of $)                                   2006         2005
      --------------------------------------------------------------------------
      Current assets                                         978           --
      Non current assets                                  28,099           --
      Current liabilities                                  8,170           --
      Non current liabilities                             20,640           --

      Summarized statement of operations information of the Company's equity
      method investee is as follows:

      --------------------------------------------------------------------------
      (in thousands of $)                                   2006         2005
      --------------------------------------------------------------------------
      Net operating revenues                                 694           --
      Net operating income                                   684           --
      Net income                                             267           --

      Front Shadow Inc. ("Front Shadow") is a 100% owned subsidiary of Ship
      Finance. This entity is being accounted for using the equity method as it
      has been determined that Ship Finance is not the primary beneficiary under
      FIN 46 (R).

      Front Shadow was incorporated during 2006 for the purpose of holding a
      Panamax drybulk carrier, and leasing that vessel to Golden Ocean Group
      Limited ("Golden Ocean"), a related party.

13.   ACCRUED EXPENSES

      --------------------------------------------------------------------------
      (in thousands of $)                                   2006         2005
      --------------------------------------------------------------------------
      Ship operating expenses                                262          102
      Voyage expenses                                         51          252
      Administrative expenses                              3,389          769
      Interest expense                                     7,560        8,785
      --------------------------------------------------------------------------
                                                          11,262        9,908
      --------------------------------------------------------------------------

14.   LONG-TERM DEBT

      --------------------------------------------------------------------------
      (in thousands of $)                                   2006         2005
      --------------------------------------------------------------------------
      8.5% Senior Notes due 2013                         449,080      457,080
      U.S. dollar denominated floating rate debt
        (LIBOR plus 0.65% - 1.40%) due through 2018    1,466,120    1,336,577
      --------------------------------------------------------------------------
                                                       1,915,200    1,793,657
      Less: short-term portion                          (144,451)    (122,519)
      --------------------------------------------------------------------------
                                                       1,770,749    1,671,138
      --------------------------------------------------------------------------

      The outstanding debt as of December 31, 2006 is repayable as follows:

      --------------------------------------------------------------------------
      Year ending December 31,
     (in thousands of $)
      --------------------------------------------------------------------------
      2007                                                            144,451
      2008                                                            143,327
      2009                                                            135,196
      2010                                                            128,899
      2011                                                            603,485
      Thereafter                                                      759,842
      --------------------------------------------------------------------------
      Total debt                                                    1,915,200
      --------------------------------------------------------------------------

      The weighted average interest rate for floating rate debt denominated in
      U.S. dollars was 5.34% per annum and 4.41% per annum for the years ended
      December 31, 2006 and December 31, 2005, respectively. These rates take
      into consideration the effect of related interest rate swaps.

      $1,058.0 million senior secured credit facility

      In February 2005, Ship Finance refinanced its existing $1,058.0 million
      senior secured credit facility with a new $1,131.4 million secured credit
      facility discussed in more detail below.

      8.5% Senior Notes due 2013

      On December 15, 2003 the Company issued $580 million of senior notes.
      Interest on the notes is payable in cash semi-annually in arrears on June
      15 and December 15. The notes are not redeemable prior to December 15,
      2008 except in certain circumstances. After that date the Company may
      redeem notes at redemption prices which reduce from 104.25% in 2008 to
      100% in 2011 and thereafter.

      In February 2006, the Company entered into a total return bond swap line
      with a bank for a term of 12 months. The bond swap line has been extended
      for a period up to August 2009. As of December 31, 2006, the Company held
      bonds with a principal amount of $52 million under this agreement. In
      February 2007, the Company entered into an additional bond swap line with
      a second bank for a term of 12 months. As of June 15, 2007, the Company
      holds bonds with a principal amount of $52.0 million and $5.0 million
      respectively under the two bond swap agreements.

      In 2006 and 2005, the Company bought back and cancelled notes with
      principal amounts of $8.0 million and $73.2 million, respectively. $449.1
      million was outstanding at December 31, 2006 (December 31, 2005: $457.1
      million).

