~~Disruptions in~~The current state of the world financial markets and ~~the resulting governmental action~~current economic conditions may result in a general reduction in the ~~United States, Europe and in other parts~~availability of ~~the world could~~loan finance, which would have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price of our common shares to decline.

~~In recent years~~Global financial markets and economic conditions have been, and continue to be, volatile. The amount of available capital from commercial lenders remains below levels seen before the ~~United States, Europe~~global financial crisis. There has been a general decline in the willingness by banks and other ~~parts~~financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the ~~world have experienced,~~shipping industry is highly dependent on the availability of credit to finance and ~~are continuing~~expand operations, it has been and may continue to ~~experience, weakened economic conditions. For example,~~be negatively affected by this decline.

Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the availability and cost of obtaining money from the credit markets ~~in these areas~~has become more difficult as many lenders have ~~experienced significant contraction, de-leveraging~~increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, ~~liquidity,~~ and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available if needed and to the ~~U.S. federal government and state governments, the European Union, and other foreign governments have implemented and are considering a broad variety~~extent required on acceptable terms. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of governmental actions and/or new regulations for the financial markets. Securities markets, futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The U.S. Securities and Exchange Commission, or the SEC, other regulators, self-regulatory organizations and exchanges may take extraordinary actions, and may effect changes in law or interpretations of existing laws.

business opportunities as they arise.

The uncertainty surrounding the future of the credit markets in the United States, Europe and the rest of the world has resulted in reduced access to credit worldwide. As of December 31, ~~2011,~~2014, we had total outstanding indebtedness of ~~$3.3~~$2.8 billion under our various credit facilities and bond loans, including our equity-accounted subsidiaries.

We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States, Europe and worldwide may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition or cash flows, and may cause the price of our common shares to decline.

The instability of the euro or the inability of countries to refinance their debts could have a material adverse effect on our revenue, profitability and financial position.

As a result of the credit crisis in Europe, ~~in particular in Greece, Italy, Ireland, Portugal and Spain,~~ the European Commission created the European Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support. In ~~March 2011,~~September 2012, the European Council ~~agreed on the need for Eurozone countries to establish~~established a permanent stability mechanism, the European Stability Mechanism, or the ESM, to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries. ~~The launch of the ESM, which is expected in July 2012, is conditioned upon its ratification by EU member states representing 90% of the capital commitments.~~ Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, and the overall stability of the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for ~~oil~~drybulk and ~~gas~~containerized cargoes, and for our services. These potential developments, or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.

IfVolatile economic conditions throughout the world ~~do not improve, it will impede~~could have an adverse impact on our ~~results of~~ operations and financial ~~condition and cash flows, and could cause the market price of our common shares to further decline.~~results.

~~Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In addition, the~~The world economy ~~is currently facing~~continues to face a number of ~~new~~ challenges, including ~~the recent~~ turmoil and hostilities in the Middle East, North Africa and other geographic areas and ~~countries. The~~continuing economic weakness in the European Union. There has historically been a strong link between development of the world economy and demand for energy, including oil and gas, and other materials and finished products transported on our vessels. An extended period of deterioration in the ~~global~~outlook for the world economy ~~has caused, and may continue to cause, a decrease in worldwide~~could reduce the overall demand for ~~certain goods~~oil and ~~thus, shipping. Continuing~~gas and for our services. We cannot predict how long the current market conditions will last. However, recent and developing economic ~~instability could~~and governmental factors, together with the concurrent decline in charter rates and vessel values for some of our asset classes, have had a ~~material adverse~~negative effect on our ~~ability~~results of operations, financial condition and cash flows, have caused the price of our common shares to ~~implement~~decline and could cause the price of our ~~business strategy.~~common shares to decline further.

AThe European Union continues to experience relatively slow growth and exhibits weak economic trends. Over the past six years, the credit markets in Europe have experienced significant contraction, de-leveraging and reduced liquidity. While credit conditions are beginning to stabilize, global financial markets have been, and continue to be, disrupted and volatile.

The continued economic slowdown in the Asia Pacific region, especially in Japan and China, may exacerbate the effect on us of the recent slowdown in the rest of the world. ~~Since~~Before the global economic financial crisis that began in 2008, ~~China's growth rate as determined by changes~~China had one of the world's fastest growing economies in ~~its~~terms of gross domestic product, or GDP, ~~has been decreasing.~~which had a significant impact on shipping demand. The growth rate of China's GDP ~~decreased to approximately 9.5%~~ for the year ended December 31, ~~2011, compared~~2014, is estimated to ~~approximately 10.3%~~be around 7.4%, down from the growth rate for the year ended December 31, ~~2010,~~2013, and ~~continues to remain~~remaining below pre-2008 levels. ~~China has imposed measures to restrain lending, which may further contribute to a slowdown in its economic growth.~~ China and other countries in the Asia Pacific region may continue to experience ~~slower~~slowed or even negative economic growth in the ~~near~~ future. ~~Moreover,~~In addition, the ~~current economic slowdown in the economies of the United States, the European Union and other Asian countries~~charters we enter into with Chinese customers, including existing charters with Chinese customers, may ~~further adversely affect economic growth~~be subject to new regulations in China which may require us to incur new or additional compliance or other administrative costs, and ~~elsewhere.~~may require us to pay new taxes or other fees to the Chinese government. Our financial condition and results of operations, ~~and ability to grow~~as well as our ~~fleet~~future prospects, would likely be impeded by a continuing or worsening economic downturn in any of these countries.

Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on our business, financial condition and results of operations.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in ~~certain~~such respects ~~such~~ as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy was a planned economy. Since 1978, increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annual and five-year ~~state~~ plans, or State Plans, are adopted by the Chinese government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output in general, the Chinese government is reducing the level of direct control that it exercises over the economy through ~~state plans~~State Plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management, and a gradual shift in emphasis to a "market economy" and enterprise reform. Limited price reforms ~~have been~~were undertaken, with the result that prices for certain commodities are principally determined by market forces. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. In 2012, China appointed new members to its Politburo Standing Committee, who replaced members of the committee who have served for periods of up to ten years, which obscures the future policy plans of the country. If the Chinese government does not continue to pursue a policy of economic reform, the level of imports to and exports from China could be adversely affected by these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, all of which could adversely affect our business, operating results and financial condition.

~~Loss of our flag state extensions of the deadlines for prohibiting the trading of our non-double hull tankers could adversely affect our operations.~~

The United States, the European Union and the International Maritime Organization, or the IMO, have all imposed limits or prohibitions on the use of non-double hull 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 2018. The Marine Environmental Protection Committee of the IMO, or MEPC, has amended the International Convention for the Prevention of Pollution from Ships to accelerate the phase out of certain categories of non-double hull tankers, including the types of vessels in our fleet, from 2015 to 2010 unless the relevant flag states extend the date. Our fleet includes two non-double hull tankers, the ~~Titan Aries~~ ~~and the~~ ~~Ticen Ocean, which we have agreed to sell, with delivery to the new owner expected in the fourth quarter of 2012 and the third quarter of 2013, respectively.~~

Although we have obtained flag state extensions to continue operating our non-double hull tankers until 2015, such flag state extensions may be revoked for any reason prior to such time. Our non-double hull tankers will be unable to trade in many markets due to the passing of the phase-out date in 2010. In addition, non-double 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 effect 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 and bilge water management. These regulations include, but are not limited to, the U.S. Oil Pollution Act of 1990, or the OPA, requirements of the U.S. Coast Guard and the U.S. Environmental Protection Agency, or EPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, the U.S. Clean Water Act, the U.S. Maritime Transportation Security Act of 2002, and regulations of the International Maritime Organization, or IMO, including the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention for the Prevention of Pollution from Ships of ~~1975,~~1973, or MARPOL, including the designation thereunder of Emission Control Areas, or ECAs, the International Convention on Civil Liability for ~~the Prevention~~Oil Pollution Damage of ~~Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974,~~1969, or CLC, and the International Convention on Load Lines of 1966.

In addition, vessel classification societies and the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, 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 can also affect the resale value or useful lives of our vessels, require reductions 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. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. For example, OPA affects all vessel owners shipping oil to, from or within the United States. Under OPA, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200 nautical mile exclusive economic zone around the United States. Similarly the ~~International Convention on Civil Liability for Oil Pollution Damage of 1969, or the~~ CLC, 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, provided they accept, at a minimum, the levels of liability established under OPA. Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for unlimited liability. Furthermore, the 2010 explosion of the drilling rig Deepwater Horizon, which is unrelated to Ship Finance, and the subsequent release of oil into the Gulf of Mexico, or other events, may result in further regulation of the shipping and offshore industries and modifications to statutory liability schemes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. An oil spill could also result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages, and could harm our reputation with current or potential charterers of our vessels. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and available cash.

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

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide has decreased ~~slightly~~ in ~~2011 for the first time in five~~recent years, ~~throughout 2008, 2009 and 2010, the frequency of~~sea piracy incidents ~~increased significantly,~~continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Gulf of Guinea, with drybulk vessels and tankers particularly vulnerable to such attacks. If these piracy attacks ~~result~~occur in regions in which our vessels are deployed ~~being~~that are characterized by insurers as "war risk" zones or by ~~insurers, as~~ the ~~Gulf of Aden temporarily was in May 2008, or~~ Joint War Committee as "war and strikes" listed areas, premiums payable for ~~such~~insurance coverage could increase significantly and such ~~insurance~~ coverage may be more difficult to obtain. In addition, crew costs, including ~~those due~~costs which may be incurred to ~~employing~~the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, ~~any~~ detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows, financial condition and ~~results~~ability to pay dividends and may result in loss of ~~operations.~~revenues, increased costs and decreased cashflows to our customers, which could impair their ability to make payments to us under our charters.

Our vessels may call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, which could adversely affect our ~~business.~~reputation and the market for our common shares.

We have not entered into, nor do we have any future plans to enter into, any contracts, agreements or other arrangements with countries identified by the U.S. government as state sponsors of terrorism, such as Cuba, Iran, Sudan and Syria. From time to time ~~however,~~ on charterers' instructions, our vessels may call on ports located in ~~or our drilling units may be located offshore of,~~ countries subject to sanctions and embargoes imposed by the U.S. government and countries identified by the U.S. government as state sponsors of ~~terrorism. We do not consider~~terrorism, such as Cuba, Iran, Sudan and Syria, and in the ~~revenues received from these charters to be material to~~past certain of our ~~results of operations.~~vessels have made port calls in Iran. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. InWith effect from July 1, 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to companies such as ours, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, on May 1, 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.

On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the "Joint Plan of Action", or JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is only used for peaceful purposes, the U.S. and EU would voluntarily suspend certain sanctions for a period of six months. On January 20, 2014, the U.S. and EU indicated that they would begin implementing the temporary relief measures provided for under the JPOA. These measures include, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals and automotive industries from January 20, 2014, to July 20, 2014. The JPOA has been extended twice and is set to expire on June 30, 2015.

Certain of our charterers or other parties that we have entered into contracts with may be affiliated with persons or entities that are subject to sanctions imposed by the U.S. administration, the European Union and/or other international bodies as a result of the annexation of Crimea by Russia in March 2014. If we determine that such sanctions require us to terminate existing charters or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm.

Although we believe that we ~~are~~have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other ~~penalties~~sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in ~~our company. Additionally, some~~us. In addition, certain institutional investors may ~~decide to divest their interest,~~have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our ~~company simply because we do business with companies that do business in sanctioned countries.~~common stock may adversely affect the price at which our common stock trades. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our ~~company~~common stock may ~~also~~ be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

In the highly competitive international seaborne transportation industry, we may not be able to compete for charters with new entrants or established companies with greater resources, and as a result we may be unable to employ our vessels profitably.

We employ our vessels in a highly competitive market that is capital intensive and highly fragmented, and competition arises primarily from other vessel owners. Competition for seaborne transportation of goods and products is intense and depends on charter ~~rate,~~rates and the location, size, age, condition and ~~the~~ acceptability of the vessel and its operators to charterers. Due in part to the highly fragmented market, competitors with greater resources could operate larger fleets than we may operate and thus be able to offer lower charter rates and higher quality vessels than we are able to offer. If this were to occur, we may be unable to retain or attract new charterers on attractive terms or at all, which may have a material adverse effect on our business, financial condition and results of operations.

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

The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels, conversion of vessels to other uses, such as floating production and storage facilities, and loss of tonnage as a result of casualties. Currently, there is significant newbuilding activity with respect to virtually all sizes and classes of vessels. An over-supply of vessel capacity, combined with a decline in the demand for such vessels, may result in a further reduction of charter hire rates. If such a reduction continues in the future, upon the expiration or termination of our vessels' current charters, we may only be able to re-charter our vessels at reduced or unprofitable rates or we may not be able to charter our vessels at all, which would have a material adverse effect on our revenues and profitability.

Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and disrupt our business.

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

For example, since the events of September 11, 2001, U.S. authorities have significantly increased the levels of inspection for 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 possible that changes to inspection procedures could impose additional financial and legal obligations on us. Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.

The offshore drilling sector depends on the level of activity in the offshore oil and gas industry, which is significantly affected by, among other things, volatile oil and gas prices, and may be materially and adversely affected by a decline in the offshore oil and gas industry.

The offshore contract drilling industry is cyclical and volatile, and depends on the level of activity in oil and gas exploration and development and production in offshore areas worldwide. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments affect our customers' drilling campaigns. Oil and gas prices, and market expectations of potential changes in these prices, also significantly affect the level of activity and demand for drilling units.

Any decrease in exploration, development or production expenditures by oil and gas companies could materially and adversely affect the business of the charterers of our drilling units, and their ability to perform under their existing charters with us. 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. 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:

worldwide production and demand for oil and gas;

the cost of exploring for, developing, producing and delivering oil and gas;

expectations regarding future energy prices;

advances in exploration, development and production technology;

the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels and pricing;

the level of production in non-OPEC countries;

government regulations;

~~local and international political, economic and weather conditions;~~

local and international political, economic and weather conditions;

domestic and foreign tax policies;

~~domestic and foreign tax policies;~~

the development and implementation of policies to increase the use of renewable energy;

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

~~the development and implementation of policies to increase the use of renewable energy;~~

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

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

~~Declines~~Recent declines in oil and gas prices ~~for an extended period, or market expectations of potential decreases in these prices, could~~have negatively ~~affect~~affected the offshore drilling ~~sector. Sustained periods of low oil prices typically result~~sector and resulted in reduced exploration and ~~drilling, because oil and gas companies' capital expenditure budgets are subject to their cash flows and are therefore sensitive to changes in energy prices.~~drilling. These ~~changes~~reductions in commodity prices ~~can~~ have ~~a dramatic effect on~~reduced the demand for drilling ~~units,~~units. Continued weakness in oil and ~~periods of low demand can cause~~gas prices may result in an excess supply of drilling units and intensify competition in the industry, which ~~often results~~may result in drilling units, particularly older and lower specification drilling units, being idle for long periods of time. We cannot predict the future level of demand for drilling units or future conditions of the oil and gas industry.

In addition to oil and gas prices, the offshore drilling industry is influenced by additional factors, including:

the availability of competing offshore drilling units;

the level of costs for associated offshore oilfield and construction services;

oil and gas transportation costs;

the discovery of new oil and gas reserves;

the cost of non-conventional hydrocarbons, such as the exploitation of oil sands; and

regulatory restrictions on offshore drilling.

An over-supply of drilling units may lead to a reduction in day-rates and therefore may adversely affect the ability of certain of our rig charterers to make charterhire payments to us.

We have chartered ~~three~~two of our drilling units to ~~three~~two subsidiaries of Seadrill Limited, or Seadrill, namely Seadrill Deepwater Charterer Ltd., or Seadrill Deepwater, and Seadrill Offshore AS, or Seadrill Offshore, ~~and Seadrill Polaris Ltd., or Seadrill Polaris,~~ which we refer to collectively as the ~~"Seadrill Charterers".~~Seadrill Charterers. In addition, we have chartered one drilling unit to Apexindo Offshore Pte. Ltd., or ~~Apexindo.~~Apexindo, and one drilling unit to North Atlantic Linus Charterer Ltd., or North Atlantic Linus, which is a subsidiary of North Atlantic Drilling Limited, or NADL. The Seadrill Charterers, Apexindo and ~~Apexindo~~North Atlantic Linus are collectively referred to as the ~~"Rig Charterers".~~Rig Charterers. Following the 2008 peak in the oil price of around $140 per barrel, there was a period of high utilization and high dayrates, which prompted industry participants to increase the supply of drilling units by ordering the construction of new drilling units. According to industry sources, the worldwide fleet of drilling rigs increased from ~~622~~an average of 605 units ~~at the end of~~in 2008 to ~~727~~823 units ~~at the end of 2011,~~in 2014, and significant further deliveries of new units are projected. ~~A relatively large number of the~~The recent reduction in oil prices has resulted in reduced demand for drilling units, ~~currently under construction have not been contracted for future work,~~ which may intensify price competition as scheduled delivery dates occur and lead to a reduction in day-rates as the active fleet grows. In addition, the new construction of high-specification rigs, as well as changes in the Rig Charterers' competitors' drilling rig fleets, could cause our drilling units to become less competitive. Lower utilization and dayrates could adversely affect the Rig Charterers' ability to secure drilling contracts and, therefore, their ability to make charterhire payments to us, and may cause them to terminate or renegotiate their charter agreements to our detriment. In addition, the new construction of high-specification units, as well as changes in the Rig Charterers' competitors' drilling rig fleets, could cause our drilling units to become less competitive.

Consolidation of suppliers may limit the ability of the Rig Charterers to obtain supplies and services for their offshore drilling operations at an acceptable cost, on schedule or at all, which may have a material adverse effect on their ability to make charterhire payments to us.

The Rig Charterers may rely on certain third parties to provide supplies and services necessary for their offshore drilling operations, including but not limited to drilling equipment suppliers, catering and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. The Rig Charterers may not be able to obtain supplies and services at an acceptable cost, at the times they need them or at all. Such consolidation, combined with a high volume of drilling units under construction, may result in a shortage of supplies and services thereby potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse affect on the Rig Charterers' results of operations and financial condition, and may adversely affect their ability to make charterhire payments to us.

Governmental laws and regulations, including environmental laws and regulations, may add to the costs of the Rig Charterers or limit their drilling activity, and may adversely affect their ability to make charterhire payments to us.

The Rig Charterers' business in the offshore drilling industry is affected by public policy and laws and regulations relating to the energy industry and the environment in the geographic areas where they operate.

The offshore drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and accordingly the Rig Charterers are directly affected by the adoption of laws and regulations that for economic, environmental or other policy reasons curtail exploration and development drilling for oil and gas. The Rig Charterers may be required to make significant capital expenditures to comply with governmental laws and regulations. It is also possible that these laws and regulations may in the future add significantly to the Rig Charterers' operating costs or significantly limit drilling activity. Governments in some countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. In recent years, increased concern has been raised over protection of the environment. Offshore drilling in certain areas has been opposed by environmental groups, and has in certain cases been restricted.

In certain jurisdictions there are or may be imposed restrictions or limitations on the operation of foreign flag vessels and rigs, and these restrictions may prevent us or our charterers from operating our assets as intended. We ~~can not~~cannot guarantee that we or our charterers will be able to accommodate such restrictions or limitations, nor that we or our charterers can relocate the assets to other jurisdictions where such restrictions or limitations do not apply. A violation of such restrictions, or expropriation in particular, could result in the total loss of our investments and/or financial loss for our charterers, and we ~~can not~~cannot guarantee that we have sufficient insurance coverage to compensate for such loss. This may have a material adverse effect on our business and financial results.

To the extent that new laws are enacted or other governmental actions are taken that prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry in general or the offshore drilling industry in particular, the Rig Charterers' business or prospects could be materially adversely affected. The operation of our drilling units will require certain governmental approvals, the number and prerequisites of which cannot be determined until the Rig Charterers identify the jurisdictions in which they will operate upon securing contracts for the drilling units. Depending on the jurisdiction, these governmental approvals may involve public hearings and costly undertakings on the part of the Rig Charterers. The Rig Charterers may not obtain such approvals, or such approvals may not be obtained in a timely manner. If the Rig Charterers fail to secure the necessary approvals or permits in a timely manner, their customers may have the right to terminate or seek to renegotiate their drilling services contracts to the Rig Charterers' detriment. The amendment or modification of existing laws and regulations, or the adoption of new laws and regulations curtailing or further regulating exploratory or development drilling and production of oil and gas, could have a material adverse effect on the Rig Charterers' business, operating results or financial condition. Future earnings of the Rig Charterers may be negatively affected by compliance with any such new legislation or regulations. In addition, the Rig Charterers may become subject to additional laws and regulations as a result of future rig operations or repositioning. These factors may adversely affect the ability of the Rig Charterers to make charterhire payments to us.

Charter hire rates for dry bulk vessels may decrease in the future, which may adversely affect our earnings.

The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and charter hire rates for dry bulk vessels have declined significantly from historically high levels. Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried by water internationally. We cannot assure you that we will be able to successfully charter our vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations. The supply of and demand for shipping capacity strongly influence charter rates. Because the factors affecting the supply and demand for vessels are outside our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.

Factors that influence demand for vessel capacity include:

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

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

the location of regional and global exploration, production and manufacturing facilities;

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

the globalization of production and manufacturing;

global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes and strikes;

developments in international trade;

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

environmental and other regulatory developments;

currency exchange rates; and

the weather.

Factors that influence the supply of vessel capacity include:

number of newbuilding deliveries;

port and canal congestion;

scrapping of older vessels;

vessel casualties; and

number of vessels that are out of service.

Demand for our dry bulk vessels is dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo transported by sea. Given the large number of new dry bulk carriers currently on order with shipyards, the capacity of the global dry bulk carrier fleet seems likely to increase and economic growth may not resume in areas that have experienced a recession or continue in other areas. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.

The continued downturn in the dry bulk carrier charter market has had and may continue to have an adverse effect on our earnings.

The abrupt and dramatic downturn in the dry bulk charter market, from which we derive some of our revenues, has severely affected the dry bulk shipping industry. The Baltic Dry Index, an index published by The Baltic Exchange of shipping rates for 20 key dry bulk routes, fell 94% from a peak of 11,793 in May 2008 to a low of 663 in December 2008 and has remained volatile since, with a low of 698 and a high of 2,337 in 2013 and a low of 723 and a high of 2,113 in 2014. It has remained low since the beginning of 2015, dropping to 509 in February 2015.

This downturn in dry bulk charter rates and their volatility has had a number of adverse consequences for dry bulk shipping, including, among other things:

an absence of financing for vessels;

no active second-hand market for the sale of vessels;

extremely low charter rates, particularly for vessels employed in the spot market;

widespread loan covenant defaults in the dry bulk shipping industry; and

declaration of bankruptcy by some operators and ship owners as well as charterers.

The occurrence of one or more of these events could adversely affect our business, results of operations, cash flows, financial condition and ability to pay cash distributions. There can be no assurance that the dry bulk charter market will recover and the market could continue to decline further.

Dry bulk carrier values have also declined both as a result of a slowdown in the availability of global credit and the significant deterioration in charter rates. Charter rates and vessel values have been affected in part by the lack of availability of credit to finance both vessel purchases and purchases of commodities carried by sea, resulting in a decline in cargo shipments, and the excess supply of iron ore in China, which resulted in falling iron ore prices and increased stockpiles in Chinese ports. There can be no assurance as to how long spot charter rates and vessel values will remain at their currently low levels. Charter rates may remain at low levels for some time, which may adversely affect our results and financial condition and our ability to pay dividends in the future.

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

~~Acts of terrorism and political and social unrest~~

World events could adversely affect our results of operations and financial condition.

~~Political~~Continuing conflicts and social unrest and terrorist attacks, such as those in New York on September 11, 2001, in London on July 7, 2005, and in Mumbai on November 26, 2008, and the continuing world-wide response to these attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertaintyrecent developments in the ~~world's financial markets~~Middle East and ~~may affect our business, operating results and financial condition. Continuing conflicts in~~ North Africa, ~~and the Middle East~~ and the presence of United States and other armed forces in Afghanistan, ~~and various other regions,~~ may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain ~~additional~~ financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Insurance premiums could increase and coverage may be unavailable in the future. U.S. government regulations may effectively preclude us from actively engaging in business activities in certain countries, and such regulations could be amended to cover countries where we currently operate or where we may wish to operate in the future. Any of these occurrences, or the perception that our vessels are potential terrorist targets, could have a material adverse impact on our ~~operating~~business, financial condition, results ~~revenues~~of operations and ~~costs.~~ability to pay dividends.

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, due to events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy, political circumstances and hostilities in foreign countries, labor strikes and boycotts, changes in tax rates or policies, and governmental 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 the agreements with our vessel managers, we procure insurance for most of 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 vessel 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 one or more of 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 one or more of our vessels 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 cash flow of the charterer and/or the Company 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 one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment could be materially less than the charterhire that would have been payable otherwise. In addition, we would bear all risk of loss or damage to a vessel under requisition for hire. Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of dividends paid, if any, to our shareholders.

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 are typically 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 prohibit their operation in certain geographic regions. We cannot predict what alterations or modifications our vessels may be required to undergo as a result of requirements that may be promulgated 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 are 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 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

Changes in our dividend policy could adversely affect holders of our common shares.

Any dividend that we declare is at the discretion of our Board of Directors. We cannot assure you that our dividend will not be reduced or eliminated in the future. Our profitability and corresponding ability to pay dividends is substantially affected by amounts we receive through ~~charter hire~~charter-hire and profit sharing payments from our charterers. Our entitlement to profit sharing payments, if any, is based on the financial performance of our vessels which is outside of our control. If our charter hire and profit sharing payments decrease substantially, we may not be able to continue to pay dividends at present levels, or at all. We are also subject to contractual limitations on our ability to pay dividends pursuant to certain debt agreements, and we may agree to additional limitations in the future. Additional factors that could affect our ability to pay dividends include statutory and contractual limitations on the ability of our subsidiaries to pay dividends to us, including under current or future debt arrangements.

We depend on our charterers, ~~and principally~~including the Frontline Charterers, ~~and~~ the Seadrill Charterers and North Atlantic Linus, which are companies affiliated with us, for our operating cash flows and for our ability to pay dividends to our ~~shareholders.~~shareholders and repay our outstanding borrowings.

Most of the tanker vessels ~~and oil/bulk/ore carriers, or OBOs,~~ in our fleet are chartered to subsidiaries of Frontline ~~Ltd,~~Ltd., or Frontline, namely Frontline Shipping Limited ~~Frontline Shipping II Limited~~ and Frontline Shipping ~~III~~II Limited, which we refer to collectively as the Frontline Charterers. In addition, we have chartered ~~three~~two of our drilling units to the Seadrill ~~Charterers.~~Charterers, and one drilling unit to North Atlantic Linus. Our other vessels that have charters attached to them are chartered to other customers under short, medium ~~to long-term~~or long term time and bareboat ~~charters, except two, which are on short-term time charters until May and June 2012.~~charters.

The ~~charter hire~~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.

In December 2011, as a result of adverse conditions in the tanker market, Frontline completed a restructuring plan which included the transfer of certain of its assets and substantially all of its bank debt to a new company, Frontline 2012 Ltd. On December 30, 2011, our charter agreements with the Frontline Charterers, which ~~all~~ remain wholly-owned subsidiaries of Frontline, were amended and we agreed to temporarily reduce the charter rates ~~payable~~receivable on our, at the time, 28 double-hull tankers and oil/bulk/ore carriers, or OBOs, by $6,500 per day per vessel from 2012 through ~~2015. We~~2015, subject to cash sweep arrangements described in the immediately following risk factor. In terms of the amendments, we received compensation payments from Frontline in the amount of $106 million in ~~cash, including the release of $56 million restricted cash previously serving as security for their charter payments to us.~~cash. Frontline continues to guarantee the payment of charterhire with respect to the Frontline ~~Shipping Limited,~~Charterers. The amendments to the charter agreements were necessitated by an extended period of substantial weakness in the tanker market. Frontline recently stated in its Annual Report on Form 20-F that in the fourth quarter of 2014 and the first quarter of 2015, it has reduced the outstanding balance on its $225 million convertible bond which matures in April 2015 from $190.0 million as at September 30, 2014, to $93.4 million through bond buybacks and debt/equity swaps. Frontline further stated that it believes that it will be able to repay all of the outstanding borrowings under the convertible bonds when they are due in April 2015, based on existing cash resources, cash expected to be generated from operations and monetizing or borrowing against its investment in Frontline ~~Shipping, and Frontline Shipping II Limited, or Frontline Shipping II. The two vessels chartered to Frontline Shipping III Limited, or Frontline Shipping III, are non-double hull vessels on which~~2012 Ltd. Nonetheless, it remains possible that the ~~charters may be terminated at the option~~market situation might force a restructuring of Frontline, ~~Shipping III on giving 30 days notice.~~including further modifications of charter lease agreements.

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 they may be unable to make charterhire payments to us without support from Frontline. The performance under the charters with the Seadrill Charterers is guaranteed by Seadrill. The performance under the charter with North Atlantic Linus was originally guaranteed by NADL, but following an amendment to the charter in February 2015, Seadrill has replaced NADL as guarantor under the charter. If the Frontline Charterers, the Seadrill Charterers, North Atlantic Linus 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~~dividends to our ~~shareholders.~~shareholders and to repay our outstanding borrowings.

The amount of the cash sweep or profit sharing payment we receive under our charters with the Frontline Charterers and other 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 additional cash sweep and profit sharing payments when the Frontline Charterers' earnings from deploying our vessels exceed certain levels. The exception to this is our non-double hull tanker vessels, which have been excluded from the annual profit sharing payment calculation after reaching their anniversary dates in 2010, linked to the IMO phase-out regulations for non-double hull tankers. 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, and the amount of future cash sweep and profit sharing payments that we receive, if any, will be primarily dependent on the strength of the spot market.

Prior to December 31, 2011, the Frontline Charterers paid ~~the Company~~us a profit sharing rate of 20% of their earnings above average threshold charter rates on a time-charter equivalent basis from their use of ~~the Company's~~our fleet each fiscal year. ~~Starting on January 1, 2012, the~~The amendments to the charter agreements with the Frontline Charterers described in the preceding risk factor increased the profit sharing percentage to 25% for earnings above ~~those~~the threshold ~~levels. Additionally, the~~levels, effective as of January 1, 2012. The amendments ~~provide that during the four year period of the~~also provided for a temporary reduction in charter rates for a four year period. During that period, the Frontline Charterers ~~will~~are obligated to pay ~~the Company~~us 100% of any earnings on a time-charter equivalent basis above the temporarily reduced time charter rates, subject to a maximum of $6,500 per ~~day. Under the terms of the amendments~~day, which we refer to ~~the charter agreements,~~as cash sweep amounts. As described above, we received a compensation payment of $106 million, of which $50 million ~~represents~~represented a non-refundable advance relating to the 25% profit sharing agreement. We earned $52 million of cash sweep revenue for 2012 and $33 million for 2014, but no cash sweep revenue was receivable for 2013. There was no accumulated 25% profit share for 2012, 2013 or 2014, and $50 million in 25% profit share will need to accumulate before we recognize 25% profit share revenues in our consolidated accounts.

We may also enter into agreements which include profit sharing provisions with other charterers. At present we have five drybulk carriers chartered to United Freight Carriers, or UFC, which is a joint venture approximately 50% owned by Golden Ocean Group Limited, or Golden Ocean, which include profit sharing provisions in the charter agreements. We earned $1.1 million in profit sharing revenue on these vessels in 2014 and $0.8 million in 2013.

We cannot assure you that we will receive any profit sharing payments, including cash sweep payments, for any periods in the ~~future. Furthermore,~~future, which may have an adverse affect on our ~~future quarterly dividend may depend on us receiving profit sharing payments or require that we continue to expand~~results and financial condition and 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 continueability to pay ~~quarterly dividends.~~

dividends in the future.

The charter-free market values of our vessels and drilling units may decrease, which could limit the amount of funds that we can borrow or trigger certain financial covenants under our current or future credit facilities and we may incur a loss if we sell vessels or drilling units following a decline in their charter-free market value. This could affect future dividend payments.

During the period a vessel or drilling unit is subject to a charter, we will not be permitted to sell it to take advantage of increases in vessel or drilling unit values without the charterers' agreement. Conversely, 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~~charter-free market value of our vessels would also be depressed.

The ~~fair~~charter-free market values of our vessels ~~and drilling units~~ have ~~generally~~ experienced high ~~volatility. According to shipbrokers, the market prices for secondhand drybulk carriers, for example, have decreased sharply from their~~volatility in recent ~~historically high levels.~~years.

The ~~fair~~charter-free market value of our vessels and drilling units may increase and decrease depending on a number of factors including, but not limited to, the prevailing level of charter rates and dayrates, general economic and market conditions affecting the international shipping and offshore drilling industries, types, sizes and ages of vessels and drilling units, supply and demand for vessels and drilling units, availability of or developments in other modes of transportation, competition from other shipping companies, cost of newbuildings, governmental or other regulations and technological advances.

In addition, as vessels and drilling units grow older, they generally decline in value. If the ~~fair~~charter-free market ~~value~~values of our vessels and drilling units ~~declines,~~decline, we may not be in compliance with certain provisions of our credit facilities and we may not be able to refinance our debt, obtain additional financing or make distributions to our shareholders. Additionally, if we sell one or more of our vessels or drilling units at a time when vessel and drilling unit prices have fallen and before we have recorded an impairment adjustment to our consolidated financial statements, the sale price may be less than the vessel's or drilling unit's carrying value on our consolidated financial statements, resulting in a loss and a reduction in earnings. Furthermore, if vessel and drilling unit values fall significantly, we may have to record an impairment adjustment in our financial statements, which could adversely affect our financial results and condition.

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

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

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 and offshore markets that affects their ability to operate the vessels and rigs 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:

global and regional economic and political conditions;

~~global and regional economic and political conditions;~~

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

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

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

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

developments in international trade;

~~developments in international trade;~~

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

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

environmental concerns and regulations;

~~environmental concerns and regulations;~~

weather;

~~weather;~~

the number of newbuilding deliveries;

~~the number of newbuilding deliveries;~~

the improved fuel efficiency of newer vessels;

~~the phase-out of non-double hull tankers from certain markets pursuant to national~~the scrapping rate of older vessels; and ~~international laws and regulations;~~

~~the scrapping rate of older vessels; and~~

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.

Our principal shareholders Hemen Holding Ltd. and Farahead Investment Inc., which we refer to jointly as Hemen, are indirectly controlled by trusts established by Mr. John Fredriksen for the benefit of his immediate family. Hemen, and companies associated with Hemen, also ~~has~~have significant shareholdings in Frontline, Seadrill, Golden Ocean ~~Group Limited, or Golden Ocean,~~ and Deep Sea Supply ~~Plc, or Deep Sea,~~Plc., which are all our customers and/or suppliers. In addition, North Atlantic Linus, which is one of our customers, is a wholly-owned subsidiary of NADL, itself a subsidiary of Seadrill. Currently, one of our directors, Kate Blankenship, is also a director of Frontline, Golden Ocean, ~~and~~ Seadrill and NADL, another of our directors, Paul Leand, is also a director of Seadrill and NADL, another of our directors, Cecilie A. Fredriksen, the daughter of Mr. John Fredriksen, is also a director of ~~Frontline~~NADL, another of our directors, Hans Petter Aas, is also a director of Deep Sea Supply Plc. and another of our directors, Harald Thorstein, is also a director of Golden ~~Ocean.~~Ocean, Deep Sea Supply Plc. and NADL. These ~~two~~five 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 any ownership they may have in common shares of Frontline, Golden Ocean, Deep Sea Supply Plc., Seadrill or ~~Seadrill,~~NADL, they may have conflicts of interest when faced with decisions that could have different implications for Frontline, Golden Ocean, Deep Sea Supply Plc., Seadrill or ~~Seadrill~~NADL 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, charter ancillary agreements and the other contractual agreements we have with companies affiliated with Hemen were made in the context of an affiliated relationship. Although every effort was made to ensure that such agreements were made on an arm's-length basis, 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 cash sweep and profit sharing payments to the extent that the average daily time-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 cash sweep and profit sharing ~~calculation,~~calculations, 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 cash sweep payments, 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, Deep Sea Supply Plc., the Seadrill Charterers and Seadrill, North Atlantic Linus and NADL, or any of our other customers under the charters, or any of the other agreements to which we are a party. 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 U.S. tax authorities could treat us as a "passive foreign investment ~~company,"~~company", which would have adverse U.S. federal income tax consequences to U.S. shareholders.

A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for U.S. 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", but income from bareboat charters does constitute "passive income."

U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

Under these rules, if our income from our time charters is considered to be passive rental income, rather than income from the performance of services, we will be considered to be a PFIC. We believe that it is more likely than not that our income from time charters will not be treated as passive rental income for purposes of determining whether we are a PFIC. Correspondingly, we believe that the assets that we own and operate in the connection with the production of such income do not constitute passive assets for purposes of determining whether we are a PFIC. This position is principally based upon the positions that (1) our time charter income will constitute services income, rather than rental income, and (2) Frontline Management, which provides services to most of our time-chartered vessels, will be respected as a separate entity from the Frontline Charterers, with which it is affiliated. We do not believe that we will be treated as a PFIC for our 2014 taxable year. Nevertheless, for the ~~2012~~2015 taxable year and future taxable years, depending upon the relative amounts of income we derive from our various assets as well as their relative fair market values, we may be treated as a PFIC.

