**UNITED
        STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549







FORM
      40-F


**[   ]
        REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
        ACT OF
        1934**


**OR**


**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934**




For
                the fiscal year ended: **December 31,
                2007**
            Commission
                File Number:
**1-2413**





**CANADIAN
      NATIONAL RAILWAY COMPANY**


(Exact
      name of registrant as specified in its charter)





**Canada**
            **4011**
            **E.I.
                980018609**(Jurisdiction
                of
              incorporation
                or organization)
            (Primary
                Standard Industrial
              Classification
                Code Number)
            (I.R.S.
                Employer
              Identification
                No.)**935
                de La Gauchetiere Street West**
              **Montreal,
                Quebec**
              **Canada
                H3B 2M9**
              **(514)
                399-7091**(Address,
                including zip code, and telephone number including area code, of
                Registrant’s principal executive offices)**CT
                Corporation System**
              **111
                Eighth Avenue**
              **New
                York, N.Y. 10011**
              **(212)
                894-8600**(Name,
                address, including  zip code, and telephone number, including
                area code, of agent for service in the United
                States)









Securities
      registered pursuant to Section 12(b) of the Act:




Title
                of each class
              **Common
                shares**
            Name
                of each exchange on which registered
              **New
                York Stock Exchange**
              **Toronto
                Stock Exchange**




Securities
      registered pursuant to Section 12(g) of the Act:
**None**


Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act: **Debentures and Notes (Debt Securities) of
      Registrant**




For
      annual
      reports, indicate by check mark the information filed with this
      Form:




[X]
                Annual information form
            [   ]
                Audited annual financial statements




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


**At
      December 31, 2007, 485,189,172 common shares were issued and
      outstanding.**




Indicate
      by check mark whether the Registrant by filing the information contained in
      this
      Form is also thereby furnishing the information to the Commission pursuant
      to
      Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange
      Act”). If “Yes” is marked, indicate the file number assigned to the Registrant
      in connection with such Rule.


Yes
o    No  ý




Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Exchange Act during the preceding
      12 months (or for such shorter period that the Registrant was required to
      file such reports) and (2) has been subject to such filing requirements for
      the past 90 days.


Yes  ý   No  o















**CONTROLS
      AND PROCEDURES**




*Disclosure
      Controls and Procedures*




Canadian
      National Railway Company’s
      President and Chief Executive Officer (the “CEO”) and its Executive
      Vice-President and Chief Financial Officer (the "CFO"), after evaluating the
      effectiveness of Canadian National Railway Company’s "disclosure controls and
      procedures" (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as
      of December 31, 2007 (the “Evaluation Date”), have concluded that as of the
      Evaluation Date, Canadian National Railway Company’s disclosure controls and
      procedures were adequate and effective to ensure that material information
      relating to Canadian National Railway Company and its consolidated subsidiaries
      (the “Registrant” or the “Company”) would be made known to them by others within
      those entities.




*Changes
      in Internal Control Over Financial Reporting*




During
      the year ended December 31,
      2007, there was no change in the Canadian National Railway Company’s internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, Canadian National Railway Company’s internal
      control over financial reporting.




**AUDIT
      COMMITTEE FINANCIAL EXPERT**




The
      Registrant’s board of directors has determined that it has several audit
      committee financial experts serving on its Audit Committee. Mr. Hugh Bolton
      has been determined to be an audit committee financial expert and is
      independent, as that term is defined by the New York Stock Exchange’s listing
      standards applicable to U.S. Companies. The SEC has indicated that the
      designation or identification of Mr. Bolton as an audit committee financial
      expert does not deem him an “expert” for any purpose, impose any duties,
      obligations or liability on Mr. Bolton that are greater than those imposed
      on members of the audit committee and board of directors who do not carry this
      designation or identification, or affect the duties, obligations or liability
      of
      any other member of the audit committee or board of directors.




**CODE
      OF ETHICS**




The
      Registrant has adopted a code of ethics (the “Code of Business Conduct”) that
      applies to all employees and officers, including its principal executive
      officer, principal financial officer and principal accounting officer. The
      Code
      of Business Conduct is available at the Registrant’s Internet website, www.cn.ca under the
      caption “Corporate Governance.” Any amendments to the Code of Business Conduct
      will be posted at the Registrant’s Internet website at the address listed
      above.





**PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





KPMG
      LLP
      has served as the Company’s auditors since 1992. In 2007 and 2006, fees for
      audit, audit-related, tax and other services provided to the Company by KPMG
      LLP
      were the following:





Year
                ended December 31,
            2007(1)
              (CAD$)
            2006(1)
              (CAD$)Audit
                fees
            $3,
                170,000
            $3,009,000Audit-related
                fees
            1,371,000
            930,000Tax
                fees
            603,000
            479,000Other
                fees
            —
            —Total
            $5,144,000
            $4,418,000(1)Fees
                rounded to the nearest thousand.





Pursuant
      to the terms of its charter, the Audit Committee of CN approves all audit and
      audit-related services, audit engagement fees and terms and all non-audit
      engagements with the independent auditor. The Audit Committee pre-approved
      100%
      of the services performed by our independent auditors for audit-related and
      tax
      fees for the years ended December 31, 2007 and 2006 that were required to be
      pre-approved.







A
      discussion of the nature of the services provided under each category is
      provided below.





*Audit
      fees*




Consists
      of fees incurred for professional services rendered by the auditors in relation
      to the audit of the Company’s consolidated annual financial statements and those
      of its subsidiaries, and the audit relating to the Company’s internal control
      over financial reporting.




*Audit-related
      fees*





Audit-related
      fees were incurred for professional services rendered by the auditors in
      relation to the audit of the financial statements for the Company’s pension
      plans, and for attestation services in connection with reports required by
      statute or regulation and due diligence and other services, including comfort
      letters, in connection with the issuance of securities.




*Tax
      fees*





Consists
      of fees incurred for consultations on cross-border tax implications for
      employees and tax compliance.





*Other
      fees*





Nil.








**OFF
      BALANCE SHEET ARRANGEMENTS**





*Accounts
      receivable securitization program*





The
      Company has a five-year agreement, expiring in May 2011, to sell an undivided
      co-ownership interest for maximum cash proceeds of $600 million in a revolving
      pool of freight receivables to an unrelated trust.  Pursuant to the
      agreement, the Company sells an interest in its receivables and receives
      proceeds net of the retained interest as stipulated in the
      agreement.





The
      Company has retained the
      responsibility for servicing, administering and collecting the receivables
      sold.  At December 31, 2007, the servicing asset and liability were
      not significant.  Subject to customary indemnifications, the trust’s
      recourse is generally limited to the receivables.





The
      Company accounted for the accounts
      receivable securitization program as a sale, because control over the
      transferred accounts receivable was relinquished. Due to the relatively short
      collection period and the high quality of the receivables sold, the fair value
      of the undivided interest transferred to the trust approximated the book value
      thereof.





The
      Company is subject to customary
      reporting requirements for which failure to perform could result in termination
      of the program.  In addition, the trust is subject to customary credit
      rating requirements, which if not met, could also result in termination of
      the
      program. The Company monitors the reporting requirements and is currently not
      aware of any trends, events or conditions that could cause such
      termination.





The
      accounts receivable securitization
      program provides the Company with readily available short-term financing for
      general corporate use.  Under the agreement, the Company may change
      the level of receivables sold at any time. In the event the program is
      terminated before its scheduled maturity, the Company expects to meet its future
      payment obligations through its various sources of financing, including its
      revolving credit facility and commercial paper program, and/or access to capital
      markets.





At
      December 31, 2007, the Company had
      sold receivables that resulted in proceeds of $588 million under the accounts
      receivable securitization program ($393 million at December 31, 2006), and
      recorded the retained









interest
      of approximately 10% of this amount in Other current assets (retained interest
      of approximately 10% recorded at December 31, 2006).





*Guarantees
      and indemnifications*





In
      the normal course of business, the
      Company, including certain of its subsidiaries enters into agreements that
      may
      involve providing certain guarantees or indemnifications to third parties and
      others, which may extend beyond the term of the agreement.  These
      include, but are not limited to, residual value guarantees on operating leases,
      standby letters of credit and surety and other bonds, and indemnifications
      that
      are customary for the type of transaction or for the railway
      business.





The
      Company is required to recognize a
      liability for the fair value of the obligation undertaken in issuing certain
      guarantees on the date the guarantee is issued or modified.   In
      addition, where the Company expects to make a payment in respect of a guarantee,
      a liability will be recognized to the extent that one has not yet been
      recognized.





The
      nature of these guarantees or
      indemnifications, the maximum potential amount of future payments, the carrying
      amount of the liability, if any, and the nature of any recourse provisions
      are
      disclosed in Note 18 – Major commitments and contingencies, to the Company’s
      2007 Annual Consolidated Financial Statements.




**TABULAR
      DISCLOSURE OF CONTRACTUAL OBLIGATIONS**




In
      the
      normal course of business, the Company incurs contractual
      obligations.  The following table sets forth the Company’s contractual
      obligations in Canadian dollars for the following items as at December 31,
      2007:


*In
                millions*
              
              **Total**
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
                  &thereafterLong-term
                  debt obligations(a)
              
              **$**
              **4,512**
              
              
              $
              170
              
              
              $
              299
              
              
              $
              -
              
              
              $
              517
              
              
              $
              -
              
              
              $
              3,526Interest
                  on long-term obligations
              
              ****
              **5,428**
              
              
              
              277
              
              
              
              267
              
              
              
              254
              
              
              
              252
              
              
              
              223
              
              
              
              4,155Capital
                  lease obligations(b)
              
              ****
              **1,620**
              
              
              
              145
              
              
              
              165
              
              
              
              100
              
              
              
              164
              
              
              
              75
              
              
              
              971Operating
                  lease obligations(c)
              
              ****
              **879**
              
              
              
              152
              
              
              
              125
              
              
              
              106
              
              
              
              84
              
              
              
              68
              
              
              
              344Purchase
                  obligations(d)
              
              ****
              **952**
              
              
              
              492
              
              
              
              156
              
              
              
              108
              
              
              
              52
              
              
              
              36
              
              
              
              108Other
                  long-term liabilities reflected on the balance sheet
              
              ****
              **950**
              
              
              
              73
              
              
              
              60
              
              
              
              51
              
              
              
              44
              
              
              
              41
              
              
              
              681*Total
                  obligations*
              
              **$**
              **14,341**
              
              
              **$**
              **1,309**
              
              
              **$**
              **1,072**
              
              
              **$**
              **619**
              
              
              **$**
              **1,113**
              
              
              **$**
              **443**
              
              
              **$**
              **9,785**




*(a)*
            *Presented
                net of unamortized discounts, of which $836 million relates to
                non-interest bearing Notes due in 2094, and excludes capital lease
                obligations of $1,105 million which are included in “Capital lease
                obligations.”**(b)*
            *Includes
                $1,105 million of minimum lease payments and $515 million of imputed
                interest at rates ranging from 3.0% to 7.9%.**(c)*
            *Includes
                minimum rental payments for operating leases having initial non-cancelable
                lease terms of one year or more.  The Company also has operating
                lease agreements for its automotive fleet with minimum one-year
                non-cancelable terms for which its practice is to renew monthly
                thereafter.  The estimated annual rental payments for such
                leases are approximately $30 million and generally extend over five
                years.**(d)*
            *Includes
                commitments for railroad ties, rail, freight cars, locomotives and
                other
                equipment and services, and outstanding information technology service
                contracts and licenses**.****(e)*
            *Includes
                expected payments for workers’ compensation, workforce reductions,
                postretirement benefits other than pensions and environmental liabilities
                that have been classified as contractual settlement
                agreements.*




For
      2008
      and the foreseeable future, the Company expects cash flow from operations and
      from its various sources of financing to be sufficient to meet its debt
      repayments and future obligations, and to fund anticipated capital









expenditures.  The
      Company is not aware of any trends, events or conditions or expected
      fluctuations in liquidity that would create any deficiencies.  See the
      Business risks section of the attached Management’s Discussion and Analysis for
      a discussion of assumptions and risk factors affecting such forward-looking
      statement.




**IDENTIFICATION
      OF THE AUDIT COMMITTEE**




The
      Registrant’s audit committee is composed of the following directors: Denis
      Losier (Chair), Michael R. Armellino, A. Charles Baillie, Hugh J. Bolton, Robert
      H. Lee and Robert Pace.




**CORPORATE
      GOVERNANCE PRACTICES**




The
      Registrant’s board of directors has also reviewed the Registrant’s corporate
      governance practices in response to the U.S. Sarbanes-Oxley Act of 2002,
      applicable rules of the U.S. Securities and Exchange Commission, as well as
      the
      NYSE Corporate Governance Standards (the “NYSE Standards”). The board of
      directors will continue to review its corporate governance practices regularly
      in response to the evolving standards. Except as disclosed on its website,
      the
      Registrant’s corporate governance practices do not differ significantly from
      that followed by U.S. domestic companies under the NYSE Standards. A discussion
      of differences is available at the Registrant’s Internet website, www.cn.ca under the
      caption “Corporate Governance”.




