d839018_corresp.htm

By letter dated October 30, 2007, the Staff of the Securities and Exchange Commission (the “Staff”) presented further comments to the Annual Report on Form 20-F (the “Form 20-F”) filed by Ship Finance International Limited (“SFIL” or the “Company”) with respect to the year ended December 31, 2006. On behalf of the Company, we hereby submit the Company’s response to your letter. For your convenience, the numbered paragraphs of this response letter correspond to the numbered paragraphs of your letter, which we have inserted in bold.

We have reviewed your response to our prior comment number 1. We note that you account for the provision of management services under your time charter agreements with Frontline Charterers as a separate unit of accounting for purposes of revenue recognition. However, we are unclear why you believe that the portion of time charter revenue that has been allocated as management service revenue should be recognized gross, rather than net of management service fees paid to Frontline Management (Bermuda) Ltd. (“Frontline Management”). In this regard, we note that i) you do not provide the actual management services to the Frontline Charterers, and ii) the daily amount of revenue that is recognized for the management services equals the amount of the service fees paid to Frontline Management, and (iii) both Frontline Charterers and Frontline Management appear to be subsidiaries of Frontline Ltd. Based upon the aforementioned factors, it appears that, in substance, your company is merely a pass-through entity for the cash payment between Frontline Charterers and Frontline Management, and that you have not provided or contributed to the performance of the management services received by Frontline Charterers.

As such, it appears you should revise your statement of operations to recognize management service revenues net of the associated expenses paid to Frontline Management. Alternatively please tell us why you believe that it is appropriate to recognize management service revenues on a gross basis as well as the business purpose of the structure of the transactions between your company and the two Frontline entities.

The Company respectfully disagrees with the Staff’s characterization of the time charter agreements with Frontline Charterers and the management agreements with Frontline Management as mere pass-through arrangements. After taking into consideration the Staff’s observations, which we discuss in more detail below, the Company remains of the opinion that its gross presentation of management service revenues provides the most correct and meaningful financial information. The fact that the Company has subcontracted the provision of some of these services does not alter the underlying business purpose of the contracts, and thus should not impact the accounting treatment of the resulting cash-flows.

In the case of vessels chartered to Frontline Charterers, the Company remains directly responsible for all aspects of the operation and maintenance of its vessels, including crewing and supplying the vessels. The Company has these responsibilities to all of its time charterers, including the Frontline Charterers, whether or not any of the ship managers employed by the Company, including Frontline Management, adequately perform under the management agreements. This is a standard industry allocation of responsibilities when vessels are time chartered or voyage chartered by their owners to third parties.

It is also common industry practice for the vessel owner to outsource vessel management services to third parties. Subcontracting management services to third parties, however, does not change the legal allocation of responsibilities. The owner remains liable for the technical operation of the vessel. So long as the ultimate contractual responsibility for the provision of services remains with the Company, we do not believe that the use of a sub-contactor should, per se, affect the accounting treatment of the original business transaction.

the related party nature of the transaction and the fair value of the services provided. The fact that the Company and Frontline Ltd. (“Frontline”) were, at the time, under common control raised the question whether we should recognize a profit in respect of the provision of the ship management services. In addition, as described in Response No. 2 below, we concluded, and continue to be of the opinion, that the amount of $6,500 was the best estimate of the fair value of the services in question at the inception of the leases.

In determining how to treat the revenues received from Frontline Charterers and the management fees paid to Frontline Management, the Company considered the fact that both of these entities are wholly-owned subsidiaries of Frontline. However, the Company believes that it correctly accounted for these amounts because its contractual relationships with the two companies are clearly separate.

Frontline Management is a separate legal entity from the Frontline Charterers, and the charters are separate agreements from the management agreements. The Company is contractually obligated to pay management fees to Frontline Management whether or not it receives charter hire from Frontline Charterers or one of its other time charterers, without any right of setoff.

The distinct nature of the contracts is also illustrated by the fact that the charters with Frontline Charterers are noncancelable, while the Company is able to cancel the management agreements with Frontline Management on 90 days notice. In such circumstances, the Company could either provide management services itself or outsource to a third party. Neither Frontline Management nor the Frontline Charterers can prevent the Company from cancelling the management agreements within their terms. Similarly, if Frontline Management fails to perform, the Company cannot cancel the charters or otherwise assert claims against Frontline Charterers.

In summary, the Company does not believe that the costs of providing management services in connection with the time charters should be netted against the lease service revenue received under the charter agreements. The Company believes that the gross presentation adopted provides the most appropriate and meaningful representation of the Company’s business transactions.

