Securities and Exchange Commission
Washington, D.C. 20549

Form 11-K

ANNUAL REPORT PURSUANT TO SECTION 15(D) OF
THE SECURITIES ACT OF 1934

For the fiscal year ended: December 31, 2007


 
Commission file number 333-53422


 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
(Full title of the plan)


CANADIAN NATIONAL RAILWAY COMPANY
(Name of issuer of securities)


935 de La Gauchetiere St. West, Montréal, Québec, Canada H3B 2M9
(Address of issuer’s principal executive offices)




 



 








CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS



Financial Statements and Supplemental Schedule
As of December 31, 2007 and 2006
(With Report of Independent Registered Public Accounting Firm Thereon)
 

 



 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
 
INDEX

Report of Independent Registered Public Accounting Firm
1
   
Statements of Net Assets Available for Benefits as of
 
  December 31, 2007 and 2006
2
   
Statements of Changes in Net Assets Available for Benefits for
 
  the years ended December 31, 2007 and 2006
3
 
 
Notes to Financial Statements
4
   
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
13
 


 
Report of Independent Registered Public Accounting Firm



The Administrative Committee
Canadian National Railway Company
Union Savings Plan for U.S. Operations:

We have audited the accompanying statements of net assets available for benefits of Canadian National Railway Company Union Savings Plan for U.S. Operations (the Plan) as of December 31, 2007 and 2006, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Plan’s management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Canadian National Railway Company Union Savings Plan for U.S. Operations as of December 31, 2007 and 2006, and the changes in net assets available for benefits for the years then ended in conformity with U.S. generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule H, line 4i – schedule of assets (held at end of year) as of December 31, 2007 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.



 
(signed)

KPMG LLP


Denver, Colorado
June 25, 2008
 
 
1

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2007 AND 2006


   
2007
   
2006
 
             
             
Plan interest in Canadian National Railway Master Trust,
           
at fair value (note 7)
  $ 201,684,826     $ 186,264,155  
                 
Participant loans
    6,213,826       5,519,366  
                 
Receivables:
               
Participants' contributions
    976,509       860,840  
Employer's contribution
    109,237       86,285  
                 
Total receivables
    1,085,746       947,125  
                 
Net assets available for benefits (at fair value)
    208,984,398       192,730,646  
                 
Adjustment from fair value to contract value for interest in
               
Canadian National Railway Master Trust relating to
               
fully benefit-responsive investment contracts
    105,289       159,041  
                 
Net assets available for benefits (at contract value)
  $ 209,089,687     $ 192,889,687  

 

See accompanying Notes to Financial Statements.
 
 
2


CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


   
2007
   
2006
 
Additions to net assets:
           
Plan interest in investment income of the Canadian National
           
Railway Master Trust (note 7)
  $ 13,970,696     $ 19,892,957  
                 
Interest income on participant loans
    426,799       330,885  
                 
Contributions:
               
Participants'
    15,553,665       15,060,963  
Employer's
    1,633,684       1,474,323  
Rollover and other
    256,074       225,291  
                 
Total contributions
    17,443,423       16,760,577  
                 
Total additions
    31,840,918       36,984,419  
                 
Deductions from net assets:
               
Participants’ distributions
    15,295,452       13,278,768  
Transfer out of plan assets, net (note 5)
    270,671       49,436  
Administrative expenses
    74,795       42,495  
                 
Total deductions
    15,640,918       13,370,699  
                 
Net increase
    16,200,000       23,613,720  
                 
Net assets available for benefits, beginning of year
    192,889,687       169,275,967  
                 
Net assets available for benefits, end of year
  $ 209,089,687     $ 192,889,687  
 
 
 
See accompanying Notes to Financial Statements.
 
 
3

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
1.  THE COMPANY

Canadian National Railway Company (CN or the Company), directly and through its subsidiaries, is engaged in the rail and related transportation business.  CN spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans and Mobile, Alabama, and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minnesota/Superior, Wisconsin, Green Bay, Wisconsin, Minneapolis/St. Paul, Memphis, and Jackson, Mississippi, with connections to all points in North America.  CN’s revenues are derived from the movement of a diversified and balanced portfolio of goods, including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive.