We note that there is no direct legal authority under the PFIC rules addressing our current and expected method of operation. Accordingly, no assurance can be given that the Internal Revenue Service, or the 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. Furthermore, even if we would not be a PFIC under the foregoing tests, 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 U.S. shareholders will face adverse U.S. federal income tax consequences. For example, U.S. non-corporate shareholders would not be eligible for the ~~15% maximum tax~~preferential rate on dividends that we pay.

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

Under the U.S. Internal Revenue Code of 1986 as amended, 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% U.S. 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 promulgated thereunder.

We believe that we and each of our subsidiaries qualify for this statutory tax exemption and we will take this position for U.S. 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 U.S. federal income tax on our U.S. source shipping income. For example, Hemen owned approximately ~~43%~~36% of our common shares as of ~~December 31, 2011.~~April 9, 2015. There is therefore a risk that we could no longer qualify for exemption under Section 883 of the Code for a particular taxable year if other shareholders with a five percent or greater interest in our common shares were, in combination with Hemen, to own 50% or more of our outstanding common shares 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 2% U.S. federal income tax on the gross shipping income these companies derive during the year that is attributable to the transport of 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.

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. The terms of our current charters for our tanker vessels to the Frontline Charterers ~~excluding the two non-double hull tankers which are the subject of sales agreements,~~ end between ~~2015~~2018 and 2027.

Apart from two container vessels and five ~~containerships, for which charters are being sought, and two containerships on~~drybulk carriers trading under short-term charters, ~~due to expire in May 2012 and June 2012, respectively,~~ the vessels in our fleet that have charters attached to them are generally contracted to expire between ~~two~~one and 1514 years from now. However, we have granted some of our charterers purchase or early termination options that, if exercised, may effectively terminate our charters with these customers at an earlier date. 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 an agreement may be terminated if the relevant charter is terminated.

We currently ~~own seven containerships~~operate six container vessels, two car carriers and ~~ten~~14 drybulk carriers ~~which operate, or are expected to be operated,~~ under time charters and ~~have entered into agreements to acquire a further four containerships and~~ two ~~drybulk carriers which are scheduled to operate under time charters.~~Suezmax tankers in the spot market. The agreements for the technical and operational management of these vessels are not fixed price agreements, and we cannot assure you that any further vessels which we may acquire in the future will be operated under fixed price management agreements.

Therefore, to the extent that we acquire additional vessels, our cash flow could be more volatile in the future 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 they are delivered with significant defects, our earnings and financial condition could suffer.~~

As at April 17, 2012, we have entered into agreements to acquire two additional drybulk carriers and four additional containerships. 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, financing and sales 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 charter-free market values of our vessels are 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 charter-free market value at the time the option may be 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.

A change in interest rates could materially and adversely affect our financial performance.

As of December 31, ~~2011,~~2014, the Company and its consolidated subsidiaries had approximately ~~$1.5~~$1.3 billion in floating rate debt outstanding under our credit facilities, and a further ~~$1.4~~$1.0 billion in floating rate debt held by our unconsolidated wholly-owned subsidiaries accounted for under the equity method. 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 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, ~~2011,~~2014, the Company, ~~and~~ its consolidated subsidiaries and its wholly-owned subsidiaries accounted for under the equity method have entered into interest rate swaps towhich fix the interest on ~~$1.1~~$1.3 billion of our outstanding ~~indebtedness, and we have also entered into interest rate swaps to fix the interest on $0.9 billion of the outstanding indebtedness of our equity-accounted subsidiaries.~~indebtedness.

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. Our maximum exposure to interest rate fluctuations on our outstanding debt at December 31, ~~2011,~~2014, was approximately ~~$883 million,~~$1.0 billion, including our equity-accounted subsidiaries. A one percentage change in interest rates would at most increase or decrease interest expense by approximately $9$10 million per year as of December 31, ~~2011.~~2014. 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 a deemed outstanding debt related to the assets on charter. At December 31, ~~2011, $1.5~~2014, $1.1 billion of our floating rate debt was subject to such interest adjustment clauses, including our equity-accounted subsidiaries. Of this amount, a total of ~~$1.1~~$0.2 billion was subject to interest rate swaps and the balance of ~~$421 million~~$0.9 billion remained on a floating rate ~~basis.~~basis, effectively reducing our exposure to floating rate debt to $86 million.

The interest rate swaps that have been entered into by the Company and its subsidiaries are derivative financial instruments that effectively translate floating rate debt into fixed rate debt. US GAAP requires that these derivatives be valued at current market prices in our financial statements, with increases or decreases in valuations reflected in results of operations or, if the instrument is designated as a hedge, in other comprehensive income. Changes in interest rates give rise to changes in the valuations of interest rate swaps and could adversely affect results of operations and other comprehensive income.

We may have difficulty managing our planned growth properly.

Since our original acquisitions from Frontline, we have expanded and diversified our fleet, and we are performing certain administrative services through our wholly-owned subsidiaries Ship Finance Management AS and Ship Finance Management (Bermuda) Ltd.

We intend to continue to expand our fleet. Our future growth will primarily depend on our ability to locate and acquire suitable vessels and drilling units, identify and consummate acquisitions or joint ventures, obtain required financing, integrate any acquired vessels and drilling units with our existing operations, enhance our customer base, and manage our expansion.

The growth in the size and diversity of our fleet will continue to impose additional responsibilities on our management, and may present numerous risks, such as undisclosed liabilities and obligations, difficulty in recruiting additional qualified personnel and managing relationships with customers and suppliers, and integrating newly acquired operations into existing infrastructures. We cannot assure you 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 ~~8.5% senior unsecured notes issued in December 2003 and~~3.75% Senior Unsecured Convertible Notes due ~~in 2013,~~2016, our ~~convertible unsecured senior bonds~~Norwegian kroner ("NOK")600 million Senior Unsecured Bonds due 2017, our 3.25% Senior Unsecured Convertible Notes due 2018 and our ~~senior unsecured bonds.~~NOK900 million Senior Unsecured Bonds due 2019. 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,~~convertible notes, bonds or loan facilities and to acquire additional vessels in the future. We cannot assure you that we will be able to do so on terms 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 indentures for our ~~Senior Notes~~convertible notes and bonds subject us to limitations on our business and future financing activities, including:

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

limitations on incurrence of liens;

~~limitations on incurrence of liens;~~

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

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

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:

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 100% to 140%) of the principal amount outstanding under the loan facility;

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

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

maintain positive working capital on a consolidated basis; and

~~maintain positive working capital on a consolidated basis; and~~

maintain a ratio of total liabilities to adjusted total assets of less than 0.80.

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 interests.

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.

We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.

We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.

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 drilling units, 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.

The market price of our common shares may be unpredictable and volatile.

The market price of our common shares has been volatile. Since January 1, ~~2011,~~2014, the closing market price of our common shares has ranged from a high of ~~$22.43~~$19.82 on ~~January 13, 2011,~~August 28, 2014, to a low of ~~$8.66~~$13.11 on December ~~19, 2011.~~11, 2014. The market price of our common shares may continue to fluctuate due to factors such as actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry, any reductions in the payment of our dividends or changes in our dividend policy, mergers and strategic alliances in the shipping industry, market conditions in the shipping industry, changes in government regulation, shortfalls in our operating results from levels forecast by securities analysts, announcements concerning us or our competitors and the general state of the securities market. The shipping industry has been highly unpredictable and volatile. The market for common shares in this industry may be equally volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares you may have purchased at a price greater than or equal to its original purchase price.

Future sales of our common shares could cause the market price of our common shares to decline.

The market price of our common shares could decline due to sales of a large number of our shares in the market or the perception that such sales could occur. This could depress the market price of our common shares and make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate, or at all.

Because we are a foreign corporation, you may not have the same rights as a shareholder in a U.S. 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 jurisdictions in the United States. 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 that may be different from yours.

As at April ~~17, 2012,~~9, 2015, Hemen owned approximately ~~43%~~36% 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, and companies associated with Hemen, also currently beneficially ~~owns~~own substantial stakes in Frontline, Golden Ocean, Seadrill (and indirectly its subsidiary NADL) and Deep ~~Sea.~~Sea Supply Plc. The interests of Hemen may be different from your interests.


ITEM 4.	INFORMATION ON THE COMPANY

A.	A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Company

We are Ship Finance International Limited, a Bermuda-based company incorporated in Bermuda on October 10, 2003, as a Bermuda exempted company under the Bermuda Companies Law of 1981 (Company No. EC-34296). We are engaged primarily in the ownership and operation of vessels and offshore related assets, and also involved in the charter, purchase and sale of assets. 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, partnerships and branches located in Bermuda, Cyprus, Malta, Liberia, Norway, ~~the United States of America,~~ Singapore, the United Kingdom and the Marshall Islands.

We are an international ship owning and chartering company with one of the largest asset bases across the maritime and offshore industries. As at April ~~17, 2012,~~9, 2015, our assets consist of 2719 oil tankers, ~~five OBOs currently configured to carry drybulk cargo, ten~~14 drybulk carriers, ~~eleven~~17 container vessels, ~~(including~~ two ~~chartered-in 13,800 TEU vessels), one~~car carriers, two jack-up drilling ~~rig, three~~rigs, two ultra-deepwater drilling units, six offshore supply vessels and two chemical tankers. ~~Two of the~~Our oil tankers and chemical tankers are ~~non-double hull vessels which have been agreed to be sold, with delivery to their new owners expected later in 2012 and 2013.~~

~~Additionally we have contracted to purchase/take delivery of the following vessels:~~

~~two newbuilding Handysize drybulk carriers, with estimated delivery in 2012; and~~

~~four newbuilding 4,800 TEU container vessels, with estimated delivery in 2013.~~

~~Medium to long-term charters have been secured for the two newbuilding drybulk carriers and the four newbuilding container~~all double-hull vessels.

Our customers currently include Frontline, Seadrill, ~~North China Shipping Holdings Co. Ltd., or NCS,~~NADL, Sinochem Shipping Co. Ltd. ("Sinochem"), ~~or Sinochem,~~China National Chartering Co Ltd ("Sinochart"), Heung-A Shipping Co. Ltd. ("Heung-A"), ~~or Heung-A, Deep Sea, CMA CGM SA, or CMA CGM,~~ Hyundai Glovis Co. Ltd. ("Hyundai Glovis"), Western Bulk ~~Hong Xiang Shipping,~~A/S ("Western Bulk"), Hamburg Süd Group, ~~NYK Line and~~Hanjin Shipping ("Hanjin"), PT Apexindo Pratama Duta, Orient Overseas Container Line Ltd ("OOCL"), MSC Mediterranean Shipping Company S.A. ("MSC") and UFC. Our customers also currently include Deep Sea Supply Plc. and Deep Sea Supply BTG B.V., which is a joint venture owned 50% by Deep Sea Supply Plc. and 50% by BTG Pactual Oil & Gas Empreendimentos e Particapacoes S.A., or ~~Apexindo. Apart from five containerships, for which charters are being sought,~~BTG Pactual. We refer to Deep Sea Supply Plc. and two containerships on short-term charters due to expire in May 2012 and June 2012, respectively, the vessels in our fleet have charters attached to them which are generally contracted to expire between two and 15 years from now. These existing charters provide 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.

Deep Sea Supply BTG B.V. together as Deep Sea.

Our primary objective is to continue to grow our business through accretive acquisitions across a diverse range of marine and offshore asset classes. In doing so, our strategy is to generate stable and increasing cash flows by chartering our assets primarily under medium to long-term bareboat or time charters.

History of the Company

We were formed in 2003 as a wholly owned subsidiary of Frontline, ~~which is one of the largest operators~~a major operator of large crude oil ~~tankers in the world. On May 28,~~tankers. In 2004, Frontline ~~announced the distribution of~~distributed 25% of our common shares to its ordinary shareholders in a partial spin off, and our common shares commenced trading on the New York Stock Exchange, or the NYSE, under the ticker symbol "SFL" on June 17, 2004. Frontline subsequently made six further dividends of our shares to its shareholders and its ownership in our Company is now less than one percent.

~~Pursuant to an agreement entered into in December 2003, we purchased from Frontline, effective January 2004,~~ Our assets at the time consisted of a fleet of ~~47 vessels, comprising 23~~Suezmax tankers, Very Large Crude Carriers, or VLCCs, ~~including an option to acquire one VLCC, 16 Suezmax tankers~~ and ~~eight~~oil/bulk/ore carriers, or OBOs.

Since ~~January 1, 2005,~~2004, we have diversified our asset base ~~from the initial two~~and now have eight asset types, -comprising crude oil tankers, ~~and OBOs - to eight asset types, now including~~chemical tankers, container vessels, car carriers, drybulk carriers, ~~chemical tankers,~~ jack-up drilling rigs, ultra-deepwater drilling units and offshore supply vessels.

~~Since 2006, we have reduced our non-double hull tanker fleet from 18 vessels to two vessels, both of which we have agreed to sell, with delivery to their new owner expected later in 2012 and in 2013.~~

Most of our oil tankers ~~and OBOs~~ are chartered to the Frontline Charterers under longer term time charters that have remaining terms that range from three to 1512 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. In December 2011, in response to a restructuring of Frontline necessitated by an extended period of low charter rates for oil tankers and OBOs, amendments were made to the charter agreements with the Frontline ~~Shipping and Frontline Shipping II~~Charterers relating to 28 double-hull vessels, whereby we received a compensation payment of $106 million and agreed to temporarily reduce by $6,500 per day the base charter rates payable on each vessel. The temporary reduction ~~will apply~~applies from January 1, 2012, until December 31, 2015. Thereafter, the base charter rates will revert to the previously agreed levels. For the duration of the temporary reduction, we are entitled to receive 100% of any excess above the reduced charter rates earned by the Frontline ~~Shipping and Frontline Shipping II~~Charterers on our vessels, calculated annually on an average daily TCE basis and subject to a maximum excess of $6,500 per day per vessel. Eleven of the vessels have been sold since December 2011, including all of the OBOs.

In addition to the base charter rates, the Frontline ~~Shipping and Frontline Shipping II~~Charterers pay us a profit sharing ~~payment~~amount equal to 25% of the charter revenues they realize above specified threshold levels, paid annually and calculated on an average daily TCE basis. Previously, up until December 31, 2011, this profit sharing rate was 20%. In terms of the agreement relating to the temporary reduction in base charter rates, of the $106 million compensation payment received, $50 million represents a non-refundable advance on profit sharing earnings relating to the 25% profit sharing agreement which took effect on January 1, 2012.

Our two non-double hull tankers are chartered to Frontline Shipping III until they are delivered to their new owners. Since their relevant anniversary dates in 2010, linked to the IMO phase-out regulations, our non-double hull vessels have been excluded from the profit sharing arrangements.

We have also entered into agreements with Frontline Management to provide fixed rate operation and maintenance services for the vessels on time charter to the Frontline Charterers, and for administrative support services. These agreements enhance the predictability and stability of our cash flows, by fixing substantially ~~fixing~~ all of the operating expenses of our crude oil ~~tankers and OBOs.~~tankers.

The charters for the two jack-up drilling ~~rig, three~~rigs, two ultra-deepwater drilling units, ~~two of the container vessels,~~ six offshore supply vessels, two chemical tankers and ~~two~~11 of the ~~Suezmax tankers~~container vessels are all on bareboat terms, under which the respective charterer will bear all operating and maintenance expenses.

Acquisitions and Disposals

Acquisitions

In the year ended December 31, ~~2011,~~2014, we took delivery of ~~or entered into agreements relating~~the following vessels:

In February 2014, we took delivery of the newbuilding harsh environment jack-up drilling rig West Linus, which immediately commenced a bareboat charter in excess of 15 years to a subsidiary of NADL.

In March 2014, we took delivery of two 5,800 TEU container vessels, MSC Margarita built in 2001 and MSC Vidhi built in 2002, which immediately commenced long-term bareboat charters to MSC.

In March 2014, we announced the acquisition of seven 4,100 TEU container vessels ~~as follows:~~

~~In January 2011, we announced the acquisition of the 2007-built jack-up drilling rig~~ ~~Soehanah~~built in 2002, in combination with long-term bareboat charters to MSC. One of these vessels was delivered to us in March 2014 (MSC Vaishnavi R.), five were delivered in April 2014 (MSC Julia R., MSC Arushi R., Santa Roberta, Santa Ricarda and Santa Rafaela) and the final one was delivered in May 2014 (Santa Rebecca). ~~for an agreed purchase price of approximately $152 million. The rig was delivered in February 2011, and commenced a seven year bareboat charter back to the seller.~~

~~In February 2011, we took delivery of the newbuilding Supramax drybulk carrier~~ ~~SFL Sara~~, which immediately upon delivery from the shipyard commenced an eight year time charter. This vessel is the last to be delivered of the three newbuilding Supramax drybulk carriers which we agreed to acquire in August 2010.

In March 2011, we announced that we had entered into an agreement, together with CMA CGM, the constructing shipyard and a financial institution, to invest in and charter-in two 2010-built 13,800 TEU container vessels in combination with 15-year time charters back to CMA CGM. Our investment is limited to $25 million per vessel, secured by junior mortgages. In addition, we have provided a guarantee for the senior secured loan financing relating to one of the vessels, secured by a first priority mortgage, with an outstanding loan balance of $56.9 million as at December 31, 2011. Under this agreement, the container vessels ~~CMA CGM Magellan~~ ~~and~~ ~~CMA CGM Corte Real~~ ~~were delivered to us in March 2011 and April 2011, respectively, and immediately commenced their time charters.~~

In April 2011, we agreed to acquire four newbuilding 4,800 TEU container vessels for an aggregate construction cost of approximately $230 million. The vessels are expected to be delivered in 2013 and will commence seven year time charters upon delivery.

~~In August 2011 and October 2011 we took delivery of the newbuilding Handysize drybulk carriers~~ ~~SFL Spey~~ ~~and~~ ~~SFL Medway, respectively, which immediately upon delivery from the shipyard commenced five year time charters.~~

~~In August 2011, we took delivery of the newbuilding Supramax drybulk carrier~~ ~~SFL Kate, which immediately upon delivery from the shipyard commenced a ten year time charter.~~

In May 2014, we announced the acquisition of two 82,000 dwt Kamsarmax dry-bulk carriers built in 2012. The Sinochart Beijing and Min Sheng I were delivered to us in July and August 2014, respectively, and immediately commenced long-term time-charters to a Chinese state-owned charterer.

In September and November 2014, we took delivery of two newbuilding 8,700 TEU container vessels, respectively San Felipe and San Felix, which immediately commenced seven year time-charters to Hamburg Süd.

Since January 1, ~~2012,~~2015, we have taken delivery of the following vessels:

In January 2015, we took delivery of two newbuilding 8,700 TEU container vessels, respectively San Fernandoand ~~acquired investments in shipping entities as follows:~~San Francisca, which immediately commenced seven year time-charters to Hamburg Süd.

~~In January 2012, we took delivery of the newbuilding Supramax drybulk carrier~~ ~~SFL Humber, which immediately upon delivery from the shipyard commenced a ten year time charter. This is the second of the two such vessels which we agreed to acquire in November 2010.~~

~~In January 2012, we took delivery of the newbuilding Handysize drybulk carrier~~ ~~SFL Trent, which immediately upon delivery from the shipyard commenced a five year time charter.~~

~~In February 2012, we took delivery of the newbuilding Handysize drybulk carrier~~ ~~Western Australia, which immediately upon delivery from the shipyard commenced a three year time charter.~~

~~In March 2012, we took delivery of the newbuilding Handysize drybulk carrier~~ ~~SFL Kent~~, which immediately upon delivery from the shipyard commenced a five year time charter. The remaining two of the seven such vessels which we agreed to acquire in February 2010 are scheduled for delivery later in 2012.

In April 2012, as compensation for the termination of long-term bareboat charter agreements with Horizon Lines, LLC relating to five container vessels, we received $40 million in the form of second lien notes in Horizon Lines, LLC and warrants exercisable into ten percent of the common stock in its parent company Horizon Lines, Inc.

Disposals

In the year ended December 31, ~~2011,~~2014, we ~~sold~~disposed of the following vessels:

~~In February 2011, we agreed to sell the two single-hull VLCCs~~ ~~Ticen Sun~~ ~~(ex~~ ~~Front Highness) and~~ ~~Front Ace~~ to unrelated parties for a combined gross sales price of $31.4 million. The vessels were delivered to their new owners in February 2011 and March 2011, respectively. A total gain on disposal of approximately $0.3

In January 2014 and March 2014, the arrangements whereby we chartered-in the container vessels CMA CGM Magellan and CMA CGM Corte Real and chartered them out to CMA CGM S.A., or CMA CGM, were terminated after CMA CGM exercised their options to acquire the entities owning the vessels.

In the first half of 2014, we cancelled the remaining three of the four newbuilding 4,800 TEU container vessels which we had agreed to acquire in April 2011. The cancellations were for reasons of excessive delays in delivery and no loss was recorded, as the contracts provided for full reimbursement of all installments paid plus interest thereon. The first of these four newbuilding vessels had also been cancelled in December 2013 for reasons of excessive delays.

In November 2014, we sold the VLCCs Front Comanche, Front Commerce and Front Opalia to an unrelated third party. Net cash proceeds of approximately $77.4 million were received, including $10.5 million cash compensation from Frontline for early termination of the charters. Additional compensation was received from Frontline in the form of loan notes with a face value of $48.4 million, bearing interest at 7.25% per annum and amortizing over the approximately eight year remaining period of the terminated charters. A loss of $1.4 million was recorded on these disposals.

In December 2014, the ultra deepwater drillship West Polaris was delivered to Seadrill pursuant to the exercise of a pre-agreed option. A gain of approximately $6.1 million was recorded.

~~In April 2011, we sold the OBO carrier~~ ~~Front Leader~~ to an unrelated third party for total proceeds of approximately $18.3 million, including $7.7 million compensation from Frontline for early termination of the charter. A gain on disposal of approximately $2.0 million was recorded.

~~In May 2011, we sold the OBO carrier~~ ~~Front Breaker~~ to an unrelated third party for total proceeds of approximately $17.9 million, including $6.6 million compensation from Frontline for early termination of the charter. A gain on disposal of approximately $3.9 million was recorded.

~~In June 2011, the jack-up drilling rig~~ ~~West Prospero~~ ~~was delivered to Seadrill pursuant to the exercise of a pre-agreed option for a total consideration of approximately $133 million. A gain on disposal of approximately $4.1 million was recorded.~~

~~In September 2011, we announced agreements to sell the remaining three non-double hull VLCCs~~ ~~Titan Orion~~, ~~Titan Aries~~ ~~and~~ ~~Ticen Ocean~~ to an unrelated third party, with deliveries scheduled for the first quarter of 2012, the fourth quarter of 2012 and the third quarter of 2013, respectively. Total sales proceeds were projected to be approximately $72.7 million, net of approximately $26.2 million in compensation payable to Frontline for early termination of the charters. A gain on disposal is expected to be recorded for each vessel when it is delivered to its new owner, averaging approximately $3.2 million per vessel.

~~In October 2011, we sold the OBO carrier~~ ~~Front Striver~~ to an unrelated third party for total proceeds of approximately $18.7 million, including $8.1 million in compensation from Frontline for early termination of the charter. A gain on disposal of approximately $2.3 million was recorded.

Since January 1, ~~2012,~~2015, we have disposed of ~~or entered into agreements relating~~vessels as follows:

In February 2015, we transferred ownership of five 2,800 TEU container vessels to unrelated third parties following the exhaustion of an indirect limited performance guarantee from Ship Finance International Limited to the ~~disposal~~providers of loan finance secured against the vessels ~~as follows:~~

(see Consolidated Financial Statements Note 27: Subsequent events). An impairment charge of $11.8 million had been taken against these vessels in the fourth quarter of 2014.

~~In March 2012, the VLCC~~ ~~Titan Orion~~ was delivered to its new owner. Net sales proceeds of approximately $14.7 million were received, net of compensation payable to Frontline. We expect to record a gain on disposal of approximately $2.2 million in the first quarter of 2012.

B.	~~BUSINESS~~B.BUSINESS OVERVIEW

Our Business Strategies

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

(1)

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 new and 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 we can provide for long-term growth of our assets and continue to decrease the average age of our fleet.

(2)

Diversify our asset base. Since ~~January 1, 2005,~~2004, we have diversified our asset base ~~from two asset types, crude oil tankers~~ and ~~OBO carriers, to~~now have eight asset types, ~~including~~comprising oil tankers, chemical tankers, container vessels, car carriers, drybulk carriers, ~~chemical tankers,~~ jack-up drilling rigs, ultra-deepwater drilling units and offshore supply vessels. We believe that there are other attractive markets that could provide us with the opportunity to further diversify our asset base. These markets include vessels and other assets that are of long-term strategic importance to certain operators in the shipping and offshore industries. We believe that the expertise and relationships of our management, together with our relationship and affiliation with Mr. John Fredriksen, could provide us with incremental opportunities to expand our asset base.

(3)

Expand and diversify our customer relationships. Since ~~January 1, 2005,~~2004, we have increased our customer base from one to 1315 customers. Of these 1315 customers, Frontline, Deep Sea, Seadrill, NADL and ~~Seadrill~~UFC are ~~directly or indirectly controlled by trusts established by Mr. John Fredriksen for the benefit of his immediate family.~~related parties. We intend to continue to expand our relationships with our existing customers and also to add new customers, as companies servicing the international shipping and offshore oil exploration markets continue to expand their use of chartered-in assets to add capacity.

(4)

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, we will also seek to enter into charter agreements that are shorter and provide for profit sharing, so that we can generate incremental revenue and share in the upside during strong markets.

Customers

The Frontline Charterers have been our principal customers since we were spun-off from Frontline in 2004. However, in 2008 we made substantial investments in offshore drilling units which are chartered to the Seadrill Charterers, and the percentage of our business attributable to the Frontline Charterers has decreased following the sale of several of the vessels chartered by them and the delivery and commencement of the charters of the drilling units. We anticipate that the percentage of our business attributable to both the Frontline Charterers and the Seadrill Charterers will decrease as we continue to expand our business and our customer base.

Competition

We currently ~~operate or will~~ operate in several sectors of the shipping and offshore industry, including oil transportation, drybulk shipments, chemical transportation, container transportation, car transportation, drilling rigs and offshore supply vessels.

The markets for international seaborne oil transportation services, drybulk transportation services, and container and car transportation services are highly fragmented and competitive. Seaborne oil transportation services are generally 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 commodity carriers also operate their own vessels and use such vessels not only to transport their own cargoes but also to transport cargoes for third parties, in direct competition with independent owners and operators.

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

Our jack-up drilling ~~rig,~~rigs, ultra-deepwater drilling units and offshore supply vessels are chartered out on long-term charters to contractors, and therefore we ~~are therefore~~do not expect to be directly exposed to ~~the~~ short ~~term fluctuation~~and medium-term fluctuations in these markets. Jack-up drilling rigs, ultra-deepwater drilling units and offshore supply vessels are normally chartered 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 such vessels. Offshore supply vessels, ultra-deepwater drillships and semi-submersible drilling rigs 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 sectors 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. Most of our existing vessels are chartered at fixed rates on a long-term basis and are thus not directly affected by competition in the short-term. However, ~~most of the~~ tankers ~~and OBOs~~ chartered to the Frontline Charterers and drybulk carriers chartered to UFC are subject to profit sharing agreements, which will be affected by competition experienced by the charterers.

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.

The insurance of our vessels which are chartered on a bareboat basis or on a time charter basis to the Frontline Charterers is the responsibility of the bareboat charterers or Frontline Management, respectively, who arrange insurance in line with standard industry practice. We are responsible for the insurance of our other time chartered and voyage chartered vessels. In accordance with standard 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 up to $1 billion per tanker 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 Regulation and Other Regulations

Government regulations and laws significantly affect the ownership and operation of our crude oil tankers, ~~OBOs,~~ drybulk carriers, chemical tankers, drilling units, container vessels, car carriers and offshore supply vessels. We are subject to various international conventions, laws and regulations in force in the countries in which our vessels and drilling units may operate or are registered. Compliance with such laws, regulations and other requirements entails significant expense, including vessel and drilling unit modification and implementation of certain operating procedures.

A variety of governmental, 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 states 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 vessels and may accelerate the scrapping of older vessels throughout the industry, particularly older tankers. 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 is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. The ~~international ballast water convention will,~~IMO adopted the International Convention for the Control and Management of Ship's Ballast Water and Sediments Convention, or the BWM Convention, in February 2004, which when ratified will require investment in new equipment on board our vessels, but it is not possible to quantify the costs of such modifications at this time. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulation that could negatively affect our profitability.

The laws and regulations discussed below may not constitute a comprehensive list of all such laws and regulations that are applicable to the operation of our vessels and drilling units.

Flag State

The flag state, as defined by the United Nations Convention on the Law of the Sea, is responsible for implementing and enforcing a broad range of international maritime regulations with respect to all ships granted the right to fly its flag. The "Shipping Industry Guidelines on Flag State Performance" evaluates flag states based on factors such as sufficiency of infrastructure, ratification, implementation and enforcement of principal international maritime treaties, supervision of surveys, casualty investigations, compliance with International Labour Organization reporting, and participation at International Maritime ~~Organization and International Labour~~ Organization meetings. Our vessels are flagged in Liberia, Singapore, the Bahamas, Cyprus, Malta, the Marshall Islands, Panama, Hong Kong, ~~the United Kingdom~~ and ~~the Isle of Man.~~Norway.

International Maritime Organization

The United Nations' International Maritime Organization, or the IMO, has adopted the International Convention for the Prevention of Marine Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as "MARPOL". MARPOL entered into force on October 2, 1983. It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate. MARPOL sets forth pollution prevention requirements applicable to ~~drybulk carriers, among other~~all vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or ~~spilling;~~spill; Annexes II and III relate to harmful substances carried in liquid bulk or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and lastly, Annex VI relates to air emissions. Annex VI was separately adopted by the IMO in September 1997.

~~Our vessels are subject to regulatory requirements imposed by the IMO, including the phase-out of single-hull tankers.~~

In December 2003, the Marine Environmental Protection Committee of the IMO, or MEPC, adopted amendments to Annex I of ~~the~~ MARPOL, ~~Convention,~~ which became effective in April 2005. The ~~amendments~~amendments:

a) revised anthen existing regulation 13G (now Regulation 20 of Annex I) accelerating the phase-out of single hull oil tankers (of which we have none); and

b) adopted a new regulation 13H (now Regulation 21 of Annex I), aimed at the prevention of oil pollution from oil tankers carrying heavy grade oil as cargo. Under the revised regulations, single hull oil tankers exceeding 5,000 tons dwt were required to be phased out, or to meet certain other limited exceptions, no later than April 5, 2005, or the anniversary of the date of delivery of the ship on the date or in the year specified in the following table:

~~Category of Single Hull Oil Tankers~~	~~Date or Year for Phase Out~~
~~Category 1~~: ~~oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil~~ as cargo ~~and of 30,000 dwt and above carrying other oils, which~~ ~~do not~~ ~~comply with the requirements for protectively located segregated ballast tanks~~	~~April 5, 2005 for ships delivered on April 5, 1982 or earlier;~~ ~~2005 for ships delivered after April 5, 1982~~
~~Category 2~~: ~~oil tankers of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which~~ do ~~comply with the requirements for protectively located segregated ballast tanks~~ ~~and~~ ~~Category 3~~: ~~oil tankers of 5,000 dwt and above but less than the tonnage specified for Category 1 and 2 tankers.~~	~~April 5, 2005 for ships delivered on April 5, 1977 or earlier;~~ ~~2005 for ships delivered after April 5, 1977 but before January 1, 1978;~~ ~~2006 for ships delivered in 1978 and 1979~~ ~~2007 for ships delivered in 1980 and 1981~~ ~~2008 for ships delivered in 1982~~ ~~2009 for ships delivered in 1983~~ ~~2010 for ships delivered in 1984 or later~~

Under the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond the phase-out date shown above. The regulations also enable a flag state to allow for some newer single hull oil tankers registered in the flag state which conform to certain technical specifications to continue operating until the earlier of (a) the anniversary of the date of delivery of the vessel in 2015 or (b) the date 25 years after the date of delivery of the vessel. As described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may also be allowed by the flag state to continue operations until their 25th anniversary of delivery. However, port states are permitted to deny entry to such tankers if they are operating beyond the anniversary of the date of their delivery in 2015.

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

Vessel Name

Vessel type
Vessel
Category

Year Built

IMO phase out
Flag state
exemption
Titan Aries VLCC Double sided 1993 2018 2018
Ticen Ocean VLCC Single hull 1991 2010 2015

~~However, it should be noted that agreements have been entered into for the sale of both of these non-double hull vessels, with delivery of~~ ~~Titan Aries~~ ~~and~~ ~~Ticen Ocean~~ ~~expected in the fourth quarter of 2012 and the third quarter of 2013, respectively.~~

~~The December 2003 amendments to Annex I of the MARPOL convention, discussed above, adopted a new regulation 13H on the prevention of oil pollution from oil tankers when carrying~~ heavy grade oil, or HGO, ~~as cargo,~~ which includes most of the grades of marine fuel. The new regulation requires, with certain limited exceptions, that single hull oil tankers of 5,000 dwt and above comply with regulation 13F of Annex I, setting out a number of requirements aimed at the prevention of oil pollution in the event of collision or stranding after April 5, 2005, and that single hull oil tankers of 600 dwt and above but less than 5,000 dwt comply with regulation 13F(7)(a) of Annex I, requiring certain modifications to smaller tankers in order to prevent pollution in the event of collision or stranding, no later than the anniversary of their delivery in 2008.

Under ~~regulation 13H,~~Regulation 21, HGO means any of the following:

crude oils having ~~a density at 15ºC higher than 900 kg/m3;~~

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

~~bitumen, tar and their emulsions.~~

~~Under the regulation 13H, the flag state may allow continued operation of oil tankers of 5,000 dwt and above carrying crude oil with~~ a density at 15ºC higher than 900 kg/m3 ~~but lower~~m³;

fuel oils having either a density at 15ºC higher than ~~945~~900 kg/m3~~, that conform to certain technical specifications~~m³ or a kinematic viscosity at 50ºC higher than 180 mm²/s; or

bitumen, tar and where, in the opinion of such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, and provided that the continued operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.

The flag state may also allow continued operation of a single-hull oil tanker of 600 dwt and above but less than 5,000 dwt carrying HGO as cargo if, in the opinion of such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.

The flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively within an area under the flag state's jurisdiction, or if the ship is engaged in voyages exclusively within an area under the jurisdiction of another party to the MARPOL Convention, provided that party agrees. The same applies to vessels operating as floating storage units of HGO.their emulsions.

Any port state ~~however,~~ can deny entry of single hull tankers carrying HGO, which have been allowed to continue operation under the exemptions mentioned above, into the ports or offshore terminals under the port state's jurisdiction, or deny ship-to-ship transfer of HGO in areas under its jurisdiction, except when such transfer is necessary for the purpose of securing the safety of a ship or saving life at sea.

Revised Annex I to the MARPOL Convention entered into force in January 2007 and has undergone various minor amendments since then. Revised Annex I incorporates various amendments adopted since the MARPOL Convention entered into force in 1983, including the amendments to regulation 13G (regulation 20 in the revised Annex) and newly adopted regulation 13H (regulation 21 in the revised Annex). Revised Annex I also imposes construction requirements for oil tankers delivered on or after January 1, 2010. ~~A further~~An amendment to revised Annex I ~~includes an amendment to~~amended the definition of HGO ~~that will broaden~~and broadened the scope of regulation 21. ~~On August 1, 2007, regulation 12A (an~~An amendment to Annex I)I regulation 12A came into force ~~requiring~~on August 1, 2007. Regulation 12A requires fuel oil tanks to be located inside the double hull in all ships with an aggregate oil fuel capacity of 600m³ and above which are delivered on or after August 1, 2010, including ships for which the building contract is entered into on or after August 1, 2007, or ~~in the absence of a contract~~ for which the keel is laid on or after February 1, ~~2008.~~2008, in the absence of a contract.

Non-compliance with ~~the ISM Code or with other~~ IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to loss of or decreases in available insurance coverage for affected vessels and may result in denial of access to, or detention in, some ports including United States and European Union ports.

Air Emissions

In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed, or underwent major conversions, on or after January 1, 2000. It also prohibits "deliberate emissions" of "ozone depleting substances", defined to include certain halons and chlorofluorocarbons. "Deliberate emissions" are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair and maintenance. Also prohibited is the emission of "volatile organic compounds" from certain tankers, and the shipboard incineration of certain substances, such as polychlorinated biphenyls (PCBs), using incinerators installed after January 1, 2000. Annex VI also includes a global cap on the sulphur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, known as Emission Control Areas ("ECAs").

The MEPC adopted amendments to Annex VI on October 10, 2008, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on ships. ~~From~~As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur, a reduction from the previous cap of 4.50%. By January 1, 2020, sulfur content must not exceed 0.50%, subject to a feasibility review to be completed no later than 2018.