      $1,131.4 million secured term loan facility

      In February 2005, the Company entered into a $1,131.4 million term loan
      facility with a syndicate of banks. The proceeds from the facility were
      used to repay the $1,058.0 million syndicated senior secured credit
      facility and for general corporate purposes. The facility bears interest
      at LIBOR plus a margin of 0.70% per annum. The facility is repayable over
      a term of six years.

      In September 2006, the Company signed an agreement whereby the existing
      debt facility, which had been partially repaid, was increased by $219.7
      million to the original amount of $1,131.4 million. The increase is
      available on a revolving basis.

      $350.0 million combined senior and junior secured term loan facility

      In June 2005, the Company entered into a combined $350 million senior and
      junior secured term loan facility with a syndicate of banks. The proceeds
      from the facility were used to fund the acquisition of five VLCCs. The
      facility bears interest at LIBOR plus a margin of 0.65% per annum for the
      senior loan and LIBOR plus a margin of 1.00% per annum for the junior
      loan. The facility is repayable over a term of seven years.

      $210 million secured term loan facility

      In April 2006, five vessel owning subsidiaries entered into a $210 million
      secured term loan facility with a syndicate of banks to partly fund the
      acquisition of five new container vessels. The facility bears interest at
      LIBOR plus a margin of 1.40% per annum and is repayable over a term of 12
      years.

      $165 million secured term loan facility

      In June 2006, the Company's subsidiary Rig Finance Limited ("Rig Finance")
      entered into a $165 million secured term loan facility with a syndicate of
      banks. The proceeds of the facility were used to partly fund the
      acquisition of the jack up drilling rig West Ceres. The facility currently
      bears interest at LIBOR plus a margin of 1.15% per annum and is repayable
      over a term of six years.

      Agreements related to long-term debt provide limitations on the amount of
      total borrowings and secured debt, and acceleration of payment under
      certain circumstances, including failure to satisfy certain financial
      covenants.

      As of December 31, 2006, the Company is in compliance with all of the
      covenants under its long-term debt facilities.

15.   SHARE CAPITAL AND CONTRIBUTED SURPLUS

      Authorized share capital is as follows:

      -----------------------------------------------------------------------
      (in thousands of $, except share data)                2006         2005
      -----------------------------------------------------------------------
      125,000,000 common shares of $1.00 par
        value each                                       125,000      125,000
      -----------------------------------------------------------------------

      Issued and fully paid share capital is as follows:

      -----------------------------------------------------------------------
      (in thousands of $, except share data)                2006         2005
      -----------------------------------------------------------------------
      72,743,737 common shares of $1.00 par
        value each                                        72,744       73,144
      -----------------------------------------------------------------------

      The Company's common shares are listed on the New York Stock Exchange.

      The Company was formed in October 2003 with an authorized share capital of
      $12,000, divided into 12,000 common shares of $1.00 par value each. In
      connection with the partial spin-off from Frontline in May 2004, the
      authorized share capital was increased to 125,000,000 common shares, of
      which 73,925,837 were issued and outstanding immediately after the partial
      spin-off. In July 2004, the Company issued 1,600,000 common shares in a
      private placement for the price of $15.75 per share. In 2004 the Company
      repurchased and cancelled 625,000 shares at an average cost of $23.54 per
      share. In 2005 the Company repurchased and cancelled 1,757,100 shares at
      an average cost of $18.81 per share. In 2006, the Company repurchased and
      cancelled 400,000 shares at an average cost of $18.03 per share.

      In connection with the purchase of the Company's original fleet from
      Frontline in January 2004, Ship Finance received an equity contribution of
      $525.0 million.