2.      DESCRIPTION OF PLAN

The following description of the Canadian National Railway Company Union Savings Plan for U.S. Operations (the Plan) provides only general information. Participants should refer to the summary plan description and prospectus for a more complete description of the Plan’s provisions.

General
The Plan, as amended through July 1, 2005, is a defined contribution plan, offering all eligible employees an opportunity to defer annually from 1% to 100% of their eligible earnings, subject to the legal limits allowed by the Internal Revenue Service (IRS), for contribution to various investment funds. These funds and their investment objectives are described in Note 4.  Eligible employees may participate in the Plan any time on or after their date of hire.

The Plan covers eligible union employees of Illinois Central Railroad Company, Grand Trunk Western Railroad Incorporated, Chicago, Central and Pacific Railroad Company, Cedar River Railroad Company, Duluth, Winnipeg and Pacific Railway Company, Wisconsin Central Limited, Sault Ste. Marie Bridge Company, Bessemer and Lake Erie Railroad Company, Duluth, Missabe and Iron Range Railway Company, and the Pittsburgh and Conneaut Dock Company.  Grand Trunk Corporation, which owns directly or indirectly all of the above U.S. affiliates of CN, is the Plan’s sponsor.  Grand Trunk Corporation is a holding company owned by CN.  The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.

Administration of the Plan
Grand Trunk Corporation Board of Directors has delegated to the Administrative Committee, responsibility for the general operation and administration of the Plan and for carrying out and interpreting the Plan’s provisions.

Trustee and Recordkeeper
The Administrative Committee has appointed Fidelity Management Trust Company (FMTC) as trustee and Fidelity Investments Institutional Operations Company Inc. as transfer agent and recordkeeper of the Plan.  Other affiliated Fidelity companies provide certain ministerial recordkeeping and administrative services to the Plan pursuant to an agreement entered into with the Plan Sponsor.
 
 
4

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
Contributions
Eligible participants may elect to make contributions to the Plan in amounts ranging from 1% to 100% of their annual eligible earnings on a before-tax basis.  Such contributions are withheld by the Company from each participant’s compensation and deposited in the appropriate fund in accordance with the participant’s directives. Consistent with provisions established by the IRS, the Plan’s limit on pre-tax contributions by a participant was $15,500 for 2007 and  $15,000 for 2006 (the limit will remain at $15,500 in 2008).  Participants who are at least age 50 by the end of a particular plan year and have contributed the maximum 401(k) deferral amount allowed under the Plan for that year are eligible to contribute an additional portion of their annual eligible earnings on a before-tax basis as “catch-up” contributions, up to the annual IRS limit of $5,000 in 2007 and 2006 (the limit will remain at $5,000 in 2008) such that the total pre-tax contribution limit was $20,500 for 2007 and $20,000 for 2006.

For employees who are members of participating unions, the Company generally contributes to the account balance of the Plan participants a  “matching contribution” equal to 25% of the first 4% of annual eligible earnings the participant defers (a maximum Company match of 1% of eligible earnings) in accordance with such unions’ respective collective bargaining agreements.  The Company does not match the participants’ “catch-up” contributions.

Participant Accounts
Participants direct the investment of their account balance into a broad range of investment funds offered by the Plan.  The plan recordkeeper maintains an account balance in the name of each participant to which each participant’s pre-tax contributions, the Company’s contributions, and share of net earnings, losses and expenses, if any, of the various investment funds, are recorded.  Interest, dividends, realized and unrealized gains and losses on investment of the funds are allocated directly to each participant’s account.  The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.

Vesting
Participants are fully vested in their account balance at the time of contribution, including the Company’s matching contribution and related earnings from such contributions.