**UNDERTAKING**




Registrant
      undertakes to make
      available, in person or by telephone, representatives to respond to inquiries
      made by the Commission staff, and to furnish promptly, when requested to do
      so
      by the Commission staff, information relating to the securities in relation
      to
      which the obligation to file an annual report on Form 40-F
      arises.









**CANADIAN
        NATIONAL**
 **RAILWAY
        COMPANY**
  
 
 **2007**
 
 **ANNUAL
        INFORMATION FORM**
 
  
 
 
 **February
        11,
        2008**
   
    **TABLE
        OF
        CONTENTS**
  **Annual**
                  **InformationForm**
                **Management's**
                  **Discussion
                    &**
                  **Analysis**
                  **Incorporated
                    by**
                  **Reference****Item
                    1**
                
                **General
                    Information**
                3**Item
                    2**
                
                **Incorporation**
                32.1
                
                Incorporation
                    of the
                    Issuer
                32.2
                
                Subsidiaries
                4**Item
                    3**
                
                **General
                    Development of the
                    Business**
                43.1
                
                General
                    Development of the
                    Business During the Last Three Years
                43.2
                
                Anticipated
                    Developments
                10
                1-3**Item
                    4**
                
                **Description
                    of the
                    Business**
                114.1
                
                Overview
                114.2
                
                Commodity
                    Groups
                11
                5-94.3
                
                Competitive
                    Conditions
                11
                32-334.4
                
                Labor
                11
                34-354.5
                
                Social
                    Policies
                114.6
                
                Regulation
                12
                35-374.7
                
                Environmental
                    Matters
                14
                27,
                    28,
                    334.8
                
                Legal
                    Matters
                154.9
                
                Risk
                    Factors
                16
                32-37**Item
                    5**
                
                **Dividends**
                16**Item
                    6**
                
                **Description
                    of Capital
                    Structure**
                176.1
                
                General
                    Description of Capital
                    Structure
                176.2
                
                Share
                    Ownership
                    Constraints
                176.3
                
                Ratings
                    of Debt
                    Securities
                18**Item
                    7**
                
                **Transfer
                    Agent and
                    Registrar**
                19**Item
                    8**
                
                **Market
                    for
                    Securities**
                198.1
                
                Trading
                    Price and
                    Volume
                198.2
                
                Prior
                    Sales
                20**Item
                    9**
                
                **Directors
                    and Executive
                    Officers**
                209.1
                
                Directors
                209.2
                
                Audit
                    Committee
                    Disclosure
                229.3
                
                Executive
                    Officers
                259.4
                
                Cease
                    Trade Orders, Bankruptcies,
                    Penalties or Sanctions
                26**Item
                    10**
                
                **Interest
                    of
                    Experts**
                27**Item
                    11**
                
                **Additional
                    Information**
                27**Schedule  A**
                
                Charter
                    of the Audit
                    Committee
                28
 
  2
    **ITEM
        1** **GENERAL
        INFORMATION**
  Except
        as otherwise
        indicated in this Annual Information Form (“AIF”), the information contained
        herein is given as of December 31, 2007.  All references in this AIF
        to “dollars” or “$” are to Canadian dollars and all financial information
        reflected herein is determined on the basis of, and prepared in accordance
        with,
        United States generally accepted accounting principles (“U.S. GAAP”), unless
        otherwise indicated.
  Certain
        statements
        contained in this AIF or incorporated by reference herein may be
“forward-looking statements” within the meaning of the United States Private
        Securities Litigation Reform Act of 1995 and Canadian securities
        laws.  All statements, other than statements of historical facts,
        included or incorporated by reference herein that address activities, events
        or
        developments that the Company expects or anticipates will or may occur in
        the
        future, including such things as future capital expenditures (including the
        amount and nature thereof), business strategies and measures to implement
        strategies, competitive strengths, goals, expansion and growth of its business
        and operations, plans and references to the future success of the Company,
        and
        other such matters, are forward-looking statements.  CN cautions that,
        by their nature, forward-looking statements involve risk, uncertainties and
        assumptions. The Company assumes that, although there is an increasing risk
        of
        recession in the U. S. economy, growth in North America and globally will
        continue to slow down in 2008, but that a recession will not take place.
        The
        Company cautions that this, as well as its other assumptions, may not
        materialize, and that its actual results or developments anticipated by the
        Company could differ materially from those expressed or implied in such
        forward-looking statements. Important factors that could cause such differences
        include, but are not limited to, industry competition, legislative and/or
        regulatory developments, compliance with environmental laws and regulations,
        actions by regulators, risks and liabilities arising from derailments, various
        events which could disrupt operations, including natural events such as severe
        weather, droughts, floods and earthquakes, the effects of adverse general
        economic, market or business conditions, the opportunities or lack thereof
        that
        may be presented to, or pursued by, the Company, inflation, currency
        fluctuations, changes in fuel prices, labor negotiations and disruptions,
        environmental claims, uncertainties of investigations or proceedings,
        or  other types of claims and litigation, and other risks detailed
        from time to time in reports filed by CN with securities regulators in Canada
        and the United States. Reference should be made to the discussion of these
        risk
        factors in CN’s 2007 Annual Consolidated Financial Statements and Notes thereto
        and Management’s Discussion and Analysis, for a summary of major risks, which
        documents may be found on SEDAR at www.sedar.com and on EDGAR
        at www.sec.gov.
  The
        Company assumes no obligation to update or revise forward-looking statements
        to
        reflect future events, changes in circumstances, or changes in beliefs, unless
        required by applicable laws.  In the event the Company does update any
        forward-looking statement, no inference should be made that it will make
        additional updates with respect to that statement, related matters, or any
        other
        forward looking statement.
  **ITEM
        2** **INCORPORATION**
  **2.1   
        **** ***Incorporation
        of the Issuer***
  Canadian
        National
        Railway Company (“CNR”) was incorporated in 1922 by special act of the
        Parliament of Canada. CNR’s continuance under the *Canada Business
        Corporations Act*was authorized by the *CN Commercialization Act*and was effected by Certificate of Continuance dated August
        24, 1995. On
        November 9, 1995, CNR filed Articles of Amendment in order to subdivide its
        outstanding common shares (the “common shares”). As of November 28, 1995,
        CNR ceased to be a Crown corporation. On April 19, 2002, CNR filed Articles
        of Amendment in order to provide that shareholder meetings may be held at
        certain specified places in the United States.  Such constating
        documents are hereinafter collectively referred to as the
“Articles”.
  As
        used herein, the word “Company” or “CN” means, as the context requires, CNR
        and/or its subsidiaries.
  3
  The
        Company’s registered and head office is located at 935 de La Gauchetière Street
        West, Montréal, Québec, H3B 2M9, Canada, and its telephone number is
        1-888-888-5909.
  **2.2   
        **** ***Subsidiaries***
  CN’s
        principal
        subsidiaries as of December 31, 2007, all of which are wholly owned
        (directly or indirectly), and their jurisdiction of incorporation, are indicated
        below:
 
 **Name**
              **Jurisdiction
                  of**
                **Incorporation**Grand
                  Trunk
                  Corporation
              DelawareGrand
                  Trunk
                  Western Railroad Incorporated (“GTW”)
              DelawareIllinois
                  Central Corporation (“IC”)
              DelawareIllinois
                  Central Railroad Company (“ICRR”)
              IllinoisWisconsin
                  Central Transportation Corporation (“WC”)
              DelawareWisconsin
                  Central Limited
              Illinois
 
 The
        financial statements of each of the above principal subsidiaries are
        consolidated within CN’s financial statements.
  **ITEM
        3** **GENERAL
        DEVELOPMENT OF THE BUSINESS**
  ***3.1*** ***General
        Development of the Business During the Last Three
        Years***
  CN’s
        goal is to grow
        the business profitably, creating value for its customers and generating
        an
        adequate and sustainable return on capital invested. To reach that goal,
        CN
        focuses on strategies and initiatives that allow it to continually improve
        service, seize upon a range of business opportunities, and achieve productivity
        gains throughout the organization. The initiatives undertaken by CN in the
        last
        three years to achieve its growth and profitability goals and to enhance
        shareholder value can be grouped into a few key areas. These include
        acquisitions and dispositions, targeted capital investment spending and other
        initiatives to strengthen the Company’s position in the marketplace, cooperation
        and co-production agreements with other carriers, as well as financial
        management initiatives as described below:
  **2007
        Highlights**
  *Acquisitions
        and
        Dispositions*
  In
        September 2007, CN entered into an agreement with the U.S. Steel Corporation
        (“U.S. Steel”) for the acquisition of the key operations of Elgin, Joliet and
        Eastern Railway Company (“EJ&E”) for approximately U.S.$300 million. The
        acquisition is expected to significantly improve the fluidity of CN’s rail
        operations in the Chicago region, rewarding customers with faster transit
        times
        and more reliable service. Under the terms of the agreement, U.S. Steel’s
        Transtar subsidiary retains railroad assets, equipment, and employees that
        support the Gary Works site in Northwest Indiana and the steelmaking operations
        of U.S. Steel. Transtar’s remaining operations will become the Gary
        Railway.  In accordance with the terms of the agreement, the Company’s
        obligation to consummate the acquisition is subject to the Company having
        obtained from the U.S. Surface Transportation Board (“STB”) a final,
        unappealable decision that approves the acquisition or exempts it from
        regulation and does not impose on the parties conditions that would
        significantly and adversely affect the anticipated economic benefits of the
        acquisition to the Company. On November 26, 2007, the STB accepted the Company’s
        application to consider the acquisition as a minor transaction that would
        normally provide for a decision by mid-2008. The STB, however, is also requiring
        an Environmental Impact Statement (“EIS”) for the transaction, and it has
        indicated that its decision will not be issued until the EIS process is
        completed. The Company believes that the STB should be able to conclude its
        environmental review and issue a
  4
  decision
        that would
        enable the transaction to close by late 2008. EJ&E, a Class II railroad,
        operates over 198 main line miles of track encircling the City of Chicago
        from
        Waukegan, Illinois, on the north, to Joliet, Illinois, on the west, to Gary,
        Indiana, on the southeast, and then to South Chicago. CN plans to invest
        approximately U.S.$100 million for integration, new connections, and
        infrastructure improvements to add capacity on the EJ&E line and allow
        network synergies to be realized over time. The acquisition, which will be
        financed with debt and cash-on-hand, is expected to be slightly accretive
        to
        CN’s diluted earnings per share in the first year following STB
        approval.
 
 In
        November 2007,****CN finalized an agreement with Homburg
        Invest Inc. to sell its Central Station Complex in Montreal for proceeds
        of $355
        million before transaction costs. Under the agreement, CN has entered into
        long-term arrangements to lease back its corporate headquarters building
        and the
        Central Station railway passenger facilities.
  In
          November 2007, Germany’s state-owned railway, Deutsche Bahn AG, acquired all of
          the shares of the English Welsh and Scottish Railway (“EWS”), a company that
          provides most of the rail freight services in Great Britain and operates
          freight
          trains through the English Channel Tunnel, and in which the Company had
          a 32%
          ownership interest, accounted for using the equity method. The Company’s share
          of the cash proceeds was $114 million. Pursuant to the sale of the Company's
          investment in EWS, an additional amount of £18 million (Cdn$36 million) was
          placed in escrow and will be recognized when defined contingencies are
          resolved.
 
 In
          December 2007, CN acquired the rail assets of the Athabasca Northern Railway
          (“ANY”) to preserve a critical rail link to the oil sands region of northern
          Alberta.  CN’s purchase and rail-line rehabilitation plan was premised
          on long-term traffic volume guarantees that the Company has negotiated
          with
          shippers Suncor Energy Inc., OPTI Canada Inc., and Nexen Inc.  CN paid
          $25 million for ANY and plans to invest $135 million in rail-line upgrades
          over
          the next three years to improve transit times and service
          consistency.  The 202-mile ANY connects with CN at Boyle, Alberta,
          located 101 miles north of Edmonton. CN’s plans for the line are designed to
          preserve market access to existing and potential receivers along the rail
          corridor and to accommodate any increased volumes that may move over the
          line in
          future to support oil sands development.
  *Strategic
        Initiatives and Capital Spending*
 
 In
        April 2007,****CN set up CN WorldWide North America, a new
        operating entity to manage and expand the scope and scale of the Company’s
        existing non-rail capabilities, such as warehousing and distribution, customs
        services, truck brokerage and supply chain visibility tools across North
        America.
 
 In
        June 2007, CN committed itself to the acquisition of 65 new fuel-efficient,
        high-horsepower locomotives scheduled for delivery over the following 2-year
        period. These are in addition to the 65 locomotives previously ordered for
        delivery in 2007. In addition to improved reliability, the new units are
        about
        15 per cent more fuel efficient than the locomotives they will replace, and
        will
        comply fully with the latest regulatory requirements for reduced locomotive
        emissions. The new locomotive orders are part of a major fuel conservation
        program by CN and will ultimately permit the retirement of 145 older
        locomotives. All of these 130 new locomotives CN ordered will be equipped
        with
        distributed power capability, which allows them to be placed in the middle
        of a
        freight train and to be remotely controlled from the lead locomotive.
        Distributed power technology improves fuel efficiency and train handling,
        and
        permits CN to maximize the productivity gains associated with its extended
        siding program.
 