      As each of the Company's vessels acquired from Frontline completes its
      original charter put in place prior to the acquisition date from
      Frontline, the finance leases with Frontline become effective for
      accounting purposes. The Company has accounted for the difference between
      the historical cost of the vessel transferred to the Company by Frontline
      at Frontline's historical carrying value, and the net investment in the
      lease as a deferred deemed equity contribution. The difference is
      presented as a reduction in the net investment in finance leases in the
      balance sheet. This results from the related party nature of both the
      transfer of the vessel and the subsequent finance lease. The deferred
      deemed equity contribution is amortized as a credit to equity over the
      life of the new lease arrangement as lease payments are applied to the
      principal balance of the lease receivable. In the year ended December 31,
      2006 the Company has accounted for $30.1 million of such deemed equity
      contributions (December 31, 2005: $9.2 million).

16.   SHARE OPTION PLAN

      In November 2006, the board of directors approved the Ship Finance
      International Limited Share Option Scheme (the "Option Scheme"). The
      Option Scheme permits the board of directors, at its discretion, to grant
      options to employees and directors of the Company or its subsidiaries. The
      Option Scheme will expire in November 2016. The subscription price for all
      options granted under the scheme will be reduced by the amount of all
      dividends declared by the Company per share in the period from the date of
      grant until the date the option is exercised, provided the subscription
      price never shall be reduced below the par value of the share. Options
      granted under the scheme will vest at a date determined by the board at
      the date of the grant. The options granted under the plan to date vest
      over a period of one to three years. There is no maximum number of shares
      authorized for awards of equity share options, and authorized, unissued
      shares of Ship Finance International Limited will be used to satisfy
      exercised options.

      The fair value of each option awarded in 2006 is estimated on the date of
      the grant using a Black Scholes option valuation model with the following
      assumptions: risk-free interest rate of 4.74%, volatility of 31%, a
      dividend yield of 0% and a weighted average expected option term of 3.5
      years. The risk-free interest rate was estimated using the interest rate
      on three year US treasury zero coupon issues. The volatility was estimated
      using historical share price data. The dividend yield has been estimated
      at 0% as the exercise price is reduced by all dividends declared by the
      Company from the date of grant to the exercise date. It is assumed that
      all options granted under the plan will vest.

      The following summarizes share option transactions related to the Option
      Scheme:

      --------------------------------------------------------------------------
      (in thousands, except per share data)           Shares   Exercise Price
      --------------------------------------------------------------------------
      Options outstanding at December 31, 2005            --               --

           Granted                                       150           $22.85
           Exercised                                      --               --
           Cancelled                                      --               --
           Vested                                         --               --
      --------------------------------------------------------------------------
      Options outstanding at December 31, 2006           150           $22.85
      --------------------------------------------------------------------------

      The weighted average grant-date fair value of options granted during 2006
      is $6.67 per share.

      As of December 31, 2006, there was $0.95 million in unrecognized
      compensation cost related to non-vested options granted under the Options
      Scheme. This cost will be recognized over a weighted average period of 1.5
      years.

      In 2007, an additional 10,000 options has been awarded to an employee in
      accordance with the Option Scheme.

      Share-based bonus

      The employment contract for one employee contains a share-based bonus
      provision. Under the terms of the contract, the share based bonus is
      calculated based on the annual increase in the share price of the Company,
      plus any dividend per share paid, multiplied by a notional share holding
      of 200,000 shares. Any bonus related to the increase in share price is
      payable at the end of each calendar year, while any bonus linked to
      dividend payments is payable on the relevant dividend payment date. The
      share-based bonus fair value of $1.7 million at December 31, 2006 was
      recorded as a liability.

17.   RELATED PARTY TRANSACTIONS

      Leasing and service contracts

      As at December 31, 2006, 49 of the Company's vessels were leased to the
      Frontline Charterers. The jack-up drilling rig, West Ceres is leased to
      SeaDrill Invest I. These companies are related parties due to common
      significant shareholdings, held by Hemen Holding Limited and Farahead
      Investments Inc. (collectively "Hemen").