2. We note that you account for $6,500 of your daily time charter revenue as service revenues. You state that the amount allocated as service revenues is based upon the amount charged to you by Frontline Management, since Frontline Ltd. (parent of Frontline Management) and your company are under common control. As noted in your response, the recognition of service revenues based upon the amount charged to you is not consistent with paragraph 12 of EITF 00-21, which states that arrangement consideration should be allocated to the separate units of accounting in an arrangement based upon their relative fair values, if there is objective and reliable evidence of the fair value for all units of accounting in the arrangement. Given that in the shipping industry (i) vessels are chartered under both bareboat and time charters and ii) there are entities that specifically provide management services it appears there may be objective and reliable evidence of the fair values of the individual deliverables provided under your time charter contracts with Frontline. In this regard please tell us the amount of revenue that you would expect to allocate as service revenues using the relative fair value method. As a part of your response, please tell us the fair values ascribed to each of the units of accounting, any key assumptions used in determining the fair values, and the basis of any material assumption.

We refer to our previous response in which we stated that the management service revenue was recognized based upon the management fee paid to Frontline Management. To expand, we advise that the rate of $6,500 per day was set by reference to actual historical costs of the relevant service to Frontline (as can be verified by reference to previous Form 20-F documents) with an adjustment to take account of future cost increases. The Company believed that such actual costs were the best indicator of the fair value of the service revenue. We attach appendix A in which this amount was compared to available industry data in order to satisfy all parties involved that the contracted amount reasonably approximated to fair value. Appendices B and C are extracts from a widely circulated independent report on operating costs upon which the calculations were based.

We have considered re-evaluating the allocation of the charter hire payments to the constituent deliverables and we determined that in these particular circumstances the amount of $6,500 per day remains valid as the best estimate of the fair value of the services in question. This is supported by the fact that should the Frontline charterers exercise their option under the charters to convert any of the charters to bareboat charters, the agreed reduction in the charter hire payable is $6,500 per day.

Although current data indicates typical operating expenses for similar vessels is higher than $6,500 (see appendices D and E) the risk of cost escalations in excess of contractual prices is normally borne by the providers under long-term contracts and we do not consider these inflationary factors to constitute a change in the circumstances of the charter and management agreements.

We also considered whether there was objective and reliable evidence available as to the value of the individual deliverables, as discussed in your comment. While there are entities that do provide ship management services, they are usually on a cost-plus basis (meaning that actual costs incurred are passed on to the vessel operator plus a contractual profit component). We believe that the agreements between Ship Finance and Frontline Management are dissimilar to any identifiable market vessel management agreements due to the length of contractual terms and the size of the fleet being serviced.

3. We have reviewed your response to our prior comment number 7. It appears that you have presented the net amount of i) the revenues received from third party charterers and paid to Frontline during the “cross-over” voyage period and ii) Frontline’s base charter rates payable to you during the “cross-over” voyage period as “deemed dividends paid”, which are reflected in the financing activities section of your consolidated cash flow statement. However we believe that presenting the aforementioned amounts on a gross basis would enhance the transparency of your consolidated cash flow statement.

We have reviewed your response to our prior comment number 9. However we do not concur that the guidance provided in paragraph 34 of SFAS No 13 is inconsistent with the guidance in paragraph 6(b)(i) of SFAS No 13. As your purchase and lease transactions with Frontline Ltd (and its subsidiaries) appear to qualify as sale-leaseback transactions, it appears that your accounting treatment should follow the guidance provided in paragraphs 32 and 34 of SFAS No 13; whereas the guidance provided in paragraph 6(b)(i) of SFAS No 13 would be reserved for a traditional lease only transaction.

In this regard it appears that all of your leases to Frontline Ltd. that have resulted from transactions which qualify as sale-leaseback transactions should be accounted for as operating or direct financing leases in accordance with paragraph 34 of SFAS No 13. Please tell us why you believe your transactions with Frontline Ltd. do not qualify as sales-leaseback transactions and/or why you believe the guidance outlined in paragraph 6(b)(i) of SFAS No 13 is more applicable than the guidance provided in paragraph 34 of SFAS No 13.

The fleet was acquired at the net book value as recorded in Frontline’s accounting records and recognized on this basis, since at the time of the initiation of the transaction Frontline and Ship Finance were under common control. The fair value of the fleet was in excess of that amount. We determined that it would be inappropriate for Ship Finance to recognize in income the difference between the net book value of the fleet as recorded in Frontline's accounting records and its fair value (the “Excess”), as this amount was essentially contributed to Ship Finance by Frontline.