 In
        October 2007,****operations commenced at the Port of Prince
        Rupert container terminal.  CN, in partnership with the Prince Rupert
        Port Authority and Maher Terminals, will seek to offer the marketplace faster,
        more efficient and more cost-effective routing than previously available
        for
        Asian traffic destined to and from the interior of North America, including
        the
        cities of Chicago, Memphis, Toronto and Montreal. As the closest port to
        northeast Asia by up to 58 hours of sailing time compared to any other West
        Coast port in North America, the Port of Prince Rupert gives shippers
        approximately one extra round-trip voyage per year. The Port is strategically
        located to handle excess capacity on one of the world's busiest shipping
        corridors. The official opening for business of the terminal, with the first
        major customer, COSCO Container Lines Americas, Inc., signed on, has helped
        to
        establish CN as a key player
  5
  serving
        North
        America’s newest Pacific Gateway. CN plans continued investment in its western
        Canadian network, which benefits Canada's Pacific Gateway. These improvements
        include upgrades to rail traffic control systems west of Prince George and
        extended sidings that will increase capacity in the corridor from Prince
        Rupert
        through to Memphis. CN has upgraded tunnels and bridges, built new intermodal
        terminals in Prince George and Edmonton, and acquired 2,250 platform cars
        and 50
        new state-of-the-art locomotives specifically to serve this
        gateway.
 
 In
        October 2007, CN****began operation of its Prince George
        intermodal and distribution centre terminal. Prince George, situated 500
        miles
        east of Prince Rupert, is in close proximity to British Columbia’s large fibre
        reserves and other natural resources and is CN’s divisional headquarters and
        main operations hub in northern B.C. Built by CN at a cost of $20 million,
        the
        Prince George facility is ideally located to tap backhaul export opportunities,
        filling empty containers moving to Asia via Prince Rupert with lumber, panels,
        woodpulp and paper, as well as ores, plastics and some metals products. It
        is
        designed to help CN maximize revenue potential generated from the new terminal
        at Prince Rupert. The Prince George Distribution Centre has an 84,000
        square-foot warehouse and 10 acres of outside storage. A full range of services
        will be provided by CN WorldWide North America, including product transfer,
        inspection, consolidation/deconsolidation, inventory control and transportation.
        Loaded containers will be lifted onto railway flatcars at CN’s new adjacent
        intermodal rail yard, which features two 2,400-foot pad tracks, trucking
        and
        truck-pick-up capabilities and an automated gate system. CN is providing
        direct,
        daily rail service from the Prince George facility to the Port of Prince
        Rupert.
 
 In
        2007, CN’s capital expenditure was close to $1.7 billion.  Excluding
        the $90 million capital lease for the Montreal Central Station Complex, the
        capital spending was about $1.6 billion, which amounted to approximately
        20% of
        revenues and an increase of three per cent over the 2006 level. Of this,
        more
        than $1 billion was targeted towards track infrastructure to maintain a safe
        railway and to improve the productivity and fluidity of the network and includes
        the replacement of rail, ties and other track materials, as well as the
        improvement of bridges. This amount also included funds for strategic
        initiatives, such as siding extensions to accommodate container traffic from
        the
        Prince Rupert Intermodal Terminal, the upgrade of the Company’s freight car
        classification yard in Memphis, Tennessee, and additional enhancements to
        the
        track infrastructure in western Canada to take advantage of growth prospects
        in
        North American trade with Asia and the boom in the West. CN spent approximately
        $300 million on rolling stock in 2007 to tap growth opportunities and to
        improve
        the quality of the fleet to meet customer requirements. The Company continued
        its locomotive fleet modernization program with the acquisition of 85 new
        high-horsepower fuel-efficient units and ongoing locomotive overhauls. CN
        also
        spent more than $300 million on facilities to grow the business, including
        transloads and distribution centres, on information technology to improve
        service and operating efficiency, as well as on other projects to increase
        productivity.
 
 *Financial
        Management Initiatives*
 
 In
        July 2007, the Board of Directors of the Company approved a new share repurchase
        program, which allows for the repurchase of up to 33.0 million common shares
        between July 26, 2007 and July 25, 2008 pursuant to a normal course issuer
        bid,
        at prevailing market prices or such other price as may be permitted by the
        Toronto Stock Exchange. As at December 31, 2007, under this current share
        repurchase program, 17.7 million common shares have been repurchased for
        $897
        million, at a weighted-average price of $50.70 per share. The Company’s previous
        share repurchase program, initiated in July 2006, allowed for the repurchase
        of
        up to 28.0 million common shares between July 25, 2006 and July 24, 2007,
        pursuant to a normal course issuer bid, at prevailing market prices. In June
        2007, the Company completed this share repurchase program for a total of
        $1,453
        million, at a weighted-average price of $51.88 per share.
 
 In
        September 2007, CN used up the remaining borrowing capacity under its shelf
        prospectus and registration statement to issue a U.S.$550 million debt
        offering composed of U.S.$250 million (Cdn$250 million) 5.85% Notes due 2017,
        and U.S.$300 million (Cdn$300 million) 6.375% Debentures due 2037. CN used
        the
        net proceeds of U.S.$544 million from the offering to repay a portion of
        its
        outstanding commercial paper and to reduce its accounts
  6
  receivable
        securitization program. The indebtedness being repaid was incurred for general
        corporate purposes, including for the financing of CN’s share repurchase
        program.
 
 In
          December 2007, CN
          filed a shelf prospectus with Canadian securities regulators and a registration
          statement with the United States Securities and Exchange Commission (SEC),
          expiring in January 2010, providing for the issuance by CN, of up to U.S.$2.5
          billion of debt securities in Canadian and U.S. markets in one or more
          offerings. CN expects to use the net proceeds from the sale of debt securities
          under the shelf prospectus and registration statement for general corporate
          purposes, including the redemption and refinancing of outstanding indebtedness,
          share repurchases, acquisitions, and other business
          opportunities.
 
 *Significant
        Cooperation Agreements*
 
 As
        part of an ongoing effort to improve productivity and capacity, CN periodically
        enters into cooperation agreements with other carriers, including track and
        infrastructure exchanges, co-production, haulage and track access agreements,
        as
        well as routing protocols that endeavour to emphasize more efficient
        interchanges to bypass congested terminals. In 2007, CN concluded several
        such
        cooperation agreements, including the following:
 
 ·
              In
                  June 2007,
                  CN and Kansas City Southern Railway (“KCS”) concluded a routing protocol
                  to streamline the interchange of traffic in a way that reduces
                  both miles
                  and handlings.
 
 ·
              In
                  November
                  2007, CN and Canadian Pacific Railway Company (“CPR”) concluded a routing
                  protocol to expedite the exchange of interline freight traffic
                  at key
                  gateways in both Canada and the
                  U.S.
 
 These
        two agreements
        represent the latest in a series of routing protocol agreements negotiated
        by CN
        that collectively include every Class I
        North American railroad.
 
 2007
        also saw the
        conclusion of additional co-production agreements covering various parts
        of CN’s
        network, including one with Norfolk Southern Railway (“NS”) in March 2007 and
        one with Ontario Northland Railway in May 2007. The shared facilities and
        joint
        operations enabled by these agreements help to drive operational efficiencies
        as
        well as asset utilization improvements for each of the participating
        carriers.
 
 **2006
        Highlights**
 
 *Acquisitions
        and
        Dispositions*
 
 In
        2006, CN made the following acquisitions for a total cost of $84 million
        paid in
        cash:
 
 In
        January 2006, CN completed the purchase of the Alberta short-line railways
        owned
        by RailAmerica, Inc., of Boca Raton, Florida. CN bought the 600-mile Mackenzie
        Northern Railway (“MKNR”) and the 118-mile Lakeland & Waterways Railway
        (“LWR”), both located north of Edmonton, along with the 21-mile Central Western
        Railway (“CWR”) in east-central Alberta that carries agricultural traffic. These
        feeder lines are a good fit for CN’s merchandise and bulk commodity groups at a
        time of major energy project development in northern Alberta.
 
 In
        March 2006, CN acquired the remaining 51% of SLX Canada Inc., a company engaged
        in equipment leasing in which the Company previously had a 49% interest that
        had
        been consolidated with its results.
 
 In
        December 2006, CN completed the purchase of Savage Alberta Railway, Inc.
        (“SAR”), a 345-mile short-line railway, from Savage Companies of Salt Lake City,
        Utah. The acquisition represents an opportunity for CN to solidify its freight
        franchise in resource-rich northwestern Alberta.
  7
  *Strategic
        Initiatives and Capital Spending*
  In
        2006,
        CN spent more than $1.5 billion on capital programs, an increase of eleven
        per
        cent over 2005 spending. This included approximately $1 billion spent on
        infrastructure, replacing rail, ties, ballast, and other track material and
        upgrading bridges and signalling systems, as well as network productivity
        initiatives and strategic projects, including siding extensions in western
        Canada, investments in the Company's Prince Rupert, British Columbia, corridor,
        and the reconfiguration of Johnston Yard in Memphis, Tennessee. Equipment
        spending of approximately $350 million in 2006 was for the acquisition of
        new
        locomotives, the rejuvenation of the existing locomotive fleet, the acquisition
        of new cars and the refurbishment of the current fleet to meet customer needs.
        CN also spent approximately $200 million on facilities, information technology
        and other projects to allow the Company to tap new growth opportunities and
        drive overall efficiency gains.
 
 Through
        2006, CN
        continued to take delivery of 75 high-horsepower locomotives ordered in April
        of
        2005, leaving just 15 of the original order for delivery in the latter half
        of
        2007. Also in 2006, the Company exercised its option to acquire an additional
        50
        high-horsepower locomotives for delivery in the second half of 2007. The
        75 new
        locomotives of 4,300 – 4,400 horsepower allow CN to replace 100 older 3,000 –
3,600 horsepower road locomotives. These new units are almost 20 per cent
        more
        fuel-efficient than the ones replaced. The additional 50 locomotives will
        allow
        CN to tap growth opportunities, including new international freight traffic
        to
        and from the Port of Prince Rupert intermodal terminal.
 
 *Significant
        Cooperation Agreements*
 
 In
        2006, CN concluded several cooperation agreements, including the following
        in
        January 2006:
 
 •
         CN and BNSF Railway Company (“BNSF”) concluded an agreement covering
        several key locations where their respective networks interact including,
        in
        particular, the Vancouver, B.C., Chicago, and Memphis to southern Illinois
        regions;
 
 •
         CN and CPR concluded an agreement intended to make rail operations more
        fluid in British Columbia’s Lower Mainland, enhancing service for rail customers
        and supporting the growth of Pacific Gateway ports and terminals;
        and
 
 •
         CN and CSX Transportation, Inc., (“CSXT”) concluded a long-term agreement
        to haul CSXT traffic to and from Sarnia, Ont., and CSXT connections in Buffalo,
        New York, and Toledo, Ohio.
 
 *Financial
        Management Initiatives*
 
 In
        May 2006, the Company filed a shelf prospectus and registration statement,
        expiring in June 2008, which provides for the issuance, from time to time,
        of up
        to U.S.$1,500 million of debt securities in one or more offerings in the
        Canadian or U.S. markets for general corporate purposes. Pursuant to the
        filing,
        on May 31, 2006, the Company issued U.S.$250 million (Cdn$275 million) of
        5.80%
        Notes due 2016 and U.S.$450 million (Cdn$495 million) of 6.20% Debentures
        due
        2036. The Company used the net proceeds of U.S.$692 million to reduce its
        accounts receivable securitization program and to repay a portion of its
        outstanding commercial paper.
 
 In
        May 2006, the Company entered into an agreement, expiring in May 2011, to
        sell
        an undivided co-ownership interest for maximum cash proceeds of $600 million
        in
        a revolving pool of freight receivables to an unrelated trust. This new program
        replaces the Company’s previous accounts receivable securitization program that
        was set to expire in June 2006.
 
 In
        July 2006, the interest rate on the Company’s U.S.$250 million Puttable Reset
        Securities PURSSM (“PURS”) was reset
        at a new rate of 6.71% for the remaining 30-year term ending July 15, 2036.
        The
        PURS were originally issued
  8
  in
        July 1998 at the rate of 6.45% with an option to call the securities on July
        15,
        2006 (the reset date). The call option holder exercised the call option,
        which
        resulted in the remarketing of the original PURS. The new interest rate was
        determined according to a pre-set mechanism based on prevailing market
        conditions. The Company did not receive any cash proceeds from the remarketing.
        The remarketing did not trigger an extinguishment of debt, as the provisions
        for
        the reset of the interest rate were set forth in the original PURS. As such,
        the
        original PURS remain outstanding but accrue interest at the new rate until
        July
        2036. Under securities laws, the remarketing required utilization of the
        Company’s then current shelf prospectus and registration statement.
 
 As
        mentioned in the 2007 Highlights, in July 2006, the Board of Directors of
        the
        Company approved a new share repurchase program which allowed for the repurchase
        of up to 28.0 million common shares between July 25, 2006 and July 24, 2007
        pursuant to a normal course issuer bid, at prevailing market prices. As at
        December 31, 2006, 15.5 million common shares had been repurchased for $766
        million, at a weighted-average price of $49.43 per share. The Company’s previous
        share repurchase program, initiated in 2005, allowed for the repurchase of
        up to
        32.0 million common shares between July 25, 2005 and July 24, 2006 pursuant
        to a
        normal course issuer bid, at prevailing market prices. In June 2006, the
        Company
        ended this share repurchase program, having repurchased a total of 30.0 million
        common shares for $1,388 million at a weighted-average price of $46.26 per
        share. Of this amount, 14.0 million common shares were repurchased in 2006
        for
        $717 million (weighted-average price per share of $51.24) and 16.0 million
        common shares in 2005 for $670 million (weighted-average price per share
        of
        $41.90).
 