      The Company has recognized the inception of net investments in finance
      leases of $1,876.5 million, additions during 2005 of $647.8 million and
      disposals during 2005 of $106.8 million, and additions during 2006 of
      $137.0 million and disposals during 2006 of $34 million.

      At December 31, 2006 the balance of net investments in finance leases with
      the Frontline Charterers was $1,910.4 million (2005: $1,925.4 million) of
      which $126.9 million (2005: $107.0 million) represents short-term
      maturities.

      A summary of leasing revenues earned from the Frontline Charterers and
      SeaDrill Invest I is as follows:

      --------------------------------------------------------------------------
      Payments (in millions of $)                         2006           2005
      --------------------------------------------------------------------------
      Finance lease interest income                      182.6          177.5
      Finance lease service revenue                      106.8           92.3
      Finance lease repayments                           136.8           94.8
      Deemed dividends (net) (see Note 2)                (15.6)         (16.5)

      For each of the vessels leased to the Frontline Charterers, the Company
      pays a management fee to Frontline Management (Bermuda) Ltd, ("Frontline
      Management") of $6,500 per day, resulting in expenses of $116.1 million
      for the year ended December 31, 2006 (2005: $105.2 million, 2004: $94.6
      million). The management fees have been classified as ship operating
      expenses in the consolidated statements of operations. As at December 31,
      2006 the Company owes Frontline Management $3.9 million (2005: $0.03
      million)

      For the years 2004, 2005 and 2006, the Company paid a fee of $20,000 per
      year plus $20,000 per vessel per year to Frontline Management for the
      provision of management and administrative services. The Company paid $1.0
      million in 2006 (2005: $1.0 million, 2004: $1.0 million) under this
      arrangement. These fees have been classified as administrative expenses in
      the consolidated statements of operations. As at December 31, 2006 the
      Company owes Frontline Management $3.9 million (2005: $0.03 million)

      The Frontline Charterers pay the Company profit sharing of 20% of their
      earnings from their use of the Company's fleet above the average daily
      charter rates each fiscal year. During the year ended December 31, 2006,
      the Company earned and recognized revenue of $78.9 million (2005: $88.1
      million, 2004: $114.9 million) under this arrangement.

      During 2006, and 2007 to date, leases to the Frontline Charterers were
      cancelled on the following vessels that were agreed sold. Termination fees
      in respect of each of the sold vessels were agreed paid to Frontline as
      compensation for the cancellation of these leases to the Frontline
      Charterers as follows:

                                                              Termination Fee
      Vessel                             Year Sold           (in millions of $)
      --------------------------------------------------------------------------
      Front Tobago                          2006                         9.6
      Front Transporter                     2007                        14.9
      Front Target                          2007                        14.6
      Front Traveller                       2007                        13.6
      Front Granite                         2007                        15.8
      Front Comor                           2007                        13.3
      Front Sunda                           2007                         7.2

      In addition, the VLCC Front Vanadis was re-chartered to an unrelated third
      party in 2007, whereby the Company agreed to pay a compensation of $13.2
      million to Frontline for the cancellation of the lease to the relevant
      Frontline Charterer.

      As at December 31, 2006 the Company was owed a total of $56.9 million
      (2005: $80.0 million) by the Frontline Charterers in respect of leasing
      contracts.

      Purchase and sale of vessels - 2006

      In January 2006, the Company acquired the VLCC Front Tobago from Frontline
      for consideration of $40.0 million. The vessel was chartered back to
      Frontline following the structure in place for the other vessels chartered
      to Frontline. The vessel was subsequently sold to an unrelated third party
      in December 2006 for approximately $45.0 million.

      In June 2006, the Company purchased the jack up rig West Ceres from
      SeaDrill Invest I, a wholly owned subsidiary of Seadrill Limited
      ("Seadrill"), for a total consideration of $210.0 million. Both Seadrill
      and the Company have common principal shareholders. Upon delivery to the
      Company the rig was immediately chartered back to SeaDrill Invest I under
      a 15-year bareboat charter agreement, fully guaranteed by Seadrill.
      SeaDrill Invest I will have options to buy back the rig after three, five,
      seven, 10, 12 and 15 years.