Distributions
Participants are eligible for a distribution of the plan benefits upon termination of service, whether by disability, retirement, death, or leaving the Company.In the event of financial hardship, as defined in the Plan, participants may withdraw money from their Plan accounts while they are still employed.  Participants who have attained age 59½ may request a distribution of all or a portion of the value in the account. Withdrawals by the participant before attaining age 59½ generally are subject to a penalty tax of 10%.

Participant Loans
Participants may borrow from their accounts by taking one loan  (maximum of two loans if one or both were outstanding as of June 30, 2004) with a minimum amount of $1,000, and a total maximum amount equal to the lesser of $50,000 or 50% of their account balance.  Loans must be repaid within 5 years, or 10 years, if the funds are used to construct or purchase a primary residence.  The interest rate on the loans is equal to the prevailing prime rate as of the beginning of the calendar quarter in which the participant applies for the loan plus 1%, which ranged from 4.0% to 10.5% for loans outstanding at December 31, 2007.  Principal and interest are paid in equal installments through employee payroll deductions.  Participants may prepay the entire outstanding loan balance at any time without penalty.  Loans deemed to be in default are recorded as distributions, which amounted to $96,508 for the year ended December 31, 2007 ($139,214 for 2006).

As at December 31, 2007, loans outstanding were $6,213,826 ($5,519,366 in 2006), net of deemed defaulted loans of $445,917 ($359,057 in 2006).
 
 
5

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
Termination of Service
Upon termination of service, a participant may leave their account in the Plan, or may elect to receive the value of the account in a lump-sum payment or as a direct transfer to another qualified retirement plan subject to certain conditions.  However, a participant with an account balance of $5,000 or less may select from the latter two options only.

Expenses
Administrative expenses for maintenance of plan financial records, participant statements, service fees on insurance contracts and trustee fees are paid from plan assets.  The Investment Committee, appointed by the Administrative Committee, employs an independent investment consultant to evaluate investment options, conduct fund searches and monitor fund manager activity, the fees incurred are paid from plan assets.  All other administrative expenses of the Plan are paid by the Company.

Risks and Uncertainties
The Plan provides for various investment options in any combination of stocks, bonds, mutual funds, and other investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits and the statement of changes in net assets available for benefits.

The Plan invests in securities with contractual cash flows, such as asset backed securities, collateralized mortgage obligations and commercial mortgage backed securities, including securities backed by subprime mortgage loans. The value, liquidity and related income of those securities are sensitive to changes in economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates.



3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.

Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.

Reclassifications
Certain of the 2006 comparative figures have been reclassified in order to conform to the financial statement presentation adopted in the current year. Included in these reclassifications was the reclassification of investments held by the Plan as an interest in a master trust. These reclassifications had no impact on net assets available for benefits or changes in net assets available for benefits as previously reported.
 
 
6

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
Investment Valuation
The Plan’s investments are stated at fair value.  The fair value of the Plan’s interest in the Canadian National Railway Master Trust (Master Trust) is based on the specific interest that each plan has in the underlying participant directed investment options. The investments held by the Master Trust are valued as follows. Investments in mutual funds are valued at quoted market prices that represent the net asset values of shares held at year-end.  Short-term investments are valued at cost plus accrued interest, which approximates fair value.  The CN Stock Fund is tracked on a unitized basis, whereby the value of a unit reflects the combined market value of CN common stock and the cash investments held by the fund. The Master Trust’s interest in the common collective trust fund is based on the fair value of the common collective trust’s underlying investments as based on information reported by the investment advisor using the audited financial statements of the common collective trust fund at year-end. Participant loans are valued at their outstanding balances, which approximate fair value.

Security Transactions and Related Investment Income
Purchases and sales of securities are recorded on a trade-date basis.  Dividends are recorded on the ex-dividend date, and interest income is recorded on the accrual basis.

Net investment income includes the realized gains and losses on the sale of securities and the unrealized appreciation and depreciation in the fair value of investments.