 **2005
        Highlights**
 
 *Strategic
        Initiatives and Capital Spending*
 
 In
        2005, CN spent $1.4 billion on capital additions. The Company continued to
        focus
        infrastructure capital toward a safe, reliable and fluid network. In particular,
        CN invested in further siding extensions on its line west of Edmonton to
        accommodate growing volumes, to improve network velocity and to run longer
        trains. CN also partnered with the Port of Prince Rupert and Maher Terminals
        of
        Canada Corporation (“Maher Terminals”) in the development of the Fairview
        intermodal container terminal at Prince Rupert, which is expected to become
        an
        important gateway for trade between North America and Asia. CN also spent
        in
        excess of $300 million on rolling stock in 2005 with a view toward building
        a
        more homogeneous fleet of high-capacity cars, driving both customer-service
        quality and distribution efficiencies. CN took delivery of 750 new centerbeams
        and 500 new Plate F boxcars by the end of 2005. Modernization of the locomotive
        fleet continued in 2005 as discussed under the 2006 Highlights herein. CN’s
        information and communication technology investment in 2005 was in line with
        2004 spending, with the primary focus on base computing and communication
        infrastructure, integration of the BC Rail Partnership and the former BC
        Rail
        Ltd. and the railroads and related holdings of Great Lakes Transportation
        LLC,
        and the maximization of value obtained from its SAP Enterprise
        system.
  In
          April 2005, with
          $60 million in funding for the new Port of Prince Rupert container terminal
          secured from the Canadian and British Columbia governments, CN, Maher Terminals
          and the Prince Rupert Port Authority announced plans for the new terminal
          as
          discussed in the 2007 Highlights. CN’s investment in the new terminal included
          an amount of $15 million for the intermodal yard at the port, $10 million
          for
          the terminal trackage, and additional funding for infrastructure improvements
          to
          CN's B.C. North line to accommodate double-stack container cars. Maher
          Terminals’ contribution included funds for the acquisition and installation of
          three large container cranes at the terminal, together with supporting
          container-handling equipment and technology, at a cost of approximately
          $60
          million. The Prince Rupert Port Authority undertook to contribute $25 million
          to
          the container terminal development. Phase 1 of the terminal development,
          expected to provide initial throughput capacity of up to 500,000 TEUs (twenty
          foot equivalent containers) per year, is part of a broader plan to build
          a
          facility capable of handling two million TEUs per year.
 
 In
        May 2005, CN formed CN WorldWide, a wholly owned subsidiary to offer
        international freight forwarding services between Europe and North America
        to
        allow CN to provide shippers an integrated, door-to-door freight service,
        and
  9
  position
        it to drive
        new containerized traffic through CN-served ports in North America. CN WorldWide
        is based in Rotterdam, Netherlands, the largest container port in the world
        outside of Asia. It schedules and manages the door-to-door movement of
        international shipments, including rail, trucking, maritime transportation
        and
        port handling, along with warehousing, customs and billing. Still in its
        start-up phase, CN WorldWide is focused on expanding its service offering.
        Initially targeting shipments between Europe and eastern Canada, including
        Ontario and Québec, via the Port of Halifax, and the United States, CN WorldWide
        has since added offices in various locations in Asia, Europe, and North and
        South America. Customs clearance for Canadian and U.S.-bound traffic was
        added
        to the service offering of CN WorldWide starting in April 2006. This service
        provides an additional attraction to customers while improving CN’s rail network
        fluidity by expediting clearance of customer shipments.
 
 *Significant
        Cooperation Agreements*
 
 Expanding
        on CN’s
        routing protocol initiative with connecting carriers that began in 2004,
        CN
        concluded routing protocol agreements to streamline the exchange of rail
        traffic
        at major gateways. Under the protocols, rail traffic flows are directed through
        the most efficient interchange locations to improve transit times and asset
        utilization for the customers of participating carriers. Among others, the
        following agreements were finalized in 2005:
 
 •
        In January 2005, CN and BNSF signed a comprehensive routing protocol agreement
        covering multiple locations on each carrier’s respective network, including
        Noyes, Minnesota, Memphis, Tennessee, and New Orleans, Louisiana;
        and
 
 •
        In March 2005, CN and Norfolk Southern Railway (“NS”) announced a structured
        routing protocol to streamline their exchange of rail traffic at major gateways,
        including Rouses Point, New York, Memphis, Tennessee, and New Orleans,
        Louisiana.
 
 *Financial
        Management Initiatives*
 
 As
        mentioned in the 2006 Highlights, in July 2005, the Board of Directors of
        the
        Company approved a share repurchase program, which allowed for the repurchase
        of
        up to 32.0 million common shares between July 25, 2005 and July 24, 2006,
        pursuant to a normal course issuer bid, at prevailing market prices. As at
        December 31, 2005, 16.0 million common shares had been repurchased for $670
        million, at a weighted-average price of $41.90 per share. The Company’s previous
        share repurchase program, initiated in 2004, allowed for the repurchase of
        up to
        28.0 million common shares between November 1, 2004 and October 31, 2005,
        pursuant to a normal course issuer bid, at prevailing market prices. By the
        second quarter of 2005, the Company had completed this share repurchase program,
        repurchasing 28.0 million common shares for $1,021 million, at a
        weighted-average price of $36.47 per share (20.0 million shares and 8.0 million
        shares in 2005 and 2004, respectively).
 