      In September 2006, Front Shadow, a wholly owned subsidiary of the Company,
      acquired the 1997 built Panamax Golden Shadow for $28.4 million from
      Golden Ocean, a related party. The vessel has been chartered back to
      Golden Ocean for a period of 10 years. As part of the agreement, Golden
      Ocean has provided an interest free and non-amortizing seller's credit of
      $2.6 million. Golden Ocean has been granted fixed purchase options after
      three, five, seven and 10 years. At the end of the charter, we have an
      option to sell the vessel back to Golden Ocean at an agreed fixed price of
      $10.4 million, including the $2.6 million seller's credit.

      In November 2006 the Company announced that it had assumed two newbuilding
      Suezmax tanker contracts from Frontline. The Suezmax tankers, each 156,000
      dwt, will be built at the Jiangsu Rongsheng Heavy Industries Group Co.
      Ltd. in China for delivery in the first quarter of 2009 and the third
      quarter of 2009.

      As at December 31, 2006, the Company was owed a total of $6.1 million
      (2005: $nil) by Frontline as a result of vessel purchases and profit
      share.

      Also at December 31, 2006 the Company owed a total of $10.4 million to a
      subsidiary of Frontline in respect of costs incurred on behalf of
      Frontline in respect of the vessel Front Sunda.

      Purchase and sale of vessels - 2005

      In the first quarter of 2005, the Company acquired three VLCCs from
      Frontline for total consideration of $294.0 million. The vessels were
      chartered back to Frontline following the structure in place for the other
      vessels chartered to Frontline. Frontline received discounted time charter
      rates for two of the new vessels, as compensation for the early
      termination of one Suezmax charter, when the vessel was sold to an
      unrelated third party.

      In May 2005, the Company entered into an agreement with parties affiliated
      with Hemen to acquire two vessel owning companies, each owning a 2005
      built containership, for a total consideration of $98.6 million. The
      vessels were delivered in 2005 and are currently chartered to unrelated
      third parties.

      In June 2005, the Company acquired three Suezmax tankers from Frontline
      for total consideration of $92.0 million. The vessels were immediately
      chartered back to Frontline to replace time charters for three similar
      vessels whose charters were terminated upon their sale to an unrelated
      third party.

      In June 2005, the Company entered into an agreement to acquire two 2004
      built VLCCs from parties affiliated with Hemen for total consideration of
      $184.0 million. This transaction has been recorded at the fair value of
      $270.0 million, resulting in an additional equity contribution from Hemen
      of $85.0 million. The vessels were delivered in June 2005 and have been
      chartered to Frontline under long-term leases. The ensuing finance leases
      have been recorded based on the economic substance of the transaction,
      with the fair value of minimum lease payments approximating the purchase
      consideration. The resulting loss of $85.0 million on transfer of the
      vessels to finance leases has been recorded as a negative equity
      contribution. The overall effect of this transaction on the Company's
      stockholders' equity was nil.

      In June 2005, the Company sold the Suezmax tanker Front Hunter to an
      unrelated third party as a result of which the charter and management
      agreements with Frontline relating to this vessel were terminated, and the
      Company paid Frontline a $3.8 million termination fee. In addition
      Frontline held a put option to sell a newbuilding VLCC to the Company and
      charter back at reduced charter rates. In June 2006, the parties agreed to
      cancel this agreement, and to split the profit in accordance with the
      profit share agreement (80% to Frontline and 20% to the Company), adjusted
      for the residual value belonging to the Company. The cancellation of this
      agreement resulted in a net payment of $16.3 million to Frontline, in
      addition to the earlier termination payment of $3.8 million. The Company
      recorded a net gain of $9.0 million in 2006 relating to the sale of the
      Front Hunter and the cancellation of the option agreement.