Contributions Receivable
Contributions receivable are the amounts due, as of the date of the financial statements, to the Plan from the employer and participants.  Participant contributions from employee payroll deductions made subsequent to the Plan’s year-end attributable to the preceding plan year are accrued, as are employer contributions coinciding with these salary deferrals, if any.

Distributions
Distributions to participants or beneficiaries are recorded upon payment.

Impact of New Accounting Standards and Interpretations
In December 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position FSP AAG INV-1 and SOP 94-4-1, “Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans” (the FSP).  The FSP requires that fully benefit-responsive investment contracts be reported at fair value rather than contract value with an offsetting asset or liability in the statement of net assets available for benefits.  The adoption of the FSP in 2006 did not impact the amount of net assets available for benefits.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. SFAS No. 157 was issued to increase consistency and comparability in reporting fair values. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect the adoption of SFAS No. 157 to have a material impact on the statement of net assets available for benefits or the statement of changes in net assets available for benefits.

 
7

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
4.      DESCRIPTION OF INVESTMENT FUNDS

Participants direct the investment of their account balance into a broad range of investment funds offered by the Plan, within the Master Trust.  The objectives of the various investment funds, effective December 31, 2007, are described below.  The Plan Administrator may add or replace any investment funds as appropriate and as allowed by the plan document and the Plan Administrator’s Investment Policy Statement.

Fidelity Spartan U.S. Equity Index Fund
This mutual fund invests a minimum of 80% of the fund’s assets in common stocks included in the S&P 500 Index, which broadly represents the performance of common stocks publicly traded in the U.S.

American Funds Investment Company of America
This mutual fund invests primarily in common stocks based on the possibility of appreciation and potential dividends rather than on current yield.  The fund may invest in securities of companies located outside of the U.S. and not included in the S&P 500 Index.

PIMCO Total Return Fund
This mutual fund invests a minimum of 65% of the fund’s assets in debt securities, including U.S. government securities, corporate bonds, and mortgage-related securities.  It may invest a maximum of 30% of the fund’s assets in foreign-currency denominated securities and a maximum of 10% of the fund’s assets in high-yield securities rated B or higher, with an average maturity of three to six years.

American Funds EuroPacific Growth Fund
This mutual fund invests a minimum of 80% of the fund’s assets in securities of companies located overseas, primarily in Europe and the Pacific Basin.  The fund may also hold cash, money market instruments, and fixed-income securities.

Fidelity Capital Appreciation Fund
This mutual fund invests primarily in common stocks of domestic and foreign issuers.  It may invest in either growth stocks or value stocks or both.  In selecting instruments, it uses fundamental analysis of each issuer’s financial condition and industry position and market and economic conditions.

Dodge & Cox Balanced Fund
This mutual fund invests in a diversified mix of common stocks, preferred stocks, and fixed-income securities with the objective of long-term growth income and conservation of principal.  It may invest a maximum of 75% of the fund’s assets in common stocks and convertible securities.  It may invest in government obligations, mortgage- and asset-backed securities, collateral mortgage obligations, and corporate bonds.

ICM Small Company Portfolio
This mutual fund invests a minimum of 80% of the fund’s assets in common stocks of smaller companies.  It may invest in equity securities listed on the New York and American Stock Exchanges or traded on the over-the-counter markets operated by the NASD.

Dodge & Cox Stock Fund
This mutual fund invests primarily in a broadly diversified portfolio of common stock of companies which, in its opinion, appear to be temporarily undervalued by the stock market, but have a favorable outlook for long-term growth.  The fund remains fully invested in equities with a minimum of 80% of the fund’s assets in common stocks. It may invest in preferred shares, and convertibles, and a maximum of 20% of the fund’s assets in American Depository Receipts.

 
8

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
Vanguard Mid-Cap Index Fund
This mutual fund invests in the MSCI U.S. Cap 450 Index in approximately the same proportion as they are presented in the index.