 **3.2   
        **** ***Anticipated
        Developments***
  For
          a discussion of
          anticipated developments for 2008, please see the section entitled “Strategy
          Overview” on pages 1 to 3 of the Company’s Management’s Discussion and Analysis
          for the year ending December 31, 2007 (the “MD&A”), which are incorporated
          by reference herein.  The MD&A may be found on SEDAR at
          www.sedar.com.
  10
  **ITEM
        4** **DESCRIPTION
        OF THE BUSINESS**
  **4.1   
        **** ***Overview***
  CN
        is engaged in the rail and related transportation business. CN’s network of
        approximately 20,400 route miles 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, Ala., and the key
        metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth,
        Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St.
        Louis,
        and Jackson, Miss., with connections to all points in North America. The
        Company’s freight revenues are derived from seven commodity groups, representing
        a diversified and balanced portfolio of goods transported between a wide
        range
        of origins and destinations. In 2007, the largest commodity group accounted
        for
        approximately 20% of revenues. From a geographical standpoint, in 2007, 19%
        of
        revenues came from U.S. domestic traffic, 32% from transborder traffic, 23%
        from
        Canadian domestic traffic, and 26% from overseas traffic. For more information
        on CN’s commodity groups, including their respective revenues for the last two
        years and their principal markets and economic drivers, please see pages
        5 to 9
        of the MD&A, which are incorporated by reference herein.
  CN
        originated approximately 87% of traffic moving along its network in 2007.
        This
        allows the Company both to capitalize on service advantages and to build
        on
        opportunities to efficiently use assets.
  **4.2   
        **** ***Commodity
        Groups***
  For
        a description of the various commodity groups transported by CN, their principal
        markets, as well as select revenue, revenue ton mile and carload
        information, please see pages 5 to 9 of the MD&A, which are incorporated by
        reference herein.
  **4.3   
        **** ***Competitive
        Conditions***
  For
        a discussion of the competitive conditions under which CN operates, please
        see
        the section entitled “Competition” in the discussion of Business risks located
        on pages 32 and 33 of the MD&A, which are incorporated by reference
        herein.
  **4.4   
        **** ***Labor***
  As at
        December
        31, 2007, CN employed a total of 22,696 employees.
  For
        a discussion of CN’s labor negotiations, see the section entitled “Labor
        Negotiations” in the Business risks discussion located on pages 34 and 35 of the
        MD&A, which are incorporated by reference herein.
  **4.5   
        **** ***Social
        Policies***
  In
        addition to its Employment Equity
        Policy (for Canadian employees) and Equal Employment Opportunity Policy (for
        American employees), CN maintains a comprehensive Human Rights Policy for
        Canadian employees at CNand a Prohibited Harassment, Discrimination and
        Anti-Retaliation Policy for its United States employees. These policies affirm CN’s commitment to
        ensuring that there is no discrimination against any employee or applicant
        based
        on grounds of religion, race, sex, nationality, disability or any other
        prohibited grounds of discrimination. The policy extends to recruitment,
        selection and compensation practices, as well as to working conditions and
        the
        work environment.  All Company vice-presidents have been mandated with
        the responsibility of implementing these policies and ensuring that all work
        practices are in compliance.Internal complaint
        procedures have been established
  11
  whereby
        any person covered by the Equal
        Employment Opportunity Policy or theProhibited Harassment,
        Discrimination and Anti-Retaliation Policycan address their questions
        or concerns
        to their supervisor and/or human resources manager who will address their
        complaints.
  **4.6   
        **** ***Regulation***
  The
        Company’s rail operations in Canada
        are subject to (i) regulation as to rate setting, level of service and network
        rationalization by the Canadian Transportation Agency (the “Agency”) under the*Canada Transportation
        Act*(the “CTA”), and
        (ii) safety regulation by the federal Minister of Transport under the*Railway Safety
        Act*and certain other
        statutes. The Company’sU.S.rail operations are subject to (i)
        economic regulation by the STB and (ii) safety regulation by the Federal
        Railroad Administration (the “FRA”).  As such, various Company
        business transactions must gain prior regulatory approval, with attendant
        risks
        and uncertainties, and the Company is subject to government oversight with
        respect to rate, service and business practice issues.   In
        particular, the STB completed a proceeding on January 26, 2007 in which it
        reviewed the practice of rail carriers, including the Company and the majority
        of other large railroads operating within theU.S.,
        of assessing a fuel surcharge computed
        as a percentage of the base rate for service.  Following its review,
        the STB directed carriers to change that practice and adjust their fuel
        surcharge programs within 90 days on a basis more closely related to the
        amount
        of fuel consumed on individual movements. The Company announced a mileage-based
        fuel surcharge, effective April 26, 2007, to conform to the STB’s
        decision.  To make its rate dispute resolution procedures more
        affordable and accessible to shippers, the STB also completed a proceeding
        on
        September 5, 2007, in which it modified its rate guidelines for handling
        medium-size and smaller rate disputes.  The Company is also subject to
        a variety of health, safety, security, labor, environmental and other
        regulations, all of which can affect its competitive position and
        profitability.
  The
        Company’s ownership of the former
        Great Lakes Transportation vessels is subject to regulation by the U.S. Coast
        Guard and the Department of Transportation, Maritime Administration, which
        regulate the ownership and operation of vessels operating on the Great Lakes
        and
        inU.S.coastal waters. While recent
        Congressional legislation and Coast Guard rulemakings have not adversely
        affected CN’s ownership of these vessels, no assurance can be given that any
        future legislative or regulatory initiatives by theU.S.federal government will not materially
        adversely affect the Company’s operations or its competitive and financial
        position.
  With
        respect to
        safety, rail safety regulation in Canada is the responsibility of Transport
        Canada, which administers the Canadian *Railway Safety Act*, as well as
        the rail portions of other safety-related statutes.  In the U.S., rail
        safety regulation is the responsibility of the FRA, which administers the*Federal Railroad Safety Act*, as well as the rail portions of other safety
        statutes. In addition, safety matters related to security are overseen by
        the
        Transportation Security Administration (“TSA”), which is part of the U.S.
        Department of Homeland Security and the Pipeline and Hazardous Materials
        Safety
        Administration (“PHMSA”), which, like the FRA, is part of the U.S. Department of
        Transportation.
  **Canadian
        Regulation**
  The
        CTA gives railroads in Canada the freedom to negotiate prices according to
        market forces, subject to certain provisions aimed at protecting shippers.
        These
        shipper protections include, *inter alia*, interswitching, final offer
        arbitration and competitive line rates. Pursuant to interswitching provisions,
        all shippers within a 30 km radius (approximately 19 miles) of an
        interchange between two federally regulated railroads have access to both
        at a
        prescribed interswitching rate. Final offer arbitration is used in cases
        of rate
        disputes between a shipper and a railroad and involves the selection by an
        arbitrator of either the shipper’s or the carrier’s rate and service offer.
        Competitive line rate provisions can be invoked to require an originating
        railroad to issue to a shipper with sole rail access, a rate covering the
        movement to the nearest junction with another railroad according to
        predetermined formulae.
  12
  The
        CTA permits confidential contracts. Furthermore, railroads are subject to
        common
        carrier obligations for their services and, in case of breach, shippers may
        seek
        redress from the Agency.
  When
        a railroad
        operator wants to sell or abandon lines, the CTA encourages their sale to
        short-line operators and provides the framework for line abandonment. The
        railroads are required to publish a three-year plan for lines it intends
        to sell
        or discontinue. For discontinuance, the line must be advertised as being
        for
        sale to the public for continued operation and, if no interest is shown,
        must be
        offered specifically for sale to applicable federal, provincial and municipal
        governments as well as urban transit authorities. The entire process is intended
        to take at most 22 months. The Company’s operations are also subject to safety
        and environmental provisions relating to track standards, equipment standards,
        transportation of hazardous materials, environmental assessments and certain
        labor regulations, which are in many respects similar when comparing Canadian
        and U.S. regulations.
  Periodically,
        a
        comprehensive review is made by the federal government of the effectiveness
        of
        the**CTA and other statutes related to
        transportation.  For a further discussion of the last CTA review see
        the section entitled “Regulation” in the Business risks discussion located on
        pages 35 to 37 of the MD&A, which are incorporated by reference
        herein.
  **U.S.
        Regulation**
  The
        STB has jurisdiction over, amongst other things, service levels, carrier
        practices, car compensation, and limited jurisdiction over carrier rates.
        It
        also has jurisdiction over the situations and terms under which one railroad
        may
        gain access to another railroad’s traffic or facilities, the construction,
        extension, or abandonment of rail lines, railroad consolidations, and labor
        protection provisions in connection with the foregoing. The STB’s jurisdiction
        in these areas of rail transportation, including intrastate rail transportation,
        is exclusive, pre-empting other remedies under federal and state
        law.
  The
        FRA has jurisdiction over railroad safety and equipment standards, and most
        rail
        safety regulation is handled at the federal level. In contrast, however,
        to the
        exclusive role of the STB over railroad economic regulation, state and local
        regulatory agencies have jurisdiction over certain local safety and operating
        matters and these agencies are becoming more aggressive in their exercise
        of
        jurisdiction. State legislatures have also recently enacted new laws in this
        regard that are intended to regulate railroads more extensively.
  Government
        regulation of the railroad industry is a significant determinant of the
        competitiveness and profitability of railroads. Deregulation of certain rates
        and services, plus the ability to enter into confidential contracts, pursuant
        to
        the *Staggers Rail Act of 1980*(the “Staggers Act”), has substantially
        increased the flexibility of railroads to respond to market forces and has
        resulted in highly competitive rates. Various interests have sought and continue
        to seek reimposition of government controls on the railroad industry in areas
        deregulated in whole or in part by the Staggers Act. Additional regulation,
        changes in regulation and re-regulation of the industry through legislative,
        administrative, judicial or other action could materially affect the
        Company.
  Following
        an
        extended review, in June 2001, the STB issued new regulations governing mergers
        between Class I
        Railroads. CN had recommended higher public interest standards for mergers
        and
        the new regulations effectively raised the bar for the quality of customer
        service in all future major railroad mergers. The STB also agreed with CN
        that
        foreign-headquartered railroads would be treated the same as U.S.-based
        railroads under its merger rules.
  For
        a further discussion of government regulation with respect, in particular,
        to
        Canada-U.S. Customs and U.S. Homeland Security as well as recent and pending
        developments in legislative reform, see the section entitled “Regulation” in the
        Business risks discussion located at pages 35 to 37 of the MD&A, which are
        incorporated by reference herein.
  13
  **4.7   
        **** ***Environmental
        Matters***
  **Regulatory
        compliance**
  A
        risk of environmental liability is inherent in railroad and related
        transportation operations; real estate ownership, operation or control; and
        other commercial activities of the Company with respect to both current and
        past
        operations. As a result, the Company incurs significant compliance and capital
        costs, on an ongoing basis, associated with environmental regulatory compliance
        and clean-up requirements in its railroad operations and relating to its
        past
        and present ownership, operation or control of real property. Environmental
        expenditures that relate to current operations are expensed unless they relate
        to an improvement to the property. Expenditures that relate to an existing
        condition caused by past operations and which are not expected to contribute
        to
        current or future operations are expensed.
  In
        Canada, the matter of environmental permits for the Company is complex because
        of an overlap between federal and provincial jurisdictions. When projects
        require approval by federal regulatory authorities, environmental impact
        assessments are undertaken in accordance with federal requirements. Provincial
        and municipal environmental legislation may be applicable to railway activities
        if such legislation does not aim to regulate the management or operations
        of
        railways. Therefore, the Company does not apply systematically for provincial,
        municipal or local environmental permits for its railway operations in Canada
        except (i) where obtaining and complying with such permits would not
        interfere with the operations or management of its railway activities,
        (ii) where permitting issues were primarily of a provincial, municipal or
        local nature, (iii) where the Company or the governmental authority thought
        it was necessary to obtain such permits to continue minor aspects of its
        railway
        operations or maintenance, or (iv) where the absence of a permit may affect
        a third party (such as a customer or a supplier). Because of the multiple
        jurisdictions involved and the extensive provincial legislative authority
        to
        regulate environmental matters, there can be no assurance that additional
        provincial, municipal or local environmental permits will not be required
        in the
        future. The Company may incur additional expenses or changes in its operations
        if such additional permits were to be required in the future.
  See
          Note 18 – Major commitments and contingencies (paragraph D.), to the Company’s
          2007 Annual Consolidated Financial Statements (the “Financial Statements”), for
          a further discussion of Environmental Matters, as well as the section entitled
          Environmental Claims, on pages 27, 28 and 33 of the MD&A.  The
          Financial Statements and MD&A are available on SEDAR at
          www.sedar.com.
 **Environmental
        Policy**
  CN
        is committed to conducting its operations and activities in a manner that
        protects the natural environment. CN considers protecting the environment
        a
        fundamental corporate social responsibility governing its activities.
        Consequently, CN has implemented comprehensive environmental management
        programs.
  CN
        makes the following commitments and expects its employees to act
        accordingly:
  1.
              To
                  integrate environmentally
                  responsible actions throughout all significant aspects of CN’s
                  activities.
 2.
              To
                  respect the applicable laws and
                  regulations and adopt the required standards, procedures, contingency
                  measures and management systems in order to ensure CN operations
                  are
                  managed safely, ecologically and in a sustainable
                  way.
 3.
              To
                  take necessary measures in
                  order to prevent pollution, to conserve and use rationally the
                  natural
                  resources required for CN operations and implement relevant emergency
                  response plans and
                  procedures.
 4.
              To
                  take active
                  measures to reduce green house gas emissions while facilitating
                  the shift
                  of traffic to rail from less environmentally efficient modes of
                  transportation.
 5.
              To
                  communicate to management,
                  employees and contractors CN’s commitment to improving health, safety and
                  the environment and to providing training adapted to their
                  needs.
   14
  6.
              To
                  systematically evaluate CN’s
                  environmental performance through appropriate audits and report
                  progress.
  **4.8   
        **** ***Legal
        Matters***
  **Legal
        Proceedings**
  As
        of the date hereof, the only legal proceedings, to which CN was a party,
        involving claims for damages in excess of 10% of its current assets, are
        described below.  It is not currently expected, however, that such
        litigation proceedings will have a material adverse effect on the consolidated
        financial position or results of operations of CN.  The Company will
        regularly assess its position as events progress.
  *“In
        re
        African-American Slave Descendants Litigation”*
  This
        matter is a
        slavery reparations case. The plaintiffs, a proposed class representing
        descendants of slaves, brought this action seeking payment for work performed
        by
        slaves between 1607 and 1865.  The defendants include numerous major
        corporations, among them CNR, Norfolk Southern Corp., Union Pacific Corporation,
        CSX Corporation, Fleet Boston Financial Corp., Aetna Inc., Brown and Williamson
        Tobacco, Lehman Bros. Inc., Ligget Group Inc., New York Life Insurance Company,
        R.J. Reynolds Tobacco Company, Society of Lloyds, Loews Inc. and JP Morgan
        Chase
& Co.  The amount claimed would be in the trillions of dollars,
        some part of which would be claimed from IC, a subsidiary of CN. The Company
        is
        contesting these proceedings.
  CNR
        was first named as a defendant in slavery reparations litigation in a complaint
        filed on September 4, 2002 in Louisiana.
  The
        Louisiana complaint was consolidated in multi-district litigation proceedings
        in
        Chicago in the U.S. District Court for the Northern District of Illinois
        in
        Chicago, Illinois.  Plaintiffs also filed cases in California, Texas,
        Illinois, New Jersey and New York.  CNR is named as a defendant in the
        Louisiana and California actions.
  In
        2005, the United States District Court dismissed the proceedings with prejudice,
        ruling that only the legislative or executive branches of government could
        decide reparations issues.  The U.S. Court of Appeals for the Seventh
        Circuit modified that dismissal for most of the plaintiffs to a dismissal
        without prejudice, due to their lack of standing to bring a claim in federal
        court.   For those plaintiffs suing as the legal representatives
        of the estates of slaves, their claims were dismissed with prejudice due
        to the
        expiration of the statute of limitations.  The claims of plaintiffs
        who alleged violations of state consumer fraud or consumer protection statutes
        were remanded to the District Court for further proceedings.
  *Sydney
        Tar Ponds
        Lawsuit*
  A
        lawsuit involving more than 350 plaintiffs was instituted on March 25, 2004
        in
        Nova Scotia against Hawker Siddeley Canada Inc., Sydney Steel Corp., the
        Nova
        Scotia government, the Canadian government, Domtar Inc., and CN. The plaintiffs
        are seeking compensation for health problems and property losses due to soil
        and
        water contamination resulting from previous industrial activities near Sydney,
        Nova Scotia.
  The
        plaintiffs seek to hold the defendants liable for battery, nuisance,
        trespassing, negligence, harm and injuries, family losses, as well as
        aggravated, punitive and additional damages. No specific amount of damages
        is
        included in the claim.
  The
        court action is still in the process of being certified as a class action.
        To
        date, none of the allegations contained in the claim have been proven in
        court.
  15
  *Paul
        Band
        Litigation*
  On
        February 6, 2006, the Paul Indian Band filed a lawsuit in the Court of Queen’s
        Bench of Alberta against CN and the Alberta and Canadian governments. The
        various claims in the lawsuit, totaling $775 million in the aggregate, are
        for
        alleged damages and economic losses suffered as a result of an oil spill
        from
        railcars into Wabamun Lake, Alberta, bordering the Paul Band reserve lands,
        following the derailment of a CN train on August 3, 2005.  The
        plaintiffs are seeking specific damages of $500 million against CN, including
        $50 million in punitive damages, with the balance sought from the federal
        and
        Alberta governments.
  To
        date, none of the allegations contained in the claim have been proven in
        court.
  See
        pages 26 and 27 of the MD&A for a general discussion of personal injury and
        other claims.
  **Aboriginal
        Claims**
  CN
        and its predecessor companies have
        acquired lands throughoutCanadafrom the Crown, including certain lands
        contained in aboriginal reserves. A portion of the Company’s network, primarily
        inBritish
        Columbia, is currently
        operated on these lands.
  The
        Company believes that it possesses
        unrestricted and absolute title to lands acquired out of aboriginal reserves
        but, in recent years, some aboriginal bands have claimed to have a continuing
        legal interest in such lands and they allege this interest prohibits the
        Company
        from disposing of the lands when they are no longer needed for railway purposes,
        except by allowing them to revert to the Crown for the benefit of aboriginals.
        This issue is one which will ultimately be decided by the courts but, regardless
        of the outcome, there is no perceived material adverse effect as the right
        of
        the Company to continue to occupy and operate over such lands is not being
        called into question.
  As
        the issues surrounding aboriginal
        claims are complex and involve not only private interests but fiduciary and
        other obligations of the Government of Canada, CN has agreed with the Government
        not to sell or otherwise dispose of land which is not essential to its rail
        operations and which is located in, or adjacent to, an aboriginal reserve,
        unless each of CN and the Government are satisfied that there is no legitimate
        aboriginal claim with respect to such land. In addition, CN has agreed to
        convey
        to the Government, for no consideration, any land not integral to its rail
        operations which may be necessary to settle legitimate aboriginal claims
        with
        respect to such land, or lands which were formerly reserve lands and which
        have
        become non-rail assets. The Government of Canada, for its part, has agreed
        that
        it will provide the necessary compensation for settlement of legitimate
        aboriginal claims which would otherwise result in CN having to relinquish
        land
        essential to its rail network, unless such claims arise out of, or are
        substantially based upon, willful, known, negligent or fraudulent acts or
        omissions of CN which adversely affected the rights or interests of aboriginal
        people.
  **4.9   
        **** ***Risk
        Factors***
  A
        description of risks affecting CN and
        its business appears under the heading “Business risks” located on pages 32 to
        37 of the MD&A, which pages are incorporated by reference
        herein.
  **ITEM
        5** **DIVIDENDS**
  The
        Company has declared dividends in
        line with its overall financial performance and cash flow generation. The
        Board
        of Directors makes decisions on dividend payout on a quarterly basis. Consistent
        with this practice, the quarterly rate of $0.125 per share, starting with
        the
        first quarter of 2005, was increased to $0.1625 per share, starting with
        the
        first quarter of 2006; the quarterly dividend was next increased to $0.21
        per
        share, starting with the first quarter of 2007 and to $0.23 per share, starting
        with the first quarter of 2008. There can be no assurance as to the amount
        or
        timing of such dividends in the future.
  16
  **ITEM
        6** **DESCRIPTION
        OF CAPITAL STRUCTURE**
  **6.1   
        **** ***General
        Description of Capital Structure***
  The
        authorized share capital of CN consists of an unlimited number of common
        shares,
        an unlimited number of Class A Preferred Shares issuable in series and an
        unlimited number of Class B Preferred Shares issuable in series, all without
        par
        value.
  ***Common
        Shares***
  The
        common shares carry and are subject to the following rights, privileges,
        restrictions and conditions described below:
 
 *Voting:*Each common share entitles its holder to receive notice of and to attend
        all general and special meetings of shareholders of CN, other than meetings
        at
        which only the holders of a particular class or series of shares are entitled
        to
        vote, and each such common share entitles its holder to one vote.
 