18.   FINANCIAL INSTRUMENTS

      Interest rate risk management

      In certain situations, the Company may enter into financial instruments to
      reduce the risk associated with fluctuations in interest rates. The
      Company has a portfolio of swaps that swap floating rate interest to fixed
      rate, which from a financial perspective hedge interest rate exposure. The
      Company does not currently hold or issue instruments for speculative or
      trading purposes. The counterparties to such contracts are Nordea, Calyon,
      Deutsche Schiffsbank, HSH Nordbank, Fortis Bank, HBOS, NIBC, Citibank,
      Scotiabank, DnB NOR and Skandinaviska Enskilda Banken. Credit risk exists
      to the extent that the counterparties are unable to perform under the
      contracts, but this risk is considered remote.

      The Company manages its debt portfolio with interest rate swap agreements
      in U.S. dollars to achieve an overall desired position of fixed and
      floating interest rates. For the purposes of the financial statements,
      interest rate swaps specific to debt have been included. At December 31,
      2006, the Company, or subsidiaries of the Company, had entered into the
      following interest rate swap transactions involving the payment of fixed
      rates in exchange for LIBOR:

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------
      (in thousands of $)                       Inception date   Maturity date   Fixed interest rate
      ----------------------------------------------------------------------------------------------
<S>                                             <C>              <C>             <C>
      $50,000                                         Feb 2004        Feb 2009          3.49%
      $100,000                                        Feb 2004        Feb 2009          3.49%
      $50,000                                         Feb 2004        Feb 2009          3.35%
      $50,000                                         Feb 2004        Feb 2009          3.49%
      $50,000                                         Feb 2004        Feb 2009          3.35%
      $50,000                                         Feb 2004        Feb 2009          3.35%
      $50,000                                         Feb 2004        Feb 2009          3.37%
      $25,000                                         Feb 2004        Feb 2009          3.32%
      $25,000                                         Feb 2004        Feb 2009          3.32%
      $25,000                                         Feb 2004        Feb 2009          3.33%
      $25,000                                         Feb 2004        Feb 2009          3.32%
      $15,919 (reducing monthly to $10,294)           Feb 2004        Aug 2008          6.24%
      $14,849 (reducing monthly to $8,763)            Feb 2004        Aug 2008          6.24%
      $41,588 (reducing quarterly to $19,647)         Apr 2006        Nov 2018          5.64%
      $41,588 (reducing quarterly to $19,654)         Apr 2006        Mar 2019          5.65%
      $41,588 (reducing quarterly to $19,654)         Apr 2006        Apr 2019          5.65%
      $41,588 (reducing quarterly to $19,657)         Apr 2006        Apr 2019          5.65%
      $41,588 (reducing quarterly to $19,657)         Apr 2006        May 2019          5.65%
</TABLE>

      As at December 31, 2006, the notional principal amounts subject to such
      swap agreements was $738.7 million (2005: $568.3 million).

      Forward freight contracts

      The Company may enter into forward freight contracts and futures contracts
      in order to manage its exposure to the risk of movements in the spot
      market for certain trade routes and for speculative or trading purposes.
      Market risk exists to the extent that spot market fluctuations have a
      negative effect on the Company's cash flows and consolidated statements of
      operations.

      At December 31, 2006, the Company was not party to any forward freight
      contracts or futures contracts.

      Foreign currency risk

      The majority of the Company's transactions, assets and liabilities are
      denominated in U.S. dollars, the functional currency of the Company. There
      is a risk that currency fluctuations will have a negative effect on the
      value of the Company's cash flows. The Company has not entered into
      forward contracts for either transaction or translation risk, which may
      have an adverse effect on the Company's financial condition and results of
      operations.