Northern Institutional Small Company Index
This mutual fund seeks to provide investment results approximating the aggregate price and dividend performance of the securities included in the Russell 2000 Index. Under normal circumstances, the Portfolio will invest substantially all (or at least 80%) of its net assets in the equity securities included in the Russell 2000 Index, in weightings that approximate the relative composition of securities contained in the Russell 2000 Index, and in Russell 2000 Index futures approved by the Commodities Futures Trading Commission.

Fidelity Spartan International Index Fund
This mutual fund invests a minimum of 80% of the fund’s assets in common stocks that are included in the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index, which represents the performance of foreign stock markets, excluding emerging market countries.  It aims to provide investment results that correspond to the total return of foreign stock markets.

Fidelity Freedom Funds
These mutual funds invest in a combination of Fidelity equity, fixed-income, and money market mutual funds, with the allocation among the three varying with the number of years until the Freedom funds reach their respective target retirement date (the Fidelity Freedom 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and 2050 funds are targeted to investors expected to retire around those years).  Once the target dates have been met, the funds continue to become more conservative for five to ten years until the asset mix is approximately the same as the Freedom Income Fund at which time the funds will merge.

CN Stock Fund
This fund invests in the common stock of CN and short-term investments sufficient to meet the fund’s daily cash needs.  At December 31, 2007, the fund held an interest-bearing cash balance of $683,395 ($663,241 in 2006).

Fidelity Retirement Money Market Portfolio
This mutual fund invests in short-term, high quality debt securities which include certificates of deposit of highly rated banks, U.S. Treasury notes and bills and Agency issues, and top rated commercial paper.

Fidelity Managed Income Portfolio II (FMIP II)
This stable value fund is a commingled pool of the Fidelity Group Trust for Employee Benefit Plans.  The portfolio invests in investment contracts issued by insurance companies and other financial institutions, fixed income securities, and money market funds to provide daily liquidity.  Some investment contracts are structured solely as a general debt obligation of the issuer.  Other investment contracts (i.e. wrap contracts) are purchased in conjunction with an investment by the portfolio in fixed income securities, which may include, but are not limited to, U.S. Treasury and agency bonds, corporate bonds, mortgage-backed securities, asset-backed securities, and bond funds.  The portfolio may also invest in futures contracts, option contracts, and swap agreements (see Note 3).
 
 
9

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
5.      TRANSFER OF PLAN ASSETS

In 2007, transfers of plan assets to a CN-related employee plan, the Canadian National Railway Company Management Savings Plan for U.S. Operations, relate to employees who changed participation between plans.



6.      PLAN TERMINATION

Although the Company has not expressed any intent to do so, it has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.  In the event the Plan is terminated, participants will receive the full amount of plan assets in their respective accounts.



7.      INTEREST IN MASTER TRUST

The Master Trust was created pursuant to a trust agreement between the Plan Sponsor and FMTC, as trustee of the funds, for investment and administrative purposes.  The Master Trust includes all of the investment assets of the following plans:

·  Canadian National Railway Company Union Savings Plan for U.S. Operations (Union Plan)
·  Canadian National Railway Company Management Savings Plan for U.S. Operations (Management Plan)

The Plan’s record keeper maintains supporting records for the purpose of allocating net gains or losses to each of the Plans and to each participant’s accounts.  The net investment income or loss of the investment assets is allocated to each Plan and to each participant’s account based on the investments held in their account.

The fair value of investments, by significant investment type, in the Master Trust at December 31 is as follows:
 
   
2007
   
2006
 
             
Investments in Master Trust, at fair value:
           
   Mutual funds
  $ 259,651,994     $ 240,126,592  
   CN common stock
    11,071,402       10,583,078  
   CN Stock Fund
    15,900,996       14,194,739  
   Money market funds
    13,668,426       12,421,494  
   Common collective trust fund
    36,262,366       38,827,162  
Total investments in Master Trust
  $ 336,555,184     $ 316,153,065  
                 
Union Plan, interest in Master Trust
  $ 201,684,826     $ 186,264,155  
Percentage interest
    59.9%       58.9%  
                 