 *Dividends:*The holders of common shares are, at the discretion of the Directors,
        entitled to receive, out of any amounts properly applicable to the payment
        of
        dividend, and after the payment of any dividends payable on any Preferred
        Shares, any dividends declared and payable by CN on the common
        shares.
 
 *Dissolution*:
        The holders of common shares shall be entitled to share equally in any
        distribution of the assets of CN upon the liquidation, dissolution or winding-up
        of CN or other distribution of its assets among its shareholders. Such
        participation is subject to the rights, privileges, restrictions and conditions
        attaching to any issued and outstanding Preferred Shares or shares of any
        other
        class ranking prior to the common shares.
 
 ***Preferred
        Shares***
  The
        Class A Preferred Shares and the Class B Preferred Shares are issuable in
        series
        and, subject to CN’s Articles, the Board of Directors is authorized to fix,
        before issuance, the designation, rights, privileges, restrictions and
        conditions attaching to the shares of each series. The holders of Class A
        Preferred Shares or Class B Preferred Shares shall not be entitled to vote
        at
        meetings of shareholders otherwise than as provided by law, and holders of
        Class
        A or Class B Preferred Shares shall not be entitled to vote separately as
        a
        class except as provided by law.
 
 There
        are neither
        any Class A Preferred Shares nor any Class B Preferred Shares currently issued
        and outstanding.
  **6.2   
        **** ***Share
        Ownership Constraints***
  CN’s
        Articles
        provide that where the total number of voting shares held, beneficially owned,
        or controlled, directly or indirectly, by any one person together with his
        or
        her associates exceeds 15%, no person shall exercise the voting rights attached
        to the voting shares held, beneficially owned or controlled, directly or
        indirectly, by such person or his or her associates. Furthermore, all dividends
        attributable to the percentage of voting shares held by such persons in excess
        of 15% shall be forfeited, including any cumulative dividend. CN’s Articles
        confer on the Board of Directors all powers necessary to give effect to the
        ownership restrictions, including the ability to pay dividends or to make
        other
        distributions which would otherwise be prohibited if the event giving rise
        to
        the prohibition was inadvertent or of a technical nature or it would otherwise
        be inequitable not to pay the dividends or make the distribution. CN’s Articles
        provide that the Board of Directors may adopt by-laws concerning the
        administration of the constrained share provisions described above, including
        by-laws requiring a shareholder to furnish a declaration indicating whether
        he
        or she is the beneficial owner of the shares and whether he or she is an
        associate of any other shareholder. In
  17
  addition,
        CN is also
        authorized to refuse to recognize the ownership rights that would otherwise
        be
        attached to any voting shares held, beneficially owned or controlled, directly
        or indirectly, contrary to the share ownership constraint. Finally, CN has
        the
        right, for the purpose of enforcing any constraint imposed pursuant to its
        Articles, to sell, as if it were the owner thereof, any voting shares that
        are
        owned or that the Directors determine may be owned, by any person or persons
        contrary to such share ownership constraint.
  **6.3   
        **** ***Ratings
        of Debt Securities***
  Various
        classes of
        CN’s outstanding securities have been rated by several rating organizations
        as
        described in detail below, as of the date hereof.
  **Dominion
                  Bond**
                **Rating
                  Service**
              **Moody’s**
                **Investors
                  Service**
              **Standard
                  &**
                **Poor’s**Long-Term
                  Debt
              A
                  (low)
              A3
              A-Commercial
                  Paper
              R-1
                  (low)
              Not
                  rated
              A-2
 
 The
        above-noted ratings are given the following credit characteristics by the
        various rating agencies:
  ***Dominion
        Bond Rating Service Limited (“DBRS”)***
  ·
              Long-term
                  debt
                  rated A is of satisfactory credit quality. Protection of interest
                  and
                  principal is still substantial, but the degree of strength is less
                  than AA
                  rated securities. While “A” is a respectable rating, entities in this
                  category are considered to be more susceptible to adverse economic
                  conditions and have greater cyclical tendencies than higher-rated
                  securities. This rating falls within the third highest of DBRS’s ten
                  long-term debt rating categories which range from “AAA” to “D”. Reference
                  to “low” denotes a standing in the lower end of a rating
                  category.
  ·
              Commercial
                  paper rated R-1 (low) is of satisfactory credit quality. The overall
                  strength and outlook for key liquidity, debt, and profitability
                  ratios is
                  not normally as favourable as with higher rating categories, but
                  these
                  considerations are still respectable. Any qualifying negative factors
                  that
                  exist are considered manageable, and the entity is normally of
                  sufficient
                  size to have some influence in its industry. This rating falls
                  within the
                  third highest of DBRS’s ten short-term debt rating categories which range
                  from “R-1 (high)” to “D”.
  ***Moody’s
        Investors Service (“Moody’s”)***
  ·
              Long-term
                  debt
                  obligations rated A are considered upper-medium grade and are subject
                  to
                  low credit risk. This rating falls within the third highest of
                  Moody’s
                  nine generic long-term obligation rating categories which range
                  from “Aaa”
                  to “C”. The modifier “3” indicates a ranking in the lower end of that
                  generic rating category.
  ***Standard
        & Poor’s (“S&P”)***
  ·
              Long-term
                  debt
                  obligations rated A are somewhat more susceptible to the adverse
                  effects
                  of changes in circumstances and economic conditions than obligations
                  in
                  higher rated categories. The obligor’s capacity to meet its financial
                  commitment on the obligations is, however, still strong. This rating
                  falls
                  within the third highest of S&P’s ten major long-term credit rating
                  categories which range from “AAA” to “D”. The minus (-) sign indicates a
                  standing in the lower end within a major
                  category.
  18
  ·
              Commercial
                  paper rated A-2 is somewhat more susceptible to the adverse effects
                  of
                  changes in circumstances and economic conditions than obligations
                  in
                  higher rating categories. However, the obligor’s capacity to meet its
                  financial commitment on the obligation is satisfactory. This rating
                  falls
                  within the second highest in S&P’s six short-term credit rating
                  categories which range form “A-1” to
“D”.
  The
        ratings of CN’s securities described above should not be construed as a
        recommendation to buy, sell, or hold CN securities. Ratings may be revised
        or
        withdrawn at any time by the rating agencies.
  **ITEM
        7** **TRANSFER
        AGENT AND REGISTRAR**
  In
        Canada, the transfer agent and registrar for each class of CN’s publicly issued
        securities is Computershare Trust  Company of Canada and, in the
        United States, the co-transfer agent and co-registrar is Computershare Trust
        Company, N.A., both of which maintain registers of transfers for those
        securities at the locations specified below:
 
 Computershare
        Trust Company of
        Canada
 100
        University Ave., 9thFloor
 Toronto,
        Ontario M5J
        2Y1
 Toll
        Free Tel:
        1-800-564-6253
 Toll
        Free Fax:
        1-888-453-0330
 Email:service@computershare.com
 Web:www.computershare.com
 
 **Co-transfer
          agent and
          co-registrar:**
  Computershare
          Trust Company,
          N.A.
 350
          Indiana St Suite
          800
 Golden,Colorado80401
 Telephone:
          (303)
          262-0600
  
 **ITEM
        8** **MARKET
        FOR
        SECURITIES**
  **8.1   
        **** ***Trading
        Price and Volume***
  CN’s
        common shares
        are listed on both the Toronto Stock Exchange (“TSX”) and the New York Stock
        Exchange under the stock symbols CNR and CNI, respectively. The following
        table
        sets forth the price ranges and aggregate trading volumes of the common shares
        on the TSX for each month of 2007.
  19
  **MONTH**
              **HIGH**
              **LOW**
              **VOLUME**January
              53.99
              48.89
              31,808,587February
              55.48
              51.07
              27,026,339March
              54.00
              50.25
              28,848,934April
              57.73
              50.44
              33,747,223May
              60.00
              55.01
              24,479,653June
              59.26
              52.41
              30,717,107July
              61.00
              54.36
              39,090,514August
              57.20
              49.34
              35,811,843September
              58.76
              54.67
              27,906,796October
              57.13
              49.77
              48,943,101November
              52.81
              45.17
              32,461,057December
              52.61
              46.00
              31,167,430
  **8.2   
        **** ***Prior
        Sales***
  In
        September 2007, CN used up the remaining borrowing capacity under its shelf
        prospectus and registration statement to issue a U.S.$550 million debt offering
        composed of U.S.$250 million Notes and U.S.$300 million Debentures, which
        is
        detailed below.
  The
          following table summarizes the details of that public offering:
 **Security**
              **Notes**
              **Debentures**Size
                  of
                  Offering:
              U.S.$250,000,000
              U.S.$300,000,000Maturity
                  Date:
              November
                  15,
                  2017
              November
                  15,
                  2037Coupon
                  Rates:
              5.85%
              6.375%Net
                  Proceeds
                  of Issue:
              U.S.$247,582,500
              U.S.$296,604,000Public
                  Offering Price:
              99.683%
                  per
                  note
              99.743%
                  per
                  debentureApplication
                  of
                  Proceeds:
              Reduce
                  accounts receivable securitization program and repay a portion
                  of
                  outstanding commercial paper.
  In
          December 2007, CN filed a shelf prospectus with Canadian securities regulators
          and a registration statement with the United States Securities and Exchange
          Commission (SEC), expiring in January 2010, providing for the issuance
          by CN, of
          up to U.S.$2.5 billion of debt securities in Canadian and U.S. markets
          in one or
          more offerings. CN expects to use the net proceeds from the sale of debt
          securities under the shelf prospectus and registration statement for general
          corporate purposes, including the redemption and refinancing of outstanding
          indebtedness, share repurchases, acquisitions and other business
          opportunities.
  In
          the ordinary course of business, the Company also issued commercial paper
          with
          maturities of less than 12 months of which a total of CDN$122 million (CDN$114
          million and U.S.$8 million) was outstanding as at December 31,
          2007.
  **ITEM
        9** **DIRECTORS
        AND EXECUTIVE OFFICERS**
  **9.1   
        **** ***Directors***
  The
        Directors are elected by the Shareholders at the Annual General Meeting,
        and
        hold office until their term expires at the following Annual General Meeting,
        subject to resignation, retirement, or re-election.  The following
        table lists the Directors of the Company as of the date hereof:
  20
  
 **Name
                  and Province or State ofResidence**
              
              **Date
                  of First Electionto Board**
              
              **Principal
                  Occupation within the Preceding FiveYears**Michael
                  R.
                  Armellino, CFA
                New
                  Jersey,
                  U.S.A.
              
              May
                  7,
                  1996
              
              Retired
                  Partner, The Goldman Sachs Group, LP
                (investment
                  bank)A.
                  Charles
                  Baillie, O.C., LL.D.
                Ontario,
                  Canada
              
              April
                  15,
                  2003
              
              Retired
                  Chairman and Chief Executive Officer,
                The
                  Toronto-Dominion Bank (bank)Hugh
                  J.
                  Bolton, FCA
                Alberta,
                  Canada
              
              April
                  15,
                  2003
              
              Chairman,
                  Epcor Utilities Inc. (energy and energy-related services
                  provider)J.V.
                  Raymond
                  Cyr, O.C., LL.D.
                Québec,
                  Canada
              
              March
                  29,
                  1995
              
              Chairman,
                  PolyValor Inc.
                (University
                  research valorization fund)Ambassador
                  Gordon D. Giffin
                Georgia,
                  U.S.A.
              
              May
                  1,
                  2001
              
              Senior
                  Partner, McKenna Long & Aldridge (law firm)James
                  K. Gray,
                  O.C., A.O.E., LL.D.,
                Alberta,
                  Canada
              
              July
                  4,
                  1996
              
              Corporate
                  Director and Former Chairman and Chief Executive Officer, Canadian
                  Hunter
                  Exploration Ltd. (natural gas company)E.
                  Hunter
                  Harrison
                Florida,
                  U.S.A.
              
              December
                  7,
                  1999
              
              President
                  and
                  Chief Executive Officer, CN; Executive Vice-President andChief
                  Operating Officer, CNEdith
                  E.
                  Holiday
                District
                  of
                  Columbia, U.S.A.
              
              June
                  1,
                  2001
              
              Corporate
                  Director and Trustee,  and former General Counsel, United States
                  Treasury Department and Secretary of Cabinet,
                The
                  White
                  HouseV.
                  Maureen
                  Kempston Darkes, O.C.,D. Comm. LL.D.
                Florida,
                  U.S.A.
              