      Fair Values

      The carrying value and estimated fair value of the Company's financial
      instruments at December 31, 2006 and 2005 are as follows:

      <TABLE>
      <CAPTION>
      --------------------------------------------------------------------------------------------
                                                 2006          2006             2005          2005
      (in thousands of $)              Carrying value    Fair value   Carrying value    Fair value
      --------------------------------------------------------------------------------------------
      <S>                              <C>               <C>          <C>               <C>
      Non-derivatives:
      Cash and cash equivalents                64,569        64,569           32,857        32,857
      Restricted cash                          12,937        12,937            1,575         1,575
      Floating rate debt                    1,466,120     1,466,120        1,336,577     1,336,577
      8.5% Senior Notes due 2013              449,080       448,799          457,080       427,370
      Derivatives:
      Interest rate swap contracts -
      amounts receivable                       17,807        17,807           19,563        19,563
      Interest rate swap contracts -
      amounts payable                           8,743         8,743            1,196         1,196
      Bond swap contract - amounts
      receivable                                2,931         2,931               --            --
      </TABLE>

      The carrying value of cash and cash equivalents, which are highly liquid,
      is a reasonable estimate of fair value.

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

      The fair value of interest rate swaps is estimated by taking into account
      the cost of entering into interest rate swaps to offset the Company's
      outstanding swaps.

      The fair value of the bond swap is estimated by taking into account the
      cost of entering into the bond swap to offset the Company's outstanding
      bond swap.

      Concentrations of risk

      There is a concentration of credit risk with respect to cash and cash
      equivalents to the extent that most of the amounts are carried with
      Skandinaviska Enskilda Banken, DnB NOR, Fortis Bank and Nordea. However,
      the Company believes this risk is remote as these banks are high credit
      quality financial institutions.

      During the years ended December 31, 2006, and 2005 one customer,
      Frontline, accounted for more than 80% of our consolidated operating
      revenues.

19.   COMMITMENTS AND CONTINGENT LIABILITIES

      Assets Pledged

      -------------------------------------------------------------
      (in thousands of $)                                      2006
      -------------------------------------------------------------
      Ship mortgages                                      2,427,060

      Guarantees

      In June 2006, the Company's wholly owned subsidiary Rig Finance entered
      into a $165 million secured term loan facility. The Company guarantees $10
      million of this debt.

      In September 2006, the Company's wholly owned subsidiary Front Shadow
      entered into a $22.7 million term loan facility. The Company guarantees
      $2.1 million of this debt.

      In February 2007, the Company's wholly owned subsidiary Rig Finance II
      Limited ("Rig Finance II") entered into a $170 million pre-and
      post-delivery secured term loan facility.

      The Company has provided a guarantee for $30.0 million of this debt until
      delivery of the rig and $20 million thereafter.

      In March 2007, three of the Company's wholly owned subsidiaries entered
      into a $120.0 million term loan facility. The Company guarantees $48.5
      million under this facility until the vessels are delivered (expected
      2008) and $30 million of the outstanding debt thereafter.

      Other Contractual Commitments

      The Company has arranged insurance for the legal liability risks for its
      shipping activities with Assuranceforeningen SKULD, Assuranceforeningen
      Gard Gjensidig and Britannia Steam Ship Insurance Association Limited, all
      mutual protection and indemnity associations. On certain of the vessels
      insured, the Company is subject to calls payable to the associations based
      on the Company's claims record in addition to the claims records of all
      other members of the associations. A contingent liability exists to the
      extent that the claims records of the members of the associations in the
      aggregate show significant deterioration, which result in additional calls
      on the members.

      In the ordinary course of the shipping business various claims and losses
      may arise from disputes with charterers, agents and other suppliers
      relating to the operations of the Company's vessels. Management believes
      that all such matters are either adequately covered by insurance or are
      not expected to have a material adverse effect on the Company's results
      from operations or financial condition.

      At December 31, 2006 the Company had contractual commitments under
      newbuilding contracts and vessel acquisition agreements totaling $362.5
      million.

20.   SUBSEQUENT EVENTS

      On January 8, 2007, the Company announced the sale of the single hull
      Suezmax tanker Front Transporter for a gross sales price of $38 million.
      The Company has agreed to pay Frontline $14.9 million for termination of
      the charter. The ship was delivered to the new owner on March 22, 2007.