Sulfur content standards are even stricter within certain ~~"Emission Control Areas", or~~ ECAs. ~~From~~As of July 1, 2010, ships operating within an ECA may not use fuel with sulfur content in excess of 1.00% (a reduction from the previous cap of 1.50%), which is further reduced to 0.10% on January 1, 2015. ~~Currently, the~~The Baltic Sea and the North Sea have been designated ECAs, and Amended Annex VI establishes procedures for designating new ECAs. ~~With effective from~~Effective August 1, 2012, certain coastal areas of North America ~~will be~~were designated ECAs, ~~as will~~and effective January 1, 2014, the United States Caribbean Sea ~~with effect from January 1, 2014.~~was designated an ECA. Ocean-going vessels in these areas will be subject to stringent emissions controls, which may cause us to incur additional costs. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the ~~U.S. Environmental Protection Agency, or~~ EPA, or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for new ships, in part to address greenhouse gas emissions. It makes the Energy Efficiency Design Index (EEDI) apply to all new ships and the Ship Energy Efficiency Management Plan (SEEMP) apply to all ships.

Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The EPA promulgated equivalent, and in some cases stricter, emissions standards in 2009.

~~With effect from~~As of January 1, 2010, the Directive 2005/33/EC of the European Parliament and of the Council of July 6, 2005, amending Directive 1999/32/EC, came into force. The objective of the directive is to reduce emission of sulfur dioxide and particulate matter caused by the combustion of certain petroleum derived fuels. The directive imposes limits on the sulfur content of such fuels as a condition of their use within a Member State territory. ~~The maximum sulfur content for~~As of January 1, 2010, marine fuels used by inland waterway vessels and ships at berth in ports in EU countries ~~after~~must have a maximum sulfur content of 0.10% by mass. On July 15, 2011, the European Commission adopted a proposal for an amendment of Directive 1999/32/EC which would align requirements with those imposed by the revised MARPOL Annex VI which introduced stricter sulfur limits. Directive 2012/33/EU, also amending Directive 1999/32//EC, was published in the Official Journal of the European Union on November 17, 2012. The deadline for bringing member states' legislation into compliance was June 18, 2014, and the amended sulfur directive entered into force on January 1, ~~2010, is 0.10% by mass.~~2015.

Safety Requirements

The IMO ~~also~~has adopted the International Convention for the Safety of Life at Sea, or SOLAS, and the International Convention on Load Lines, or LL Convention, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL Convention ~~standards.~~standards, and amendments to SOLAS made in May 2012 entered into force on January 1, 2014. The Convention on Limitation of Liability for Maritime Claims, or LLMC, was recently amended and the amendments are expected to go into effect on June 8, 2015. The amendments alter the limits of liability for loss of life or personal injury claims and property claims against ship-owners.

The operation of our ships is also affected by the requirements contained in Chapter IX of SOLAS, which sets forth the IMO's International 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 develop and maintain an extensive "Safety Management System", or SMS, that includes the adoption of a safety and environmental protection policy, setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We intend to rely upon the safety management system that the appointed ship managers have developed.

The ISM Code requires that vessel operators obtain a Safety Management Certificate, or SMC, for each vessel they operate. This certificate evidences compliance by a vessel's operators with the ISM Code requirements for a SMS. No vessel can obtain a SMC under the ISM Code unless its manager has been awarded a "Document of Compliance", or DOC, issued in most instances by the vessel's flag state. As of the date of this report, our appointed ship managers have obtained DOCs for their ~~officers~~office and SMCs for all of our vessels for which such certificates are required by the IMO, and these are renewed as required.

Non-compliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, lead to loss of or decreases in available insurance coverage for affected vessels, and result in the denial of access to, or detention in, some ports. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance such certificates will be maintained.

The IMO has negotiated international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. Additional or new conventions, laws and regulations may be adopted which could limit our ability to do business and which could have a material adverse effect on our business and results of operations.

Ballast Water Requirements

The IMO adopted ~~the International Convention for the Control and Management of Ships' Ballast Water and Sediments, or~~ the BWM Convention, in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not ~~enter into force~~become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. To date, there has not been sufficient adoption of this standard for it to take ~~force. However, Panama may adopt this convention~~force, but it is close. Many of the implementation dates originally written in ~~the relatively near future, which would be sufficient for it to take force. When~~ the BWM Convention have already passed, so that once it enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand vessels each year needing to install ballast water management systems (BWMS). For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This in effect makes all vessels constructed before the entry into force date "existing vessels", and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force. Once mid-ocean ballast exchange ~~would become mandatory for our vessels. In addition, our vessels would be required to be equipped with a~~or ballast water treatment ~~system~~requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do not believe that ~~meets mandatory concentration limits not later than~~ the first intermediate or renewal survey, whichever occurs first after the anniversary date of delivery of the vessel in 2014 for vessels with ballast water capacity of 1,500-5,000 cubic meters, or after such date in 2016 for vessels with ballast water capacity of greater than 5,000 cubic meters. On March 23, 2012, the U.S. Coast Guard issued amended regulations relating to ballast water management for vessels operating in U.S. waters, with the same phased introduction as the BWM Convention for existing vessels, and mandatory for new ships from December 1, 2013. The costs of such compliance ~~with ballast water treatment regulations may~~would be ~~material.~~material, it is difficult to predict the overall impact of such requirements on our operations.

Oil Pollution Liability

The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO has adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by Protocols in 1976, 1984 and 1992, and further amended in 2000, or the ~~CLC.~~CLC (of which the United States is not a party). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the ship-owner's ~~actual~~personal fault, and under the 1992 Protocol where the spill is caused by the ship-owner's personal act or omission by intentional or reckless ~~act or omission~~conduct, where the ship-owner knew pollution damage would probably result. A state that is a party to the CLC may not allow a ship under its flag to trade unless that ship has a certificate of insurance or something equivalent. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the CLC. The CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner's liability for a single incident. We believe that our insurance will cover the liability under the plan adopted by the IMO.

The IMO has adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001, or the Bunker Convention, to impose strict liability on ship-owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ships' bunkers is typically determined by the national or other domestic laws in the jurisdiction where the events or damages occur.

The IMO continues to review and introduce new conventions, laws and regulations. ItAlthough it is difficult to accurately predict what additional regulations, if any, may be passed by the IMO in the future and what effect, if any, such additional regulations ~~might~~may have on our operations, they could limit our ability to do business and have a material adverse effect on our business and results of operations.

United States Requirements

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment following oil spills. OPA affects all "owners and operators" whose vessels trade with the United States, its territories and possessions, or whose vessels operate in United States waters, which include the United States territorial sea and its 200 nautical mile exclusive economic zone around the United States. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define "owner and operator" in the case of a vessel as ~~any~~"any person owning, operating or chartering by demise the ~~vessel.~~vessel". Both OPA and CERCLA impact our operations.

Under OPA, vessel owners and operators are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, other than an agent or employee of, or a person acting pursuant to a contractual relationship with, the responsible party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA contains statutory caps on liability and damages, ~~although such caps do not apply to direct clean-up costs. OPA defines these damages broadly to~~which include:

injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;

injury to, or economic losses resulting from, the destruction of real and personal property;

net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury to, or destruction or loss of, real or personal property or natural resources;

loss of subsistence use of natural resources that are injured, destroyed or lost;

~~loss of profits or impairment of earnings capacity due to injury to, or destruction or loss of, real or personal property or natural resources;~~loss of profits or impairment of earnings capacity due to injury to, or destruction or loss of, real or personal property or natural resources by any claimant, whether or not such claimant has a proprietary interest in the property; and

net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

OPA limits the liability of responsible parties with respect to single-hull tankers over 3,000 gross tons to the greater of $3,200 per gross ton or $23,496,000, while for all other tankers over 3,000 gross tons the liability is limited to the greater of $2,000 per gross ton or $17,088,000. For ~~non-tanker~~non-tank vessels, such as drybulk carriers, liability is limited to the greater of $1,000 per gross ton or $854,400, subject to periodic adjustment for inflation. For offshore facilities, except deepwater ports, liability is capped at the total of all removal costs plus $75 million. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party, or its agent, employee or a person acting pursuant to a contractual relationship with the responsible party, or by a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsible party knows or has reason to know of the incident, (ii) reasonably cooperate and assist as requested in connection with oil removal activities, or (iii) without sufficient cause, comply with an order issued under the Federal Pollution Act (Section 311 (c) and (e)) or the Intervention on the High Seas Act.

OPA permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their ~~boundaries, provided they accept, at a minimum, the levels of liability established under OPA.~~boundaries. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their ~~waters; however, in some cases, states~~waters, which ~~have enacted this type~~may include charterers and cargo owners and operators of ~~legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws.~~vessels.

The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. For example, on August 15, 2012, the U.S. Bureau of Safety and Environment Enforcement released a final drilling safety rule for offshore oil and gas operations that strengthens the requirements for safety equipment, well control systems, and blowout prevention practices. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.

CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a non-contractual third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo, and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refuses to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.

OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard, or USCG, evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. 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 relating to the vessel with the greatest maximum liability. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer, or a guarantee. We ~~plan to~~ comply with the ~~U.S. Coast Guard's~~USCG's financial responsibility regulations by ~~providing~~procuring a ~~certificate~~Certificate of ~~responsibility evidencing self-insurance.~~Financial Responsibility provided by Maritime Insurance Solutions Ltd.

We have and expect to maintain pollution liability insurance coverage in the amount of ~~$1.0~~$1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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 are prohibited from trading in U.S. waters as of dates ranging over a 25-year period (1990-2015) 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 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 vessels and facilities operating in the waters of the United States must file vessel and facility response plans with the ~~U.S. Coast Guard,~~USCG, and their vessels and facilities are required to operate in compliance with their ~~U.S. Coast Guard~~USCG approved plans. These response plans must, among other things, describe response activities for a discharge, identify response resources, describe crew training and drills, and identify a qualified individual with full authority to implement removal actions.

We have obtained vessel response plans approved by the ~~U.S. Coast Guard~~USCG for our vessels operating in the waters of the U.S.

Other Environmental Initiatives

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages, and complements the remedies available under OPA and CERCLA. Furthermore, many 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 EPA and USCG have enacted rules relating to ballast water discharge, compliance with which requires 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, or which may otherwise restrict our vessels from entering U.S. waters.

The EPA regulates the discharge of ballast and bilge water and other substances in U.S. waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and recreational vessels) to comply with a Vessel General Permit, or VGP, authorizing ballast and bilge water discharges and other discharges incidental to the operation of vessels. The ~~Vessel General Permit~~VGP imposes technology and water-quality based effluent limits for certain types of discharges and establishes specific inspection, monitoring, ~~recordkeeping~~record-keeping and reporting requirements to ensure the effluent limits are met. ~~The~~On March 28, 2013, the EPA ~~has proposed a draft 2013 Vessel General Permit to replace~~re-issued the ~~current Vessel General Permit upon its expiration on~~VGP for another five years, effective from December 19, ~~2013,~~2013. The new VGP focuses on authorizing discharges incidental to operations of commercial ~~vessels. The draft permit also~~vessels, and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, more stringent requirements for exhaust gas scrubbers, and the use of environmentally acceptable lubricants.

~~U.S. Coast Guard~~

In addition, under §401 of the CWA, the VGP must be certified by the state where the discharge is to take place. Certain states have enacted additional discharge standards as conditions to their certification of the VGP. These local standards bring the VGP into compliance with more stringent state requirements, such as those further restricting ballast water discharges and preventing the introduction of non-indigenous species considered to be invasive. The VGP and its state-specific regulations and any similar restrictions enacted in the future will increase the costs of operating in the relevant waters.

USCG regulations adopted under the U.S. National Invasive Species Act ~~or NISA,~~ also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters. ~~On March 23,~~As of June 21, 2012, the ~~U.S. Coast Guard announced that it is amending its~~USCG implemented revised regulations ~~on ballast water management by~~ establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. ~~The revised ballast water standards are consistent with those adopted by the IMO in 2004, and will be effective on or around June 20, 2012.~~ Compliance with the EPA and the ~~U.S. Coast Guard~~USCG regulations ~~could~~is likely to require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged, or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.

Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject to the phasing-in of these standards. As a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers.

The U.S. Clean Air Act of 1970, including its amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations relating to emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.

Compliance with future EPA and USCG regulations could require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.

Our vessels carry cargoes to U.S. waters regularly, and we believe that all of our vessels are suitable to meet OPA and other U.S. environmental requirements and that they would also qualify for trade if chartered to serve U.S. ports.

European Union Regulations

In October 2009, the European Union, or E.U., amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and if the discharges individually or in aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member states were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. The directive applies to all types of vessels irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger.

The ~~European Union~~E.U. has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, flag, and the number of times the ship has been detained. The ~~European Union~~E.U. also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the ~~European Union~~E.U. with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply.

Greenhouse Gas Regulation

Currently, emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005, and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. ~~However,~~

As of January 1, 2013, all ships must comply with mandatory requirements adopted by the MEPC in July 2011, ~~the MEPC adopted two new sets of mandatory requirements~~relating to ~~address~~ greenhouse gas ~~emissions from~~emissions. All ships ~~which will enter into force in January 2013. Currently operating ships will be~~are now required to ~~develop Ship Energy Efficiency Management Plans,~~follow the SEEMP, and the minimum energy efficiency levels per capacity mile ~~will~~outlined in the EEDI apply to all new ships. These requirements could cause us to incur additional compliance costs. The IMO is ~~also considering the development of~~planning to implement market-based mechanisms to reduce greenhouse gas emissions from ~~ships.~~ships at an upcoming MEPC session. The ~~European Union~~E.U. has indicated that it intends to propose an expansion of the existing ~~European Union~~E.U. emissions trading scheme to include emissions of greenhouse gases from marine vessels, and in January 2012 the ~~European Commission~~E.U. launched a public consultation on possible measures to reduce greenhouse gas emissions from ships. In April 2013, the E.U. Parliament rejected proposed changes to the E.U. Emissions Law regarding carbon trading. In June 2013, the European Commission developed a strategy to integrate maritime emissions into the overall E.U. strategy to reduce greenhouse gas emissions. If the strategy is adopted by the European Parliament and Council, large vessels using E.U. ports would be required to monitor, report and verify their carbon dioxide emissions beginning in January 2018. In December 2013, the E.U. environmental ministers discussed draft rules to implement monitoring and reporting of carbon dioxide emissions from ships. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety, and has adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, such regulation of vessels is foreseeable, and the EPA has in recent years received petitions from the California Attorney General and various environmental groups seeking such regulation. Any passage of climate control legislation or other regulatory initiatives adopted by the IMO, European Union, the United States or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time.

International Labour Organization

The International Labour Organization, or ILO, which is a specialized agency of the ~~UN with headquarters in Geneva, Switzerland. The ILO~~United Nations, has adopted the Maritime Labour Convention 2006, or the MLC 2006. A Maritime Labour Certificate and a Declaration of Maritime Labour Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 ~~will enter~~entered into force ~~one year after 30 countries with a minimum of 33% of the world's tonnage have ratified it. The MLC 2006 has not yet been ratified, but its ratification would require~~on August 20, 2013, and requires us to develop new procedures to ensure full compliance with its requirements.

Our Protection &Indemnity Clubs have, with effect from August 20, 2013, amended their insurance policies to cover elements from MLC 2006, including but not limited to the repatriation of crew and other crew social security provisions.

Offshore Drilling Regulations

Our offshore drilling units are subject to many of the above environmental laws and regulations relating to vessels, but are also subject to laws and regulations focused on offshore drilling operations.

For example, the IMO has adopted MARPOL. Annex VI to MARPOL regulates harmful air emissions from ships, which include rigs and drillships. Amendments to the Annex VI regulations which entered into force on July 1, 2010, require a progressive reduction of sulfur levels in heavy bunker fuels and create more stringent nitrogen oxide emissions standards for marine engines in the future. We may incur costs to comply with these revised standards.

Rigs and drillships must comply with MARPOL limits on sulfur oxide and nitrogen oxide emissions, chlorofluorocarbons, and the discharge of other air pollutants, except that the MARPOL limits do not apply to emissions that are directly related to drilling, production, or processing activities. As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for new ships, including the requirement that all new ships utilize the EEDI and the SEEMP.

Our drilling units are subject not only to MARPOL regulation of air emissions, but also to the Bunker Convention's strict liability for pollution damage caused by discharges of bunker fuel in jurisdictional waters of ratifying states. We believe that all of our drilling units are currently compliant in all material respects with these regulations.

Furthermore, any drillships that we may operate in United States waters, including the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States, would have to comply with OPA and CERCLA requirements, among others, that impose liability (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 discharges of oil or other hazardous substances, other than discharges related to drilling.

The U.S. Bureau of Ocean Energy Management, ~~Regulation and Enforcement,~~ or ~~BOEMRE,~~BOEM, periodically issues guidelines for rig fitness requirements in the Gulf of Mexico and may take other steps that could increase the cost of operations or reduce the area of operations for our units, thus reducing their marketability. Implementation of ~~BOEMRE~~BOEM guidelines or regulations may subject us to increased costs or limit the operational capabilities of our units, and could materially and adversely affect our operations and financial condition.

In addition to the MARPOL, OPA and CERCLA requirements described above, our international offshore drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the importation of and operation of drilling units and equipment, currency conversions and repatriation, oil and gas exploration and development, environmental protection, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors, and duties on the importation and exportation of drilling units and other equipment. New environmental or safety laws and regulations could be enacted, which could adversely affect our ability to operate in certain jurisdictions. Governments in some countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and gas, and other aspects of the oil and gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Implementation of new environmental laws or regulations that may apply to ultra-deepwater drilling units may subject us to increased costs or limit the operational capabilities of our drilling units and could materially and adversely affect our operations and financial condition.

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~~USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.

Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facility Security Code, or the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels to comply with the International Maritime Dangerous Goods ~~Code, or the IMDG~~ Code.

To trade internationally a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel's flag state. Among the various requirements are:

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

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

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

the development of vessel security plans;

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

~~the development of vessel security plans;~~

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

compliance with flag state security certification requirements.

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

~~compliance with flag state security certification requirements.~~

A ship operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port or refused entry.

The ~~U.S. Coast Guard regulations,~~USCG, intended to align with international maritime security standards, ~~exempt~~exempts from MTSA vessel security measures non-U.S. vessels that have on board as of July 1, 2004, a valid ISSC attesting to the vessel's compliance with SOLAS security requirements and the ISPS Code.

We have implemented the various security measures addressed by MTSA, SOLAS and the ISPS Code, and our fleet is in compliance with applicable security requirements.

Inspection by Classification Societies

Classification Societies are independent organizations that establish and apply technical standards in relation to the design, construction and survey of marine facilities including ships and offshore structures. Every ocean-going vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in class", signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.

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

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

Annual Surveys: For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary of the date of commencement of the class period indicated in the certificate.

Intermediate Surveys: Extended annual surveys are referred to as intermediate surveys and typically are conducted thirty months after commissioning and each class renewal. Intermediate surveys are to be carried out at or between the occasion of the second or third annual survey.

~~Intermediate Surveys: Extended annual surveys are referred to as intermediate surveys and typically are conducted thirty months after commissioning and each~~

Class Renewal Surveys: Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a vessel owner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. Upon a vessel-owner's request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal. ~~Intermediate surveys are to be carried out at or between the occasion of the second or third annual survey.~~

~~Class Renewal Surveys~~: Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a vessel owner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. Upon a vessel-owner's request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.

Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. Vessels less than 15 years old are drydocked every 60 months. If any defects are found, the classification surveyor will issue a "recommendation" which must be rectified by the vessel owner within prescribed time limits.

Seasonality

Most of our vessels are chartered at fixed rates on a long-term basis and seasonal factors do not have a significant direct effect on our business. ~~Most of our~~Our tankers ~~and OBOs~~on charter to the Frontline Charterers are subject to cash sweep and profit sharing agreements and to the extent that seasonal factors affect the profits of the charterers of these vessels we will also be affected. However, any cash sweep and profit sharing ~~receivable is~~receivables relating to the Frontline Charterers are paid annually and the effects of seasonality will be limited to the timing of our cash sweep and profit sharing revenues. Five of our Handysize drybulk carriers currently employed under short-term charters to UFC are also subject to agreements for profit sharing payable at the expiry of their respective charters, and the effects of seasonality will be limited to the timing of these profit sharing revenues.

C. ORGANIZATIONAL STRUCTURE

See Exhibit 8.1 for a list of our significant subsidiaries.

D. PROPERTY, PLANTS 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 April ~~17, 2012. Apart from~~ 9, 2015~~Ticen Ocean~~ ~~and~~ ~~Titan Aries, all~~. All of the VLCCs, Suezmaxes and chemical tankers ~~and OBOs~~ are double-hull vessels.

Approximate Lease
Charter Termination
Vessel Built
Dwt.
Flag Classification Date

VLCCs
Ticen Ocean (ex Front Lady) (1)
1991 284,000 PAN Operating lease 2013
Titan Aries (ex Edinburgh) (2)
1993 302,000 LIB Operating lease 2012
Front Century 1998 311,000 MI Capital lease 2021
Front Champion 1998 311,000 BA Capital lease 2022
Front Vanguard 1998 300,000 MI Capital lease 2021
Front Circassia 1999 306,000 MI Capital lease 2021
Front Opalia 1999 302,000 MI Capital lease 2022
Ovatella (ex Front Comanche) 1999 300,000 IoM Capital lease 2022
Golden Victory 1999 300,000 MI Capital lease 2022
Ocana (ex Front Commerce) 1999 300,000 IoM Capital lease 2022
Front Scilla 2000 303,000 MI Capital lease 2023
Oliva (ex Ariake) 2001 299,000 BA Capital lease 2023
Front Serenade 2002 299,000 LIB Capital lease 2024
Otina (ex Hakata) 2002 298,465 IoM Capital lease 2025
Ondina (ex Front Stratus) 2002 299,000 LIB Capital lease 2025
Front Falcon 2002 309,000 BA Capital lease 2025
Front Page 2002 299,000 LIB Capital lease 2025
Front Energy 2004 305,000 CYP Capital lease 2027
Onoba (ex Front Force) 2004 305,000 MI Capital lease 2027



	Approximate			Lease	Charter Termination
Vessel	Built	Dwt.	Flag	Classification	Date
VLCCs
Front Century	1998	311,000	MI	Capital lease	2021
Front Vanguard	1998	300,000	MI	Capital lease	2021
Front Circassia	1999	306,000	MI	Capital lease	2021
Front Scilla	2000	303,000	MI	Capital lease	2023
Front Ariake	2001	299,000	BA	Capital lease	2023
Front Serenade	2002	299,000	LIB	Capital lease	2024
Front Hakata	2002	298,500	BA	Capital lease	2025
Front Stratus	2002	299,000	LIB	Capital lease	2025
Front Falcon	2002	309,000	BA	Capital lease	2025
Front Page	2002	299,000	LIB	Capital lease	2025
Front Energy	2004	305,000	MI	Capital lease	2027
Front Force	2004	305,000	MI	Capital lease	2027

Suezmaxes
Front Glory	1995	150,000	MI	Capital lease	2018
Front Splendour	1995	150,000	MI	Capital lease	2019
Front Ardenne	1997	153,000	MI	Capital lease	2020
Front Brabant	1998	153,000	MI	Capital lease	2021
Mindanao	1998	159,000	SG	Capital lease	2021
Glorycrown	2009	156,000	MI	n/a		(4	)
Everbright	2010	156,000	MI	n/a		(4	)

Chemical Tankers
Maria Victoria V	2008	17,000	PAN	Operating lease	2018	(1	)
SC Guangzhou	2008	17,000	PAN	Operating lease	2018	(1	)

Handysize Drybulk Carriers
SFL Spey	2011	34,000	HK	Operating lease	2015	(4	)
SFL Medway	2011	34,000	HK	Operating lease	2015	(4	)
SFL Trent	2012	34,000	HK	Operating lease	2015	(4	)
SFL Kent	2012	34,000	HK	Operating lease	2015	(4	)
SFL Tyne (ex Western Australia)	2012	32,000	HK	Operating lease	2015	(4	)
Western Houston	2012	32,000	HK	Operating lease	2015	(4	)
Western Copenhagen	2013	32,000	HK	Operating lease	2016	(4	)

Supramax Drybulk Carriers
SFL Hudson	2009	57,000	MI	Operating lease	2020
SFL Yukon	2010	57,000	HK	Operating lease	2018
SFL Sara	2011	57,000	HK	Operating lease	2019
SFL Kate	2011	57,000	HK	Operating lease	2021
SFL Humber	2012	57,000	HK	Operating lease	2022

Suezmaxes
Front Pride 1993 150,000 MI Capital lease 2017
Front Glory 1995 150,000 MI Capital lease 2018
Front Splendour 1995 150,000 MI Capital lease 2019
Front Ardenne 1997 153,000 MI Capital lease 2020
Front Brabant 1998 153,000 MI Capital lease 2021
Mindanao 1998 159,000 SG Capital lease 2021
Glorycrown 2009 156,000 HK Capital lease 2014 (3)
Everbright 2010 156,000 HK Capital lease 2015 (3)

Chemical Tankers

Maria Victoria V 2008 17,000 PAN Operating lease 2018 (3)
SC Guangzhou 2008 17,000 PAN Operating lease 2018 (3)

OBO Carriers

Front Climber 1991 169,000 SG Capital lease 2015
Front Driver 1991 169,000 MI Capital lease 2015
Front Guider 1991 169,000 SG Capital lease 2015
Front Rider 1992 170,000 SG Capital lease 2015
Front Viewer 1992 169,000 SG Capital lease 2015

Handysize Drybulk Carriers

SFL Spey 2011 34,000 HK Operating lease 2016
SFL Medway 2011 34,000 HK Operating lease 2016
SFL Trent 2012 34,000 HK Operating lease 2017
SFL Kent 2012 34,000 HK Operating lease 2017
Western Australia 2012 32,000 HK Operating lease 2015
TBN/ Western Copenhagen (NB) 2012 32,000 HK n/a 2015 (7)
TBN/ Western Houston (NB) 2012 32,000 HK n/a 2015 (7)

Supramax Drybulk Carriers
SFL Hudson 2009 57,000 MI Operating lease 2020
SFL Yukon 2010 57,000 HK Operating lease 2018
SFL Sara 2011 57,000 HK Operating lease 2019
SFL Kate 2011 57,000 HK Operating lease 2021
SFL Humber 2012 57,000 HK Operating lease 2022

Containerships
SFL Europa 2003 1,700 TEU MI Operating lease 2012
Asian Ace 2005 1,700 TEU MAL Operating lease 2020 (3)
Green Ace 2005 1,700 TEU MAL Operating lease 2020 (3)
SFL Hunter 2006 2,800 TEU MI n/a n/a (8)
SFL Hawk 2007 2,800 TEU MI n/a n/a (8)
SFL Falcon 2007 2,800 TEU MI n/a n/a (8)
SFL Eagle 2007 2,800 TEU MI n/a n/a (8)
SFL Tiger 2006 2,800 TEU MI n/a n/a (8)
SFL Avon 2010 1,700 TEU MI Operating lease 2012
CMA CGM Magellan (4)
2010 13,800 TEU UK Operating lease 2026
CMA CGM Corte Real (4)
2010 13,800 TEU UK Operating lease 2026
TBN/ SFL Lune (NB) 2013 4,800 TEU n/a n/a 2020 (7)
TBN/ SFL Eden (NB) 2013 4,800 TEU n/a n/a 2020 (7)
TBN/ SFL Mersey (NB) 2013 4,800 TEU n/a n/a 2020 (7)
TBN/ SFL Lea (NB) 2013 4,800 TEU n/a n/a 2020 (7)




Kamsarmax Drybulk Carriers
Sinochart Beijing	2012	82,000			HK	Operating lease	2022
Min Sheng 1	2012	82,000			HK	Operating lease	2022

Container vessels
MSC Margarita	2001	5,800	TEU		LIB	Operating lease	2019	(1	)
MSC Vidhi	2002	5,800	TEU		LIB	Operating lease	2019	(1	)
MSC Vaishnavi R.	2002	4,100	TEU		LIB	Operating lease	2019	(1	)
MSC Julia R.	2002	4,100	TEU		LIB	Operating lease	2019	(1	)
MSC Arushi R.	2002	4,100	TEU		LIB	Operating lease	2019	(1	)
Santa Rebecca	2002	4,100	TEU		LIB	Operating lease	2019	(1	)
Santa Roberta	2002	4,100	TEU		LIB	Operating lease	2020	(1	)
Santa Ricarda	2002	4,100	TEU		LIB	Operating lease	2020	(1	)
Santa Rafaela	2002	4,100	TEU		LIB	Operating lease	2020	(1	)
SFL Europa	2003	1,700	TEU		MI	Operating lease	2015	(4	)
Heung-A Green	2005	1,700	TEU		MAL	Operating lease	2020	(1	)
Green Ace	2005	1,700	TEU		MAL	Operating lease	2020	(1	)
SFL Avon	2010	1,700	TEU		MI	Operating lease	2015	(4	)
San Felipe	2014	8,700	TEU		MI	Operating lease	2021
San Felix	2014	8,700	TEU		MI	Operating lease	2021
San Fernando	2015	8,700	TEU		MI	n/a	2022
San Francisca	2015	8,700	TEU		MI	n/a	2022

Car Carriers
Glovis Composer	2005	6,500	CEU		HK	Operating lease	2017
Glovis Conductor	2006	6,500	CEU		PAN	Operating lease	2017

Jack-Up Drilling Rigs
Soehanah	2007	375	ft		PAN	Operating lease	2018	(1	)
West Linus	2014	450	ft		NOR	Capital lease	2029	(1	)

Ultra-Deepwater Drill Units
West Hercules	2008	10,000	ft		PAN	Capital lease	2023	(1	)
West Taurus	2008	10,000	ft		PAN	Capital lease	2023	(1	)

Offshore supply vessels
Sea Leopard	1998	AHTS	(2	)	CYP	Capital lease	2020	(1	)
Sea Bear	1999	AHTS	(2	)	MI	Capital lease	2020	(1	)
Sea Cheetah	2007	AHTS	(2	)	CYP	Operating lease	2019	(1	)
Sea Jaguar	2007	AHTS	(2	)	CYP	Operating lease	2019	(1	)
Sea Halibut	2007	PSV	(3	)	CYP	Operating lease	2019	(1	)
Sea Pike	2007	PSV	(3	)	CYP	Operating lease	2019	(1	)

Jack-Up Drilling Rigs

Soehanah 2007 375 ft PAN Operating lease 2018 (3)

Ultra-Deepwater Drill Units
West Polaris 2008 10,000 ft PAN Capital lease 2023 (3)
West Hercules 2008 10,000 ft PAN Capital lease 2023 (3)
West Taurus 2008 10,000 ft PAN Capital lease 2023 (3)

Offshore supply vessels

Sea Leopard 1998 AHTS (5) CYP Capital lease 2020 (3)
Sea Bear 1999 AHTS (5) CYP Capital lease 2020 (3)
Sea Cheetah 2007 AHTS (5) CYP Operating lease 2019 (3)
Sea Jaguar 2007 AHTS (5) CYP Operating lease 2019 (3)
Sea Halibut 2007 PSV (6) CYP Operating lease 2019 (3)
Sea Pike 2007 PSV (6) CYP Operating lease 2019 (3)

NB~~: Newbuilding~~

Key to Flags: BA – Bahamas, CYP - Cyprus, MAL – Malta, ~~IoM - Isle of Man,~~ HK – Hong Kong, LIB - Liberia, MI - Marshall Islands, PAN – Panama, SG - Singapore, ~~UK – United Kingdom.~~NOR - Norway.

Notes:

~~(1)~~

~~Ticen Ocean~~ ~~is a single-hull vessel and has been sold, with delivery to its new owner expected in the third quarter of 2013.~~

~~(2)~~

~~Titan Aries~~ ~~is a double-sided vessel and has been sold, with delivery to its new owner expected in the fourth quarter of 2012.~~

~~(3)~~(1)

Charterer has purchase options during the term of the charter.

~~(4)~~

~~Vessel chartered in.~~

~~(5)~~(2)

Anchor handling tug supply vessel (AHTS).

	~~(6)~~
(3)	Platform supply vessel (PSV).

	~~(7)~~
(4)	~~Charter has been agreed.~~Currently employed on a short-term charter or in the spot market.

Substantially, all of the above vessels and rigs are pledged under mortgages, excluding the two 1,700 TEU container vessels built in 2005. Furthermore, the 1,700 TEU container vessel built in 2003 and the nine VLCCs and five Suezmax tankers on charter to Frontline Shipping Limited, or Frontline Shipping, are no longer pledged under mortgages, following prepayment and cancellation of the related financings in January and February 2015, respectively.

~~(8)~~

~~Charters are being sought for these vessels, but no agreement has been signed as of April 17, 2012.~~

Other than our interests in the vessels and drilling units described above, we do not own any material physical properties. We ~~do not own any real property. We~~ lease office space in Oslo from Frontline Management and in London from ~~Golar LNG~~Arcadia Petroleum Limited, ~~and in Singapore from Seadrill, all~~both related parties.

~~ITEM 4A. UNRESOLVED STAFF COMMENTS~~


ITEM 4A.	UNRESOLVED STAFF COMMENTS

None

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


ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with Item 33. "Selected Financial Data", Item 44. "Information on the Company" and our audited consolidated financial statements and notes thereto included herein.

Overview

Following our spin-off from Frontline and the 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.

Fleet Development

The following table summarizes the development of our active fleet of ~~vessels, including the two chartered-in 13,800 TEU containerships.~~vessels:


Vessel type	Total fleet December 31, 2009	Additions/ Disposals 2010		Total fleet December 31, 2010	Additions/ Disposals 2011		Total fleet December 31, 2011	Total fleet December 31, 2012	Additions/ Disposals 2013		Total fleet December 31, 2013	Additions/ Disposals 2014		Total fleet December 31, 2014
Oil Tankers	32	+1	-3	30		-2	28	26		-4	22		-3	19
Chemical tankers	2			2			2	2			2			2
OBO / Dry bulk carriers	9	+2	-1	10	+4	-3	11
Dry bulk carriers (including OBOs)								12	+1	-1	12	+2		14
Container vessels	8	+1		9	+2		11	11			11	+11	-2	20
Car carriers								2			2			2
Jack-up drilling rigs	1			1	+1	-1	1	1			1	+1		2
Ultra-deepwater drill units	3			3			3	3			3		-1	2
Offshore supply vessels	6			6			6	6			6			6

Total Active Fleet	61	+4	-4	61	+7	-6	62	63	+1	-5	59	+14	-6	67

The above table includes two 13,800 TEU container vessels which were chartered-in until the first quarter of 2014, when the chartering arrangements were terminated.

~~The following~~In January 2015, we took delivery of two newbuilding 8,700 TEU container vessels. In February 2015, we transferred ownership of five 2,800 TEU container vessels to unrelated third parties. No other deliveries ~~have taken place~~ or transfers of vessels are currently scheduled to take place after December 31, ~~2011:~~2014.

~~the newbuilding Supramax drybulk carrier~~ ~~SFL Humber~~ ~~and the newbuilding Handysize drybulk carrier~~ ~~SFL Trent~~ ~~were delivered to us in January 2012, the newbuilding Handysize drybulk carrier~~ ~~Western Australia~~ ~~was delivered to us in February 2012 and the newbuilding Handysize drybulk carrier~~ ~~SFL Kent~~ ~~was delivered to us in March 2012;~~

~~the non-double hull VLCC~~ ~~Titan Orion~~ ~~was delivered to its new owner in March 2012, and the non-double hull VLCCs~~ ~~Titan Aries~~ ~~and~~ ~~Ticen Ocean~~ ~~are scheduled for delivery to their new owner later in 2012 and in 2013, respectively;~~

~~two~~ ~~newbuilding Handysize drybulk carriers are scheduled for delivery to us in 2012;~~

~~four newbuilding 4,800 TEU container vessels are scheduled for delivery to us in 2013; and~~

~~the~~ ~~Suezmax oil tankers~~ ~~Glorycrown~~ ~~and~~ ~~Everbright~~ ~~are scheduled for delivery to their new owners in 2014 and 2015, respectively.~~

Factors Affecting Our Current and Future Results

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

the earnings of our vessels under time charters and bareboat charters to the Frontline Charterers, the Seadrill Charterers and other charterers;

the amount we receive under the profit sharing arrangements with the Frontline Charterers and UFC, including the arrangement with the Frontline Charterers whereby during the four year period of the temporary reduction in charter rates they will pay us 100% of any earnings above the temporarily reduced rates, subject to a maximum of $6,500 per day (see Revenues below);

~~the amount we receive under the profit sharing arrangements with the Frontline Charterers;~~

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

earnings from the sale of assets and termination of charters;

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

vessel management fees and expenses;

administrative expenses;

~~earnings from the sale of assets;~~

interest expenses; and

~~vessel management fees and expenses;~~

~~administrative expenses;~~

~~interest expenses; and~~

mark-to-market adjustments to the valuation of our interest rate swaps and other derivative financial instruments.

Revenues

Our revenues derive primarily from our long-term, fixed-rate charters. Most of the vessels that we acquired from Frontline are chartered to the Frontline Charterers under long-term time charters that are generally accounted for as direct financing leases. On December 30, 2011, amendments were made to the charter agreements with the Frontline Charterers relating to 28 double-hull vessels, all of which ~~are~~were accounted for as direct financing leases. Four of these vessels were sold in 2012, another four were sold in 2013, and a further three sold in 2014. In terms of the amended agreements, we received a compensation payment of $106 million and agreed to a $6,500 per day reduction in the time charter rate for each vessel for the four year period from January 1, 2012, to December 31, 2015. Thereafter, the charter rates revert to the previously agreed daily amounts. The leases ~~have been~~were amended to reflect the compensation payment received and the reduction in future minimum lease payments to be received. The amendments affect direct financing lease interest income from January 1, 2012, onwards.