Management Plan, interest in Master Trust
  $ 134,870,358     $ 129,888,910  
Percentage interest
    40.1%       41.1%  

 
10

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
Investment income for the Master Trust for the year ended December 31 is as follows:

   
2007
   
2006
 
             
Dividends and interest
  $ 20,002,106     $ 16,289,247  
                 
Net appreciation of investments:
               
   Mutual funds
    1,181,216       16,052,809  
   CN common stock
    1,007,349       828,604  
   CN Stock Fund
    1,330,685       758,355  
      3,519,250       17,639,768  
                 
Net Investment income
  $ 23,521,356     $ 33,929,015  
                 
Plan interest in investment income of the Master Trust:
               
   Union Plan
  $ 13,970,696     $ 19,892,957  
                 
   Management Plan
  $ 9,550,660     $ 14,036,058  


 
Investments that represent 5% or more of net assets available for benefits as of December 31, 2007 and 2006 were the Plan’s interest in the Master Trust.



8.      FEDERAL INCOME TAXES

The Plan has received a favorable determination letter from the IRS, dated April 21, 2003, indicating that it is qualified under Section 401(a) of the Internal Revenue Code (the Code), as amended, and, therefore, the Plan and related trust are exempt from taxation.  Although the Plan has been amended since receiving the determination letter, the Plan Administrator continues to believe the Plan and related trust are designed to be in compliance with the applicable requirements of the Code.



9. RELATED PARTY TRANSACTIONS

A significant portion of the Master Trust’s assets was invested in FMTC funds.  FMTC also acts as the trustee for the Plan and therefore, these investments qualify as party-in-interest transactions.

The Plan, through its investment in the Master Trust, held an investment in the CN Stock Fund valued at $15,900,996 and $14,194,739 at December 31, 2007 and 2006, respectively.

The Master Trust held shares of CN common stock valued at $11,071,402 and $10,583,078 at December 31, 2007 and 2006, respectively.
 
 
11

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006

 
10.     DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500

The Plan’s investments, within the Master Trust, include the FMIP II, which is stated at contract value on the financial statements whereas it is stated at fair value on the Form 5500.

The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500 as of December 31:

   
2007
   
2006
 
             
Net assets available for benefits per the financial statements
  $ 209,089,687     $ 192,889,687  
Less: Adjustment from contract value to fair value for
               
   interest in Master Trust relating to fully
               
   benefit-responsive investment contracts
    105,289       159,041  
Net assets available for benefits per the Form 5500
  $ 208,984,398     $ 192,730,646  
 
 
 
The following is a reconciliation of investment income per the financial statements to Form 5500 for the years ended December 31:
 
   
2007
   
2006
 
             
Total investment income per the financial statements
  $ 14,397,495     $ 20,223,842  
Add (less): Change in fair value to contract value for
               
   interest in Master Trust relating to fully
               
   benefit-responsive investment contracts
    53,752       (159,041 )
Total investment income per the Form 5500
  $ 14,451,247     $ 20,064,801  
 
 
12

 
CANADIAN NATIONAL RAILWAY COMPANY
UNION SAVINGS PLAN FOR U.S. OPERATIONS
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
DECEMBER 31, 2007
 
     
   Description of investment,
       
     
   including maturity date,
       
 
Identity of issuer, borrower,
 
   rate of interest, collateral,
 
Current
   
 
lessor, or similar party
 
   par, or maturity value
 
value
   
               
               
Participant loans
 
4.0% - 10.5%, maturing
  through October 2016
 
       6,213,826
   
               
         
$      6,213,826
   
               
Party-in-interest transaction
           
               
 
See accompanying Report of Independent Registered Public Accounting Firm.
       
 

 
13

 
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.


 
Canadian National Railway Company
Union Savings Plan for U.S. Operations
Name of Plan

 
 
Date:  6/25/2008 
/s/ Ardyth Cutler                                             
Plan Administrator