      On January 12, 2007, the Company announced that it had entered into an
      agreement with SeaDrill Invest II Ltd. ("SeaDrill Invest II"), a wholly
      owned subsidiary of Seadrill to acquire the newbuilding jack-up drilling
      rig West Prospero. The purchase price was agreed at $210 million and
      expected delivery from Keppel Fels in Singapore is at the end of June
      2007. Upon delivery, the rig will be bareboat chartered back to SeaDrill
      Invest II for a period of 15 years, fully guaranteed by Seadrill. SeaDrill
      Invest II has been granted several fixed price purchase options with the
      first one being three years after the commencement of the charter for $142
      million and the last one at the end of the charter for $60 million.

      On January 12, 2007, the Company announced the appointment of Mr. Svein
      Aaser to the Board of Directors.

      On January 18, 2007, the Company announced the sale of five single hull
      Suezmax tankers: Front Comor, Front Granite, Front Target, Front Traveller
      and Front Sunda to Frontline for a gross sales price of $183.7 million.
      The Company received a net amount of $119.2 million in March 2007, after
      compensation of $64.5 million to Frontline for termination of the
      charters.

      On February 6, 2007, the Company announced the acquisition of two
      newbuilding Capesize drybulk vessels from Golden Ocean for a price of $160
      million. The vessels are expected to be delivered from Daehan Shipbuilding
      Co. Ltd. in the fourth quarter of 2008 and the first quarter of 2009. Upon
      delivery, the vessels will commence 15 year bareboat charters back to
      Golden Ocean. Golden Ocean has been granted fixed price purchase options
      for each of the vessels after five, 10 and 15 years from commencement of
      the relevant charters at $61 million, $44 million and $24 million,
      respectively.

      On February 27, 2007, the Board of Ship Finance declared a dividend of
      $0.54 per share which was paid on March 22, 2007.

      On March 15, 2007, the Company announced the re-chartering of the single
      hull VLCC Front Vanadis to an unrelated third party in the form of a
      hire-purchase agreement. The vessel will be chartered out for 3.5 years,
      with a purchase obligation by the charterer at the end of the charter
      period. The charterer paid a gross upfront payment of $12.5 million and
      the purchase obligation at the end of the charter is $3 million. In
      addition, the charterer will have quarterly purchase options during the
      charter, starting at $27.9 million, and reducing gradually over the term
      of the charter. The Company has agreed to pay a compensation payment of
      approximately $13.2 million to Frontline for the termination of the
      previous charter. Delivery to the charterer took place in May 2007.

      On March 20, 2007, the Company announced the acquisition of three
      newbuilding seismic vessels, including complete seismic equipment from
      SCAN Geophysical ASA ("SCAN") for a price of $210 million. The vessels
      will be constructed at the ABG Shipyard in India and delivery is expected
      in 2008. Upon delivery the vessels will commence 12 year bareboat charters
      to SCAN. SCAN has been granted fixed purchase options for each of the
      vessels after six, 10 and 12 years from commencement of the relevant
      charters at $20 million, $14 million and $9 million, respectively. The
      Company will finance the transaction by a senior loan facility of $120
      million and an equity contribution of $30 million. SCAN will provide a
      non-interest bearing seller's credit of $60 million.

      On May 30, 2007, the Board of Ship Finance declared a dividend of $0.55
      per share which was paid on June 21, 2007.

      On June 14, 2007, the Company announced that it had signed shipbuilding
      contracts for a total of five container vessels with scheduled delivery in
      2010. Two 2,500 TEU container vessels will be built at Jiangsu Yangzijiang
      Shipbuilding Co. Ltd., China and three 1,700 TEU container vessels will be
      built at Guangzhou Wenchong Shipyard Co. Ltd., China. The aggregate
      construction cost for the five vessels will be approximately $190 million.
      The new vessels will be marketed for medium to long-term charter
      contracts.