Direct financing and sales-type lease interest income reduces over the terms of our leases as progressively a lesser proportion of the lease rental payment is allocated as lease interest income, and a higher amount is treated as repayment of the lease.

Our future earnings are dependent upon the continuation of existing lease arrangements and our continued investment in new lease arrangements. Future earnings may also be significantly affected by the sale of vessels. Investments and sales which have affected our earnings since January 1, ~~2011,~~2014, are listed in Item 4 above under acquisitions and disposals. Some of our lease arrangements contain purchase options which, if exercised by our charterers, will affect our future leasing revenues.

We have profit sharing agreements with some of our charterers, in particular with the Frontline ~~Charterers.~~Charterers and UFC. Revenues received under profit sharing agreements depend upon the returns generated by the charterers from the deployment of our vessels. These returns are subject to market conditions which have historically been subject to significant volatility. Prior to December 31, 2011, the Frontline Charterers paid the Company a profit sharing rate of 20% of their earnings above average threshold charter rates on a time-charter equivalent basis from their use of the Company's fleet each fiscal year. The amendments to the charter agreements made on December 30, 2011, increase the profit sharing percentage to 25% for earnings above those threshold levels. Additionally, the amendments provide that during the four year period of the temporary reduction in charter rates, the Frontline Charterers will pay the Company 100% of any earnings on a time-charter equivalent basis above the temporarily reduced time charter rates, subject to a maximum of $6,500 per day. Of the $106 million compensation payment received, $50 million represents a non-refundable advance on profit sharing earnings relating to the 25% profit sharing agreement which took effect on January 1, 2012. In addition to the tankers chartered to the Frontline Charterers, five of our Handysize drybulk carriers on short-term charters to UFC include profit sharing arrangements, whereby we earn a 50% share of profits earned by the vessels above threshold levels.

Vessel Management 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. These subsidiaries each pay Frontline Management a fixed fee of $6,500 per day per vessel for these services. ~~Two of our vessels on charter~~An exception to this arrangement is for any vessel chartered to the Frontline Charterers ~~are currently~~which is sub-chartered by them on a bareboat ~~terms, under~~basis, for which no management fee is payable for the ~~charterer is responsible for all vessel management and operating costs. During the period~~duration of ~~such sub-charters, the fixed fee of $6,500 per day per vessel payable to Frontline Management is suspended.~~bareboat sub-charter.

In addition to the vessels on charter to the Frontline Charterers, we also have ~~four~~six container vessels, 14 drybulk carriers and ~~ten drybulk~~two car carriers employed on time ~~charters. Additionally,~~charters, and two Suezmax tankers employed in the two Handysize drybulk carriers and the four containerships currently under construction are scheduled to be employed on time charters following delivery from the shipyards. Furthermore, we are seeking time charters for five containerships, which were previously chartered to Horizon Lines Inc. on a bareboat basis.spot market. We have outsourced the technical management for these vessels and we pay operating expenses for the 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, drydocking and insurance.

Administrative Expenses

Administrative expenses consist of general corporate overhead expenses, including personnel costs, property costs, legal and professional fees, and other administrative expenses. Personnel costs include, among other things, salaries, pension costs, fringe benefits, travel costs and health insurance. We have entered into an administrative services agreement with Frontline Management under which they provide us with certain administrative support services, and have agreed to reimburse them for reasonable third party costs, if any, advanced on our behalf. Some of the compensation paid to Frontline Management is based on cost sharing for the services rendered based on actual incurred costs plus a margin.

Mark-to-Market Adjustments

In order to hedge against fluctuations in interest rates, we have entered into interest rate swaps which effectively fix the interest payable on a portion of our floating rate debt. We have also entered into interest/currency swaps in order to fix both the interest and exchange rates applicable to the payment of interest and eventual settlement on our floating rate ~~Norwegian kroner ("NOK")~~NOK bonds. Although the intention is to hold such financial instruments until maturity, US GAAP requires us to record them at market valuation in our financial statements. Adjustments to the mark-to-market valuation of these derivative financial instruments, which are caused by variations in interest and exchange rates, are reflected in results of operations and other comprehensive income. Accordingly, our financial results may be affected by fluctuations in interest and exchange rates.

Interest Expenses

Other than the interest expense associated with our ~~8.5% Senior Notes, our~~ 3.75% and 3.25% convertible senior unsecured bonds, and our ~~NOK500~~NOK600 million and NOK900 million senior unsecured bonds, 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 in accordance with US GAAP 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~~For details of all our material accounting policies, see Note 2 to our consolidated financial ~~statements for details of all of our material accounting policies.~~statements.

Revenue Recognition

Revenues are generated from time charter and bareboat charter hires, ~~and~~ profit sharing arrangements and voyage freight billings, and are recognized on an accrual basis. Each charter agreement is evaluated and classified as an operating lease or a capital lease (see Leases below). Rental receipts from operating leases are recognized in income over the period to which the payment relates. Voyage revenues are recognized ratably over the estimated length of each voyage, and accordingly are allocated between reporting periods based on the relative transit time in each period. Voyage expenses are recognized as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated.

Rental payments from direct financing and sales-type leases are allocated between lease service revenues, if applicable, lease interest income and repayment of net investment in leases. The amount allocated to lease service revenue is based on the estimated fair value, at the time of entering the lease agreement, of the services provided which consist of ship management and operating services.

Any contingent elements of rental income, such as profit share or interest rate adjustments, are recognized when the contingent conditions have materialized.

Prior to December 31, 2011, the Frontline Charterers paid the Company a profit sharing rate of 20% of their earnings above average threshold charter rates on a time-charter equivalent basis from their use of the Company's fleet each fiscal year. For each profit sharing period, the threshold is calculated as the number of days in the period multiplied by the daily threshold TCE rates for the applicable vessels. Starting on January 1, 2012, ~~the~~ amendments to the charter agreements increased the profit sharing percentage to 25% for earnings above those threshold levels. Additionally, the amendments provide that during the four year period of the temporary reduction in charter rates, the Frontline Charterers will pay the Company 100% of any earnings on a time-charter equivalent basis above the temporarily reduced time charter rates, subject to a maximum of $6,500 per day. Under the terms of the amendments to the charter agreements, we received a compensation payment of $106 million, of which $50 million represents a non-refundable advance relating to the 25% profit sharing agreement. The non-double hull tankers have been excluded from the annual profit sharing payment calculation since reaching their anniversary dates in 2010, linked to the IMO phase-out regulations for non-double hull tankers. Profit sharing revenues are recorded when earned and realizable.

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 offshore assets, including drilling rigs and drillships, is 30 years and for all other vessels it is 25 years. These are common life expectancies applied in the shipping and offshore industries.

If the estimated economic useful life or estimated residual value of a particular vessel is incorrect, or circumstances change and the estimated economic useful life and/or residual value have to be revised, an impairment loss could result in future periods. We monitor the carrying values of our vessels, including direct financing lease assets, and revise the estimated useful lives and residual values of any vessels where appropriate, particularly when new regulations are implemented.

Leases

Leases (charters) of our vessels where we are the lessor are classified as either operating leases or capital leases, based on an assessment of the terms of the lease. For charters classified as capital leases, the minimum lease payments, reduced in the case of time-chartered vessels by projected vessel operating costs, plus the estimated residual value of the vessel are recorded as the gross investment in the lease.

For direct financing leases, the difference between the gross investment in the lease and the carrying value of the vessel is recorded as unearned lease interest income. The net investment in the lease consists of the gross investment less the unearned income. Over the period of the lease each charter payment received, net of vessel operating costs if applicable, is allocated between "lease interest income" and "repayment of investment in lease" in such a way as to produce a constant percentage rate of return on the balance of the net investment in the lease. Thus, as the balance of the net investment in each direct financing lease decreases, a lower proportion of each lease payment received is allocated to lease interest income and a greater proportion is allocated to lease repayment. For direct financing leases relating to time chartered vessels, the portion of each time charter payment received that relates to vessel operating costs is classified as "lease service revenue".

The implicit rate of return for each of the Company's direct financing leases is derived in accordance with Accounting Standards Codification, or ASC, Topic 840 "Leases" using the fair value of the asset at the lease inception, ~~(which is either the cost of the asset if acquired from an unrelated third party, or independent valuation if acquired from a related party),~~ the minimum contractual lease payments and the estimated residual values.

For sales-type leases, the difference between the gross investment in the lease and the present values of its components, i.e. the minimum lease payments and the estimated residual value, is recorded as unearned lease interest income. The discount rate used in determining the present values is the interest rate implicit in the lease, as defined in ASC Topic 840-10-20. The present value of the minimum lease payments, computed using the interest rate implicit in the lease, is recorded as the sales price, from which the carrying value of the vessel at the commencement of the lease is deducted in order to determine the profit or loss on sale. As is the case for direct financing leases, the unearned lease interest income is amortized to income over the period of the lease so as to produce a constant periodic rate of return on the net investment in the lease. In addition, in the case of a sales-type lease, the difference between the fair value (or sales price) and the carrying value (or cost) of the asset is recognized as "profit on sale" in the period in which the lease commences.

We estimate the unguaranteed residual value of our direct financing lease assets at the end of the lease period by calculating depreciation in accordance with our accounting policies over the estimated useful life of the asset. Residual values are reviewed at least annually to ensure that original estimates remain appropriate.

There is a degree of uncertainty involved in the estimation of the unguaranteed residual values of assets leased under both operating and capital leases. Global effects of supply and demand for oil and other cargoes, and changes in international government regulations cause volatility in the spot market for second-hand vessels. Where assets are held until the end of their useful lives the unguaranteed residual value (i.e. scrap value) will fluctuate with the price of steel and any changes in laws related to the ship scrapping process, commonly known as ship breaking.

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 independent broker valuations of each of our vessels. 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.

Fixed Price Purchase Options

Where an asset is subject to an operating lease that includes fixed price purchase options, the projected net book value of the asset is compared to the option price at the various option dates. If any option price is less than the projected net book value at an option date, the initial depreciation schedule is amended so that the carrying value of the asset is written down on a straight line basis to the option price at the option date. If the option is not exercised, this process is repeated so as to amortize the remaining carrying value, on a straight line basis, to the estimated scrap value or the option price at the next option date, as appropriate.

Similarly, where a direct financing or sales-type lease relates to a charter arrangement containing fixed price purchase options, the projected carrying value of the net investment in the lease is compared to the option price at the various option dates. If any option price is less than the projected net investment in the lease at an option date, the rate of amortization of unearned finance lease interest income is adjusted to reduce the net investment in the lease to the option price at the option date. If the option is not exercised, this process is repeated so as to reduce the net investment in the lease to the un-guaranteed residual value or the option price at the next option date, as appropriate.

Thus, for operating assets and direct financing and sales-type lease assets, if an option is exercised there will either be (a) no gain or loss on the exercise of the option or (b) in the event that an option is exercised at a price in excess of the net book value of the asset or the net investment in the lease, as appropriate, at the option date, a gain will be reported in the statement of operations at the date of delivery to the new owners.

Impairment of Long-Lived Assets

The vessels and rigs held and used by us are reviewed for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment charge would be recognized if the estimate of future undiscounted cash flows expected to result from the use of the vessel or rig and its eventual disposal is less than its carrying amount. When testing for impairment, we consider daily rates currently in effect for existing charters, the possibility of any medium or long-term charter arrangements being terminated early and, using historical trends, estimated daily rates for each vessel or rig for its remaining useful life not covered by existing charters. 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 five-year and ten-year 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.

In the second quarter of 2009, the Company carried out a review of the carrying value of its vessels, drilling rigs and long-term investment, and concluded that the carrying values of its six single-hull tankers, excluding those sold under sales-type lease agreements, and its investment were impaired. Following the impairment charges taken against these assets, the reviewyear ended December 31, 2012, reviews of the carrying value of long-lived assets ~~as at~~indicated that the Company's long-term investments in shares in a container vessel owner/operator and warrants to purchase shares in a U.S. company were impaired, and charges were taken against these assets. No impairment charge was required in 2013. In the year ended December 31, ~~2010 and 2011,~~2014, reviews of the carrying value of long-lived assets indicated that ~~none of~~ the Company's ~~asset values are further impaired.~~five 2,800 TEU container vessels were impaired, and charges were taken against these assets.

Vessel Market Values

As we obtain information from various industry and other sources, our estimates of vessel market values are inherently uncertain. In addition, charter-free market values are highly volatile and any estimate of market value may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them. Moreover, we are not holding our vessels for sale, except as otherwise noted in this report, and most of our vessels are currently employed under long-term charters or leases or other arrangements. There is not a ready liquid market for vessels that are subject to such arrangements.

During the past few years, the charter-free market values of vessels have experienced particular volatility, with substantial declines in many vessel classes. As a result, the charter-free market values of many of our vessels have declined below those vessels' carrying value. However, we would not impair those vessels' carrying value under our accounting impairment policy, because ~~the~~we expect future cash flows receivable from the ~~vessels'~~vessels over their remaining useful lives, including existing charters, ~~and their remaining operating lives~~ in all cases exceed such vessels' carrying values.

At December 31, ~~2011,~~2014, we owned 6067 vessels and rigs, and had newbuilding contracts to acquire a further ~~ten~~two container vessels. Taking into account the ~~cost of~~$85 million scheduled remaining yard payments for completing the newbuildings, and including the two ultra-deepwater drilling units and the harsh-environment jack-up drilling rig which are owned by equity accounted subsidiaries, the aggregate carrying value of these 7069 assets at December 31, ~~2011,~~2014, was ~~$4.55~~$3.8 billion, as summarized ~~below:~~in the table below. The table is presented in the context of the markets in which the vessels operate, with oil tankers and chemical tankers grouped together under "Tanker vessels", container vessels and car carriers grouped together under "Liners" and jack-up drilling rigs, ultra-deepwater drilling units and offshore supply vessels grouped together under "Offshore units".

Number of
owned vessels

Carrying value
at December 31, 2011
($ millions)

Tanker vessels (1) 30 1,357
Drybulk carriers, including OBOs (2) 17 398
Container vessels (3) 13 580
Offshore units (4) 10 2,212
70 4,547



	Number of owned vessels	Aggregate carrying value at December 31, 2014 ($ millions)
Tanker vessels (1)	21	912
Drybulk carriers (2)	14	383
Liners (3)	24	825
Offshore units (4)	10	1,699
	69	3,819

~~(1)~~	~~Includes 25~~
(1)	Includes 19 vessels with an aggregate carrying value of ~~$1,219~~$820 million, which we believe exceeds their aggregate charter-free market value by approximately ~~$487 million.~~$265 million, and two vessels with a carrying value of $92 million, which we believe is approximately $17 million less than their aggregate charter-free market value.


(2)	Includes 1214 vessels with an aggregate carrying value of ~~$356~~$383 million, which we believe exceeds their aggregate charter-free market value by approximately ~~$49~~$113 million.


(3)	Includes 139 vessels with an aggregate carrying value of ~~$580~~$287 million, which we believe exceeds their aggregate charter-free market value by approximately ~~$125 million.~~$171 million, and 15 vessels with an aggregate carrying value of $538 million, which we believe is approximately $46 million less than their aggregate charter-free market value.

~~(4)~~

~~Includes~~

(4)

Includes two vessels with an aggregate carrying value of ~~$92~~$65 million, which we believe exceeds their aggregate charter-free market value by approximately ~~$19 million. Three of the offshore units,~~$24 million, and five vessels with an aggregate carrying value of ~~$1,851~~$204 million, which we believe is approximately $83 million less than their aggregate charter-free market value. The remaining three offshore units, which are owned by wholly-owned subsidiaries accounted for using the equity ~~method.~~method, have an aggregate carrying value of $1,430 million, which we believe is $312 million less than their aggregate charter-free market value.

The ~~Company has provided a guarantee for the senior secured loan financing relating to the container vessel~~ ~~CMA CGM Corte Real~~ chartered-in by SFL Corte Real Limited, which is a wholly-owned subsidiary accounted for using the equity method (see Item 4: Acquisitions and disposals). At December 31, 2011, the outstanding balance on the loan, which is secured by a first priority mortgage on the vessel, was $56.9 million. The charter-free marketabove aggregate carrying value of ~~the vessel~~$3,819 million at December 31, ~~2011, was $129 million.~~2014, is made up of (a) $840 million investments in capital leases, excluding adjustments for deferred equity contribution and unamortized gains (see Note 15 to the consolidated financial statements), (b) $1,377 million vessels and equipment, (c) $87 million newbuildings, (d) $85 million cost to complete newbuildings and (e) $1,430 million carrying value of two ultra-deepwater drilling units and one jack-up drilling rig owned by equity accounted subsidiaries.

Mark-to-Market Valuation of Financial Instruments

The Company enters into interest rate and currency swap transactions, total return bond swaps and total return equity swaps. As required by ASC Topic 815 "Derivatives and Hedging", the mark-to-market valuations of these transactions are recognized as assets or liabilities, with changes in their fair value recognized in the consolidated statements of operations or, in the case of swaps designated as hedges to underlying loans, in other comprehensive income. To determine the market valuation of these instruments, we use a variety of assumptions that are based on market conditions and risks existing at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Variable Interest Entities

A variable interest entity is defined in ASC Topic 810 "Consolidation" ("ASC 810") as a legal entity where either (a) the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated support; (b) equity interest holders as a group lack either i) the power to direct the activities of the entity that most significantly impact on its economic success, ii) the obligation to absorb the expected losses of the entity, or iii) the right to receive the expected residual returns of the entity; or (c) the voting rights of some investors in the entity are not proportional to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.

ASC 810 requires a variable interest entity to be consolidated by its primary beneficiary, being the interest holder, if any, which has both (1) the power to direct the activities of the entity which most significantly impact on the entity's economic performance, and (2) the right to receive benefits or the obligation to absorb losses from the entity which could potentially be significant to the entity.

In applying the provisions of ASC 810, we must make assessments in respect of, but not limited to, the sufficiency of the equity investment in the underlying entity and the extent to which interest holders have the power to direct activities. These assessments include assumptions about future revenues and operating costs, fair values of assets, and estimated economic useful lives of assets of the underlying entity.

Recent accounting pronouncements

In ~~May 2011,~~April 2014, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued Accounting Standards Update ("ASU") ~~2011-04 "Amendments~~2014-08 "Presentation of Financial Statements and Property, Plant and Equipment" in order to ~~Achieve Common Fair Value Measurement~~clarify and ~~Disclosure Requirements~~change the criteria for reporting discontinued operations. Under ASU 2014-08, the disposal of a component or a group of components of an entity is required to be reported in ~~US GAAP~~discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on the entity's operations and ~~IFRSs (International Financial Reporting Standards)". In general,~~financial results. Additionally, ASU ~~2011-04 clarifies~~2014-08 improves the ~~FASB's intent about the application~~definition of ~~existing fair value measurement~~discontinued operations and ~~disclosure requirements, and~~requires expanded disclosures for many of these requirements the amendments are not intended to result in any change in the application of ASC Topic 820 ("Fair Value Measurement"). At the same time, there are some amendments that do change particular principles or requirements relating to fair value measurement and disclosure.discontinued operations. ASU ~~2011-04~~2014-08 is effective for ~~interim~~annual reporting periods and ~~annual~~interim periods beginning on or after December 15, ~~2011.~~2014. Its adoption is not expected to have a material impact on the Company's disclosures or consolidated financial position, results of operations and cash flows.

In ~~June 2011,~~May 2014, the FASB issued ASU ~~2011-05 "Presentation of Comprehensive Income"~~2014-09 "Revenue from Contracts with Customers" in order to ~~improve~~ensure that revenue recognition requirements are the ~~comparability, consistency~~same under both US GAAP and ~~transparency~~International Financial Reporting Standards ("IFRS"). ASU 2014-09 removes inconsistencies and provides a more robust framework for addressing revenue issues. ASU 2014-09 is effective for reporting periods and interim periods beginning on or after December 15, 2016. Early adoption is not permitted. The Company is currently assessing the impact of ASU 2014-09 on its consolidated financial ~~reporting~~position, results of operations and cash flows.

In August 2014, the FASB issued ASU 2014-12 "Compensation - Stock Compensation" in order to ~~increase~~provide explicit guidance on accounting for share-based payments when the ~~prominence~~terms of ~~items reported~~an award provide that a performance target could be achieved after the requisite service period. The Company's Option Scheme does not award options which are dependent on the achievement of performance targets and, accordingly, ASU 2-14-12 is not expected have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In November 214, the FASB issued ASU 2014-16 "Derivatives and Hedging" in ~~other comprehensive income.~~order to standardize the determination of whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. ASU ~~2011-05 eliminates the option to present components of other comprehensive income as part~~2014-16 requires that all terms and features of the ~~statement of changes in stockholders' equity, and requires entities to present~~hybrid instrument, including the ~~total of comprehensive income,~~embedded derivative feature itself, must be taken into account when establishing separate accounting for the ~~components of net income, and the components of other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.~~embedded derivative. ASU ~~2011-05~~2014-16 is effective for fiscal years beginning after December 15, 2011, although early adoption is permitted. ASU 2011-05 also included the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) in which the components of net income and the components of other comprehensive income are presented. Owing to concerns raised about difficulties in its implementation, this latter requirement has been deferred for further consideration, through the issue by the FASB in December 2011 of ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05". As permitted, the Company has adopted ASU 2011-05 with effect from the year ended December 31, 2011, the only effect being the inclusion of an additional financial statement "Consolidated Statements of Comprehensive Income" presenting items which were previously disclosed elsewhere.

In December 2011, the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets and Liabilities" in order to standardize the disclosure requirements under US GAAP and IFRS relating to both instruments and transactions eligible for offset in financial statements. ASU 2011-11 is applicable for annual reportinginterim periods beginning on or after December15, 2015. The Company is currently assessing the impact of ASU 2014-16 on its consolidated financial position, results of operations and cash flows.

In January ~~1, 2013.~~2015, the FASB issued ASU 2015-01 "Income Statement - Extraordinary and Unusual Items", which eliminates the concept of extraordinary items from U.S. GAAP. ASU 2015-01 is effective for fiscal years and interim periods beginning on or after December 15, 2015. Early adoption is permitted provided that it is applied from the beginning of the fiscal year of adoption. Its adoption is not expected to have a material impact on the ~~Company's disclosures.~~Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" in order to clarify the basis for consolidation of certain legal entities. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, ASU 2015-02 (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, (iii) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (iv) provides a scope exception from consolidation guidance for reporting entities with interests in certain legal entities. ASU 2015-02 is effective for public business entities for fiscal years and interim periods beginning on or after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of ASU 2015-02 on its consolidated financial position, results of operations and cash flows.

Market Overview

The Oil Tanker Market

~~In 2011, according~~Over the course of 2014, tanker freight rates increased from low levels in 2013 to ~~industry sources,~~levels not seen since 2010. Following three years of remarkable stability in the price of crude oil at around $110 per barrel, the price declined to below $50 per barrel in December 2014, as a result of increased production in the United States, Libya and other producers, coupled with Saudi Arabia and associated OPEC members declining to limit their own production. This caused significant changes in the pattern of oil trade around the world, increasing average trading distances by 3%, which offset the 1% decrease in global oil demand, resulting in a 2% increase in ton-miles. Additionally, fleet productivity decreased by 1-2% leading to an overall 4% increase in tonnage demand. On the supply side, crude oil tanker capacity barely registered any growth at all, and it is estimated that fleet percentage utilization increased by 0.8%, and tonnage demand for tankers increased by 2.3%. However, tanker markets suffered from a 6.2% increase in capacity and, with little use of tankers for storage, overall tanker utilization was low at an estimated 83 %. The delivery of new tanker tonnagemore than 2% to ~~the market was at the highest rate in six years.~~above 85%.

The ~~over-supply of capacity~~increase in fleet utilization resulted in ~~2011~~2014 being a ~~poor~~much better year for crude oil tankers, with TCE rates for a modern ~~VLCC~~VLCCs and Suezmax tankers averaging ~~$22,100~~approximately $30,200 and $24,400 per day, ~~compared with $42,600 per day~~respectively, approximately 30% above average rates in ~~2010. The market was particularly weak during~~2013. Most of the ~~third quarter~~strengthening took place in the second half of ~~2011, when rates were at or below operating cost levels. The market for other classes of oil tankers, including Suezmax tankers, reflected this pattern with~~the year, and in December spot charter rates ~~substantially below the rates for 2010.~~ attaining levels well in excess of those in recent years.

According to industry sources, at the end of ~~2011~~2014 the total orderbook for new VLCCs consisted of ~~123~~83 vessels, representing approximately ~~21%~~13% of the existing fleet, and the total ~~order book~~orderbook for Suezmax tankers consisted of ~~114~~53 vessels, representing approximately ~~26%~~12% of the existing fleet.

The Drybulk Shipping Market

~~Consistent with recent years, the~~The drybulk shipping market experienced another ~~turbulent~~difficult year in ~~2011.~~2014, with average earnings lower than in 2013, although higher than in 2012. Overall, industry sources indicate that ~~drybulk cargoes increased by approximately 6% from 2010 to 2011, while~~ tonnage demand for vessels increased by ~~9% driven by higher port congestion~~approximately 4%, which was lower than anticipated owing to significant reductions in Chinese coal, bauxite and ~~a generally strong increase in the Chinese coastal trade. However, as a result of new vessels delivered from shipyards, drybulk~~nickel ore imports. Meanwhile, fleet capacity increased by ~~nearly 15%. On average, freight rates dropped by more than 40% from 2010, with Capesize vessels experiencing~~approximately 5%, leading to a ~~50% reduction. For Capesize vessels, the year began on an extremely weak note, as a result of severe weather~~decrease in ~~Australia and Brazil reducing coal and iron ore exports. In the second half of 2011, trade in coal and iron ore recovered and Capesize rates ended the year stronger.~~fleet utilization.

~~The~~Accordingly, the market for ~~smaller~~Supramax and Handysize drybulk carriers was ~~slightly more stable in 2011, although it experienced a declining trend during the second half of the year.~~generally depressed throughout 2014. The average one-year time charter rates for Supramax and Handysize drybulk carriers were, respectively, ~~$14,100~~$9,800 per day and ~~$14,400~~$7,700 per day, representing decreases from ~~2010~~2013 of ~~32%~~5% and ~~26%.~~6%, respectively.

During ~~2011,~~2014, contracting for newbuilding drybulk carriers decreased ~~significantly~~ to ~~the lowest level in six years, with less than 30~~67 million dwt ~~ordered compared to more than 80~~from 73 million dwt ~~ordered~~ in ~~2010. Deliveries~~2013, while deliveries of new vessels amounted to 9547 million dwt and scrapping removed some 2215 million dwt. Thus, fleet capacity increased by 32 million dwt, ~~both record levels.~~ equivalent to approximately 5% of the overall average fleet size for the year. At the end of 2014, the total orderbook for new drybulk carriers was 146 million dwt, equivalent to 20% of the existing fleet.

The ~~Containership~~Freight Liner Market (Containerships and Car Carriers)

The container charter market ~~began 2011 on a reasonably strong note, building on momentum from the second half of 2010. In the second half of the~~experienced another weak year ~~however, the overall container market was hit by overcapacity, including~~ in ~~the important East-West trade routes, mainly due to~~2014, with the influx of ~~some 1.2~~1.5 million TEU of new capacity ~~strongly weighted towards ultra-large vessels.~~continuing the general situation of overcapacity. This resulted in ~~extreme downward pressure on freight~~average charter rates ~~and substantial losses for most container operators.~~increasing by only 2% from the very low levels of 2013.

Industry sources indicate that container ~~freight movements increased by 7 % in 2011, and container~~ ship demand increased by slightly over 6% in 2014, while overall capacity grew by a similar percentage to approximately ~~8%. Overall capacity growth was 8.5%,~~18.2 million TEU, after deducting ~~115,000~~400,000 TEU which was scrapped. ~~Although charter~~Charter rates ~~in 2011 were on average 25% higher than in 2010, there was a substantial decline in~~began the ~~second half~~year at low levels, around or below operating cost for owners, and generally remained low throughout the year, with total fleet capacity utilization more or less unchanged from 2013. However, towards the end of the year ~~which ended with~~ rates ~~well below~~for vessels above 9,000 TEU strengthened, and at the ~~year's average levels and hovering around operating cost for~~end of the ~~owners. Approximately 600,000~~year approximately 230,000 TEU of capacity, ~~approximately 4%~~around 1.2% of the overall fleet, was reported to be idle, considerably less than the 4.8% idle capacity at the end of ~~the year, split between operators and non-operating owners.~~2013.

~~Following nearly three years of very low levels of newbuilding orders, contracting~~Contracting for new container vessels ~~was strong~~ in ~~2011, especially during the first half of the year. In total, 1.7~~2014 amounted to around 0.9 million TEU, considerably lower than the high level of ~~capacity was ordered, with a strong~~2.1 million TEU in 2013. The bias continues to be towards larger vessels, ~~and~~with more than ~~70%~~80% of the orders being for vessels with capacities ~~above 7,000 TEU. The fairly strong contracting activity resulted in~~of 8,000 TEU and above. At the ~~year-end~~end of the year, the ratio of outstanding orders to existing fleet ~~size increasing,~~capacity decreased from 22% to 18%.

The car carrier market was generally weak in 2014. Despite growing auto sales in the major markets, most of the increased demand was covered by local production and demand for vessel tonnage did not grow. Meanwhile, there were 22 vessels delivered from shipyards in 2014 and 13 vessels removed from the ~~first time~~fleet, resulting in ~~three years,~~fleet capacity growth of 2%. With growth in capacity and no growth in demand, average time-charter rates declined by approximately 6% over the course of the year. At the year end, the orderbook consisted of 55 vessels, equivalent to ~~28%.~~10% of existing fleet capacity.

The Offshore Market

~~The increase in oil and gas prices~~From 2011 to record levels in 2008 created a world-wide increase in offshore exploration drilling activity, prompting a significant increase in dayrates for drilling units and high levels of orders for newbuilding jack-up rigs and ultra-deepwater drilling units. The2013, the oil price (Brent crude spot) ~~declined from its record high of more than $140~~averaged around $110 per barrel, ~~in 2008~~which was attractive to ~~an average of $63 per barrel in 2009, but by 2011 the price had recovered to an average of $107 per barrel. This resulted in~~ oil and gas companies and prompted them to substantially ~~increasing~~increase their investment in offshore exploration and development ~~activity~~activity. This resulted in ~~both 2010 and 2011. Although the major accident in April 2010 at the Macondo well~~an increase in the ~~Gulf~~supply of ~~Mexico heightened safety~~mobile offshore drilling units from 642 in 2009 to 823 in 2014, and ~~environmental concerns within the offshore~~almost full utilization and record high day rates for those assets. This continued into 2014, despite oil and gas ~~sector, this has not affected~~companies becoming increasingly selective in their exploration and development activities, as they sought to demonstrate financial discipline to their shareholders. Over the ~~strong recovery~~course of 2014, the substantial reduction in the oil price to below $50 per barrel in December resulted in decidedly weaker demand in the offshore drilling ~~activity.~~

~~Day~~market, and asset utilizations declined by an average of about 4% and global average day rates ~~for drilling units of all types have~~ declined from their peak in 2008, but average rates in 2011 were similar to those in 2010, while rates for ultra-deepwater units increasing to over $500,000 per day. Demand for both jack-up rigs and floating units increased substantially in the year, and utilisations in 2011 were higher than in 2010.by about 12%.

Industry sources indicate that orders were placed for 8647 newbuilding drilling units in ~~2011, considerably more~~2014, roughly 50% less than in ~~any~~2013, reflecting the clear deterioration in market fundamentals. The average number of available units in 2014 was 823, a 7% increase on the ~~previous three years. At the end~~average of ~~the year, the overall fleet consisted of 727 units, an increase of 24 over the previous year, with a further 110~~770 in 2013. Although 99 new units are scheduled ~~for delivery before the end~~to be delivered in 2015, it is clear that owners will have to adjust their fleets through cancellation of ~~2013.~~newbuildings and removals/scrapping of older units.

The above overviews of the various sectors in which we operate are based on current market conditions. However, market developments cannot always be predicted and may differ from our current expectations.

Inflation

Most of our time chartered vessels are subject to operating and management agreements that have the charges for these services fixed for the term of the charter. Thus, although inflation has a moderate impact on our corporate overheads and our ~~ship~~vessel 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, ~~2011~~2014, compared with ~~the~~ year ended December 31, ~~2010~~2013

Net income for the year ended December 31, ~~2011,~~2014, was ~~$131.2~~$122.8 million, ~~a decrease~~an increase of ~~21%~~38% from the year ended December 31, ~~2010.~~2013.

(in thousands of $)
2011 2010

Total operating revenues 295,114 308,060
Gain on sale of assets 8,468 28,104
Total operating expenses (140,877 ) (124,319 )
Net operating income 162,705 211,845
Interest income 23,401 21,107
Interest expense (103,378 ) (101,432 )
Other non-operating items (net) (2,455 ) (16,221 )
Equity in earnings of associated companies 50,902 50,413
Net income 131,175 165,712



(in thousands of $)	2014		2013
Total operating revenues	327,487		270,860
(Loss)/gain on sale of assets	(1,384	)	18,025
Gain on termination of charters	25,315		—
Total operating expenses	(206,272	)	(171,519	)
Net operating income	145,146		117,366
Interest income	40,451		30,080
Interest expense	(86,081	)	(87,225	)
Other non-operating items (net)	(10,198	)	785
Equity in earnings of associated companies	33,497		28,200
Net income	122,815		89,206

Net operating income in 2014 was ~~$49.1~~$27.8 million ~~lower~~higher than in ~~2011,~~2013, principally due to the ~~$30.1~~$33.0 million ~~reduction~~increase in profit sharing revenues ~~(included in "Total operating revenues" – see~~(see below) ~~and the $19.6 million reduction in gains on sale of assets.~~. Net income was ~~$34.5~~$33.6 million ~~lower in 2011,~~higher, owing to the ~~reduction~~increase in net operating income and higher interest income and equity in earnings of associated companies, partly offset by ~~the lower~~higher net ~~cost of "Other~~other non-operating ~~items"~~costs (see below).

~~Two container vessels chartered in on long-term bareboat charter in 2011, one jack-up drilling rig (sold in June 2011), three~~Four ultra-deepwater drilling units (one of which was a newbuilding delivered in February 2014) and ~~one drybulk carrier (sold~~two container vessels chartered-in on bareboat charters (until the charters were terminated in ~~2010)~~the first quarter of 2014) were accounted for under the equity method during ~~2011~~2014 and ~~2010.~~2013. The operating revenues of the wholly-owned subsidiaries owning these assets are included under "equity in earnings of associated companies", where they are reported net of operating and non-operating expenses.

Operating revenues


(in thousands of $)	2011		2010		2014	2013

Direct financing and sales-type lease interest income		104,616		126,777	45,363	59,616
Finance lease service revenues		69,992		76,876	46,488	54,236
Profit sharing revenues		482		30,566	33,756	770
Time charter revenues		29,449		4,429	93,052	83,425
Bareboat charter revenues		90,279		68,927	69,771	61,029
Voyage charter revenues					34,608	9,724
Other operating income		296		485	4,449	2,060
Total operating revenues		295,114		308,060	327,487	270,860

Total operating revenues ~~decreased 4%~~increased 21% in the year ended December 31, ~~2011,~~2014, compared with ~~2010.~~2013.

In general, direct financing and sales-type lease interest income reduces over the terms of our leases, as progressively a lesser proportion of the lease rental payment is allocated to interest income and a greater proportion is treated as repayment ofon the lease. ~~In 2011, we sold~~The $14.3 million reduction in lease interest income from 2013 to 2014 is due to this effect, and also to the sale in 2014 of three ~~OBOs~~VLCCs (Front Comanche, Front Commerce and Front Opalia) and in 2013 of two VLCCs (Front Champion and Golden Victory), one Suezmax tanker (Front Pride) and one OBO (Front Guider), all of which were previously direct financing lease assets chartered to ~~one of~~ the Frontline Charterers. In 2010, the direct financing lease periods of six non-double hull VLCCs ended, when they reached their anniversary dates and the terms of their continuing charters with Frontline resulted in them becoming accounted for as operating lease assets. These factors, together with the disposal of two other VLCCs in 2010, have resulted in a 17% reduction in our total lease interest income compared to 2010.

The reduction in finance lease service revenue reflects the ~~sale~~above sales of ~~three OBOs~~vessels in ~~2011, the transfer to operating leases in 2010 of six non-double hull VLCCs,~~2014 and ~~the sale of one other VLCC in 2010, all of~~2013, which had been direct financing lease assets chartered to the Frontline Charterers on a time-charter basis.

~~Profit~~Prior to December 31, 2011, the Frontline Charterers paid us profit sharing ~~revenues decreased substantially,~~of 20% of their earnings from our vessels on a time-charter equivalent basis above average threshold charter rates each fiscal year. The amendments to the charter agreements made on December 30, 2011, necessitated by the depressed state of the tanker market, increased the profit sharing percentage to 25% for earnings above those threshold levels, and additionally provided that for the four year period of the temporary reduction in charter rates, the Frontline Charterers will pay us 100% of any earnings on a time-charter equivalent basis above the temporarily reduced time charter rates, subject to a maximum of $6,500 per day per vessel. In 2014 we earned $32.7 million under these new arrangements, none of which related to the 25% profit sharing agreement. In 2013 we had no earnings under these arrangements, due to ~~very low charter rates~~the poor state of the tanker market during the year. We also have a profit sharing agreement relating to five Handysize drybulk carriers chartered to UFC, which in 2014 earned ~~by Frontline~~us $1.1 million, compared with $0.8 million in ~~a weaker tanker market.~~2013.