Upon initiation of the charters to Frontline, a strict interpretation of paragraph 34 of SFAS No. 13 would lead to an accounting treatment inconsistent with the underlying economic transaction, as the Excess would be recorded as additional interest income. This inconsistency is due to the presumption inherent in paragraphs 32 and 34 of SFAS No. 13 that sale-leaseback transactions would be conducted at fair value as is detailed in paragraph 6(b) (ii). We also considered whether to account for the transaction as a sales-type lease as described in paragraph 6(b)(i) of SFAS No. 13. Though this treatment is not appropriate for sale-leasebacks, it does include a method for accounting for an Excess in the valuation of an asset under a capital lease.

We determined that the gain related to the Excess arising from the lease-back should be treated as a deferred equity contribution, and should be amortized to contributed surplus as income is recognized from the lease-back of the fleet. The amortization of the deferred equity contribution is being computed in a manner consistent with the accounting for the profit element in a sales-type lease in paragraph 6(b)(i) of SFAS No. 13, which is why we have made reference to accounting for sales-type leases.

In summary, the variance between the book basis of the vessels and the fair market value, that represented an equity contribution to the Company by Frontline, would be recorded as interest income if accounted for as a direct-finance lease or as gain on sale if accounted for as a sales-type lease: both of which would be incorrect. The reference to inconsistencies between paragraphs 6(b)(i) and 34 of SFAS No. 13 arose from our conclusion that neither paragraph provided a comprehensive solution to the Company’s particular circumstances. Our accounting treatment was designed to remove the inappropriate interest income and record the capital contribution in line with the receipt of the associated benefit.

5. We note that you have acquired additional vessels subsequent to the year ended December 31 2006. It appears that certain of the vessels purchased during fiscal year 2007 may have been chartered back to their seller. For example we note that the vessels acquired from Deep Sea Supply Plc (“Deep Sea”) may have been chartered back to Deep Sea under bareboat agreements.

In this regard please tell us how you have characterized the charters of vessels (e.g. operating leases, direct financing leases, or sales-type leases) that were purchased subsequent to December 31, 2006 and chartered back to the seller. In addition, tell us how you have accounted for all other vessels that were purchased and placed into service during fiscal year 2007.

We evaluate each lease transaction under the criteria laid out in paragraphs 7 and 8 of SFAS No 13, to determine whether they should be accounted for as capital of operating leases. Any capital leases are further evaluated according to paragraph 6 and 32 to determine whether they should be accounted for as sales type or direct finance leases.

Frontline Ltd					APPENDIX A
Operating Cost Projections
December 31, 2003
	Suezmax		VLCC		Average
Crew wages		2,000		2,200		2,100
Provisions		300		300		300
Crew other		200		200		200
Crew costs total		2,500		2,700		2,600
Lubricants		300		500		400
Stores other		300		300		300
Stores total		600		800		700
Spares		500		600		550
Repairs and maintenance		400		600		500
Repairs and maintenance total		900		1,200		1,050
P&I insurance		400		600		500
Insurance		400		500		450
Insurance total		800		1,100		950
Registration costs		100		100		100
Management fees		400		400		400
Sundries		200		200		200
Administration total		700		700		700

Total operating costs		5,500		6,500		6,000

Uplift for future increases		500		500		500

Projected total operating costs		6,000		7,000		6,500

APPENDIX B

VLCC

DWT:	250,000-320,000

World fleet:	415 (118,821,165 dwt)
Average size:	286,316 dwt
Average age:	Feb-1995

Sample size:	31
Sample average size:	299,775 dwt
Sample average age:	Dec-1994

Average 1 Year T/C:	US$ 24,441 per day


OpCost Report

Item	US$ (Per year)		US$ (Per day)

Crew Wages		805,773		2,208
Provisions		77,403		212
Crew Other		100,267		275
Crew Costs Total		983,443		2,695
Lubricants		181,808		498
Stores Other		121,142		332
Stores Total		302,950		830
Spares		211,303		579
Repairs& Maintenance		207,308		568
Repairs & Maintenance Total		418,611		1,147
P&I Insurance		202,789		556
Insurance		192,805		528
Insurance Total		395,594		1,084
Registration Costs		28,061		77
Management Fees		153,607		421
Sundries		83,345		228
Administration Total		265,013		726

Total Operating Costs	US$ 2,365,611		US$ 6,482

All figures above are for the year ended 31 December 2002

Total Operating Costs 2001

US$ 2,107,150

US$ 5,773

This report should be read in conjunction with the accompanying notes.