              March
                  29,
                  1995
              
              Group
                  Vice-President and President Latin America, Africa and Middle East,
                  General Motors Corporation(automotive
                  manufacturer)Robert
                  H.
                  Lee,  C.M., O.B.C., LL.D.
                British
                  Columbia, Canada
              
              April
                  21,
                  2006
              
              Chairman,
                  Prospero Group of Companies (real estate investment, financing, sales
                  and property management group of companies)Denis
                  Losier,
                  LL.D.
                New
                  Brunswick,
                  Canada
              
              October
                  25,
                  1994
              
              President
                  and
                  Chief Executive Officer,Assumption
                  Life (life insurance company)The
                  Hon.
                  Edward C. Lumley, P.C., LL.D.
                Ontario,
                  Canada
              
              July
                  4,
                  1996
              
              Vice-Chair,
                  BMO Capital Markets (investment bank)David
                  G.A.
                  McLean, O.B.C., LL.D.,
                British
                  Columbia, Canada
              
              August
                  31,
                  1994
              
              Chair
                  and
                  Chief Executive Officer, The McLean Group (real estate investment,
                  film
                  and television facilities, communications and helicopter
                  charters)Robert
                  Pace
                Nova
                  Scotia,
                  Canada
              
              October
                  25,
                  1994
              
              President
                  and
                  Chief Executive Officer,
                The
                  Pace Group
                  (private holding company)
  21
  **Committee
        Membership**
  The
        membership of each Board committee is composed of the following
        Directors:
  *Audit
        Committee*
  Michael
        R.
        Armellino, A. Charles Baillie, Hugh J. Bolton, Robert H. Lee, Denis Losier
        (chair), Robert Pace.
  *Corporate
        Governance and Nominating Committee*
  Hugh
        J. Bolton, J.V.
        Raymond Cyr, James K. Gray, Edith E. Holiday, Denis Losier, David G. A. McLean
        (chair), Robert Pace.
  *Environment,
        Safety and Security Committee*
  J.V.
        Raymond Cyr
        (chair), Ambassador Gordon D. Giffin, James K. Gray, Edith E. Holiday, V.
        Maureen Kempston Darkes, The Hon. Edward C. Lumley, David G. A.
        McLean.
  *Finance
        Committee*
  Michael
        R.
        Armellino, A. Charles Baillie (chair), Ambassador Gordon D. Giffin, V. Maureen
        Kempston Darkes, Robert H. Lee, The Hon. Edward C. Lumley.
  *Human
        Resources
        and Compensation Committee*
  A.
        Charles Baillie, Hugh J. Bolton, Ambassador Gordon D. Giffin, James K. Gray,
        Edith E. Holiday, The Hon. Edward C. Lumley, David G. A. McLean, Robert
        Pace (chair).
  *Investment
        Committee of CN’s Pension Trust Funds*
  Michael
        R.
        Armellino,  J.V. Raymond Cyr, James K. Gray, Edith E. Holiday, V.
        Maureen Kempston Darkes, Robert H. Lee, Denis Losier, The Hon. Edward C.
        Lumley
        (chair), David G. A. McLean, Robert Pace.
  *Strategic
        Planning Committee*
  Michael
        R. Armellino
        (chair), A. Charles Baillie, Hugh J. Bolton, J.V. Raymond Cyr, Ambassador
        Gordon
        D. Giffin, James K. Gray, E. Hunter Harrison, Edith E. Holiday, V. Maureen
        Kempston Darkes, Robert H. Lee, Denis Losier, The Hon. Edward C. Lumley,
        David
        G. A. McLean, Robert Pace.
  **9.2   
        **** ***Audit
        Committee Disclosure***
  *Composition
        of
        the Audit Committee*
  The
        Audit Committee is composed of six “independent” directors, namely, Denis
        Losier, chair of the Committee, Michael R. Armellino, A. Charles Baillie,
        Hugh
        J. Bolton, Robert H. Lee and Robert Pace.
  22
  *Education
        and
        Relevant Experience of the Audit Committee Members*
  The
        board of Directors believes that the composition of the Audit Committee reflects
        a high level of financial literacy and experience. Each member of the committee
        has been determined by the board to be financially literate, as such term
        is
        defined under Canadian and United States securities laws and regulations
        and the
        New York Stock Exchange Corporate Governance Standards. The board has made
        such
        determination based on the education and experience of each committee member.
        The following is a description of the education and experience of each member
        of
        the Audit Committee that is relevant to the performance of his responsibilities
        as a member of the committee:
  Mr.
        Losier is President and Chief Executive Officer, Assumption Life. Mr. Losier
        held various cabinet level positions with the government of the Province
        of New
        Brunswick, from 1989 to 1994. He is a director of Enbridge Gas New Brunswick
        Limited Partnership, Plazacorp Retail Properties Ltd. and NAV CANADA. Mr.
        Losier
        holds a Masters of Economics from the University of Western
        Ontario.
  Mr.
        Armellino is a Retired Partner, The Goldman Sachs Group, LP. From 1991 to
        1994,
        Mr. Armellino was chair and Chief Executive Officer of Goldman Sachs Asset
        Management. Prior to 1991, he had held various positions at Goldman, Sachs
&
Co., including those of senior transportation analyst and Partner in Charge
        of
        Research. He is a Chartered Financial Analyst. Mr. Armellino holds an MBA
        in
        finance from the Stern School of Business (New York University), New York
        and
        has more than 25 years of experience as a securities analyst.
  Mr.
        Baillie retired as chair of The Toronto-Dominion Bank in April 2003, and
        as
        Chief Executive Officer of the bank in December 2002. Mr. Baillie is a director
        and member of the audit committee of Telus Corporation. He is also a director
        and chair of the audit committee of George Weston Limited. Mr. Baillie holds
        an
        MBA from Harvard Business School.
  Mr.
        Bolton is the chair of the board of directors of EPCOR Utilities Inc. and
        the
        non-executive chairman of Matrikon Inc. Mr. Bolton is a director and chair
        of
        the audit committee of Teck Cominco Limited and of The Toronto-Dominion Bank.
        He
        is also a director and member of the audit committee of WestJet Airlines
        Ltd.
        From 1992 to 1998, Mr. Bolton was chair and Chief Executive Partner of Coopers
        & Lybrand Canada (now PricewaterhouseCoopers). Mr. Bolton was a partner of
        Coopers & Lybrand for 34 years and a public accountant and auditor with that
        firm for 40 years. He is a fellow of the Alberta Institute of Chartered
        Accountants. He holds an undergraduate degree in economics from the University
        of Alberta. Mr. Bolton is a member of four audit committees of public companies
        including CN. The Board has determined that such service in no way impaired
        Mr.
        Bolton’s ability to effectively serve on the Audit Committee of the
        Company.
  Mr.
          Lee is Chairman of the Prospero Group of Companies, which includes real
          estate
          investment, financing, sales and property management businesses.  He
          is a director and member of the audit committee of Wall Financial Corporation
          and he is chairman of UBC Properties Trust. Mr. Lee holds a Bachelor of
          Commerce
          degree from the University of British Columbia.
  Mr.
        Pace is the President and Chief Executive Officer, The Pace Group. Mr. Pace
        is
        also a member of the board of directors of Maritime Broadcasting Systems
        Limited, High Liner Foods Incorporated, Hydro One and is board chair of Overland
        Realty Limited.  Mr. Pace holds an MBA and an LL.B Law Degree from
        Dalhousie University in Halifax, Nova Scotia, and has more than 20 years
        of
        business experience.
  23
  KPMG
        LLP has served
        as the Company’s auditors since 1992. For the years ended December 31, 2007 and
        2006, the fees for audit, audit related, tax and other services provided
        to the
        Company by KPMG LLP were the following:
  **Fees**
              **2007(1)**
              
              **2006(1)**Audit
              $3,170,000
              
              $3,009,000Audit
                  Related
              1,371,000
              
              930,000Tax
              603,000
              
              479,000Other
              —
              
              —**Total
                  Fees**
              $5,144,000
              
              $4,418,000(1)Fees
                  rounded
                  to the nearest thousand.
  Pursuant
        to the
        terms of its charter, the Audit Committee approves all audit and audit-related
        services, audit engagement fees and terms and all non-audit engagements with
        the
        independent auditor. The Audit Committee pre-approved all the services performed
        by CN’s independent auditors for audit-related and non-audit related services
        for the years ended December 31, 2007 and 2006 that were required to be
        pre-approved.
  A
        discussion of the nature of the services under each category is described
        below.
  **Audit
        fees**
  Consists
        of fees
        incurred for professional services rendered by the auditors in relation to
        the
        audit of the Company’s consolidated annual financial statements and those of its
        subsidiaries and the audit relating to the Company’s internal control over
        financial reporting.
  **Audit-related
        fees**
  Audit-related
        fees
        were incurred for professional services rendered by the auditors in relation
        to
        the audit of the financial statements for the Company’s pension plans, and for
        attestation services in connection with reports required by statute or
        regulation and due diligence and other services, including comfort letters,
        in
        connection with the issuance of securities.
  **Tax
        fees**
  Consists
        of fees
        incurred for consultations on cross-border tax implications for employees
        and
        tax compliance.
  **Other
        fees**
  Nil
  The
        mandate of the Audit Committee, attached as Schedule A to this AIF, provides
        that the Audit Committee determines which non-audit services the external
        auditors are prohibited from providing, approves audit services and pre-approves
        permitted non-audit services to be provided by the external auditors. CN’s Audit
        Committee and the Board of Directors have adopted resolutions prohibiting
        the
        Company from engaging KPMG LLP to provide certain non-audit services to the
        Company and its subsidiaries, including bookkeeping or other services related
        to
        the accounting records or financial statements, financial information systems
        design and implementation, appraisal or valuation services, fairness opinions,
        or contribution in-kind reports, actuarial services, internal audit outsourcing
        services, management functions or human resources functions, broker or dealer,
        investment adviser, or investment banking services and legal services and
        expert
        services unrelated to the audit. Pursuant to such resolutions, the
  24
  Company
        may engage
        KPMG LLP to provide non-audit services, including tax services, other than
        the
        prohibited services listed above, but only if the services have specifically
        been pre-approved by the Audit Committee.
  **9.3   
        **** ***Executive
        Officers***
  As
        of the date hereof, the following are the senior executive officers of the
        Company:
  **Name
                  and Province or State of Residence**
              
              **Position**
              
              **Principal
                  Occupation within**
                **the
                  Preceding Five Years**E.
                  Hunter
                  Harrison
                Florida,
                  U.S.A.
              
              President
                  and
                  Chief Executive Officer
              
              President
                  and
                  Chief Executive Officer; Executive Vice-President and Chief Operating
                  OfficerRussell
                  Hiscock
                Québec,
                  Canada
              
              President
                  and
                  Chief Executive Officer,
                CN
                  Investment
                  Division
              
              General
                  Manager; Manager Common Stocks (Canada),CN
                  Investment
                  DivisionKeith
                  E.
                  Creel
                Illinois,
                  U.S.A.
              
              Executive
                  Vice-President,
                Operations
              
              Senior
                  Vice-President, Eastern Region; Senior Vice-President of the Western
                  Canada Region; Vice-President of the Prairie Division; General
                  Manager –
                  Michigan Zone, Midwest DivisionLes
                  P.
                  Dakens
                Ontario,
                  Canada
              
              Senior
                  Vice-President, People
              
              Senior
                  Vice-President, People; Senior Vice-President, Corporate
                  ServicesSameh
                  Fahmy
                Alberta,
                  Canada
              
              Senior
                  Vice-President, Engineering, Mechanical and Supply
                  Management
              
              Senior
                  Vice-President, Engineering, Mechanical and Supply Management;
                  Vice-President, Engineering, Mechanical and Supply
                  ManagementSean
                  Finn
                Québec,
                  Canada
              
              Senior
                  Vice-President,
                Public
                  Affairs,
                Chief
                  Legal
                  Officer and Corporate Secretary
              
              Senior
                  Vice-President Public Affairs, Chief Legal Officer and Corporate
                  Secretary; Chief Legal Officer and Corporate SecretaryJames
                  M.
                  Foote
                Illinois,
                  U.S.A.
              
              Executive
                  Vice-President, Sales and Marketing
              
              Executive
                  Vice-President, Sales and MarketingFred
                  R.
                  Grigsby
                Québec,
                  Canada
              
              Senior
                  Vice-President and Chief Information Officer
              
              Senior
                  Vice-President and Chief Information Officer; Vice-President and
                  Chief
                  Information OfficerStan
                  Jablonski
                Québec,
                  Canada
              
              Senior
                  Vice-President,
                Sales
              
              Senior
                  Vice-President, Sales; Vice-President, Sales; Vice-President, Forest
                  ProductsClaude
                  Mongeau
                Québec,
                  Canada
              
              Executive
                  Vice-President and Chief Financial Officer
              
              Executive
                  Vice-President and Chief Financial
                  Officer
  25
  **Name
                    and Province or State of Residence**
                
                **Position**
                
                **Principal
                    Occupation within**
                  **the
                    Preceding Five Years**
 Jean-Jacques
                  Ruest
                Québec,
                  Canada
              
              Senior
                  Vice-President, Marketing
              
              Senior
                  Vice-President, Marketing;Vice-President,
                  Marketing; Vice-President, Industrial Products; Vice-President,
                  Petroleum
                  and ChemicalsGordon
                  T.
                  Trafton
                Illinois,
                  U.S.A.
              