During ~~2010, time charter~~2013, time-charter revenues were earned by ~~two 1,700 TEU containerships, two~~seven container vessels, 12 drybulk carriers and ~~the VLCC~~ ~~Front Ace. One~~two car carriers. In 2014, we took delivery of ~~the containerships~~two additional container vessels and ~~the~~ two additional drybulk carriers ~~had been delivered in the fourth quarter of 2010 and the~~ ~~Front Ace~~ ~~became on~~ operating ~~lease asset in September 2010.~~under time-charters. The ~~Front Ace~~ ~~was sold in March 2011. The~~12% increase in ~~time charter~~time-charter revenues ~~in 2011~~from 2013 to 2014 is due to ~~the delivery in 2011 of~~these four additional ~~drybulk carriers, together with full year earnings by the containership and two drybulk carriers delivered in 2010.~~vessels.

Bareboat charter revenues are earned by our vessels which are leased under operating leases on a bareboat basis. In ~~2010,~~2013, these consisted of ~~five 2,800 TEU containerships, two 1,700 TEU containerships,~~ four offshore supply vessels, two chemical tankers, one jack-up drilling rig, and ~~five non-double hull VLCCs which became~~two 1,700 TEU container vessels. In 2014 we took delivery of nine additional container vessels operating ~~lease assets on their anniversary dates~~under bareboat charters, resulting in ~~2010, one~~an increase of ~~which was subsequently sold in April 2010. The increase~~$8.7 million in bareboat charter ~~revenues in 2011 is due to the acquisition in January 2011 of the jack-up drilling rig~~ ~~Soehanah, slightly offset by the disposal of the VLCC~~ ~~Front Highness~~ ~~in February 2011.~~revenues.

Two of our vessels, the Suezmax tankers Everbright and Glorycrown, were sold under sales-type lease agreements in 2010 and 2009, respectively. Following default by the purchaser, these vessels were returned to us in September 2013, since when we have traded them on a voyage charter basis, earning $34.6 million in voyage charter revenues in 2014 (2013: $9.7 million).

Cash flows arising from direct financing and sales-type leases

The following table analyzes our cash flows from the direct financing and sales-type leases with the Frontline Charterers, ~~Seadrill Prospero Limited, or Seadrill Prospero,~~ Deep Sea ~~NCS~~ and ~~Taiwan Maritime Transportation~~North China Shipping Holdings Co. Ltd., or ~~TMT,~~NCS, during ~~2011~~2014 and ~~2010,~~2013, and shows how they are accounted for:


(in thousands of $)	2011		2010		2014	2013

Charterhire payments accounted for as:

Direct financing and sales-type lease interest income		104,616		126,777	45,363	59,616
Finance lease service revenues		69,992		76,876	46,488	54,236
Direct financing and sales-type lease repayments		204,874		174,946	43,120	51,220
Total direct financing and sales-type lease payments received		379,482		378,599	134,971	165,072

Lease repayments in 2011 include the $106 million compensation payment received from the Frontline Charterers in terms of the temporary amendments to the charter agreements. Lease repayments in 2010 include $40 million received from the initial installment on the sales-type lease relating to the sale of the newbuilding ~~Everbright, and also include repayments on other direct financing lease assets which were either sold or transferred to operating leases in 2010.~~

The ~~tankers and OBOs~~vessels chartered on direct financing leases to the Frontline Charterers are leased on ~~time charter~~time-charter terms, where we are responsible for the management and operation of such vessels. This has been effected by entering into fixed price agreements with Frontline Management whereby we pay them management fees of $6,500 per day for each vessel chartered to the Frontline Charterers. Accordingly, $6,500 per day is allocated from each time charter payment received from the Frontline Charterers to cover lease executory costs, and this is classified as "finance lease service revenue". If any vessel chartered on direct financing leases to the Frontline Charterers is sub-chartered on a bareboat basis, then the charter payments for that vessel are reduced by $6,500 per day for the duration of the bareboat sub-charter.

~~Gain~~(Loss)/gain on sale of assets

~~Gains of $8.5~~In 2014, losses totaling $1.4 million were recorded ~~in 2011~~ on the ~~disposals~~disposal of three VLCCs (Front Comanche, Front Commerce and Front Opalia). In 2013, three VLCCs, one Suezmax tanker and one OBO were sold, with gains totaling $18.0 million.

Gain on termination of charters

In 2014, compensation amounting to $25.3 million was received in respect of the ~~VLCCs~~ ~~Front Highness~~ ~~and~~ ~~Front Ace, and~~early termination of the ~~OBOs~~ ~~Front Leader~~, ~~Front Breaker~~ ~~and~~ ~~Front Striver. Four~~time charters on four Handysize drybulk carriers. The charters for these newbuilding vessels ~~were sold~~had been agreed in November 2010, ~~including~~with terms of five years from delivery from the ~~newbuilding~~ ~~Everbright~~ ~~which generated a~~yard. There was no gain on termination of ~~$26.0 million.~~ charters in 2013.

Operating expenses


(in thousands of $)	2011		2010		2014	2013

Ship operating expenses		81,063		81,021
Vessel operating expenses					119,470	105,534
Depreciation		49,929		34,201	67,393	58,436
Vessel impairment charge					11,800	—
Administrative expenses		9,885		9,097	7,609	7,549
		140,877		124,319	206,272	171,519

~~Ship~~Vessel operating expenses consist ~~mainly~~ of payments to Frontline Management of $6,500 per day for each ~~tanker and OBO~~vessel chartered to the Frontline Charterers, in accordance with the vessel management agreements. ~~However, no~~In addition, vessel operating expenses ~~are paid to Frontline Management in respect of any vessel which is sub-chartered on a bareboat basis. Ship~~include operating ~~expenses also include operating~~and occasional voyage expenses for the ~~containerships~~container vessels, drybulk carriers and ~~drybulk~~car carriers operated on a time-charter basis and managed by related and unrelated ~~parties.~~parties, and also voyage expenses for the two Suezmax tankers currently operating on voyage charters.

~~Ship~~Vessel operating expenses ~~were substantially unchanged~~increased by $13.9 million from ~~2010~~2013 to ~~2011. Reductions~~2014. The increase was largely due to the $17.0 million increase in voyage and other operating costs of ~~approximately $7~~the two Suezmax tankers, which commenced operating on voyage charters in September 2013, and also to the $2.9 million in operating costs for the additional two container vessels and two drybulk carriers operating under time charters in 2014. The increase was partly offset by the $5.9 million reduction in payments to Frontline Management ~~resulting from the sales~~associated with disposals in ~~2011~~2013 and 2014 of ~~three OBOs~~five time-chartered VLCCs, one Suezmax tanker and one time-chartered VLCC, and the transfer to bareboat charters in 2010 of five non-double hull tankers, were offset by increased operating costs for the new drybulk carriers and containerships acquired in 2010 and 2011.OBO.

Depreciation expenses relate to the vessels on charters accounted for as operating ~~leases.~~leases and on voyage charters. The increase from ~~2010~~2013 to ~~2011~~2014 is primarily due to the ~~acquisition in 2011~~delivery of ~~four drybulk carriers~~11 container vessels and ~~the jack-up drilling rig~~ ~~Soehanah, and the acquisition in the fourth quarter of 2010 of~~ two drybulk carriers ~~and a containership.~~in 2014.

~~The increase in administrative expenses from 2010 to 2011 is primarily due to salaries, including the fair value cost of stock options awarded to directors and employees. In 2010, there was~~During 2014, a ~~write back~~review of the carrying value of long-lived assets indicated that the carrying value of our five 2,800 TEU container vessels was impaired and an impairment charge was taken. No vessel impairment charge was recorded in 2013.

Administrative expenses, which include salaries, office costs, ~~of unvested share options on the departure of the former Chairman of the Board of Directors.~~and fees for professional and administrative services, were substantially unchanged from 2013 to 2014.

Interest income

Interest income increased ~~by 11%~~from $30.1 million in ~~2011,~~2013 to $40.5 million in 2014, mainly as a result of ~~investments made in 2011 in available-for-sale securities and loans of $50 million linked to the containerships~~ ~~CMA CGM Magellan~~ ~~and~~ ~~CMA CGM Corte Real.~~ ~~This was partially offset by~~ interest received on refunded shipyard instalment payments relating to four canceled newbuilding contracts, interest receivable on loan notes from Frontline in ~~2010, but not~~connection with the termination in ~~2011,~~November 2013 of the charters on Front Champion and Golden Victory, and interest receivable on the ~~late settlement of various receivable amounts relating~~new shareholder's loan to ~~newbuilding and sales contracts, and a further amount received from Frontline on the seller's credit issued to them when~~ ~~Front Vista~~ ~~was sold.~~SFL Linus (see Note 16: Investment in Associated Companies).

Interest expense

~~Interest expense~~


(in thousands of $)	2011		2010		2014	2013

Interest on US$ floating rate loans		44,413		43,774	25,163	25,816
Interest on NOK floating rate bonds		5,769		1,211
Interest on 8.5% Senior Notes		24,007		25,437
Interest on 3.75% convertible bonds		4,180		-
Interest on NOK floating rate bonds due 2014					1,137	4,246
Interest on NOK floating rate bonds due 2017					6,094	6,981
Interest on NOK floating rate bonds due 2019					6,675	—
Interest on 8.5% Senior Notes due 2013					—	2,963
Interest on 3.75% convertible bonds due 2016					4,688	4,688
Interest on 3.25% convertible bonds due 2018					11,375	10,459
Swap interest		17,854		22,852	19,486	20,742
Other interest		24		3,122	192	25
Amortization of deferred charges		7,131		5,036	11,271	11,305
		103,378		101,432	86,081	87,225

At December 31, ~~2011,~~2014, the Company and its consolidated subsidiaries had total debt outstanding of ~~$1.9~~$1.7 billion ~~(2010: $1.9~~(2013: $1.7 billion) comprised of ~~$274~~$196 million ~~net outstanding principal amount of 8.5% senior notes (2010: $296 million), $75 million (NOK447~~(NOK1,464 million) net outstanding principal amount of NOK floating rate bonds ~~(2010: $79~~(2013: $165 million, ~~NOK460~~NOK1,001 million), $125 million net outstanding principal amount of 3.75% convertible bonds ~~(2010: $nil)~~(2013: $125 million), $350 million net outstanding principal amount of 3.25% convertible bonds (2013: $350 million) and ~~$1.4~~$1.1 billion under floating rate secured long term credit facilities ~~(2010: $1.5~~(2013: $1.1 billion). The average three-month US$ London Interbank Offered Rate, or LIBOR, was ~~0.33%~~0.23% in ~~2011~~2014 and ~~0.34%~~0.27% in ~~2010. The overall increase in~~2013. Total interest expense ~~is due to increased amortization of deferred charges. Total debt levels and interest rates were~~was substantially unchanged from ~~2010~~2013 to ~~2011.~~2014, in line with total debt levels.

The decrease in interest payable on the NOK floating rate bonds due 2014 is due to their redemption in April 2014. The decrease in interest payable on the NOK floating rate bonds due 2017 is due to repurchases in 2013, which are being held as treasury bonds. The decrease in interest payable on the 8.5% Senior Notes due 2013 is due to ~~the repurchase of Senior Notes~~their redemption in ~~2010 and 2011.~~March 2013. The increase in interest payable on the NOK floating rate bonds due 2019 and ~~3.75%~~the 3.25% convertible bonds due 2018 is due to their issue dates, in ~~October 2010~~March 2014 and ~~February 2011,~~January 2013, respectively. ~~Other interest consists mainly of interest paid to related parties on unsecured long-term and short-term debt, which were both repaid in 2010.~~

At December 31, ~~2011,~~2014, the Company and its consolidated subsidiaries were party to interest rate swap contracts, which effectively fix our interest rates on ~~$1.1~~$1.3 billion of floating rate debt at a weighted average rate excluding margin of ~~3.37%~~3.41% per annum ~~(2010: $1.0~~(2013: $1.2 billion of floating rate debt fixed at a weighted average rate excluding margin of ~~3.41%~~3.40% per annum).

~~Amortization of deferred charges increased by $2.1 million from 2010 to 2011, mainly as a result of accelerated loan repayments made in December 2011.~~

As reported above, ~~three~~four ultra-deepwater drilling units and two chartered-in container vessels ~~one jack-up drilling rig and one drybulk carrier~~ were accounted for under the equity method in ~~2011~~2014 and ~~2010.~~2013. Their non-operating expenses, including interest expenses, are not included above, but are reflected in ~~"equity~~"Equity in earnings of associated companies" below.

Other non-operating items

Other non-operating items amounted to a net ~~cost~~loss of ~~$2.5~~$10.2 million ~~in 2011 (2010: $16.2~~(2013: net gain of $0.8 million). The net ~~cost~~loss in ~~2011 consisted~~2014 consists of ~~$4.4~~$7.7 million adverse mark-to-market valuation adjustments to financial instruments, ~~(2010: $14.7 million) and $2.7~~$7.2 million cash payments on non-designated interest rate swaps, $1.4 million other costs ~~mainly~~(mainly bank and loan commitment ~~fees (2010: $1.5 million)~~fees), partly offset by a ~~$4.1~~gain of $6.1 million ~~gain~~ on disposal of investment in an associated ~~company (2010: $nil) and~~company. The net gain in 2013 consisted of $8.0 million favorable mark-to-market valuation adjustments to financial instruments, offset by $2.7 million cash payments on non-designated interest rate swaps, a ~~$0.5~~loss of $1.2 million ~~gain~~ on the purchase of 8.5% Senior Notes ~~(2010: $nil).~~and NOK denominated bonds, and $3.3 million other costs.

Equity in earnings of associated companies

During ~~2010~~2013 and ~~2011,~~2014, the Company had certain wholly-owned subsidiaries accounted for under the equity method, as discussed in ~~Notes 2 and 15~~Note 16 of the consolidated financial statements included herein. The total equity in earnings of associated companies in 2014 was ~~substantially unchanged~~$5.3 million more than in 2013, due to $12.4 million in earnings from ~~2010 to 2011, with additional earnings in 2011 from two new containerships and one~~the newbuilding harsh environment jack-up drilling rig ~~(previously fully consolidated) offsetting the reducing earnings~~West Linus delivered in April 2014, partly offset by reduced direct financing lease income on three ultra-deepwater drilling units and the ~~loss~~termination of ~~earnings on the drybulk carrier sold~~arrangements for chartering in ~~2010. In June 2011 the associated company owning the jack-up drilling rig was sold for a gain of $4.1 million, pursuant to the charterer of the rig exercising their option to acquire it.~~two container vessels - see Note 16.

Year ended December 31, ~~2010~~2013, compared with ~~the~~ year ended December 31, ~~2009~~2012

Net income for the year ended December 31, ~~2010~~2013, was ~~$165.7~~$89.2 million, a decrease of ~~14%~~52% from the year ended December 31, ~~2009.~~2012.


(in thousands of $)	2010			2009			2013		2012

Total operating revenues		308,060			345,220		270,860		319,692
Gain on sale of assets		28,104			24,721		18,025		25,681
Gain on termination of charters							—		21,705
Total operating expenses		(124,319	)		(160,677	)	(171,519	)	(159,458	)
Net operating income		211,845			209,264		117,366		207,620
Interest income		21,107			240		30,080		27,174
Interest expense		(101,432	)		(117,075	)	(87,225	)	(94,851	)
Other non-operating items (net)		(16,221	)		24,540		785		2,401
Equity in earnings of associated companies		50,413			75,629		28,200		43,492
Net income		165,712			192,598		89,206		185,836

Net operating income was ~~slightly higher~~$90.3 million lower in ~~2010, with a reduction~~2013, principally due to the $51.4 million decrease in ~~operating~~profit sharing revenues ~~offset by a reduction in operating expenses.~~(see below), and the absence of gain on termination of charters. Net income was $96.6 million lower in ~~2010, largely due~~2013, owing to the ~~effect~~decrease in net operating income and reduced equity in earnings of ~~other non-operating items.~~associated companies, partly offset by reduced net interest expense.

~~One drybulk carrier, sold~~Two container vessels chartered in ~~December 2010,~~on long-term bareboat charter and ~~three~~four ultra-deepwater drilling units (one of which was a newbuilding delivered in February 2014) were accounted for under the equity method during ~~2009~~2013 and ~~2010.~~2012. The operating revenues of the wholly-owned subsidiaries owning these assets are included under "equity in earnings of associated companies", where they are reported net of operating and non-operating expenses.

Operating revenues


(in thousands of $)	2010		2009		2013	2012

Direct financing and sales-type lease interest income		126,777		151,368	59,616	65,715
Finance lease service revenues		76,876		88,953	54,236	64,766
Profit sharing revenues		30,566		33,018	770	52,176
Time charter revenues		4,429		2,836	83,425	60,258
Bareboat charter revenues		68,927		68,854	61,029	74,913
Voyage charter revenues					9,724	—
Other operating income		485		191	2,060	1,864
Total operating revenues		308,060		345,220	270,860	319,692

Total operating revenues decreased ~~11%~~15% in the year ended December 31, ~~2010~~2013, compared with ~~2009.~~2012.

~~Direct financing and sales-type~~The $6.1 million reduction in lease interest income ~~decreased by 16%~~ from ~~2009~~2012 to ~~2010, partly as a result~~2013 is due to the inherent reduction over time in the amount of total lease receipts which are allocated to lease interest income, and also to the ~~disposal~~sale in ~~2010~~2013 of two VLCCs (Front Champion and Golden Victory), one Suezmax tanker (Front Pride) and one OBO (Front Guider) and in ~~2009~~2012 of ~~two VLCCs and one jack-up drilling rig. Additionally, in 2010, the~~four OBOs, all of which were previously direct financing lease ~~periods came to an end on six non-double hull VLCCs, when they reached their anniversary dates and the terms of their continuing charters with Frontline, linked~~assets chartered to the IMO phase-out regulations for non-double hull tankers, resulted in them becoming accounted for as operating lease assets. The decrease in 2010 is slightly mitigated by the delivery in November 2009 and March 2010 ofFrontline Charterers. In addition, two Suezmax ~~oil~~ tankers ~~which are accounted for as a~~(Glorycrown and Everbright) were transferred in 2013 from sales-type ~~leases.~~leases to operating leases, when the purchaser of these vessels defaulted on their payment obligations.

The reduction in finance lease service revenue reflects the ~~transfer to operating leases~~above sales of vessels in ~~2010 of six non-double hull VLCCs,~~2013 and ~~the sale of one other VLCC in 2010 and one VLCC in 2009, all of~~2012, which had been direct financing lease assets chartered to the Frontline Charterers on a time-charter basis.

~~Profit~~

In 2012 we earned $52.2 million under the profit sharing ~~revenues decreased mainly~~arrangements with the Frontline Charterers. In 2013 we had no earnings under these arrangements, due to the ~~removal in 2010~~poor state of ~~six non-double hull tankers from~~ the tanker market during the year. We did, however, earn $0.8 million under a new profit sharing agreement ~~and disposals of other VLCCs previously~~relating to four Handysize drybulk carriers chartered to ~~the Frontline Charterers in 2010 and 2009.~~ UFC.

During ~~most of 2009, the only source of time charter revenues was a single 1,700 TEU containership. In addition to this vessel, in 2010~~2012, time charter revenues were ~~also~~ earned ~~from a single-hull VLCC which became an operating lease asset in September 2010, and from two~~by seven container vessels, 11 drybulk carriers and ~~an additional 1,700 TEU containership which~~two car carriers. Five of the drybulk carriers and the two car carriers were delivered in the ~~fourth quarter~~2012, and five of ~~2010.~~the container vessels were transferred to time charters from bareboat charters in 2012. In 2013, we took delivery of one additional drybulk carrier operating under time charter. The 38% increase in time charter revenues from 2012 to 2013 is due to the additional drybulk carrier operating under a time charter, together with full year earnings on the seven vessels delivered in 2012 and the five container vessels transferred to time charters in 2012.

~~Bareboat charter revenues arise from our vessels which are leased under operating leases on a bareboat basis.~~ In ~~2009, these consisted of five 2,800 TEU containerships, two 1,700 TEU containerships,~~2012, we had four offshore supply vessels, ~~and~~ two chemical ~~tankers. Bareboat charter revenues were earned in 2010 by these same~~tankers, one jack-up drilling rig, two 1,700 TEU container vessels, five 2,800 TEU container vessels and ~~also by five~~three non-double hull VLCCs ~~which became~~ operating ~~lease assets on their anniversary dates~~under bareboat charters. The 19% decrease in ~~2010, one of which was subsequently sold in April 2010. The additional~~ bareboat charter revenues ~~earned~~in 2013 is due to the termination in April 2012 of the bareboat charters on the five 2,800 TEU container vessels and their transfer to time charters, and the disposals of the three non-double hull VLCCs, two in 2012 and one in 2013.

Two of our vessels, the Suezmax tankers Everbright and Glorycrown, were sold under sales-type lease agreements in 2010 and 2009, respectively. Following default by the ~~VLCCs~~purchaser, these vessels were ~~partially offset by lower daily rates~~returned to us in September 2013, since when we have traded them on ~~one of the 1,700 TEU containerships.~~a voyage charter basis, earning $9.7 million in voyage charter revenues.

Cash flows arising from direct financing and sales-type leases

The following table analyzes our cash flows from the direct financing and sales-type leases with the Frontline Charterers, ~~Seadrill Invest I Limited, or Seadrill Invest I, Seadrill Prospero,~~ Deep Sea ~~TMT~~ and NCS during ~~2010~~2013 and ~~2009,~~2012, and shows how they are accounted for:


(in thousands of $)	2010		2009		2013	2012

Charterhire payments accounted for as:

Direct financing and sales-type lease interest income		126,777		151,368	59,616	65,715
Finance lease service revenues		76,876		88,953	54,236	64,766
Direct financing and sales-type lease repayments		174,946		209,368	51,220	58,571
Total direct financing and sales-type lease payments received		378,599		449,689	165,072	189,052

As described above, $6,500 per day is allocated from each time charter payment received from the Frontline Charterers to cover lease executory costs and this is classified as "finance lease service revenue".

Gain on sale of assets

Gains of $18.0 million were recorded in ~~2010~~2013 on the disposals of the three VLCCs Edinburgh, Front Champion and GoldenVictory, the Suezmax tanker ~~Everbright~~Front Pride and the ~~VLCCs~~ OBO Front ~~Vista, Golden River~~Guider. Two non-double hull VLCCs and ~~Front Sabang.~~ four OBOs were sold in 2012, with gains totaling $25.7 million.~~The newbuilding~~ ~~Everbright~~ ~~accounted for most~~

Gain on termination of charters

There was no gain on termination of charters in 2013. In 2012, a gain of $21.7 million was recorded, equal to the fair value of the ~~gains~~compensation received when ~~it was sold under a sales-type lease arrangement immediately upon its delivery from~~we agreed to terminate the ~~shipyard. In 2009, two vessels were sold, including the newbuilding sister ship of~~ ~~Everbright~~ ~~which was also sold under a sales-type lease arrangement.~~ long-term bareboat charter agreements with Horizon Lines, LLC relating to five 2,800 TEU container vessels.

Operating expenses


(in thousands of $)	2010		2009		2013	2012

Ship operating expenses		81,021		91,494
Vessel operating expenses					105,534	94,914
Depreciation		34,201		30,236	58,436	55,602
Vessel impairment charge		-		26,756
Administrative expenses		9,097		12,191	7,549	8,942
		124,319		160,677	171,519	159,458

~~Ship~~Vessel operating expenses ~~decreased~~increased by ~~11%~~$10.6 million from ~~2009~~2012 to ~~2010, primarily as a result of five non-double hull tankers~~ ~~leased~~2013. The increase was largely due to the Frontline Charterers being sub-chartered on a bareboat basis, and the disposal of another VLCC previously chartered to the Frontline Charterers. These reductions in operating expenses were slightly offset by costs associated with the twoadditional container vessels, drybulk carriers and car carriers operating under time charters in 2012 and 2013, in addition to the ~~additional containership acquired~~two Suezmax tankers which commenced voyage charters in ~~2010.~~September 2013. The increase was partly offset by reduced payments to Frontline Management associated with disposals in 2012 and 2013 of time-chartered OBOs and VLCCs.

Depreciation expenses relate to the vessels on charters accounted for as operating ~~leases.~~leases and on voyage charters. The increase from ~~2009~~2012 to ~~2010~~2013 is primarily due to the ~~acquisition~~delivery of six drybulk carriers in ~~2010~~2012 and 2013, and the acquisition of two ~~drybulk~~car carriers ~~and a containership, and also the transfer to operating leases of six non-double hull VLCCs previously accounted for as direct financing lease assets.~~in 2012.

~~In 2009, impairment charges totaling $26.8 million~~Administrative expenses, which include salaries, office costs, and fees for professional and administrative services, were ~~taken against the values of six of our single-hull VLCCs. These vessels, one of which was sold in April 2010, are subject~~reduced from 2012 to IMO regulations restricting their ability to operate from 2010 onwards. They continued to be chartered in 2010 to the Frontline Charterers at pre-agreed lower rates, and no further impairment charge on these or any other assets was deemed necessary.

~~The decrease in administrative expenses from 2009 to 2010 is~~2013, primarily due to ~~the write back~~a decrease in ~~2010~~staff related costs, including reduced amortization of ~~share option costs on the departure of the former Chairman of the Board of Directors, and pre-agreed compensation paid in 2009 to the former Chief Executive Officer.~~stock based compensation.

Interest income

Interest income increased ~~substantially~~by $2.9 million in ~~2010,~~2013, mainly as a result of ~~$19.6 million received on fixed rate long-term loans~~investments made in ~~2010 to two wholly-owned subsidiaries which are accounted for under the equity method. Additionally,~~2012 and 2013 in available-for-sale securities, and interest ~~of $0.9 million was received~~ on ~~late settlement of various receivable amounts relating to newbuilding and sales contracts, and a further $0.5 million was~~loan notes received from Horizon Lines, LLC in 2012 and 2013 and from Frontline ~~on the seller's credit issued to them when~~ ~~Front Vista~~ ~~was sold. The balance of interest income was earned on bank deposits~~

~~Interest expense~~in 2013.

(in thousands of $) 2010 2009

Interest on US$ floating rate loans 43,774 43,196
Interest on NOK floating rate bonds 1,211 -
Interest on 8.5% Senior Notes 25,437 31,322
Swap interest 22,852 21,120
Other interest 3,122 15,930
Amortization of deferred charges 5,036 5,507
101,432 117,075
Interest expense



(in thousands of $)	2013	2012
Interest on US$ floating rate loans	25,816	36,234
Interest on NOK floating rate bonds due 2014	4,246	5,006
Interest on NOK floating rate bonds due 2017	6,981	1,507
Interest on 8.5% Senior Notes due 2013	2,963	23,197
Interest on 3.75% convertible bonds due 2016	4,688	4,688
Interest on 3.25% convertible bonds due 2018	10,459	—
Swap interest	20,742	18,340
Other interest	25	13
Amortization of deferred charges	11,305	5,866
	87,225	94,851

At December 31, ~~2010,~~2013, the Company and its consolidated subsidiaries had total debt outstanding of ~~$1.9~~$1.7 billion ~~(2009: $2.1~~(2012: $1.8 billion) comprised of ~~$296~~$165 million ~~net outstanding principal amount of 8.5% senior notes (2009: $301 million), $79 million (NOK460~~(NOK1,001 million) net outstanding principal amount of NOK floating rate bonds ~~(2009: nil)~~(2012: $186 million, NOK1,036 million), $125 million net outstanding principal amount of 3.75% convertible bonds (2012: $125 million), $350 million net outstanding principal amount of 3.25% convertible bonds (2012: $nil) and ~~$1.5~~$1.1 billion under floating rate secured long term credit facilities ~~(2009: $1.7~~(2012: $1.3 billion). ~~In addition,~~The $248 million net principal amount of 8.5% Senior Notes outstanding at December 31, ~~2009 there~~2012, was ~~$90 million of unsecured fixed rate long-term debt and $27 million of unsecured floating rate short-term debt, both of which were~~ fully repaid in ~~2010.~~March 2013. The average three-month US$ LIBOR, ~~rate~~ was ~~0.34%~~0.27% in ~~2010~~2013 and ~~0.69%~~0.43% in ~~2009.~~2012. The overall decrease in interest expense is due to ~~the decrease in interest-bearing~~reduced debt ~~and, to a lesser extent, movements in interest rates from 2009 to 2010.~~

levels.

The decrease in interest payable on the NOK floating rate bonds due 2014 is due to repurchases during 2012, which were being held as treasury bonds. The decrease in interest payable on the 8.5% Senior Notes is due to ~~the repurchase of $148 million of Senior Notes~~their redemption in ~~the second quarter of 2009 and a further $5 million~~March 2013. The increase in ~~2010. The decrease in other~~ interest payable on the NOK floating rate bonds due 2017 and the 3.25% convertible bonds is due to ~~the repayment of the unsecured fixed rate long-term debt~~their issue dates, in ~~March 2010~~October 2012 and ~~of the unsecured floating rate short-term debt in stages over 2010.~~January 2013, respectively.

At December 31, ~~2010,~~2013, the Company and its consolidated subsidiaries were party to interest rate swap contracts, which effectively fix our interest rates on ~~$1.0~~$1.2 billion of floating rate debt at a weighted average rate excluding margin of ~~3.41%~~3.40% per annum ~~(2009: $1.1~~(2012: $1.0 billion of floating rate debt fixed at a weighted average rate excluding margin of ~~3.92%~~3.35% per annum).

Amortization of deferred charges ~~decreased by 9% from 2009~~was $5.4 million higher in 2013 than 2012, principally due to ~~2010,~~ the ~~charges for 2009 being higher as a result~~amortization over five years of ~~write-offs caused by~~ the ~~early repayment~~$20.7 million equity component of ~~certain loans~~the $350 million convertible bonds issued in ~~that year.~~January 2013 (see Note 19: Long -term debt). There was also an increase due to some accelerated loan repayments made in 2013.

As reported above, ~~we have one drybulk carrier and three~~four ultra-deepwater drilling units ~~which~~and two chartered-in container vessels were accounted for under the equity method in ~~2010~~2013 and ~~2009.~~2012. Their non-operating expenses, including interest expenses, are not included above, but are reflected in "equity in earnings of associated companies" below.

Other non-operating items

Other non-operating items amounted to a net ~~cost~~gain of ~~$16~~$0.8 million in ~~2010, compared to a~~2013 (2012: $2.4 million). The net gain in 2013 consists of ~~$25~~$8.0 million in 2009. The net cost in 2010 consisted predominantly of adverse mark-to-market valuation adjustments to financial instruments, in particular interest rate and currency swap contracts. In 2009, there were favorable mark-to-market valuation adjustments to financial instruments, ~~totaling $13~~offset by $2.7 million ~~and~~cash payments on non-designated interest rate swaps, a ~~gain~~loss of ~~$21~~$1.2 million on the purchase ~~at a discount~~ of 8.5% Senior Notes ~~partly offset by an impairment charge of $7~~and NOK denominated bonds, and $3.3 million ~~on the long-term investment in SeaChange Maritime LLC. In 2010, other non-operating items include $1.5 million of~~ other costs, mainly bank and loan commitment ~~fees (2009: $1.6 million).~~fees. The net gain in 2012 consisted of $8.0 million favorable mark-to-market valuation adjustments to financial instruments, offset by $0.2 million cash payments on non-designated interest rate swaps, a long-term asset impairment charge of $3.4 million and $2.0 million of other costs.

Equity in earnings of associated companies

During ~~2009~~2012 and ~~2010,~~2013, the Company had ~~three~~certain wholly-owned subsidiaries accounted for under the equity method, as discussed in ~~Notes 2 and 15~~Note 16 of the consolidated financial statements included herein. The total equity in earnings of ~~these three~~ associated companies ~~decreased by $25~~in 2013 was $15.3 million ~~from 2009 to 2010, principally~~less than in 2012, due to ~~$19.6 million in~~reduced direct financing lease income on three ultra-deepwater drilling units and increased loan interest ~~payable by them~~expenses on ~~loans made by the Company in 2010 – see "Interest income" above.~~related credit facilities.

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, a deemed equity contribution from Frontline and borrowings from commercial banks. Our subsequent ~~transactions~~acquisitions have been financed through a combination of our own equity and ~~borrowings~~term loans and revolving credit facilities from commercial banks. Providers of such borrowings generally require that the loans be secured by mortgages against the assets being acquired, and at December 31, 2014, substantially all of our vessels and drilling units are pledged as security. However, in common with many other companies, we also have unsecured borrowings as shown below. Providers of unsecured financing do so on the basis of the company's assets and liabilities, cash flows, operating results and other factors, all of which affect the terms on which such unsecured financing is available. In general, unsecured financing is more expensive than borrowings secured against collateral.

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~~15 days in advance, ~~quarterly~~monthly in advance, or monthly in arrears. Vessel management and operating fees are payable monthly in advance for vessels chartered to the Frontline Charterers, and as incurred for other time-chartered vessels.

Our funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for both our ~~requirements.~~short and long term needs. This includes arranging borrowing facilities on a cost-effective basis. Cash and cash equivalents are held primarily in U.S. dollars, with minimal amounts held in Norwegian Kroner ~~Singapore dollars~~ and Pound Sterling.

Surplus funds may be deployed to acquire equity or debt interests in other companies, with the aim of generating competitive returns. Such investments may also utilize credit facilities arranged specifically to facilitate such investment, such as the $55 million secured securities financing agreement described below.

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 revolving credit facilities 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 the following loan agreements of the Company and its consolidated subsidiaries:

~~8.5% senior unsecured notes due 2013~~

3.75% convertible senior unsecured bonds due 2016


-	~~NOK500~~3.25% convertible senior unsecured bonds due 2018


-	NOK600 million senior unsecured bonds due ~~2014~~2017


-	NOK900 million senior unsecured bonds due 2019


-	$~~25 million secured revolving credit facility due 2012~~

~~$350~~53 million secured term loan facility due ~~2012~~2017


-	$~~30 million secured term loan facility due 2013~~

~~$60 million secured term loan facility due 2013~~

~~$58 million secured revolving credit facility due 2013~~

~~$149 million secured term loan facility due 2014~~

~~$43 million secured term loan facility due 2014~~

~~$77 million secured term loan facility due 2015~~

~~$30 million secured revolving credit facility due 2015~~

~~$725~~49 million secured term loan and revolving credit facility due ~~2015~~

~~$43 million secured term loan facility due 2015~~

~~$49 million secured term loan facility due~~ 2018


-	$54 million secured term loan facility due 2018


-	$95 million secured term loan and revolving credit facility due 2018


-	$167 million secured term loan and revolving credit facility due 2018


-	$~~210~~45 million secured term loan and revolving credit facility due 2019


-	$75 million secured term loan facility due 2019


-	$20 million secured term loan facility due 2019


-	$43 million secured term loan facility due 2019


-	$43 million secured term loan facility due 2020


-	$101 million secured term loan facility due 2020


-	$128 million secured term loan facility due 2021


-	$128 million secured term loan facility due 2022


-	$171 million secured loan facility due 2022


-	$~~184~~39 million secured term loan facility due ~~2025~~2022


-	$55 million secured securities financing agreement

Our long-term liquidity requirements also include repayment of the following long-term loan agreements of our equity-accounted subsidiaries:


-	$~~700~~390 million secured term loan and revolving credit facility due ~~2013~~2018


-	$~~1.4 billion~~375 million secured term loan and revolving credit facility due ~~2013~~2019


-	$475 million secured term loan and revolving credit facility due 2019

At December 31, 2014, substantially all of our vessels and rigs were pledged as security against borrowings, apart from two 1,700 TEU container vessels built in 2005.

At April ~~17, 2012,~~9, 2015, we had no remaining contractual c~~ommitments~~commitments relating to newbuilding ~~contracts totaling approximately $233 million.~~contracts.

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, ~~2011,~~2014, we had cash and cash equivalents of ~~$95~~$51 million ~~(2010: $93 million, including $6 million restricted cash)~~(2013: $59 million). In the year ended December 31, ~~2011,~~2014, we generated cash of ~~$164~~$132 million from operations and used $6$22 million ~~net~~ in investing activities and ~~$150~~$118 million net in financing activities.

During the year ended December 31, ~~2011,~~2014, we paid four dividends ~~of $1.55~~totaling $1.63 per common share ~~(2010: $1.64)~~(2013: three dividends totaling $1.17), or a total of ~~$123~~$152 million ~~(2010: $129~~(2013: $109 million). All dividends paid in ~~2011~~2014 and 2013 were cash payments. ~~In 2010 dividend payments comprised $117 million of cash payments and $12 million in the form of newly-issued common shares.~~ Dividends paid in ~~2010 include~~2012 included an accelerated fourth quarter dividend in addition to the regular third quarter dividend, both of ~~$0.30 per share declared~~which were paid on November 27, 2009, which was settled on January 27, 2010, by the payment of $11 million in cash and the issuance of $12 million in newly issued common shares. On February 17, 2012, a dividend of $0.30 per share was declared totaling $24 million, which was paid in cash on MarchDecember 28, 2012.