	MOORE STEPHENS
	CHARTERED ACCOUNTANTS

APPENDIX C

Suezmax Tanker

DWT:	120,000-200,000

World fleet:	287 (42,244,198 dwt)
Average size:	147,192 dwt
Average age:	Aug-1993

Sample size:	29
Sample average size:	146,959 dwt
Sample average age:	Jan-1993

Average 1 Year T/C:	US$ 17,826 per day


OpCost Report

Item	US$ (Per year)		US$ (Per day)

Crew Wages		741,980		2,033
Provisions		105,318		289
Crew Other		65,398		179
Crew Costs Total		912,696		2,501
Lubricants		109,360		300
Stores Other		157,398		431
Stores Total		266,758		731
Spares		167,896		460
Repairs & Maintenance		162,036		444
Repairs & Maintenance Total		329,932		904
P&I Insurance		100,031		274
Insurance		131,601		361
Insurance Total		231,632		635
Registration Costs		24,559		67
Management Fees		191,162		524
Sundries		108,087		296
Administration Total		328,808		887

Total Operating Costs	US$ 2,064,826		US$ 5,658

All figures above are for the year ended 31 December 2002

Total Operating Costs 2001

US$ 2,088,550

US$ 5,722

This report should be read in conjunction with the accompanying notes.


	MOORE STEPHENS
	CHARTERED ACCOUNTANTS

APPENDIX D

Suezmax Tanker

DWT:	120,000-200,000

World fleet:	373 (56,415,964 dwt)
Average size:	151,249 dwt
Average age:	Nov-1997

Sample size:	40
Sample average size:	152,334 dwt
Sample average age:	Apr-1999

Average 1 Year T/C:	US$ 43,192 per day


OpCost Report
All figures are for the year ended 31 December 2006


Item	US$ (Per year)		US$ (Per day)

Crew Wages		980,507		2,686
Provisions		77,882		213
Crew Other		150,605		413
Crew Costs Total		1,208,994		3,312
Lubricants		178,612		489
Stores Other		179,849		493
Stores Total		358,461		982
Spares		183,877		504
Repairs & Maintenance		193,526		530
Repairs & Maintenance Total		377,403		1,034
P&I Insurance		147,819		405
Insurance		170,667		468
Insurance Total		318,486		873
Registration Costs		18,466		51
Management Fees		293,996		805
Sundries		94,533		259
Administration Total		406,995		1,115

Total Operating Costs 2006	US$ 2,670,339		US$ 7,316

Total Operating Costs 2005

US$ 2,472,475

US$ 6,774

This report should be read in conjunction with the accompanying notes.


MOORE STEPHENS
CHARTERED ACCOUNTANTS

APPENDIX E

VLCC

DWT:	250,000-320,000

World fleet:	481 (141,435,273 dwt)
Average size:	294,044 dwt
Average age:	Jun-1998

Sample size:	63
Sample average size:	296,650 dwt
Sample average age:	Nov-1997

Average 1 Year T/C:	US$ 58,308 per day


OpCost Report
All figures are for the year ended 31 December 2006

Item	US$ (Per year)		US$ (Per day)

Crew Wages		1,073,978		2,942
Provisions		75,532		207
Crew Other		136,812		375
Crew Costs Total		1,286,322		3,524
Lubricants		254,807		698
Stores Other		179,978		493
Stores Total		434,785		1,191
Spares		330,206		905
Repairs & Maintenance		284,339		779
Repairs & Maintenance Total		614,545		1,684
P&I Insurance		224,318		615
Insurance		219,013		600
Insurance Total		443,331		1,215
Registration Costs		23,179		64
Management Fees		258,490		708
Sundries		140,645		385
Administration Total		422,314		1,157

Total Operating Costs 2006	US$ 3,201,297		US$ 8,771

Total Operating Costs 2005

US$ 2,978,787

US$ 8,161

This report should be read in conjunction with the accompanying notes.


		MOORE STEPHENS
		CHARTERED ACCOUNTANTS

Re:	Ship Finance International Limited
	File No. 001-32199
	Form 20-F: For the year ended December 31, 2006

Vessel name / type	Delivery date	Charter classified as;
Sea Cheetah Sea Jaguar Sea Trout Sea Halibut Sea Pike Deep sea supply vessels	Sept 6 2007 Sept 6 2007 Sept 6 2007 Sept 6 2007 Oct 23 2007	Operating lease
West Prospero Jack-up Rig	June 29 2007	Direct Finance lease

Vessel name / type	Delivery date	Charter classified as;
Horizon Hawk Horizon Eagle Horizon Falcon Horizon Tiger Container vessels	March 5, 2007 April, 10 2007 April 30 2007 May 22 2007	Operating lease
Motemar Europa Container vessel	Aug 9, 2007	Operating lease

		Very truly yours,

		Seward & Kissel LLP

		By:	/s/ Gary J. Wolfe
			Gary J. Wolfe, Esq.


cc:	Jeffery Sears
	Division of Corporation Finance

	Lyn Shenk
	Division of Corporation Finance