Borrowings

As of December 31, ~~2011,~~2014, we had total short-term and long-term debt outstanding of ~~$1.9~~$1.7 billion ~~(2010: $1.9~~(2013: $1.7 billion). In addition, as of December 31, ~~2011,~~2014, our wholly-owned subsidiaries SFL Deepwater Ltd., or SFL Deepwater, SFL Hercules Ltd., or SFL Hercules, and SFL Linus Ltd., or SFL Linus, had long term debt of $303 million, $284 million, and $451 million, respectively (2013: $387 million, $383 million and $nil, respectively). These three subsidiaries are accounted for using the equity method, as was our previously wholly-owned subsidiary SFL West Polaris Limited, or SFL West Polaris, and SFL Deepwater Ltd., or SFL Deepwater, had long term debt of $470 million and $939 million, respectively (2010: $546 million and $1.1 billion, respectively). These two subsidiaries are accounted for using the equity method, and their outstanding long-term debt ~~does~~is not ~~appear~~included in the long-term debt shown on our consolidated balance sheet.

The ~~total long-term debt~~following table presents an overall summary of our borrowings as at December 31, ~~2011, includes $274~~2014:



	December 31, 2014
(in millions of $)	Outstanding balance on loan	Net amount available to draw
Unsecured borrowings:
3.75% convertible bonds due 2016	125.0	—
NOK600 million bonds due 2017	76.5	—
3.25% convertible bonds due 2018	350.0	—
NOK900 million bonds due 2019	119.3	—
Total unsecured borrowings	670.8	—
Loan facilities secured with mortgages on vessels and rigs, including newbuildings	1,061.7	112.0
Loan facilities secured against investments in securities	—	—
Total borrowings of Company and consolidated subsidiaries	1,732.5	112.0
Equity accounted subsidiaries: Loan facilities secured with mortgages on vessels and rigs	1,038.3	50.0
Total borrowings	2,770.8	162.0

As of December 31, 2014, there was $112.0 million net ~~outstanding from the issue in 2003~~available to draw under secured revolving credit facilities. Additionally, our equity-accounted subsidiaries had net amounts of ~~$580~~$50.0 million available to draw under secured revolving credit facilities as of ~~8.5% senior notes due 2013.~~December 31, 2014.

In June 2005, we entered into a combined $350 million senior and junior secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of five VLCCs. At December 31, 2011, the total outstanding amount on this facility was $144 million. The facility bears interest at LIBOR plus a margin for the senior loan and LIBOR plus a different margin for the junior loan. The facility matures in June 2012 and a new $167 million secured term loan and revolving credit facility agreement has been entered into to refinance the facility at maturity, as further described below. The facility is secured by the vessel-owning subsidiaries' assets. The facility contains covenants that require us to maintain a minimum aggregate value of the vessels as collateral and also certain minimum levels of free cash, working capital and adjusted book equity ratios.

In April 2006, five subsidiaries entered into a $210 million secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of five newbuilding container vessels. The loan agreement was amended and restated in April 2012 in connection with the termination of the original charters of the vessels to Horizon Lines, LLC. The facility isbore interest at LIBOR plus a margin, had a term of 12 years from original drawdown and was secured by the subsidiaries' assets. The facility was non-recourse to Ship Finance International Limited, as the holding company ~~does~~did not guarantee this debt. However, as part of the amended agreement, Ship Finance ~~will now~~International Limited indirectly ~~guarantee~~guaranteed that revenues received by the vessel-owning subsidiaries over the remaining term of the loan ~~will~~would achieve certain minimum levels for each vessel, limited to $25 million in aggregate. At December 31, ~~2011,~~2014, the outstanding amount under this facility was ~~$175 million. The facility bears interest at LIBOR plus a margin, has a term of 12 years from drawdown and is secured by the subsidiaries' assets.~~

~~In August 2007, five subsidiaries entered into a $149~~$171 million, ~~secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of five offshore supply vessels. One of the vessels was sold in January 2008~~ and the ~~loan facility now relates~~performance guarantee had been reduced to $3 million in aggregate. In January 2015, the ~~remaining four subsidiaries. At December 31, 2011,~~performance guarantee became exhausted and in February 2015, we reached an agreement with the ~~outstanding amount~~financing parties whereby the five vessels were transferred to unrelated third parties and we ceased to have any further commitments under this ~~facility was $91 million. The facility bears interest at LIBOR plus a margin and has a term of seven years.~~ The facility requires the four subsidiaries to maintain certain minimum levels of working capital and is secured by the subsidiaries' assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees $35 million of the debt. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In January 2008, two subsidiaries entered into a $77 million secured term loan facility with a syndicate of banks. The proceeds of the facility were used to partly fund the acquisition of two offshore supply vessels. At December 31, 2011, the outstanding amount under this facility was $52 million. The facility bears interest of LIBOR plus a margin and has a term of seven years. The facility requires the two subsidiaries to maintain certain minimum levels of working capital and is secured by the subsidiaries' assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees $24 million of the debt. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.facility.

In February 2008, a subsidiary entered into a $30 million secured revolving credit facility with a bank. The proceeds of the facility were used to partially fund the acquisition of the container vessel SFL Europa. At December 31, ~~2011,~~2014, the outstanding amount under this facility was $9$3 million. The facility ~~bears~~bore interest of LIBOR plus a margin and ~~has~~had a term of seven years. ~~The~~In January 2015, we prepaid all outstanding amounts and the facility ~~is available on a revolving basis and is~~ secured by the subsidiary's assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.was canceled.

In March 2008, two subsidiaries entered into a $49 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two newbuilding chemical tankers. ~~At December 31, 2011, the outstanding amount under this facility was $33 million.~~ In June 2011, the facility was amended, whereby part of the facility is available on a revolving basis. At December 31, 2014, the outstanding amount under this facility was $28 million, and the available amount under the revolving part of the facility was fully drawn. The facility bears interest of LIBOR plus a margin and has a term of ten years. The facility contains a minimum value covenant and is secured by the subsidiaries' assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees 30% of the outstanding debt. The facility contains covenants that require us to maintain certain minimum levels of free cash and adjusted book equity ratios.

~~In September 2008, two subsidiaries entered into a $58 million secured revolving credit facility with a syndicate of banks. The facility is secured by the two container vessels~~ ~~Asian Ace~~ ~~and~~ ~~Green Ace~~, and a guarantee from Ship Finance International Limited. At December 31, 2011, the amount outstanding under this facility was $34 million. The facility bears interest at LIBOR plus a margin and has a term of five years. The facility contains a minimum value covenant and ~~covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.~~

In June 2009, a subsidiary entered into a $60 million credit facility with a bank, secured against a portion of our 8.5% Senior Notes which are being held as treasury notes and a guarantee from Ship Finance International Limited. At December 31, 2011, the amount outstanding under this facility was $47 million. The facility bears interest at LIBOR plus a margin and its original two year term has been extended so that the facility now matures in January 2013. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In June 2009, a subsidiary entered into a $30 million credit facility with a bank, secured against a portion of our 8.5% Senior Notes which are being held as treasury notes and a guarantee from Ship Finance International Limited. At December 31, 2011, the amount outstanding under this facility was $24 million. The facility bears interest at LIBOR plus a margin and its original one year term has been extended so that the facility now matures in January 2013. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In February 2010, a subsidiary entered into a $43 million secured term loan facility with a bank. The proceeds of the facility were used to partially finance the Suezmax tanker Glorycrown. At December 31, ~~2011,~~2014, the amount outstanding under the facility was ~~$38~~$29 million. The facility bears interest of LIBOR plus a margin and ~~has~~originally had a term of approximately five years. In November 2014, the terms of the loan were amended and restated, and the facility now matures in November 2019.

The facility is secured by the subsidiary's assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In March 2010, a subsidiary entered into a $43 million secured term loan facility with a bank. The proceeds of the facility were used to partially finance the Suezmax tanker Everbright. At December 31, ~~2011,~~2014, the amount outstanding under this facility was ~~$38~~$29 million. The facility bears interest of LIBOR plus a margin and ~~has~~originally had a term of five years. In March 2015, the terms of the loan were amended and restated, and the facility now matures in March 2020. The facility is secured by the subsidiary's assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In March 2010, we entered into a $725 million secured term loan and revolving credit facility with a syndicate of banks ~~to replace a previous facility established in 2005 to partially finance~~for the financing of 26 vessels chartered to ~~Frontline Shipping. Three~~Frontline. Twelve of the vessels ~~were~~have since been sold, ~~in 2011,~~ and at December 31, 2014, the facility ~~now relates~~related to the remaining 2314 vessels. At December 31, ~~2011,~~2014, the amount outstanding under this facility was ~~$440~~$72 million, and the available amount under the revolving part of the facility was $112 million. The facility ~~bears~~bore interest at LIBOR plus a margin and ~~has~~had a term of five years. ~~The facility contains a minimum value covenant~~In February 2015, we prepaid all outstanding amounts and ~~covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.~~

~~In September 2010, we entered into a $25 million secured revolving credit facility with a bank, secured against five non-double hull VLCCs. Two of~~ the ~~vessels were sold in 2011 and one of the vessels was sold in March 2012. The facility is now secured against the two remaining vessels. At December 31, 2011, the amount outstanding under this~~ facility was $15 million. The facility bears interest at LIBOR plus a margin and has a term of two years. The amount available under the revolving facility is dependent on the aggregate value of the vessels secured as collateral. The facility contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.canceled.

In October 2010, we issued NOK500 million senior unsecured bonds. The bonds bear interest at Norwegian Interbank Offered Rate, or NIBOR, plus a margin and are redeemable in full in April 2014. Subsequent to the issue of the bonds, we purchased bonds with principal amounts totaling NOK58 million, which are being held as treasury bonds, including NOK5 million purchased in January 2012. At December 31, 2011, the net amount outstanding was NOK447 million, equivalent to $75 million. The bonds may, in their entirety, be redeemed at our option from October 7, 2013 to April 6, 2014 upon giving bondholders at least 30 days notice and paying 100.50% of par value plus accrued interest.

In November 2010, two subsidiaries entered into a $54 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two Supramax drybulk carriers. At December 31, ~~2011,~~2014, the amount outstanding under this facility was ~~$50~~$38 million. The facility bears interest at LIBOR plus a margin and has a term of eight years. The facility is secured by the subsidiaries' assets and a limited guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is an early termination of any of the charters attached to the vessels. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In February 2011, we issued $125 million senior unsecured convertible ~~senior~~ bonds due 2016, all of which was outstanding at December 31, ~~2011.~~2014. Interest on the bonds is fixed at 3.75% per annum. The bonds are convertible into our common shares at any time up to ten banking days prior to February 10, 2016. The conversion price at the time of issuance was $27.05 per share, representing a 35% premium on the share price at the time. ~~Since then dividend~~Dividend distributions made since the issuance of the bonds have reduced the conversion price to ~~$23.94~~$17.98 per share.

In February 2011, a subsidiary entered into a $95 million secured term loan and revolving credit facility with a bank. The proceeds of the facility were used to partly fund the acquisition of the jack-up drilling rig Soehanah. At December 31, ~~2011,~~2014, the amount outstanding under this facility was ~~$88 million.~~$58 million, and the available amount under the revolving part of the facility was fully drawn. The facility bears interest at LIBOR plus a margin and has a term of seven years. The facility is secured against the subsidiary's assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In March 2011, three subsidiaries entered into a $75 million secured term loan facility with a bank. The proceeds of the facility ~~are~~were used to partly fund the acquisition of three Supramax drybulk ~~carriers, two of which were delivered in 2011. The facility is for both pre- and post-delivery financing.~~carriers. At December 31, ~~2011,~~2014, the amount outstanding under this facility was $65 million, relating to the two vessels delivered and pre-delivery financing of installments paid to the shipyard on the vessel not then delivered. In addition, there was a $9 million undrawn commitment relating to the final shipyard installment on the vessel not yet delivered at December 31, 2011.$57 million. The facility bears interest at LIBOR plus a margin and has a term of approximately eight years. The facility is secured against the subsidiaries' assets and a limited guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is a default under the charters attached to the vessels or one year prior to expiry of the charters, whichever falls earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In May 2011, eight subsidiaries entered into a $171 million secured loan facility with a syndicate of banks. The facility ~~is a Chinese export credit and~~ is supported by China Export & Credit Insurance Corporation, or SINOSURE, which has provided an insurance policy in favor of the banks for part of the outstanding loan. The ~~proceeds of the~~ facility ~~are to partly fund the~~is secured by one 1,700 TEU container vessel ~~SFL Avon, which was delivered in 2010,~~ and seven ~~newbuilding~~ Handysize drybulk ~~carriers, two of which were delivered in 2011. The facility is for both pre- and post-delivery financing.~~carriers. At December 31, ~~2011,~~2014, the amount outstanding under this facility was $97 million, relating to the three vessels delivered and pre-delivery financing of installments paid to the shipyard for the vessels not yet delivered. In addition, there was a $72 million undrawn commitment relating to the vessels not yet delivered at December 31, 2011.$134 million. The facility bears interest at LIBOR plus a margin and has a term of approximately ten years from delivery of each vessel. The facility is secured against the subsidiaries' assets and a guarantee from Ship Finance International Limited.

In June 2011, we entered into a $55 million secured securities financing agreement with a bank. The facility may be used to fund up to 50% of the acquisition cost of securities we may acquire from time to ~~time.~~time, subject to certain conditions. The facility bears interest at LIBOR plus a margin and will be secured against the relevant securities. The facility contains a covenant that requires us to maintain a minimum value of the securities held as collateral. At December 31, ~~2011,~~2014, there was no amount outstanding under the facility.

In July 2011, wefive subsidiaries entered into a $167 million secured term loan and revolving credit facility agreement with a syndicate of ~~banks. The proceeds~~banks for the financing of five VLCCs chartered to Frontline. Two of the vessels were sold in 2013 and the facility is now secured against the three remaining vessels. At December 31, 2014, the outstanding amount under this facility was $72 million, and the available amount under the revolving part of the facility ~~will be used to refinance the $350 million senior and junior secured term loan facility maturing in June 2012.~~was fully drawn. The facility bears interest at LIBOR plus a ~~margin. The facility~~margin and has a term of six ~~years and~~years. The facility is secured by the vessel-owning subsidiaries' ~~assets.~~assets and a guarantee from Ship Finance International Limited. The facility contains covenants that require us to maintain a minimum aggregate value of the vessels as collateral and also certain minimum levels of free cash, working capital and adjusted book equity ratios.

In ~~March~~October 2012, ~~four vessel owning~~we issued NOK600 million senior unsecured bonds. The bonds bear interest at the three month Norwegian Interbank Offered Rate, or NIBOR, plus a margin and are redeemable in full in October 2017. Subsequent to the issue of the bonds, we have made net purchases of bonds with principal amounts totaling NOK28 million, which are being held as treasury bonds. At December 31, 2014, the amount outstanding was NOK572 million, equivalent to $77 million. The bonds may, in their entirety, be redeemed at our option from April 19, 2017, upon giving bondholders at least 30 business days notice and paying 100.50% of par value plus accrued interest.

In November 2012, two subsidiaries entered into a ~~$184~~$53 million secured term loan ~~agreement~~facility with a bank. The proceeds of the facility ~~will be~~were used to partly fund ~~four container vessels~~the acquisition of two car carriers. At December 31, 2014, the outstanding amount under ~~construction with expected delivery in 2013. The~~this facility ~~is available on both a pre- and post-delivery basis.~~was $44 million. The facility bears interest at LIBOR plus a margin and has a term of 12five years from ~~delivery of each vessel.~~drawdown. The facility is secured byagainst the subsidiaries' assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is an early termination of any of the charters attached to the vessels or six months prior to ~~the~~ expiry of the charters, whichever falls earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In January 2013, we issued $350 million senior unsecured convertible bonds due 2018, all of which was outstanding at December 31, 2014. Interest on the bonds is fixed at 3.25% per annum. The bonds are convertible into our common shares at any time up to two business days prior to February 1, 2018. The conversion price at the time of issuance was $21.945 per share, representing a 33% premium on the share price at the time. Dividend distributions made since the issuance of the bonds have reduced the conversion price to $18.1555 per share. In conjunction with the bond issue, we have loaned up to 6,060,606 of our common shares to an affiliate of one of the underwriters of the issue, in order to assist investors in the bonds to hedge their positions. The shares lent by the Company were borrowed from Hemen Holding Ltd., our largest shareholder.

In March 2014, we issued NOK900 million senior unsecured bonds. The bonds bear interest at NIBOR plus a margin and are redeemable in full in March 2019. Subsequent to the issue of the bonds, we have made net purchases of bonds with principal amounts totaling NOK8 million, which are being held as treasury bonds. At December 31, 2014, the amount outstanding was NOK892 million, equivalent to $119 million. The bonds may, in their entirety, be redeemed at our option from September 19, 2018, upon giving bondholders at least 30 business days notice and paying 100.50% of par value plus accrued interest.

In June 2014, seven ~~year time-charters~~subsidiaries entered into a $45 million secured term loan and revolving credit facility with a bank. The proceeds of the facility were used to partly fund the acquisition of seven 4,100 TEU container vessels. At December 31, 2014, the amount outstanding under this facility was $45 million, and the available amount under the revolving part of the facility was fully drawn. The facility bears interest at LIBOR plus a margin and has a term of five years. The facility is secured against the subsidiaries' assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is an early termination of any of the charters attached to the vessels, ~~will be employed.~~or six months prior to expiry of the charters, whichever falls earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In August 2014, six subsidiaries entered into a $101 million secured term loan facility, to refinance a $149 million secured term loan facility which matured in August 2014 and a $77 million secured term loan facility which was due to mature in January 2015. Those two facilities were repaid in full, and the new $101 million facility is secured against the six offshore supply vessels which previously provided security for the repaid facilities. The $101 million facility bears interest at LIBOR plus a margin and has a term of approximately five years. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios. At December 31, 2014, the amount outstanding under this facility was $99 million.

In September 2014, two subsidiaries entered into a $20 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two 5,800 TEU container vessels. At December 31, 2014, the amount outstanding under this facility was $20 million. The facility bears interest at LIBOR plus a margin and has a term of five years. The facility is secured against the subsidiaries' assets and a guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is an early termination of any of the charters attached to the vessels. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In September 2014, two subsidiaries entered into a $128 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two newbuilding 8,700 TEU container vessels, which were delivered in September and November 2014, respectively. At December 31, 2014, the amount outstanding under this facility was $126 million. The facility bears interest at LIBOR plus a margin and has a term of seven years. The facility is secured against the subsidiaries' assets and a limited guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is a default under any of the charters attached to the vessels, or from the fifth anniversary of the drawdown under the facility, whichever falls earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In November 2014, two subsidiaries entered into a $128 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two newbuilding 8,700 TEU container vessels, which were delivered in January 2015. At December 31, 2014, the amount outstanding under this facility was $nil. The facility bears interest at LIBOR plus a margin and has a term of seven years. The facility is secured against the subsidiaries' assets and a limited guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is a default under any of the charters attached to the vessels, or six months prior to expiry of the charters, whichever falls earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In December 2014, two subsidiaries entered into a $39 million secured term loan facility with a bank. The proceeds of the facility were used to partly fund the acquisition of two Kamsarmax drybulk carriers. At December 31, 2014, the amount outstanding under this facility was $36 million. The facility bears interest at LIBOR plus a margin and has a term of approximately eight years. The facility is secured against the subsidiaries' assets and a limited guarantee from Ship Finance International Limited. The facility contains a minimum value covenant, which is only applicable if there is a default under any of the charters attached to the vessels, or 12 months prior to expiry of the charters, whichever fall earlier. The facility also contains covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios.

In ~~July 2008,~~May 2013, our equity-accounted subsidiary SFL ~~West Polaris~~Hercules entered into a ~~$700~~$375 million secured term loan and revolving credit facility with a syndicate of banks. The ~~proceeds of~~facility was drawn in June 2013 and the ~~facility~~proceeds were used to ~~partly~~ fund the acquisition of the ~~newbuilding~~ ultra deepwater ~~drillship~~ drilling rig West ~~Polaris~~Hercules. from SFL Deepwater. At December 31, ~~2011,~~2014, the amount outstanding under ~~this~~the facility was ~~$470~~$284 million, and the available amount under the revolving part of the facility was $50 million. The facility bears interest at LIBOR plus a margin, has a term of ~~five~~six years and is secured byagainst the ~~subsidiary's assets.~~ assets of SFL Hercules. The lenders have limited recourse to Ship Finance International Limited as the holding company ~~currently~~ only guarantees ~~$70~~$85 million of the debt. The new facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios. The facility also contains covenants that require Seadrill to maintain certain minimum levels of liquidity, current ratios, interest cover ratios and adjusted equity ratios and a maximum leverage ratio.

In ~~September 2008,~~October 2013, our equity-accounted subsidiary SFL Deepwater entered into a ~~$1.4 billion~~$390 million secured term loan and revolving credit facility with a syndicate of banks. The ~~proceeds of~~facility was drawn in November 2013 and the ~~facility~~proceeds were used to refinance the outstanding balance under a $1.4 billion facility, which had been established in 2008 to partly fund the acquisition of two newbuilding ultra deepwater drilling rigs, West Taurus and West Hercules, and for general corporate purposes. During 2013, West Hercules was transferred to our equity-accounted subsidiary SFL Hercules and the new $390 million facility is secured against the drilling rig West ~~Taurus.~~Taurus. At December 31, ~~2011,~~2014, the amount outstanding under ~~this~~the new facility was ~~$939 million.~~$303 million, and the available amount under the revolving part of the facility was fully drawn. The new facility bears interest at LIBOR plus a margin, has a term of five years and is secured byagainst the subsidiary's assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees ~~$200~~$85 million of the debt. The new facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios. The facility also contains covenants that require Seadrill to maintain certain minimum levels of liquidity, current ratios, interest cover ratios and adjusted equity ratios and a maximum leverage ratio.

In October 2013, our equity-accounted subsidiary SFL Linus entered into a $475 million secured term loan and revolving credit facility with a syndicate of banks. The proceeds of the facility were used to finance the acquisition of the newbuilding harsh environment jack-up drilling rig West Linus, which was delivered in February 2014. At December 31, 2014, the amount outstanding under the facility was $451 million, and the available amount under the revolving part of the facility was fully drawn. The facility bears interest at LIBOR plus a margin, has a term of approximately five years and is secured against the subsidiary's assets. The lenders have limited recourse to Ship Finance International Limited as the holding company only guarantees $90 million of the debt. The facility contains a minimum value covenant and covenants that require us to maintain certain minimum levels of free cash, working capital and adjusted book equity ratios. The facility also contains covenants that require Seadrill to maintain certain minimum levels of liquidity, current ratios, interest cover ratios and adjusted equity ratios and a maximum leverage ratio.

We are in compliance with all loan covenants as at December 31, ~~2011.~~2014. Deep Sea Supply Plc., Deep Sea Supply BTG B.V., and Seadrill are also in compliance with all loan covenants in the facilities discussed above as at December 31, 2014. At December 31, ~~2011,~~2014, the three-month U.S. dollar LIBOR was ~~0.58%~~0.256% and the three-month Norwegian kroner NIBOR was ~~2.89%~~1.48%.

Minimum Value Covenants

Most of our loan facilities are secured with mortgages on vessels and rigs. At December 31, ~~2011,~~2014, we had borrowings ~~totalling $2.4~~totaling $1.4 billion with minimum value covenants which are tested on a regular ~~basis.~~basis, including $1.0 billion borrowings in wholly-owned subsidiaries accounted for under the equity method. These borrowings were secured against 4832 vessels and rigs which had combined charter-free market values ~~totalling $3.5~~totaling approximately $2.7 billion. A reduction of 10% in charter-free market values in ~~2012~~2015 would not result in any material reduction in availability on revolving credit facilities, after scheduled loan repayments and prepayments in the ~~year, result in an additional reduction of availability on certain revolving credit facilities totalling approximately $8.2 million.~~year.

Derivatives

We use financial instruments to reduce the risk associated with fluctuations in interest rates. At December 31, ~~2011,~~2014, the Company and its consolidated subsidiaries had entered into interest rate swap contracts with a combined notional principal amount of ~~$986~~$1,001 million, whereby variable LIBOR interest rates excluding additional margins are swapped for fixed interest rates between ~~1.70%~~0.80% per annum and ~~5.65%~~6.00% per annum. We had also entered into interest rate/currency swap contracts, related to our bonds denominated in Norwegian kroner, with a notional principal amounts of ~~NOK500~~NOK600 million ($85105 million) and NOK900 million ($151 million), respectively, whereby variable NIBOR interest rates including additional margin are swapped for fixed interest ~~at 5.32%,~~rates of 6.06% per annum and 6.03% per annum, respectively, and both the payment of interest and eventual settlement of the bonds will have an effective exchange rate of ~~NOK5.91~~NOK5.69 = ~~$1.~~$1 and NOK5.96 = $1, respectively. In addition, ~~our~~one equity-accounted ~~subsidiaries~~subsidiary had entered into interest rate swaps with a combined notional principal amount of ~~$988~~$224 million ~~whereby variable LIBOR interest~~at rates excluding ~~additional margins are swapped for fixed interest rates~~margin of between ~~1.91% per annum~~1.77% and ~~3.92%~~2.01% per annum. ~~The~~Approximately $0.2 billion of the above swaps were in excess of related debt at December 31, 2014, as a result of NOK denominated bonds purchased and held as treasury bonds, one of the swaps commencing in December 2016 and another of the swaps commencing in January 2017. Thus, the overall effect of ~~these~~our swaps is to fix the interest rate on approximately ~~$2.0~~$1.3 billion of our floating rate debt at December 31, 2014, at a weighted average interest rate of ~~4.77%~~5.16% per annum including margin.

~~Several~~The effect of the above swap contracts is to substantially reduce our ~~charter contracts contain interest adjustment clauses, whereby the charter rate is adjusted to reflect the actual interest paid on a deemed outstanding loan, effectively transferring the interest rate~~ exposure to the counterparty under the charter contract. At December 31, 2011, a total of $1.5 billion of our floating rate debt was subject to such interest adjustment clauses, including our equity accounted subsidiaries. However, $1.1 billion of this was subject to interest rate ~~swaps entered into for the benefit of the charterer,~~ and ~~the balance of $421 million remained on a floating basis.~~

~~At December 31, 2011, our net exposure, including that within our equity-accounted subsidiaries, to interest~~exchange rate fluctuations, ~~on our outstanding debt was $462 million, compared with $602 million at December 31, 2010. Our net exposure to interest fluctuations~~further analysis of which is ~~based on our total of approximately $2.9 billion floating rate debt outstanding at December 31, 2011, less the approximately $2.0 billion notional principal of our interest rate swaps~~presented in Item 11 "Quantitative and ~~the $421 million outstanding floating rate debt subject to interest adjustment clauses under charter contracts.~~Qualitative Disclosures about Market Risk".

~~Apart from~~In addition to the above interest ~~rate/~~rate and currency swap contracts at December 31, ~~2011, and~~2014, in January 2015 we entered into an interest rate swap contract with an initial notional principal of $55.3 million which commences in January 2017. At the date of this report, we were not party to any other derivative contracts.

Equity

~~During~~In 2014, we issued a total of 144,000 new shares in order to satisfy options exercised by three directors, one officer and two employees of the Company. The exercise price of the options averaged $6.44 per share, resulting in a premium on issue of $0.8 million. No other shares were issued and sold in the year ended December 31, 2009, we declared four dividends and, in each case, shareholders were given the option to elect to receive their dividend in cash or in the form of newly issued common shares. The Company issued a total of 4,998,603 shares under this arrangement, with a premium on issue totaling $43 million. Of the new shares issued, 930,483 were issued on January 27, 2010, in respect of the dividend declared on November 27, 2009, with an ex-dividend date of December 4, 2009. The shares issued in January 2010 were reflected in the Consolidated Balance Sheet as at December 31, 2009, since the outcome of the shareholders' elections was fully known when the Consolidated Balance Sheet was prepared.2014.

In November 2006, the Board of Directors approved a share option scheme, permitting the directors to grant options in the Company's shares to employees, officers and directors of the Company or its subsidiaries. The fair value cost of options granted is recognized in the statement of operations, with a corresponding amount credited to additional paid in capital (see Note 22 to the consolidated financial statements). The additional paid in capital arising from share options granted was $29,000 in the year ended December 31, ~~2009,~~2014 (2013: $0.2 million).

In 2014, an officer of the Company ~~issued~~exercised options and sold 1,372,100 shares pursuant to a prospectus supplement filed in December 2008. Total proceeds were $16 million net of costs, giving a premium on issue of $15 million. Additionally, in June 2009 the Company issued 10,560 shares to an employee in lieu of issuing new shares the ~~dividend portion~~Company made a payment of ~~his share-based bonus.~~$1.2 million, equal to the intrinsic value of the options on the date of exercise. These amounts are accounted for as a repurchase of the Company's shares and the payment is recorded as a reduction of additional paid-in capital.

Following the above issues of new shares, we had 79,125,000 common shares issued and outstanding as at December 31, 2009, including the shares issued on January 27, 2010. No further shares were issued in the years ended December 31, 2010 and 2011.

The Company has accounted for the acquisition of vessels from Frontline at Frontline's historical carrying value. The difference between the historical carrying value and the net investment in the lease (i.e. the fair value of the vessel at the inception of the lease) has been recorded 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 and results from the related party nature of both the transfer of the ~~vessel~~vessels and the subsequent finance ~~lease.~~leases. 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, ~~2011,~~2014, we credited contributed surplus with ~~$16~~$5 million of such deemed equity contributions ~~(2010: $26~~(2013: $20 million). The unamortized balance of deferred deemed equity contributions at December 31, ~~2011,~~2014, is ~~$165~~$87 million ~~(2010: $181 million).~~

In November 2006, the Board of Directors approved a share option scheme, permitting the directors to grant options in the Company's shares to employees and directors of the Company or its subsidiaries. The fair value cost of options granted is recognized in the statement of operations, with a corresponding amount credited to additional paid in capital (see Note 20 to the consolidated financial statements). The additional paid in capital arising from share options was $1.4 million in the year ended December 31, 2011 (2010: $1.0(2013: $106 million).

Following the above transactions, as of December 31, ~~2011,~~2014, our issued and fully paid share capital balance was ~~$79~~$93 million, our additional paid in capital was ~~$62~~$285 million and our contributed surplus balance was ~~$548~~$586 million.

~~On February 17, 2012, our Board of Directors declared a dividend of $0.30 per share totaling $24 million, which was paid in cash on March 28, 2012.~~ In March ~~2012, we~~2015, the Company issued ~~100,000~~a further 39,000 new shares ~~at a price of $6.85 per share~~ in order to satisfy options exercised by ~~one~~two officers and two employees. The exercise price was $10.71 per share, resulting in a total premium on issue of ~~our employees.~~$0.4 million.

Contractual Commitments

At December 31, ~~2011,~~2014, we had the following contractual obligations and commitments:

	Payment due by period
	Less than 1 year	1–3 years	3–5 years	After 5 years	Total
	(in millions of $)					Payment due by period
8.5% Senior Notes due 2013	-	274	-	-	274
NOK500 million senior unsecured bonds due 2014	-	75	-	-	75
						Less than 1 year	1–3 years	3–5 years	After 5 years	Total
						(in millions of $)
3.75% unsecured convertible bonds due 2016	-	-	125	-	125	—	125.0	—	—	125.0
NOK600 million senior unsecured bonds due 2017						—	76.5	—	—	76.5
3.25% unsecured convertible bonds due 2018						—	—	350.0	—	350.0
NOK900 million senior unsecured bonds due 2019						—	—	119.3	—	119.3
Floating rate long-term debt	150	464	421	401	1,436	182.4	189.9	368.3	321.1	1,061.7
Floating rate long-term debt in unconsolidated subsidiaries	190	1,219	-	-	1,409	107.2	195.3	589.5	146.3	1,038.3
Total debt repayments	340	2,032	546	401	3,319	289.6	586.7	1,427.1	467.4	2,770.8
Total interest payments (1)	105	101	33	6	245	107.9	172.7	77.7	12.4	370.7
Total vessel purchases (2)	103	173	-	-	276	85.0	—	—	—	85.0
Total contractual cash obligations	548	2,306	579	407	3,840	482.5	759.4	1,504.8	479.8	3,226.5

(1)

Interest payments are based on the existing borrowings of both fully consolidated and ~~equity- accounted~~equity-accounted subsidiaries. It is assumed that no further refinancing of existing loans takes place and that there is no repayment on revolving credit facilities. Interest rate swaps have not been included in the calculation. The interest has been calculated using the five year U.S. dollar swap of ~~1.15% and~~1.5080%, the five year NOK swap of ~~3.08%~~1.4478% and the exchange rate of NOK7.9880 = $1 as of April ~~17, 2012,~~8, 2015, plus agreed margins. Interest on fixed rate loans is calculated using the contracted interest rates.


(2)	Vessel purchase commitments relate to the ~~five~~two newbuilding ~~Handysize drybulk carriers ($60 million) and the newbuilding Supramax drybulk carrier ($9 million) scheduled for delivery in 2012, and the four newbuilding~~8,700 TEU container vessels ~~($207 million) scheduled for delivery~~which were delivered in ~~2013.~~January 2015.

Research and development, patents and licenses etc.

We do not undertake any significant expenditure on research and development, and have no significant interests in patents or licenses.

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"~~“Our Fleet”.

Vessel prices have generally declined since their peak in 2008, although there was a brief upturn in the middle of 2010. The ~~direction~~high level of ~~asset~~ordering in 2013, when building prices ~~turned from a positive trend with increasing asset prices in 2010 to a negative development across most shipping segments in 2011. Prices~~ for new vessels ~~have been subject to fairly substantial reductions both~~were low, was followed by a 15% decrease in ~~China and South Korea, particularly~~ordering in 2014. Newbuilding prices increased in the first half of the year, but this increase was reversed in the second ~~half~~half. Accordingly, newbuilding prices remain low by historical standards, and below 2011 levels. Prices for second-hand vessels remained generally at low levels for most of ~~2011. Decreasing~~2014, with fluctuations for different types of vessels reflecting charter rates. Accordingly, during 2014 prices ~~were mainly driven by sharply reduced contracting activity for drybulk vessels and tankers, as a consequence of weak operating conditions and also a difficult financing climate. Prices~~ for second-hand drybulk vessels ~~were fairly stable during the first half of 2011, but~~decreased by 15-25%, while prices ~~came under downward pressure in the second half.~~for modern second-hand oil tankers increased by up to 30%. Prices for second-hand tankers were very weak during 2011, especially for large crude carriers, and are now at historically low levels. Part of the erosion in tanker prices has been driven by forced sales or 'auction style' sales, with very few buyers in the market. Even with a very limited supply, prices for second-hand container vessels ~~decreased during 2011.~~were on average unchanged.

The spot market for tanker operators ~~was fairly weak during~~strengthened over the ~~second half~~course of ~~2011, especially during~~2014, with charter rates in December at their highest since 2010. This strength continued into the ~~third quarter. Factors~~first quarter of 2015 and, with fleet growth in 2015 expected to be no more than 2% and some tankers being used for floating storage, it is thought that 2015 could see further increases in fleet utilization and charter rates. However, the oil price has become more volatile than in recent years, and unless global oil demand picks up sufficiently there will have to be a downward adjustment in oil supply, which would adversely impact on charter rates. As ever, the main factor that could improve the fundamentals for the tanker markets ~~are delays~~is a sustained higher level of growth in ~~delivery schedules from~~ the ~~yards, cancellations of newbuilding orders, and further scrapping of single-hull and first generation double-hull vessels.~~world economy. Our tanker vessels on charter to the Frontline Charterers are subject to long term charters that provide for both a fixed base charter-hire and profit sharing payments that apply once the applicable Frontline Charterer earns daily rates from our vessels that exceed certain levels. If rates for vessels chartered on the spot market increase, our profit sharing revenues will likewise increase for those vessels operated by the Frontline Charterers in the spot market. We also have two Suezmax tankers currently employed in the spot market, which will benefit directly from possible continued strength in spot charter rates.

For drybulk carriers, 2014 was weaker than 2013, although still an improvement on 2012, which saw the weakest market in some 26 years with capacity supply well in excess of demand. Charter rates are expected to remain at low levels in 2015, with both fleet capacity and tonnage demand forecast to increase by around 5%. Although drybulk trade has increased at an average rate in excess of 5% per annum over the past ten years, which includes the financial crisis in 2009, fleet capacity has grown by more than 8% per annum over the same period, as expectations of growth in China and other developing countries, coupled with optimism over the speed of economic recovery in Europe, led to excessive ordering from shipyards. China accounts for approximately 40% of world tonnage demand, and the market for 2015 will depend critically on China's economic growth rate, which in turn is significantly dependent on worldwide economic growth, predicted to be slightly stronger than in 2014.

Charter rates for container vessels ~~have~~ continued ~~to decline so far in 2012, and~~at low levels for most of 2014, although rates for ~~1,700~~vessels above 9,000 TEU ~~vessels are still well below historical average levels. Charter rates for drybulk carriers continue~~strengthened towards the end of the year, partly as a result of extra demand from the U.S. linked to West Coast port congestion. With growth in demand predicted to be ~~affected~~more or less matched by ~~reduced Chinese iron-ore imports~~increased capacity, it is expected that 2015 will be another difficult year for the containership industry. Again, it is a return to higher economic growth rates, particularly in the United States and ~~a high influx of newbuildings.~~Europe, which is needed before demand levels can rise sufficiently to reduce the current excess capacity and enable charter rates to increase.

The unexpected reduction in the oil price which occurred in 2014 will clearly reduce demand for offshore drilling units, just at a time when deliveries of newbuildings are scheduled to increase capacity. Many offshore activities will not be viable at the current price of below $60 per barrel, and ~~supply markets continue~~if the price stays at this level it is inevitable that day rates for drilling units will decline from their recent record high levels. Our units all have long-term fixed rate charters, so we do not expect to be ~~strong, underpinned by exploration~~exposed to short and ~~development activities linked to higher oil prices and the need to replace reserves. Drilling activities are increasing in geographical spread and also water depths.~~medium-term market fluctuations.

Interest rates have been at historically low levels since ~~December 31,~~ 2009, and are expected to remain low throughout ~~2012,~~2015, based on the forward interest rate curve. IfHowever, as the tentative economic recovery becomes more established, ~~and inflation emerges as a problem,~~ it is ~~possible~~thought that interest rates could start increasing from ~~2013~~2016 onwards. We have effectively hedged ~~part~~most 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 a deemed outstanding loan relating to the asset, effectively transferring the interest rate exposure to our counterparty under the charter contract.

Off balance sheet arrangements

At December 31, ~~2011,~~2014, we are not party to any arrangements which may be 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 the Chief Executive Officer and the Chief Financial Officer of our wholly owned subsidiary Ship Finance Management AS, who are responsible for overseeing our management.



Name		Age	Position
Hans Petter Aas
~~Hans Petter Aas~~ 69	66	Director, Chairman of the Board and Audit Committee member
Kate Blankenship	47	50	Director of the Company and Chairperson of the Audit Committee
Cecilie A. Fredriksen	28	31	Director of the Company
Paul Leand	45	48	Director of the Company
Harald Thorstein	32	35	Director of the Company
Ole B. Hjertaker	45	48	Chief Executive Officer of Ship Finance Management AS
Harald Gurvin	37	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~~Board of ~~directors~~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.

Hans Petter Aas has served as a director of the Company since August 2008 and as Chairman of the Board since January 2009. He has served on the Audit Committee since 2010. Mr. Aas has a long career as banker in the international shipping and offshore market, and retired from his position as Global Head of the Shipping, Offshore and Logistics Division of DnB NOR in August 2008. He joined DnB NOR (then Bergen Bank) in 1989, and has previously worked for the Petroleum Division of the Norwegian Ministry of Industry and the Ministry of Energy, as well as for Vesta Insurance and Nevi Finance. Mr. Aas is also a director of ~~Golar LNG Limited,~~Deep Sea Supply Plc., Knightsbridge Tankers Ltd., Knutsen Offshore Tankers ASA, ~~JO Tankers,~~Knutsen NYK Offshore Partners, Solvang ASA and Gearbulk Holding ~~Limited and the Norwegian Export Credit Guarantee Institute.~~Limited.

Kate Blankenship has served as a director of the Company since October 2003. ~~Ms.~~Mrs. Blankenship served as the Company's Chief Accounting Officer and Company Secretary from October 2003 to October 2005. ~~Ms.~~Mrs. Blankenship has ~~been~~served as a director of Frontline since August 2003, ~~a director of~~ Golar LNG Limited since July ~~2003, a director of~~2013, Golden Ocean since ~~October~~November 2004, ~~a director of~~ Seadrill since May 2005, ~~a director of~~ Archer Limited ~~(previously Seawell Limited)~~ since August 2007, ~~and a director of~~Golar LNG Partners LP since September 2007, Independent Tankers Corporation Limited since February ~~2008.~~ ~~She~~2008, Frontline 2012 Ltd. since December 2011, NADL since February 2011, Seadrill Partners LLC since 2012 and Avance Gas Holdings Limited since October 2013. Mrs. Blankenship is a member of the Institute of Chartered Accountants in England and Wales.

Cecilie Astrup Fredriksen has served as a director of the Company since 2008. Ms. Fredriksen is the daughter of Mr. John Fredriksen and is currently employed by Frontline Corporate Services in London and serves as a director on several boards including ~~Aktiv Kapital ASA, Frontline,~~ Archer Limited, ~~(previously Seawell Limited)~~ and ~~Golden Ocean.~~NADL. Ms. Fredriksen received a BA in Business and Spanish from the London Metropolitan University in 2006.

Paul Leandhas served as a director of the Company since 2003. 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. Mr. Leand is also a director of Seadrill and NADL.

Harald Thorsteinhas served as a director of the Company since September 2011. Mr. Thorstein is currently employed by Frontline Corporate Services in London, prior to which he was employed in the Corporate Finance division of DnB NOR Markets, specializing in the offshore and shipping sectors. Mr. Thorstein has an MSc in Industrial Economics and Technology Management from the Norwegian University of Science and Technology. Mr. Thorstein has served as a director of Seadrill Partners LLC since 2012, NADL since 2013, Golden Ocean since 2014, Frontline 2012 since 2014, and as Chairman of the Board of Directors of Deep Sea Supply Plc. since May 2013.

Ole B. Hjertaker has served Ship Finance Management AS as Chief Executive Officer since July 2009, prior to which he served as Chief Financial Officer from September 2006. Mr. Hjertaker also served Ship Finance Management AS as Interim Chief Financial Officer between July 2009 and January 2011. Prior to joining Ship Finance, Mr. Hjertaker was employed in the Corporate Finance division of DnB NOR Markets, a leading shipping and offshore bank. Mr. Hjertaker has extensive corporate and investment banking experience, mainly within the maritime/transportation industries.

Harald Gurvinwas appointed as Chief Financial Officer of Ship Finance Management AS in March 2012, prior to which he served as Senior Vice President from August 2008. Before joining Ship Finance in July 2006, Mr. Gurvin spent seven years with the global shipping group of Fortis Bank, specializing in shipping and offshore finance. Mr. Gurvin has an MSc in Shipping, Trade and Finance from the CASS Business School in London and an MSc in Marine Engineering and Naval Architecture from the Norwegian University of Science and Technology.

B. COMPENSATION

During the year ended December 31, ~~2011,~~2014, we paid to our directors and executive officers aggregate cash compensation of ~~$1.8~~$3.2 million including an aggregate amount of $0.05 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 ~~2011~~2014 we also recognized an expense of ~~$1.4 million~~$29,000 relating to stock options issued to certain of our directors and employees. During ~~2011, 213,500~~2014, 224,000 options were ~~awarded, while none~~exercised, 10,000 options were ~~exercised or~~ forfeited and no options were issued, bringing the total outstanding options at December 31, ~~2011~~2014, to ~~830,500. The~~189,000. In March 2015, a further 39,000 options ~~vest over a three year period, with the first of them vesting in July 2010,~~were exercised. All outstanding options have vested, and they expire between July ~~2014~~2015 and March 2016. The exercise price of the options is currently between ~~$6.85~~$10.29 and ~~$18.66~~$13.88 per share, and shall be reduced from time to time by the amount of any future dividend declared with respect to the common shares.

C. BOARD PRACTICES

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

We currently have an Audit Committee, which is responsible for overseeing the quality and integrity of our financial statements and our accounting, auditing and financial reporting practices, our compliance with legal and regulatory requirements, the independent auditor's qualifications, independence and performance, and our internal audit function. Kate Blankenship is the Chairperson of the Audit Committee and the Audit Committee Financial Expert. Hans Petter Aas is also a member of the Audit Committee.

As a foreign private issuer, we are exempt from certain requirements of the NYSE 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 NYSE, please see Item 16G or visit the corporate governance section of our website at www.shipfinance.bm.

Our officers are elected by our 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 of Directors 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 ~~eight~~seven persons on a full-time basis. We have contracted with Frontline Management and other third parties for certain managerial responsibilities for our fleet and with Frontline Management for some administrative services, including corporate services.

E. SHARE OWNERSHIP

The beneficial interests of our Directors and officers in our common shares as of April ~~17, 2012,~~9, 2015, are as follows:

Director or Officer
Common Shares of
$1.00 each
Including options to
acquire Common Shares
which have vested
Percentage of
Common Shares
Outstanding
Hans Petter Aas 16,667 16,667 *
Paul Leand 57,001 6,667 *
Kate Blankenship 11,878 6,667 *
Cecilie A. Fredriksen 6,667 6,667 *
Harald Thorstein - - *
Ole B. Hjertaker 279,211 275,000 *
Harald Gurvin 41,667 41,667 *



Director or Officer	Beneficial interest in Common Shares of $1.00 each	Additional interest in options to acquire Common Shares which have vested	Percentage of Common Shares Outstanding
Hans Petter Aas	25,000	—	*
Paul Leand	60,334	—	*
Kate Blankenship	12,711	—	*
Cecilie A. Fredriksen	—	—	*
Harald Thorstein	—	—	*
Ole B. Hjertaker	79,211	80,000	*
Harald Gurvin	—	25,000	*

* Less than one percent.

Share Option Scheme

In November 2006, our ~~board~~Board of ~~directors~~Directors approved the Ship Finance International Limited Share Option Scheme. 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 options are exercised. In ~~March 2012,~~2014, three directors, one ~~of our~~officer and two employees exercised options to acquire ~~100,000~~144,000 shares at ~~a price of $6.85~~prices which averaged $6.44 per share, and we issued ~~100,000~~144,000 new shares in order to satisfy the exercised options. Also in 2014, an officer exercised options to acquire 80,000 shares, and in lieu of issuing new shares the Company made a payment to him equal to the intrinsic value of the options on the date of exercise. In March 2015, two officers and two employees exercised options to acquire a total of 39,000 shares at a price of $10.71 per share, and we issued 39,000 new shares to satisfy the exercised options.

Details of options to acquire common shares in the Company by Directors and officers as of April ~~17, 2012,~~9, 2015, were as follows:



	Number of options
Director or Officer	Total	Vested	Exercise price		Expiration Date
Ole B. Hjertaker	80,000	80,000	$	13.88	March 2016
Harald Gurvin	25,000	25,000	$	13.88	March 2016

Number of options
Director or Officer Total Vested Exercise price Expiration Date
Hans Petter Aas 25,000 16,667 $ 9.51 October 2014
Paul Leand 10,000 6,667 $ 9.51 October 2014
Kate Blankenship 10,000 6,667 $ 9.51 October 2014
Cecilie A. Fredriksen 10,000 6,667 $ 9.51 October 2014
Harald Thorstein - - - -
Ole B. Hjertaker 300,000 235,000 $ 6.85 July 2014
20,000 13,333 $ 15.49 March 2015
80,000 26,667 $ 18.66 March 2016
Harald Gurvin 40,000 26,667 $ 6.85 July 2014
10,000 6,667 $ 15.49 March 2015
25,000 8,333 $ 18.66 March 2016


ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Upon our liquidation, dissolution or winding up, shareholders will be entitled to receive, ratably, 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~~Board of ~~directors~~Directors each calendar year. Special meetings of shareholders may be called by our ~~board~~Board of ~~directors~~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~~Board of ~~directors~~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 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~~Board of ~~directors~~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 or 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~~tortious 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 he may incur under the indemnification provisions of our Bye-laws.

C.	C. MATERIAL CONTRACTS

The Company has not entered into any new material contracts since January 1, ~~2009,~~2014, other than those entered in the ordinary course of business. ~~However, on December 30, 2011, amendments were made to certain charter agreements with Frontline, as shown below.~~

~~Amendments to charter agreements with Frontline Shipping and Frontline Shipping II~~

On December 30, 2011, amendments were made to the charter agreements with Frontline Shipping and Frontline Shipping II, which relate to 28 double-hull vessels. In terms of the amending agreements, the Company received a compensation payment of $106 million and agreed to a $6,500 per day reduction in the time charter rate of each vessel for the period from January 1, 2012 to December 31, 2015. Thereafter, the charter rates revert to the previously agreed daily amounts.

Prior to December 31, 2011, Frontline Shipping and Frontline Shipping II paid the Company a profit sharing rate of 20% of their earnings above average threshold charter rates on a time-charter equivalent basis from their use of the Company's fleet each fiscal year. Starting on January 1, 2012, the amendments to the charter agreements increased the profit sharing percentage to 25% for earnings above those threshold levels. Additionally, the amendments provide that during the four year period of the temporary reduction in charter rates, Frontline Shipping and Frontline Shipping II will pay the Company 100% of any earnings on a time-charter equivalent basis above the temporarily reduced time charter rates, subject to a maximum of $6,500 per day. Of the $106 million compensation payment received, $50 million represents a non-refundable advance relating to the 25% profit sharing agreement.

Prior to December 31, 2011, Frontline Shipping and Frontline Shipping II had established cash charter services reserves of $46 million and $10 million, respectively, to support their obligation to make payments to us under the charters. The amendments released them from their obligation to hold such cash reserves.

~~The amendments to the charter agreements with Frontline Shipping and Frontline Shipping II are presented in Item 19 "Exhibits".~~

D.	D. EXCHANGE CONTROLS

The Bermuda Monetary Authority, or the BMA, must give permission for all issuances and transfers of securities of a Bermuda exempted company like us. We have received a general permission from the BMA to issue any unissued common shares, and for the free transferability of the common shares as long as our common shares are listed on the NYSE. Our common shares may therefore be freely transferred among persons who are ~~residents or~~ non-residents of Bermuda.

Although we are incorporated in Bermuda, we are classified as non-resident of Bermuda for exchange control purposes by the BMA. Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into and out of Bermuda or to pay dividends to U.S. residents who are holders of our common shares or other non-resident holders of our common shares in currency other than Bermuda Dollars.

E. TAXATION

U.S. Taxation

The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing and proposed U.S. Treasury Department regulations, or the Treasury Regulations, administrative rulings and pronouncements and judicial decisions, all as of the date of this ~~Annual Report.~~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 a significant portion 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 is not permitted by law to engage in transportation that gives rise to 100% U.S. source income.

Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside 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. federal income 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 Section 883 of the Code

Under the relevant provisions of Section 883 of the Code, or Section 883, the Company will be exempt from U.S. federal income 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, and which the Company refers to as the Country of Organization Requirement; and


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

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

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

The U.S. Treasury Department has 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, the Marshall Islands, Malta and Cyprus, the countries of incorporation of certain of the Company's vessel-owning 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.

As discussed below, for the 2014 taxable year we believe the Company satisfied the Publicly-Traded Test, since on more than half the days in the taxable year we believe the Company's common shares were primarily and regularly traded on an established securities market in the United States, namely the NYSE.

As to the Publicly-Traded Test, the Treasury Regulations under Section 883 provide, in pertinent part, that stock of a foreign corporation will be considered to be "primarily traded" on an established securities market in a country if the number of shares of each class of stock that is traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that is traded during that year on established securities markets in any other single country.

The Publicly-Traded Test also requires our common shares be "regularly traded" on an established securities market. Under the Treasury Regulations, our common shares are considered to be "regularly traded" on an established securities market if shares representing more than 50% of our outstanding common shares, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on the market, referred to as the "listing threshold." The Treasury Regulations further require that with respect to each class of stock relied upon to meet the listing threshold (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or 1/6 of the days in a short taxable year, which is referred to as the "trading frequency ~~test;"~~test", and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year (as appropriately adjusted in the case of a short taxable year), which is referred to aas the "trading volume test." Even if we do not satisfy both the trading frequency and trading volume tests, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if our common shares are traded on an established securities market in the United States and such stock is regularly quoted by dealers making a market in our common shares.

For the 2011 taxable year, we believe the Company satisfied the Publicly-Traded Test since, on more than half the days of the taxable year, we believe the Company's common shares were primarily and regularly traded on an established securities market in the United States, namely the New York Stock Exchange, or NYSE.

Notwithstanding the foregoing, our common shares will not be considered to be regularly traded on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding common shares are owned, actually or constructively under certain stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the value of our common shares, which we refer to as the 5 Percent Override Rule.

In order to determine the persons who actually or constructively own 5% or more of our common shares, or 5% Shareholders, we are permitted to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the U.S. Securities and Exchange Commission as having a 5% or more beneficial interest in our common shares. In addition, an investment company identified on a Schedule 13G or Schedule 13D filing which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.

~~Therefore, there~~For our 2014 taxable year, we do not believe that we were subject to the 5 Percent Override Rule and, therefore, we believe that we satisfied the Publicly-Traded Test. There are, however, factual circumstances beyond our control that could cause the Company to lose the benefit of the Section 883 exemption and thereby become subject to U.S. federal income tax on its U.S. source shipping income. For example, Hemen owned approximately ~~43%~~36% of our outstanding common shares as of December 31, ~~2011.~~2014. There is, therefore, a risk that the Company could no longer qualify for exemption under Section 883 for a particular taxable year if other 5% Shareholders were, in combination with Hemen, to own 50% or more of the outstanding common shares of the Company on more than half the days during the taxable year. Due to the factual nature of the issues involved, there can be no assurances as to the tax-exempt status of the Company or any of its subsidiaries.

In the event the 5 Percent Override Rule is triggered, the 5 Percent Override Rule will nevertheless not apply if we can establish that among the closely-held group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be "qualified shareholders" for purposes of Section 883 to preclude non-qualified 5% Shareholders in the closely-held group from owning 50% or more of our common shares for more than half the number of days during the taxable year.

In any year that the 5 Percent Override Rule is triggered with respect to us, we are eligible for the exemption from tax under Section 883 only if we can nevertheless satisfy the Publicly-Traded Test (which requires, among other things, showing that the exception to the 5 Percent Override Rule applies) or if we can satisfy the 50% Ownership Test. In either case, certain substantiation and reporting requirements regarding the identity of our shareholders must be satisfied in order to qualify for the Section 883 exemption. These requirements are onerous and there is no assurance that we would be able to satisfy them.

Taxation in Absence of the 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, to the extent not considered to be "effectively connected" with the conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the "4% gross basis tax regime." 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, to the extent not considered to be "effectively connected" with the conduct of a U.S. trade or business, would never exceed 2% under the 4% gross basis tax regime.

To the extent the benefits of the Section 883 exemption are unavailable and our U.S. source shipping income is considered to be "effectively connected" with the conduct of a U.S. trade or business, as described below, any such "effectively connected" U.S. source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at rates of up to 35%. In addition, we may be subject to the 30% "branch profits" tax on earnings "effectively connected" with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such U.S. trade or business.

Our U.S. source shipping income would be considered "effectively connected" with the conduct of a U.S. trade or business only if:

we had, or were considered to have, a fixed place of business in the United States involved in the earning of U.S. source shipping income; and

substantially all of our U.S. source shipping income were attributable to regularly scheduled transportation, such as the operation of a vessel that followed a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States, or, in the case of income from the chartering of a vessel, were attributable to a fixed place of business in the United States.

We do not have, nor will we permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S. source shipping income is or will be "effectively connected" with the conduct of a U.S. trade or business.

Gain on Sale of Vessels

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

U.S. Taxation of Our Other Income

In addition to our shipping operations, we charter drillrigs to third parties who conduct drilling operations in various parts of the world. Since we are not engaged in a trade or business in the United States, we do not expect to be subject to U.S. federal income tax on any of our income from such charters.

Taxation of U.S. Holders

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

As used herein, the term U.S. Holder means a beneficial owner of our common shares that (i) is a U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, (ii) owns our common shares as a capital asset, generally, for investment purposes, and (iii) owns less than 10% of our common shares for U.S. federal income tax purposes.

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

Distributions

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

Dividends paid on our common shares to a U.S. Holder who is an individual, trust or estate, which we refer to as 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 2012)~~ provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common shares are listed); (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (see discussion below); and (3) the U.S. Individual Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend.

There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Legislation has been previously 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 Shares

Assuming we do not constitute a PFIC 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 shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such common shares. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period in the common shares is greater than one year at the time of the sale, exchange or other disposition. Otherwise, it will be treated as short-term capital gain or loss. 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 U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held our common shares, 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% 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.

Although there is no legal authority directly on point, we believe that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering activities of our wholly-owned subsidiaries more likely than not constitutes 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, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. This position is principally based upon the positions that (1) our time charter income will constitute services income, rather than rental income, and (2) Frontline Management, which provides services to most of our time-chartered vessels, will be respected as a separate entity from the Frontline Charterers, with which it is affiliated.

We intend to take the position that we were not treated as a PFIC for our 2014 taxable year. For the ~~2011~~2015 taxable year and future taxable years, depending upon the relative amount of income we derive from our various assets as well as their relative fair market values, it is possible that we may be treated as a PFIC.

We note that there is no direct legal authority under the PFIC rules addressing our current and proposed method of operation. 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. Accordingly, no assurance can be given that the 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.

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 shares, as discussed below, and which election we refer to as a Mark-to-Market Election. In any event, if we were to be treated as a PFIC for any taxable year ending on or after December 31, 2014, a U.S. Holder would be required to file an annual report with the Internal Revenue Service for that year with respect their holding in our common shares.

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

If a U.S. Holder makes a timely QEF Election, which U.S. Holder we refer to as an Electing Holder, the Electing Holder must report each year for U.S. federal income tax purposes its 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 shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. A U.S. Holder would make a QEF Election with respect to any taxable year that we are a PFIC by filing one copy of IRS Form 8621 with its U.S. federal income tax return. To make a QEF Election, a U.S. Holder must receive annually certain tax information from us. There can be no assurances that we will be able to provide such information annually. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares.

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 common shares are treated as "marketable stock," a U.S. Holder would be permitted to make a Mark-to-Market Election with respect to our common shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such holder's adjusted tax basis in the common shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. A U.S. Holder's tax basis in its common shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income 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 shares in a taxable year in excess of 125 % of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:

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

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

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

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

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

Taxation of Non-U.S. Holders

A beneficial owner of common shares (other than a partnership) that is not a U.S. Holder is referred to herein as a Non-U.S. Holder.

Dividends on Common Shares

Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our common shares, unless that dividend is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to those dividends, that income is taxable, or taxable at the full rate, only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.

Sale, Exchange or Other Disposition of Common Shares

Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:

the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States (and, if the Non-U.S. Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States); or

the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.

If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including dividends and the gain from the sale, exchange or other disposition of the common shares, that is effectively connected with the conduct of that trade or business will generally be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax treaty.

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:

fail to provide an accurate taxpayer identification number;

are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or

~~are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or~~

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

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

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

W-8.

If you are a Non-U.S. Holder and you sell your common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or otherwise 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, 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 shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence that you are a non-U.S. person and certain other conditions are met, or you otherwise establish an exemption.

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 IRS.

Pursuant to recently enacted legislation, individuals who are U.S. Holders (and to the extent specified in applicable Treasury regulations, certain individuals who are Non-U.S. Holders and certain U.S. entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the shares are held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.

Bermuda Taxation

Under current Bermuda law, we are not subject to tax on income or capital gains. We have received from the Minister of Finance under The Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to us or to any of our operations or shares, debentures or other obligations, until March 31, 2035. We could be subject to taxes in Bermuda after that date. This assurance is subject to the proviso that it is not to be construed to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967 or otherwise payable in relation to any property leased to us. We and our subsidiaries incorporated in Bermuda pay annual government fees to the Bermuda government.

F.	F. DIVIDENDS AND PAYING AGENTS

Not ~~Applicable~~

Applicable.

G.	G. STATEMENT BY EXPERTS

Not ~~Applicable~~

Applicable.

H.	81 H. DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Securities Exchange Act of 1934, or the Exchange Act, as amended. In accordance with these requirements, we file reports and other information with the ~~Securities and Exchange Commission.~~SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the ~~Commission~~SEC at 100 F Street, N.E., 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~~SEC 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. Our filings are also available on our website at www.shipfinance.bm. This web address is provided as an inactive textual reference only. Information on our website does not constitute part of this annual report.

I.	I. SUBSIDIARY INFORMATION

Not ~~Applicable~~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 and currency swaps to manage currency risks. We may enter into derivative instruments from time to time for speculative purposes.

At December 31, ~~2011,~~2014, the Company had entered into combined currency and interest rate swap contracts with a total notional principal of ~~NOK500~~NOK600 million ($85105 million), to hedge against fluctuations in interest and exchange rates on our ~~NOK500~~NOK600 million floating rate unsecured bonds due ~~2014.~~2017. Under these contracts, variable NIBOR interest rates including additional margin is swapped for fixed interest at ~~5.32%~~an average of 6.06%, and both the payment of interest and eventual settlement of the bonds will have an effective exchange rate of ~~NOK5.91~~NOK5.69 = $1. These contracts expire in ~~April 2014~~October 2017 and we estimate that we would pay $2$30 million to terminate them as of December 31, ~~2011 (2010: receive $2~~2014 (2013: $9 million).

Similarly, at December 31, 2014, the Company had entered into combined currency and interest rate swap contracts with a total notional principal of NOK900 million ($151 million), to hedge against fluctuations in interest and exchange rates on our NOK900 million floating rate unsecured bonds due 2019. Under these contracts, variable NIBOR interest rates including additional margin is swapped for fixed interest at an average of 6.03%, and both the payment of interest and eventual settlement of the bonds will have an effective exchange rate of NOK5.96 = $1. These contracts expire in March 2019 and we estimate that we would pay $35 million to terminate them as of December 31, 2014 (2013: $nil).

At December 31, ~~2011,~~2014, the Company and its consolidated subsidiaries had entered into interest rate swap contracts with a combined notional principal amount of ~~$986~~$1,001 million at rates excluding margin over LIBOR of between ~~1.70%~~0.80% per annum and ~~5.65%~~6.00% per annum. In addition, ~~our~~one equity-accounted ~~subsidiaries~~subsidiary had entered into interest rate swaps with a combined notional principal amount of ~~$988~~$224 million at rates excluding margin over LIBOR of between ~~1.91%~~1.77% per annum and ~~3.92%~~2.01% per annum. The swap agreements mature between ~~January 2012~~March 2015 and ~~August 2021,~~April 2023, and we estimate that we would pay ~~$103~~$41 million to terminate these agreements as of December 31, ~~2011 (2010:~~2014 (2013: pay ~~$102~~$35 million).

~~The~~Approximately $0.2 billion of the above swaps were in excess of related debt at December 31, 2014, as a result of NOK bonds purchased and held as treasury bonds, one of the swaps commencing in December 2016 and another of the swaps commencing in January 2017. Thus, the overall effect of ~~these~~our swaps is to fix the interest rate on approximately ~~$2.0~~$1.3 billion of our floating rate debt ~~denominated in U.S. dollars and Norwegian kroner~~at December 31, 2014, at a weighted average interest rate of ~~4.77%~~5.16% per annum including margin.

Several of our charter contracts 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, ~~2011,~~2014, a total of ~~$1.5~~$1.1 billion of our floating rate debt was subject to such interest adjustment clauses, including our equity accounted subsidiaries. Of this, ~~$1.1~~approximately $0.2 billion was also subject to interest rate swaps entered into for the benefit of the charterer, with the balance of ~~$421 million~~$0.9 billion remaining on a floating rate basis.

At December 31, ~~2011,~~2014, our net exposure, including equity-accounted subsidiaries, to interest rate fluctuations on our outstanding debt was ~~$462~~$86 million, compared with ~~$602~~$207 million at December 31, ~~2010.~~2013. Our net exposure to interest fluctuations is based on our total of ~~$2.9~~$2.3 billion floating rate debt outstanding at December 31, ~~2011,~~2014, less the ~~$2.0~~$1.3 billion notional principle of our interest rate swaps and the ~~$421 million~~$0.9 billion outstanding floating rate debt subject to interest adjustment clauses under charter contracts. A one per-cent change in interest rates would thus increase or decrease interest expense by ~~$4.6~~$0.9 million per year as of December 31, ~~2011 (2010: $6.0~~2014 (2013: $2.1 million).

~~Apart from~~In addition to the above interest rate and currency swap contracts at December 31, ~~2011, and~~2014, in January 2015, we entered into an interest rate swap contract with an initial notional principal of $55.3 million which commences in January 2017. At the date of this report, we were not party to any other derivative contracts.

~~The fair market value of our outstanding 8.5% Senior Notes was $264 million as of December 31, 2011 (2010: $301 million).~~

The Company may in the future enter into short-term TRS arrangements relating to our own shares ~~bonds~~ and ~~Senior Notes~~bonds or securities in other companies.

Apart from our ~~NOK500~~NOK600 million and NOK900 million floating rate bonds, which have been hedged, the majority of our transactions, assets and liabilities are denominated in U.S. dollars, our functional currency.


ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not ~~Applicable~~Applicable.

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 payments 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.

~~None~~


ITEM 15.	CONTROLS AND PROCEDURES


a)	Disclosure Controls and Procedures

Pursuant to Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act, management assessed the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, ~~2011.~~2014. 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 Exchange Act.

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

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

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of 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 published in its report entitled Internal Control-Integrated ~~Framework.~~Framework (2013).

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 Exchange Act, as of December 31, ~~2011.~~2014. 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, ~~2011.~~2014.


c)	Attestation report of the registered public accounting firm

MSPC, Certified Public Accountants and Advisors, ~~or MSPC,~~ a Professional Corporation, ~~and~~ our independent registered public accounting firm, has issued their attestation report on the effectiveness of our internal control over financial reporting as of December 31, ~~2011.~~2014. Such report appears on page F-2.


d)	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,~~affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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


ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT

Our ~~board~~Board of ~~directors~~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~~


ITEM 16B.	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. We have posted our code of ethics on our website at www.shipfinance.bm. We will provide any person, free of charge, with a copy of our code of ethics upon written request to our registered office.

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


ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our principal accountant for ~~2011~~2014 and ~~2010~~2013 was MSPC. The following table sets forth the fees related to audit and other services provided by MSPC.

2011 2010

Audit Fees (a) $ 520,000 $ 520,000
Audit-Related Fees (b) $ 57,625 $ 98,500
Tax Fees (c) - -
All Other Fees (d) $ 34,252 $ 37,296
Total $ 611,877 $ 655,796



	2014		2013
Audit Fees (a)	$	540,000	$	564,500
Audit-Related Fees (b)	$	117,000	$	107,000
Tax Fees (c)	—		—
All Other Fees (d)	$	50,149	$	52,336
Total	$	707,149	$	723,836


(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.~~

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

(e)

Audit Committee's Pre-Approval Policies and Procedures

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 of directors 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 2011 and 2010

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 of Directors 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 2014 and 2013 were approved by the Board of Directors pursuant to the pre-approval policy.


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

Not ~~applicable~~applicable.


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

No shares have been repurchased by the Company since January 2006.

~~100~~


ITEM ~~16 F.~~16F.	CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not ~~applicable.~~

applicable


ITEM ~~16 G.~~16G.	CORPORATE GOVERNANCE

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

Executive Sessions. The NYSErequires that non-management directors meet regularly in executive sessions without management. The NYSEalso requires that all independent directors meet in an executive session at least once a year. As permitted under Bermuda law and our Bye-laws, our non-management directors have not regularly held executive sessions without management, and we do not expect them to do so in the future.

Nominating/Corporate Governance Committee. The NYSErequires that a listed U.S. company have a nominating/corporate governance committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. As permitted under Bermuda law and our Bye-laws, we do not currently have a nominating or corporate governance committee.

Audit Committee. The NYSErequires, among other things, that a listed U.S. company have an audit committee with a minimum of three members. As permitted by Rule 10A-3 under the Exchange Act, our audit committee consists of two independent members of our Board of Directors.

Corporate Governance Guidelines. The NYSErequires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Bermuda law and we have not adopted such guidelines.

~~ITEM 16 H. MINE SAFETY DISCLOSURE~~


ITEM 16H.	MINE SAFETY DISCLOSURE

Not ~~applicable~~

applicable.

~~101~~

PART III


ITEM 17.	FINANCIAL STATEMENTS

See Item 18.


ITEM 18.	FINANCIAL STATEMENTS

The following financial statements listed below and set forth on pages F-1 through ~~F-34 and A-1 through A-16~~F-44 are filed as part of this annual report:

Financial Statements: Ship Finance International Limited



Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Operations for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-4
Consolidated Balance Sheets as of December 31, ~~2011~~2014 and ~~2010~~2013	F-5
Consolidated Statements of Cash Flows for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-6
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-7
Notes to Consolidated Financial Statements	F-8

~~Financial Statements: SFL Deepwater Ltd.~~

~~Report of Independent Registered Public Accounting Firm~~	~~A-2~~
~~Statements of Operations and Comprehensive Income for the years ended December 31, 2011, 2010 and 2009~~	~~A-3~~
~~Balance Sheets as of December 31, 2011 and 2010~~	~~A-4~~
~~Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009~~	~~A-5~~
~~Statement of Changes in Stockholders' Equity for the years ended December 31, 2011, 2010 and 2009~~	~~A-6~~
~~Notes to Financial Statements~~	~~A-7~~

~~The financial statements of SFL Deepwater Ltd. have been included in this document pursuant to Rule 3-09 of Regulation S-X~~

~~102~~

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").


1.2*	Amended and Restated Bye-laws of the Company, as adopted on September 28, 2007, incorporated by reference to Exhibit 1 of the Company's 6-K filed on October 22, 2007.


1.3	Amended and Restated Bye-laws of the Company, as adopted on September 20, 2013.

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


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 Performance Guarantee dated January 1, 2004, issued by Frontline Ltd, incorporated by reference to Exhibit 10.3 of the Company's Original Registration Statement.

4.3*
4.2*	Amendment No. 4 to Performance Guarantee dated January 1, 2004, incorporated by reference to Exhibit 4.3 of the Company's 2009 Annual Report as filed on Form 20-F on April 1, 2010.

4.4*
4.3*	Form of Time Charter, incorporated by reference to Exhibit 10.4 of the Company's Original Registration Statement.

4.5*
4.4*	Form of Vessel Management Agreements, incorporated by reference to Exhibit 10.5 of the Company's Original Registration Statement.

4.6*
4.5*	Form of Charter Ancillary Agreement dated January 1, 2004, incorporated by reference to Exhibit 10.6 of the Company's Original Registration Statement.

4.7*
4.6*	Addendum No. 6 to Charter Ancillary Agreement dated January 1, 2004, incorporated by reference to Exhibit 4.8 of the Company's 2009 Annual Report as filed on Form 20-F on April 1, 2010.

4.8*
4.7*	Amendments dated August 21, 2007, to the Charter Ancillary Agreements, incorporated by reference to Exhibit 4.8 of the Company's 2007 Annual Report as filed on Form 20-F on March 17, 2008.

4.9*
4.8*	New Administrative Services Agreement dated November 29, 2007, incorporated by reference to Exhibit 4.10 of the Company's 2007 Annual Report as filed on Form 20-F on March 17, 2008.

4.10*
4.9*	Share Option Scheme, incorporated by reference to Exhibit 2.2 of the Company's 2006 Annual Report as filed on Form 20-F on July 2, 2007.

~~103~~

4.11*
4.10*	Bond Agreement relating to Ship Finance International Limited Callable Senior Unsecured Bond Issue 2010/2014, dated October 6, 2010 incorporated by reference to Exhibit 4.11 of the Company's 2010 Annual Report filed on Form 20-F on March 25, 2011.

4.12*
4.11*	Bond Agreement relating to Ship Finance International Limited Senior Unsecured Callable Convertible Bond Issue 2011/2016, dated February 11, 2011 incorporated by reference to Exhibit 4.12 of the Company's 2010 Annual Report filed on Form 20-F on March 25, 2011.

~~4.13~~
4.12*	Addendum No. 7 to Charter Ancillary Agreement dated January 1, ~~2004.~~2004, incorporated by reference to Exhibit 4.13 of the Company's 2011 Annual Report filed on Form 20-F on April 27, 2012.

~~4.14~~
4.13*	Addendum No. 3 to Charter Ancillary Agreement dated June 20, ~~2005.~~2005, incorporated by reference to Exhibit 4.14 of the Company's 2011 Annual Report filed on Form 20-F on April 27, 2012.

4.14*	Indenture by and among the Company, U.S. Bank National Association and Deutsche Bank Trust Company Americas, dated January 30, 2013, incorporated by reference to the Company's report on Form 6-K filed on February 4, 2013.

4.15*	First Supplemental Indenture by and among the Company, U.S. Bank National Association and Deutsche Bank Trust Company Americas, dated January 30, 2013, incorporated by reference to the Company's report on Form 6-K filed on February 7, 2013.

4.16*	Bond Agreement relating to Ship Finance International Limited Callable Senior Unsecured Bond Issue 2012/2017, dated October 16, 2012, incorporated by reference to the Company's Annual Report filed on Form 20-F on March 28, 2014.



4.17*	Bond Agreement relating to Ship Finance International Limited Callable Senior Unsecured Bond Issue 2014/2019, dated March 17, 2014, incorporated by reference to the Company's Annual Report filed on Form 20-F on March 28, 2014.

8.1	Subsidiaries of the Company.


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.


15.1	Consent of Independent Registered Public Accounting Firm.


101.INS	XBRL Instance Document


101.SCH	XBRL Taxonomy Extension Schema Document


101.CAL	XBRL Taxonomy Extension Schema Calculation Linkbase Document


101.DEF	XBRL Taxonomy Extension Schema Definition Linkbase Document


101.LAB	XBRL Taxonomy Extension Schema Label Linkbase Document


101.PRE	XBRL Taxonomy Extension Schema Presentation Linkbase Document

* Incorporated herein by reference.

~~104~~

SIGNATURES

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



		SHIP FINANCE INTERNATIONAL LIMITED
		(Registrant)

Date:	April ~~27, 2012~~9, 2015	By:	/s/ Harald Gurvin
			Harald Gurvin
			Principal Financial Officer

~~105~~

Ship Finance International Limited

Index to Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Operations for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-4
Consolidated Balance Sheets as of December 31, ~~2011~~2014 and ~~2010~~2013	F-5
Consolidated Statements of Cash Flows for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-6
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012	F-7
Notes to the Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Ship Finance International Limited

We have audited the accompanying consolidated balance sheets of Ship Finance International Limited and subsidiaries (the "Company") as of December 31, ~~2011~~2014 and ~~2010,~~2013, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, ~~2011.~~2014. We also have audited the Company's internal control over financial reporting as of December 31, ~~2011,~~2014, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's annual report on internal controls over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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, ~~2011~~2014 and ~~2010,~~2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2011,~~2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2011,~~2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/S/ MSPC

Certified Public Accountants and Advisors,

A Professional Corporation

New York, New York

April ~~27, 2012~~9, 2015

F-2

~~F-2~~

Ship Finance International Limited

CONSOLIDATED STATEMENTS OF OPERATIONS

for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012

(in thousands of $, except per share amounts)

2011 2010 2009
Operating revenues
Direct financing lease interest income - related parties 97,757 119,445 147,498
Direct financing and sales-type lease interest income - other 6,859 7,332 3,870
Finance lease service revenues - related parties 69,992 76,876 88,953
Profit sharing revenues - related parties 482 30,566 33,018
Time charter revenues - related parties 660 698 -
Time charter revenues - other 28,789 3,731 2,836
Bareboat charter revenues - related parties 21,276 21,863 20,402
Bareboat charter revenues - other 69,003 47,064 48,452
Other operating income 296 485 191
Total operating revenues 295,114 308,060 345,220

Gain on sale of assets 8,468 28,104 24,721

Operating expenses
Ship operating expenses - related parties 71,283 78,289 88,953
Ship operating expenses - other 9,780 2,732 2,541
Depreciation 49,929 34,201 30,236
Vessel impairment charge - - 26,756
Administrative expenses - related parties 504 424 411
Administrative expenses - other 9,381 8,673 11,780
Total operating expenses 140,877 124,319 160,677

Net operating income 162,705 211,845 209,264
Non-operating income / (expense)
Interest income – related parties, associated companies 19,575 19,575 -
Interest income – related parties, other - 493 -
Interest income - other 3,826 1,039 240
Interest expense - related parties - (3,121 ) (15,923 )
Interest expense - other (103,378 ) (98,311 ) (101,152 )
Gain/(loss) on purchase of bonds 521 (13 ) 20,600
Gain on sale of investment in associated company 4,064 - -
Long-term investment impairment charge - - (7,110 )
Other financial items, net (7,040 ) (16,208 ) 11,050
Net income before equity in earnings of associated companies 80,273 115,299 116,969

Equity in earnings of associated companies 50,902 50,413 75,629

Net income 131,175 165,712 192,598

Per share information:
Basic earnings per share $ 1.66 $ 2.10 $ 2.59
Diluted earnings per share $ 1.62 $ 2.09 $ 2.59



	2014			2013			2012
Operating revenues
Direct financing lease interest income - related parties	45,363			55,385			59,214
Direct financing and sales-type lease interest income - other	—			4,231			6,501
Finance lease service revenues - related parties	46,488			52,390			64,766
Finance lease service revenues - other	—			1,846			—
Profit sharing revenues - related parties	33,756			770			52,176
Time charter revenues - related parties	10,039			5,647			—
Time charter revenues - other	83,013			77,778			60,258
Bareboat charter revenues - related parties	16,364			18,324			20,701
Bareboat charter revenues - other	53,407			42,705			54,212
Voyage charter revenues - other	34,608			9,724			—
Other operating income	4,449			2,060			1,864
Total operating revenues	327,487			270,860			319,692
Gain on sale of assets and termination of charters, net	23,931			18,025			47,386
Operating expenses
Vessel operating expenses - related parties	49,170			54,916			66,455
Vessel operating expenses - other	70,300			50,618			28,459
Depreciation	67,393			58,436			55,602
Vessel impairment charge	11,800			—			—
Administrative expenses - related parties	965			439			471
Administrative expenses - other	6,644			7,110			8,471
Total operating expenses	206,272			171,519			159,458
Net operating income	145,146			117,366			207,620
Non-operating income / (expense)
Interest income – related parties, associated companies	24,464			19,575			19,575
Interest income – related parties, other	4,029			482			—
Interest income - other	11,958			10,023			7,599
Interest expense - other	(86,081		)	(87,225		)	(94,851		)
Loss on purchase of bonds	(21		)	(1,218		)	(122		)
Gain on sale of investment in associated company	6,055			—			—
Long-term investment impairment charge	—			—			(3,353		)
Other financial items, net	(16,232		)	2,003			5,876
Net income before equity in earnings of associated companies	89,318			61,006			142,344
Equity in earnings of associated companies	33,497			28,200			43,492
Net income	122,815			89,206			185,836
Per share information:
Basic earnings per share	$	1.32		$	1.00		$	2.31
Weighted average number of shares outstanding, basic	93,331			89,508			80,594
Diluted earnings per share	$	1.24		$	0.99		$	2.22
Weighted average number of shares outstanding, diluted	116,747			95,424			85,868
Cash dividend per share declared and paid	$	1.63		$	1.17		$	1.86

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

F-3

Ship Finance International Limited

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~

~~(in thousands of $, except per share amounts)~~

2011 2010 2009

Net income 131,175 165,712 192,598

Fair value adjustments to hedging financial instruments (19,467 ) (9,858 ) 41,248
Fair value adjustments to hedging financial instruments in associated companies 20,074 (11,396 ) 15,829
Reclassification into net income of previous fair value adjustments to hedging financial instruments 1,756 14,629 -
Fair value adjustments to available for sale securities (327 ) - -
Other comprehensive (loss)/ income (16 ) (5 ) 100
Other comprehensive income, net of tax 2,020 (6,630 ) 57,177

Comprehensive income 133,195 159,082 249,775

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

~~F-4~~

~~Ship Finance International Limited~~

~~CONSOLIDATED BALANCE SHEETS~~

~~as of December 31, 2011 and 2010~~2012

(in thousands of $)

2011   2010
ASSETS
Current assets
Cash and cash equivalents 94,915 86,967
Restricted cash - 5,601
Available for sale securities 23,324 -
Trade accounts receivable 210 1,074
Due from related parties 9,775 32,745
Other receivables 2,606 4,127
Inventories 1,228 484
Prepaid expenses and accrued income 545 327
Investment in direct financing and sales-type  leases, current portion 60,160 103,976
Total current assets 192,763 235,301

  Vessels and equipment 1,062,295 811,740
  Accumulated depreciation on vessels and equipment (165,465 ) (116,229 )
Vessels and equipment, net 896,830 695,511
Newbuildings 123,750 90,601
Investment in direct financing and sales-type leases, long-term portion 1,159,900 1,351,305
Investment in associated companies 169,838 164,364
Loans to related parties - associated companies, long-term 274,184 325,612
Loans to others, long-term 50,000 -
Other long-term investments 3,140 2,945
Deferred charges 25,723 14,828
Financial instruments (long-term): mark to market valuation - 1,894
Total assets 2,896,128 2,882,361

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt 150,342 162,785
Trade accounts payable 681 449
Due to related parties 4,421 32,816
Accrued expenses 9,370 6,513
Other current liabilities 9,334 6,138
Total current liabilities 174,148 208,701
Long-term liabilities
Long-term debt 1,760,122 1,760,069
Financial instruments (long-term): mark to market valuation 79,870 57,291
Other long-term liabilities 24,897 27,380
Total liabilities 2,039,037 2,053,441
Commitments and contingent liabilities
Stockholders' equity
Share capital  ($1 par value; 125,000,000 shares authorized; 79,125,000 shares issued and outstanding)
79,125 79,125
Additional paid-in capital 61,670 60,261
Contributed surplus 548,354 532,143
Accumulated other comprehensive loss (62,004 ) (43,950 )
Accumulated other comprehensive loss – associated companies (24,737 ) (44,811 )
Retained earnings 254,683 246,152
Total stockholders' equity 857,091 828,920
Total liabilities and stockholders' equity 2,896,128 2,882,361

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

~~F-5~~

~~Ship Finance International Limited~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~for the years ended December 31, 2011, 2010 and 2009~~

~~(in thousands of $)~~

2011 2010 2009
Operating activities
Net income 131,175 165,712 192,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 49,929 34,201 30,236
Vessel impairment charge - - 26,756
Long-term investment impairment charge - - 7,110
Amortization of deferred charges 7,131 5,036 5,507
Amortization of seller's credit (2,047 ) (2,072 ) (2,065 )
Equity in earnings of associated companies (50,902 ) (50,413 ) (75,629 )
Gain on sale of assets (8,468 ) (28,104 ) (24,721 )
Gain on sale of investment in associated company (4,064 ) - -
Adjustment of derivatives to market value 4,408 14,733 (12,675 )
(Gain)/ loss on repurchase of bonds (521 ) 13 (20,600 )
Other 67 (248 ) 98
Changes in operating assets and liabilities
Trade accounts receivable 864 799 (1,438 )
Due from related parties 29,113 15,282 5,531
Other receivables 1,921 1,949 73
Inventories (744 ) (390 ) 158
Prepaid expenses and accrued income (218 ) (150 ) 3,461
Trade accounts payable 232 441 (11 )
Accrued expenses 2,589 (2,585 ) (8,839 )
Other current liabilities 3,196 (433 ) (28 )
Net cash provided by operating activities 163,661 153,771 125,522

Investing activities
Repayments from investments in direct financing and sales-type leases 204,874 174,946 209,368
Additions to newbuildings (156,223 ) (157,736 ) (71,468 )
Purchase of vessels (151,562 ) (33,575 ) -
Proceeds from sales of vessels 71,461 39,500 163,086
Proceeds from sale of investment in associated company 37,048 - -
Distribution from associated companies - 435,000 -
Net amounts received from/ (paid to) associated companies 56,702 (379,010 ) 68,000
Costs of other long-term investments (50,000 ) (648 ) (920 )
Purchase of available for sale securities (23,763 ) - -
Redemption/ (placement) of restricted cash 5,601 (1,500 ) 56,002
Net cash (used in)/ provided by investing activities (5,862 ) 76,977 424,068

Financing activities
Shares issued, net of issuance costs - - 16,472
Repurchase of bonds (23,230 ) (11,917 ) (125,405 )
Proceeds from issuance of short-term and long-term debt 408,592 981,234 134,500
Repayments of short-term and long-term debt (394,747 ) (1,056,040 ) (446,061 )
Debt fees paid (17,822 ) (12,417 ) (752 )
Cash settlement of derivative instruments - (11,592 ) (14,666 )
Cash dividends paid (122,644 ) (117,235 ) (75,567 )
Net cash used in financing activities (149,851 ) (227,967 ) (511,479 )

Net change in cash and cash equivalents 7,948 2,781 38,111
Cash and cash equivalents at start of the year 86,967 84,186 46,075
Cash and cash equivalents at end of the year 94,915 86,967 84,186

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest 94,228 99,106 117,231

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

~~F-6~~

~~Ship Finance International Limited~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~

~~for the years ended December 31, 2011, 2010 and 2009~~

~~(in thousands of $, except number of shares)~~

2011 2010 2009
Number of shares outstanding
At beginning of year 79,125,000 79,125,000 72,743,737
Shares issued - - 6,381,263
At end of year 79,125,000 79,125,000 79,125,000

Share capital
At beginning of year 79,125 79,125 72,744
Shares issued - - 6,381
At end of year 79,125 79,125 79,125

Additional paid-in capital
At beginning of year 60,261 59,307 2,194
Transfer to contributed surplus - - (2,194 )
Employee stock options issued 1,409 954 1,392
Shares issued - - 57,915
At end of year 61,670 60,261 59,307

Contributed surplus
At beginning of year 532,143 506,559 496,922
Transfer from additional paid-in capital - - 2,194
Amortization of deferred equity contributions 16,211 25,584 7,443
At end of year 548,354 532,143 506,559

Accumulated other comprehensive loss
At beginning of year (43,950 ) (48,716 ) (90,064 )
Loss on hedging financial instruments reclassified into earnings 1,756 14,629 -
Fair value adjustments to hedging financial instruments (19,467 ) (9,858 ) 41,248
Fair value adjustments to available for sale securities (327 ) - -
Other comprehensive (loss)/ income (16 ) (5 ) 100
At end of year (62,004 ) (43,950 ) (48,716 )

Accumulated other comprehensive loss – associated companies
At beginning of year (44,811 ) (33,415 ) (49,244 )
Fair value adjustment to hedging financial instruments 20,074 (11,396 ) 15,829
At end of year (24,737 ) (44,811 ) (33,415 )

Retained earnings
At beginning of year 246,152 186,468 84,798
Net income 131,175 165,712 192,598
Dividends declared (122,644 ) (106,028 ) (90,928 )
At end of year 254,683 246,152 186,468
Total Stockholders' Equity 857,091 828,920 749,328



	2014		2013		2012
Comprehensive income, net of tax
Net income	122,815		89,206		185,836
Fair value adjustments to hedging financial instruments	(351	)	41,827		(18,407	)
Fair value adjustments to hedging financial instruments in associated companies	(5	)	2,897		19,561
Reclassification into net income of previous fair value adjustments to hedging financial instruments	(4,504	)	2,102		27
Fair value adjustments to available for sale securities	(8,355	)	699		896
Other items of comprehensive (loss)/income	(179	)	(58	)	67
Other comprehensive income, net of tax	(13,394	)	47,467		2,144
Comprehensive income	109,421		136,673		187,980

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

F-4

Ship Finance International Limited

CONSOLIDATED BALANCE SHEETS

as of December 31, 2014 and 2013

(in thousands of $)



	2014		2013
ASSETS
Current assets
Cash and cash equivalents	50,818		58,641
Available for sale securities	73,656		76,925
Trade accounts receivable	3,253		8,362
Due from related parties	152,491		13,249
Other receivables	10,488		79,301
Inventories	6,927		6,607
Prepaid expenses and accrued income	5,075		3,971
Investment in direct financing and sales-type leases, current portion	37,517		45,148
Total current assets	340,225		292,204
Vessels and equipment, net	1,377,133		1,089,616
Newbuildings	87,567		126,008
Investment in direct financing and sales-type leases, long-term portion	709,014		858,260
Investment in associated companies	53,457		40,987
Loans to related parties - associated companies, long-term	346,031		530,715
Loans to related parties - others, long-term	79,294		48,847
Other long-term assets	8,581		1,235
Deferred charges	36,958		41,478
Financial instruments (long-term): at fair value	3,294		16,633
Total assets	3,041,554		3,045,983
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt	182,415		389,888
Trade accounts payable	2,432		3,502
Due to related parties	1,109		13,965
Accrued expenses	18,190		13,832
Financial instruments (short-term): at fair value	517		5,705
Other current liabilities	9,092		5,548
Total current liabilities	213,755		432,440
Long-term liabilities
Long-term debt	1,550,044		1,346,991
Financial instruments (long-term): at fair value	106,679		56,490
Other long-term liabilities	17,584		18,129
Total liabilities	1,888,062		1,854,050
Commitments and contingent liabilities
Stockholders' equity
Share capital ($1 par value; 125,000,000 shares authorized at December 31, 2014 and 2013); (93,404,000 shares issued and outstanding at December 31, 2014; 93,260,000 shares issued and outstanding at December 31, 2013).	93,404		93,260
Additional paid-in capital	285,248		285,632
Contributed surplus	586,089		581,569
Accumulated other comprehensive loss	(48,240	)	(34,851	)
Accumulated other comprehensive loss – associated companies	(2,284	)	(2,279	)
Retained earnings	239,275		268,602
Total stockholders' equity	1,153,492		1,191,933
Total liabilities and stockholders' equity	3,041,554		3,045,983

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

F-5

Ship Finance International Limited

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended December 31, 2014, 2013 and 2012

(in thousands of $)



	2014		2013		2012
Operating activities
Net income	122,815		89,206		185,836
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	67,393		58,436		55,602
Vessel impairment charge	11,800		—		—
Long-term investment impairment charge	—		—		3,353
Amortization of deferred charges	11,271		11,305		5,866
Amortization of seller's credit	(1,903	)	(1,983	)	(1,942	)
Equity in earnings of associated companies	(33,497	)	(28,200	)	(43,492	)
Gain on sale of assets and termination of charters	(23,931	)	(18,025	)	(47,386	)
Gain on sale of investment in associated company	(6,055	)	—		—
Adjustment of derivatives to fair value recognized in net income	7,699		(7,950	)	(7,959	)
Loss/(gain) on repurchase of bonds	21		1,218		122
Interest receivable in form of notes	(3,197	)	(2,767	)	(1,779	)
Other, net	(458	)	(1,396	)	(364	)
Changes in operating assets and liabilities
Trade accounts receivable	5,109		(4,313	)	(7,787	)
Due from related parties	(20,634	)	49,189		(51,623	)
Other receivables	(9,418	)	(740	)	(1,067	)
Inventories	(320	)	(3,656	)	(97	)
Prepaid expenses and accrued income	(1,104	)	(3,236	)	(190	)
Trade accounts payable	(1,095	)	2,047		774
Accrued expenses	4,358		271		3,206
Other current liabilities	3,547		718		(4,503	)
Net cash provided by operating activities	132,401		140,124		86,570
Investing activities
Repayments from investments in direct financing and sales-type leases	43,120		51,220		58,571
Additions to newbuildings	(202,333	)	(109,337	)	(90,612	)
Purchase of vessels	(192,864	)	—		(76,936	)
Proceeds from sale of vessels and termination of charters	199,429		83,583		100,733
Net amounts (paid to)/received from associated companies	88,585		(81,308	)	56,443
Proceeds from repayment of investment loan (included in other receivables)	50,000		—		—
Purchase of available for sale securities	(7,877	)	(18,140	)	(13,890	)
Net cash (used in)/provided by investing activities	(21,940	)	(73,982	)	34,309
Financing activities
Proceeds from shares issued, net of issuance costs	927		128,880		89,596
Payments in lieu of issuing shares for exercised share options	(1,196	)	(448	)	(1,477	)
Repurchase of bonds	(75,262	)	(254,132	)	(28,096	)
Proceeds from issuance of short-term and long-term debt	733,632		705,347		259,097
Repayments of short-term and long-term debt	(616,783	)	(530,186	)	(318,374	)
Debt fees paid	(7,460	)	(8,390	)	(3,989	)
Cash dividends paid	(152,142	)	(109,114	)	(152,009	)
Net cash used in financing activities	(118,284	)	(68,043	)	(155,252	)
Net (decrease)/increase in cash and cash equivalents	(7,823	)	(1,901	)	(34,373	)
Cash and cash equivalents at start of the year	58,641		60,542		94,915
Cash and cash equivalents at end of the year	50,818		58,641		60,542
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	82,524		77,630		86,692

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

F-6

Ship Finance International Limited

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the years ended December 31, 2014, 2013 and 2012

(in thousands of $, except number of shares)



	2014		2013		2012
Number of shares outstanding
At beginning of year	93,260,000		85,225,000		79,125,000
Shares issued	144,000		8,035,000		6,100,000
At end of year	93,404,000		93,260,000		85,225,000
Share capital
At beginning of year	93,260		85,225		79,125
Shares issued	144		8,035		6,100
At end of year	93,404		93,260		85,225
Additional paid-in capital
At beginning of year	285,632		144,258		61,670
Payments in lieu of issuing shares	(1,196	)	(448	)	(1,477	)
Amortization of stock based compensation	29		220		569
Shares issued	783		120,880		83,496
Equity component of convertible bond issuance, net	—		20,722		—
At end of year	285,248		285,632		144,258
Contributed surplus
At beginning of year	581,569		561,372		548,354
Amortization of deferred equity contributions	4,520		20,197		13,018
At end of year	586,089		581,569		561,372
Accumulated other comprehensive loss
At beginning of year	(34,851	)	(79,421	)	(62,004	)
(Gain)/loss on hedging financial instruments reclassified into earnings	(4,504	)	2,102		27
Fair value adjustments to hedging financial instruments	(351	)	41,827		(18,407	)
Fair value adjustments to available for sale securities	(8,355	)	699		896
Other comprehensive income/(loss)	(179	)	(58	)	67
At end of year (for breakdown see below)	(48,240	)	(34,851	)	(79,421	)
Accumulated other comprehensive loss – associated companies
At beginning of year	(2,279	)	(5,176	)	(24,737	)
Fair value adjustment to hedging financial instruments	(5	)	2,897		19,561
At end of year (consists entirely of fair value adjustments to hedging financial instruments)	(2,284	)	(2,279	)	(5,176	)
Retained earnings
At beginning of year	268,602		288,510		254,683
Net income	122,815		89,206		185,836
Dividends declared	(152,142	)	(109,114	)	(152,009	)
At end of year	239,275		268,602		288,510
Total stockholders' equity	1,153,492		1,191,933		994,768



Accumulated other comprehensive loss	2014		2013		2012
Fair value adjustments to hedging financial instruments	(40,965	)	(36,110	)	(80,039	)
Fair value adjustments to available for sale securities	(7,087	)	1,268		569
Other items	(188	)	(9	)	49
Accumulated other comprehensive loss	(48,240	)	(34,851	)	(79,421	)

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

F-7



Commission file number	001-32199

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)

Georgina Sousa Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda Tel: +1 (441)295-9500, Fax: +1(441)295-3494
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)



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

	Year Ended December 31
	2011			2010			2009			2008			2007
	(in thousands of dollars except common share and per share data)
Balance Sheet Data (at end of period):
Cash and cash equivalents		94,915			86,967			84,186			46,075			78,255
Vessels and equipment, net (including newbuildings)		1,020,580			786,112			627,654			656,216			629,503
Investment in direct financing and sales-type leases (including current portion)		1,220,060			1,455,281			1,793,715			2,090,492			2,142,390
Investment in associated companies (including loans)		444,022			489,976			501,203			409,747			1,188
Total assets		2,896,128			2,882,361			3,059,586			3,352,747			2,950,028
Short and long term debt (including current portion)		1,910,464			1,922,854			2,135,950			2,595,516			2,269,994
Share capital		79,125			79,125			79,125			72,744			72,744
Stockholders' equity		857,091			828,920			749,328			517,350			614,477
Common shares outstanding		79,125,000			79,125,000			79,125,000			72,743,737			72,743,737
Weighted average common shares outstanding		79,125,000			79,056,183			74,399,127			72,743,737			72,743,737

Cash Flow Data:
Cash provided by operating activities		163,661			153,771			125,522			211,386			202,416
Cash provided by (used in) investing activities		(5,862	)		76,977			424,068			(433,945	)		(378,777	)
Cash provided by (used in) financing activities		(149,851	)		(227,967	)		(511,479	)		190,379			190,047

Owner	Number of Common Shares		Percent of Common Shares
Hemen Holding Ltd. (1)		27,779,293		35.06	%
Farahead Investment Inc. (1)		6,300,000		7.95	%



Owner	Number of Common Shares	Percent of Common Shares
Hemen Holding Ltd. (1)	26,179,293	28.02%
Farahead Investment Inc. (1)	7,900,000	8.45%



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



[ X ] U.S. GAAP	[ ] International Financial Reporting Standards as issued by the International Accounting Standards Board	[ ] Other



PART I		PAGE

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	24	21
ITEM 4A.	UNRESOLVED STAFF COMMENTS	46	38
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	47	38
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	75	65
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	79	67
ITEM 8.	FINANCIAL INFORMATION	81	70
ITEM 9.	THE OFFER AND LISTING	83	72
ITEM 10.	ADDITIONAL INFORMATION	84	73
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	96	82
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	97 83

PART II

~~PART II~~

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	98	84
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	98	84
ITEM 15.	CONTROLS AND PROCEDURES	98	84
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	99	85
ITEM 16B.	CODE OF ETHICS	99	85
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	~~100~~	85
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	~~100~~	86
ITEM 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	~~100~~	86
ITEM 16F.	CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT	~~101~~ 86
ITEM 16G.	CORPORATE GOVERNANCE	86
ITEM 16H.	MINE SAFETY DISCLOSURE	86

~~ITEM 16G.~~		~~CORPORATE GOVERNANCE~~	~~101~~
~~ITEM 16H.~~	~~MINE SAFETY DISCLOSURE~~	~~101~~ PART III

ITEM 17.	FINANCIAL STATEMENTS	87
~~PART III~~ ITEM 18.	FINANCIAL STATEMENTS	87

~~ITEM 17.~~	~~FINANCIAL STATEMENTS~~	~~102~~
~~ITEM 18.~~	~~FINANCIAL STATEMENTS~~	~~102~~
ITEM 19.	EXHIBITS	~~103~~	88

Vessel Name	Vessel type	Vessel Category	Year Built	IMO phase out	Flag state exemption
Titan Aries	VLCC	Double sided	1993	2018	2018
Ticen Ocean	VLCC	Single hull	1991	2010	2015

Suezmaxes
Front Pride	1993	150,000		MI	Capital lease	2017
Front Glory	1995	150,000		MI	Capital lease	2018
Front Splendour	1995	150,000		MI	Capital lease	2019
Front Ardenne	1997	153,000		MI	Capital lease	2020
Front Brabant	1998	153,000		MI	Capital lease	2021
Mindanao	1998	159,000		SG	Capital lease	2021
Glorycrown	2009	156,000		HK	Capital lease	2014	(3)
Everbright	2010	156,000		HK	Capital lease	2015	(3)

Chemical Tankers
Maria Victoria V	2008	17,000		PAN	Operating lease	2018	(3)
SC Guangzhou	2008	17,000		PAN	Operating lease	2018	(3)

OBO Carriers
Front Climber	1991	169,000		SG	Capital lease	2015
Front Driver	1991	169,000		MI	Capital lease	2015
Front Guider	1991	169,000		SG	Capital lease	2015
Front Rider	1992	170,000		SG	Capital lease	2015
Front Viewer	1992	169,000		SG	Capital lease	2015

Handysize Drybulk Carriers
SFL Spey	2011	34,000		HK	Operating lease	2016
SFL Medway	2011	34,000		HK	Operating lease	2016
SFL Trent	2012	34,000		HK	Operating lease	2017
SFL Kent	2012	34,000		HK	Operating lease	2017
Western Australia	2012	32,000		HK	Operating lease	2015
TBN/ Western Copenhagen (NB)	2012	32,000		HK	n/a	2015	(7)
TBN/ Western Houston (NB)	2012	32,000		HK	n/a	2015	(7)

Supramax Drybulk Carriers
SFL Hudson	2009	57,000		MI	Operating lease	2020
SFL Yukon	2010	57,000		HK	Operating lease	2018
SFL Sara	2011	57,000		HK	Operating lease	2019
SFL Kate	2011	57,000		HK	Operating lease	2021
SFL Humber	2012	57,000		HK	Operating lease	2022

Containerships
SFL Europa	2003	1,700	TEU	MI	Operating lease	2012
Asian Ace	2005	1,700	TEU	MAL	Operating lease	2020	(3)
Green Ace	2005	1,700	TEU	MAL	Operating lease	2020	(3)
SFL Hunter	2006	2,800	TEU	MI	n/a	n/a	(8)
SFL Hawk	2007	2,800	TEU	MI	n/a	n/a	(8)
SFL Falcon	2007	2,800	TEU	MI	n/a	n/a	(8)
SFL Eagle	2007	2,800	TEU	MI	n/a	n/a	(8)
SFL Tiger	2006	2,800	TEU	MI	n/a	n/a	(8)
SFL Avon	2010	1,700	TEU	MI	Operating lease	2012
CMA CGM Magellan (4)	2010	13,800	TEU	UK	Operating lease	2026
CMA CGM Corte Real (4)	2010	13,800	TEU	UK	Operating lease	2026
TBN/ SFL Lune (NB)	2013	4,800	TEU	n/a	n/a	2020	(7)
TBN/ SFL Eden (NB)	2013	4,800	TEU	n/a	n/a	2020	(7)
TBN/ SFL Mersey (NB)	2013	4,800	TEU	n/a	n/a	2020	(7)
TBN/ SFL Lea (NB)	2013	4,800	TEU	n/a	n/a	2020	(7)

	Number of owned vessels	Carrying value at December 31, 2011 ($ millions)

Tanker vessels (1)	30	1,357
Drybulk carriers, including OBOs (2)	17	398
Container vessels (3)	13	580
Offshore units (4)	10	2,212
	70	4,547

Director or Officer	Common Shares of $1.00 each	Including options to acquire Common Shares which have vested	Percentage of Common Shares Outstanding
Hans Petter Aas	16,667	16,667	*
Paul Leand	57,001	6,667	*
Kate Blankenship	11,878	6,667	*
Cecilie A. Fredriksen	6,667	6,667	*
Harald Thorstein	-	-	*
Ole B. Hjertaker	279,211	275,000	*
Harald Gurvin	41,667	41,667	*



Payment Date	Amount per Share
2010
January 27, 2010	$	0.30
March 30, 2010	$	0.30
June 10, 2010	$	0.33
September 30, 2010	$	0.35
December 30, 2010	$	0.36

2011
March 29, 2011	$	0.38
June 29, 2011	$	0.39
September 29, 2011	$	0.39
December 29, 2011	$	0.39

2012
March 28, 2012	$	0.30
June 28, 2012	$	0.39
September 28, 2012	$	0.39
December 28, 2012	$	0.39
December 28, 2012	$	0.39	(1)

2013
June 28, 2013	$	0.39
September 27, 2013	$	0.39
December 30, 2013	$	0.39

2014
March 28, 2014	$	0.40
June 30, 2014	$	0.41
September 30, 2014	$	0.41
December 30, 2014	$	0.41


(1)	This dividend was an accelerated dividend in respect of the fourth quarter of 2012.


Fiscal year ended December 31	High	Low	High		Low
2014			$	19.82	$	13.11
2013			$	17.78	$	14.35
2012			$	17.56	$	9.34
2011	$22.43	$8.66	$	22.43	$	8.66
2010	$22.84	$13.81	$	22.84	$	13.81
2009	$14.32	$4.05
2008	$32.43	$9.01
2007	$31.54	$22.24

Fiscal year ended December 31, 2011	High	Low
First quarter	$22.43	$19.15
Second quarter	$20.97	$16.81
Third quarter	$18.31	$11.46
Fourth quarter	$14.90	$8.66

Fiscal year ended December 31, 2010	High	Low
First quarter	$19.36	$13.81
Second quarter	$21.04	$16.60
Third quarter	$19.83	$17.00
Fourth quarter	$22.84	$18.98



Fiscal year ended December 31, 2014	High		Low
First quarter	$	19.20	$	15.95
Second quarter	$	19.26	$	16.80
Third quarter	$	19.82	$	16.92
Fourth quarter	$	17.39	$	13.11



Fiscal year ended December 31, 2013	High		Low
First quarter	$	17.71	$	15.96
Second quarter	$	17.78	$	14.35
Third quarter	$	16.47	$	14.59
Fourth quarter	$	17.15	$	15.36

	High	Low
March 2012	$15.66	$12.88
February 2012	$13.73	$11.55
January 2012	$11.43	$9.34
December 2011	$12.14	$8.66
November 2011	$14.90	$9.57
October 2011	$14.74	$11.84



	High		Low
March 2015	$	15.92	$	14.45
February 2015	$	16.01	$	14.36
January 2015	$	14.85	$	13.91
December 2014	$	16.80	$	13.11
November 2014	$	17.39	$	16.55
October 2014	$	17.19	$	15.18


	Year ended December 31						Year ended December 31
(in thousands)	2011		2010		2009		2014	2013	2012
Basic earnings per share:
Weighted average number of common shares outstanding		79,125		79,056		74,399	93,331	89,508	80,594
Diluted earnings per share:
Weighted average number of common shares outstanding		79,125		79,056		74,399	93,331	89,508	80,594
Effect of dilutive share options		286		227		5	84	163	168
Effect of dilutive convertible debt		4,216		-		-	23,332	5,753	5,106
		83,627		79,283		74,404	116,747	95,424	85,868



(in thousands of $)
Year ending December 31,
2015	176,872
2016	160,500
2017	156,990
2018	117,070
2019	83,401
Thereafter	112,947
Total minimum lease revenues	807,780

(in thousands of $) Year ending December 31
2012			129,653
2013			126,081
2014			125,806
2015			123,797
2016			120,989
Thereafter			255,521
Total minimum lease revenues			881,847

(in thousands of $) Vessel	Imputed sales price		Book value		Gain/(loss)
Ticen Sun (ex Front Highness)		11,496		9,817		1,679
Front Ace		12,938		14,339		(1,401	)
Front Leader		18,254		16,278		1,976
Front Breaker		17,863		13,986		3,877
Front Striver		18,684		16,347		2,337
		79,235		70,767		8,468



(in thousands of $) Vessel	Sales price	Book value	Loss
Front Comanche	38,835	39,235	(400	)
Front Commerce	37,884	38,371	(487	)
Front Opalia	39,363	39,860	(497	)
	116,082	117,466	(1,384	)

~~14.~~
15.	INVESTMENTS IN DIRECT FINANCING ~~AND SALES-TYPE~~ LEASES



(in thousands of $) Year ending December 31
2015	117,479
2016	155,562
2017	154,626
2018	147,931
2019	135,690
Thereafter	463,039
Total minimum lease revenues	1,174,327

(in thousands of $) Year ending December 31
2012			191,833
2013			187,952
2014			186,533
2015			215,338
2016			250,816
Thereafter			1,149,114
Total minimum lease revenues			2,181,586

	2011			2010
SFL West Polaris Limited ("SFL West Polaris")		100.00	%		100.00	%
SFL Deepwater Ltd ("SFL Deepwater")		100.00	%		100.00	%
Rig Finance II Limited ("Rig Finance II")		-			100.00	%
Bluelot Shipping Company Limited ("Bluelot")		100.00	%		-
SFL Corte Real Limited ("Corte Real")		100.00	%		-


	As of December 31, 2011												As of December 31, 2014
(in thousands of $)	TOTAL		Bluelot		Corte Real		Rig Finance II		SFL West Polaris		SFL Deepwater		TOTAL	SFL Deepwater	SFL West Polaris	SFL Hercules	SFL Linus	Bluelot	Corte Real
Current assets (1)		225,958		1,751		1,690		-		86,641		135,876
Current assets													127,268	44,297	—	38,619	44,352	—	—
Non-current assets		1,663,530		-		-		-		535,967		1,127,563	1,324,765	397,191	—	397,226	530,348	—	—
Total assets													1,452,033	441,488	—	435,845	574,700	—	—
Current liabilities		201,355		20		4		-		77,282		124,049	122,861	38,376	—	32,945	51,540	—	—
Non-current liabilities (2)		1,518,295		-		-		-		494,224		1,024,071	1,275,715	371,147	—	391,500	513,068	—	—
Total liabilities													1,398,576	409,523	—	424,445	564,608	—	—
Total shareholders' equity													53,457	31,965	—	11,400	10,092	—	—


	As of December 31, 2010												As of December 31, 2013
(in thousands of $)	TOTAL		Bluelot		Corte Real		Rig Finance II		SFL West Polaris		SFL Deepwater		TOTAL	SFL Deepwater	SFL West Polaris	SFL Hercules	SFL Linus		Bluelot	Corte Real
Current assets (1)		297,578		-		-		38,447		89,612		169,519	205,916	94,981	34,412	56,886	—		9,780	9,857
Non-current assets		1,996,461		-		-		125,397		612,878		1,258,186	1,516,033	432,755	458,558	429,720	195,000		—	—
Total assets													1,721,949	527,736	492,970	486,606	195,000		9,780	9,857
Current liabilities		258,217		-		-		9,248		80,451		168,518	159,847	85,240	38,337	29,101	—		3,523	3,646
Non-current liabilities (2)		1,871,458		-		-		91,910		600,082		1,179,466	1,521,115	418,554	451,384	453,860	197,317		—	—
Total liabilities													1,680,962	503,794	489,721	482,961	197,317		3,523	3,646
Total shareholders' equity													40,987	23,942	3,249	3,645	(2,317	)	6,257	6,211



	Year ended December 31, 2014
(in thousands of $)	TOTAL	SFL Deepwater	SFL West Polaris	SFL Hercules	SFL Linus	Bluelot	Corte Real
Operating revenues	108,632	24,917	22,251	24,565	33,236	1,171	2,492
Net operating revenues	105,567	24,905	22,234	24,544	33,221	232	431
Net income (3)	33,497	8,023	4,643	7,755	12,413	232	431

	Year ended December 31, 2011
(in thousands of $)	TOTAL		Bluelot		Corte Real		Rig Finance II		SFL West Polaris		SFL Deepwater
Operating revenues		155,514		14,499		14,108		3,550		46,771		76,586
Net operating revenues		130,311		1,731		1,686		3,544		46,767		76,583
Net income (3)		50,902		1,731		1,686		2,818		12,806		31,861



	Year ended December 31, 2013
(in thousands of $)	TOTAL	SFL Deepwater	SFL West Polaris	SFL Hercules	SFL Linus		Bluelot	Corte Real
Operating revenues	122,792	46,145	23,701	13,832	—		19,490	19,624
Net operating revenues	88,121	46,109	23,681	13,808	—		2,261	2,262
Net income (3)	28,200	17,747	2,324	3,645	(38	)	2,261	2,261