              Senior
                  Vice-President, Southern Region
              
              Senior
                  Vice-President, Southern Region; Vice-President, Midwest and Gulf
                  Divisions;Vice-President
                  of the
                  Midwest Division; Vice-President of the Wisconsin Central
                  DivisionJim
                  Vena,
                Alberta,
                  Canada
              
              Senior
                  Vice-President, Western Region
              
              Senior
                  Vice-President, Eastern Region; Vice- President, Operations;Vice-President,
                  Champlain District; General Manager,
                  Prairie
  The
        senior executive officers are appointed by the Board of Directors and hold
        office until their successors are appointed subject to resignation, retirement
        or removal by the Board of Directors.
  As
        at December 31, 2007, the Directors and the members of the executive committee,
        including the senior executive officers mentioned above, of the Company,
        as a
        group, beneficially owned, directly or indirectly, or exercised control or
        direction over, or held options to exercise an aggregate
        of****approximately 10.1 million common shares of the
        Company, representing approximately 2.1% of the outstanding common
        shares.
  **9.4   
        **** ***Cease
        Trade Orders, Bankruptcies, Penalties or Sanctions***
  To
        the knowledge of the Company and based upon information provided to it by
        the
        Company’s Directors and executive officers, none of such Directors or executive
        officers is or has been, in the last 10 years, a director or executive officer
        of any company that, while such person was acting in that capacity: (a) was
        the subject of a cease trade or similar order or an order that denied the
        relevant company access to any exemption under securities legislation, for
        a
        period of more than 30 consecutive days; (b) was subject to an event that
        resulted, after that person ceased to be a director or executive officer,
        in the
        company being the subject of a cease trade or similar order or an order that
        denied the relevant company access to any exemption under securities
        legislation, for a period of more than 30 consecutive days; or (c) within a
        year of that person ceasing to act in that capacity, became bankrupt, made
        a
        proposal under any legislation relating to bankruptcy or insolvency or was
        subject to or instituted any proceedings, arrangement or compromise with
        creditors or had a receiver, receiver manager or trustee appointed to hold
        its
        assets, except for the following:
  (i)
              Mr.
                  Baillie, a
                  Director of the Company, was a director of Dana Corporation, which
                  filed
                  voluntary petitions for reorganization under Chapter 11 of the
*U.S.
                  Bankruptcy Code* on March 3, 2006.  Dana’s European, South
                  American, Asian-Pacific, Canadian and Mexican subsidiaries are
                  not
                  included in the Chapter 11 filing. Dana Corporation successfully
                  emerged
                  from Chapter 11 reorganization in February 2008. Mr. Baillie is
                  no longer
                  a director of Dana Corporation;
  (ii)
              Mr. Cyr,
                  a Director of the Company, was a director of Air Canada when it
                  voluntarily filed for protection under the *Companies’ Creditors
                  Arrangement Act* (Canada) (“CCAA”) in April 2003 and was a director of
                  Cable Satisfaction International Inc. when it voluntarily filed
                  for
                  protection under the CCAA in July 2003.  Air Canada
                  successfully emerged from the CCAA proceedings and was restructured
                  pursuant to a plan of
  26
  arrangement
          in
          September 2004 and Cable Satisfaction International Inc.’s second amended
          and restated plan of arrangement and reorganization was approved by its
          creditors and sanctioned by the Québec Superior Court in March
          2004.  Mr. Cyr is no longer a director of Air Canada and Cable
          Satisfaction International Inc.;
 (iii)
              Mr. Lumley,
                  a Director of the Company, was a director of Air Canada when it
                  voluntarily filed for protection under the CCAA in April
                  2003.  Air Canada successfully emerged from the CCAA
                  proceedings and was restructured pursuant to a plan of arrangement
                  in
                  September 2004. Mr. Lumley is no longer a director of Air
                  Canada; and
  (iv)
              Mr.
                  Claude
                  Mongeau, the Executive Vice-President and Chief Financial Officer
                  of the
                  Company, was acting as a director of 360networks Corporation prior
                  to the
                  latter voluntarily filing for protection under the CCAA in June
                  2001.
                  360networks Corporation underwent restructuring in 2002 and sold
                  its
                  Canadian assets to Bell Canada in November 2004. Mr. Mongeau is
                  no longer
                  a director of 360networks
                  Corporation.
  **ITEM
        10** **INTEREST
        OF
        EXPERTS**
  KPMG
          LLP is the
          external auditor who prepared the Report of Independent Registered Public
          Accounting Firm to the Board of Directors and Shareholders of CN relating
          to the
          effectiveness of internal controls over financial reporting and relating
          to the
          audit of the 2007 annual consolidated financial statements and notes thereto
          prepared under U.S. generally accepted accounting principles.  We are
          advised that, as at the date hereof, the members of KPMG are independent
          in
          accordance with the Rules of the Code of Ethics of the Ordre des comptables
          agréés du Québec.
  **ITEM
        11** **ADDITIONAL
        INFORMATION**
  Additional
          information regarding CN can be found on SEDAR at www.sedar.com. Additional
          financial information is provided in CN’s Annual Consolidated Financial
          Statements and Management’s Discussion & Analysis for its most recently
          completed financial year.  Additional information, including
          Directors’ and officers’ remuneration and securities authorized for issuance
          under equity compensation plans, is contained in the Company’s Information
          Circular prepared in respect of its annual meeting of shareholders to be
          held on
          April 22, 2008 (the “Circular”).  The Circular will become available
          on SEDAR at www.sedar.com on or about
          March 20, 2008.
  27
  **SCHEDULE
        A**
  CHARTER
        OF THE AUDIT
        COMMITTEE
  1.
              Membership
                  and
                  Quorum
  ·
              a
                  minimum of
                  five Directors appointed by the Board;  ·
              only
                  Independent (as determined by the Board) Directors may be appointed.
                  A
                  member of the Audit Committee may not, other than in his or her
                  capacity
                  as a Director or member of a board committee and subject to the
                  exceptions
                  provided in Canadian and U.S. laws and regulations, accept directly
                  or
                  indirectly any fee from CN or any subsidiary of CN nor be an affiliated
                  person of CN or any subsidiary of CN;  ·
              each
                  member
                  must be “financially literate” (as determined by the
                  Board);  ·
              at
                  least one
                  member must be an “audit committee financial expert” (as determined by the
                  Board);
 ·
              quorum
                  of
                  majority of members.
  2.
              Frequency
                  and
                  Timing of Meetings
  ·
                normally
                      one
                      day prior to CN board meetings;  ·
                at
                    least five
                    times a year and as necessary;  ·
                committee
                    members meet before or after every meeting without the presence
                    of
                    management.
  3.
              Mandate
  The
        responsibilities of the Audit Committee include the following:
  A.
              Overseeing
                  financial reporting
  ·
              monitoring
                  the
                  quality and integrity of CN’s accounting and financial reporting process
                  through discussions with management, the external auditors and
                  the
                  internal auditors;
  ·
              reviewing
                  with
                  management and the external auditors, the annual audited financial
                  statements to be included in the annual report of CN, including
                  CN’s
                  MD&A disclosure and earnings press releases prior to their release,
                  filing and distribution;
  ·
              reviewing
                  with
                  management and the external auditors, quarterly consolidated financial
                  statements of CN and accompanying information, including CN’s MD&A
                  disclosure and earnings press releases prior to their release,
                  filing and
                  distribution, and reviewing the level and type of financial information
                  provided, from time to time, to financial
                  markets;
  ·
              reviewing
                  the
                  financial information contained in the annual information form
                  and other
                  reports or documents, financial or otherwise, requiring Board
                  approval;
  ·
              reviewing
                  the
                  procedures in place for the review of CN’s disclosure of financial
                  information extracted or derived from CN’s financial statements and
                  periodically assessing the adequacy of those
                  procedures;
  ·
              reviewing
                  with
                  the external auditors and management, the quality, appropriateness
                  and
                  disclosure of CN’s accounting principles and policies, underlying
                  assumptions and reporting practices, and any proposed changes
                  thereto;
  28
  ·
              reviewing
                  any
                  analysis or other written communications prepared by management,
                  the
                  internal auditors or external auditors setting forth significant
                  financial
                  reporting issues and judgments made in connection with the preparation
                  of
                  the financial statements, including analyses of the effect of alternative
                  generally accepted accounting principles
                  methods;
  ·
              reviewing
                  the
                  external auditors’ report on the consolidated financial statements of CN
                  and on the financial statements of CN’s Pension Trust
                  Funds;
  ·
              reviewing
                  the
                  external auditors’ quarterly review engagement
                  report;
  ·
              reviewing
                  the
                  compliance of management certification of financial reports with
                  applicable legislation;
  ·
              reviewing
                  any
                  litigation, claim or other contingency and any regulatory or accounting
                  initiatives that could have a material effect upon the financial
                  position
                  or operating results of CN and the appropriateness of the disclosure
                  thereof in the documents reviewed by the
                  Committee;
  ·
              reviewing
                  the
                  results of the external audit, any significant problems encountered
                  in
                  performing the audit, and management’s response and/or action plan related
                  to any Management Letter issued by the external auditors and any
                  significant recommendations contained
                  therein.
  B.
              Monitoring
                  risk management and internal
                  controls
  ·
              receiving
                  periodically management’s report assessing the adequacy and effectiveness
                  of CN’s disclosure controls and procedures and systems of internal
                  control;
  ·
              reviewing
                  CN’s
                  risk assessment and risk management policies, including CN’s insurance
                  coverage (annually and as otherwise may be
                  appropriate);
  ·
              assisting
                  the
                  Board with the oversight of CN’s compliance with applicable legal and
                  regulatory requirements;
  ·
              reviewing
                  CN’s
                  delegation of financial authority;
  ·
              making
                  recommendations with respect to the declaration of
                  dividends;
  ·
              while
                  ensuring
                  confidentiality and anonymity, establishing procedures for the
                  receipt,
                  retention and treatment of complaints received by CN regarding
                  accounting,
                  internal accounting controls or auditing matters or employee concerns
                  regarding accounting or auditing
                  matters;
  ·
              requesting
                  the
                  performance of any specific audit as
                  required.
  C.
              Monitoring
                  internal auditors
  ·
              ensuring
                  that
                  the chief internal auditor reports directly to the Audit
                  Committee;
  ·
              regularly
                  monitoring the internal audit function’s performance, its
                  responsibilities, staffing, budget and the compensation of its
                  members;
  ·
              reviewing
                  annually the internal audit plan;
  ·
              ensuring
                  that
                  the internal auditors are accountable to the Audit Committee and
                  to the
                  Board.
  D.
              Monitoring
                  external auditors
  ·
              recommending
                  to the Board and CN’s shareholders the retention and, if appropriate, the
                  removal of external auditors, evaluating and remunerating them,
                  and
                  monitoring their qualifications, performance and
                  independence;
  29
  ·
              approving
                  and
                  overseeing the disclosure of all audit, review and attest services
                  provided by the external auditors, determining which non-audit
                  services
                  the external auditors are prohibited from providing, and pre-approving
                  and
                  overseeing the disclosure of permitted non-audit services by the
                  external
                  auditors to CN or any of its subsidiaries, in accordance with applicable
                  laws and regulations;
  ·
              reviewing
                  recommendations to shareholders on the continued engagement or
                  replacement
                  of external auditors, for CN and CN’s Pension Trust
                  Funds;
  ·
              ensuring
                  that
                  the external auditors are accountable to the Audit Committee and
                  to the
                  Board;
  ·
              discussing
                  with the external auditors the quality and not just the acceptability
                  of
                  CN’s accounting principles, including (i) all critical accounting
                  policies
                  and practices used, (ii) any alternative treatments of financial
                  information that have been discussed with management, the ramification
                  of
                  their use and the treatment preferred by the external auditors,
                  as well as
                  (iii) any other material written communications between CN and
                  the
                  external auditors (including a disagreement, if any, with management
                  and
                  any audit problems or difficulties and management’s
                  response);
  ·
              reviewing
                  at
                  least annually, a report by the external auditors describing their
                  internal quality-control procedures; any material issues raised
                  by their
                  most recent internal quality-control review of their firm, or peer
                  review,
                  or by any inquiry or investigation by governmental or professional
                  authorities, within the preceding five years, respecting one or
                  more
                  audits carried out by them, to the extent available, and any steps
                  taken
                  to deal with any such issues;
  ·
              reviewing
                  at
                  least annually, the formal written statement from the external
                  auditors
                  stating all relationships the external auditors have with CN and
                  confirming their independence, and holding discussions with the
                  external
                  auditors as to any relationship or services that may impact their
                  objectivity or independence;
  ·
              reviewing
                  hiring policies for employees or former employees of CN’s firm of external
                  auditors;
  ·
              ensuring
                  the
                  rotation of lead, concurring and other audit partners, to the extent
                  required by Canadian Corporate Governance Standards and U.S. Corporate
                  Governance Standards.
  E.
              Evaluating
                  the
                  performance of the Audit Committee
  ·
              ensuring
                  that
                  processes are in place to annually evaluate the performance of
                  the Audit
                  Committee.
  In
        addition to the above responsibilities, the Audit Committee may discharge
        the
        responsibilities of the Finance Committee if no meeting of the Finance Committee
        is scheduled to be held in the immediate future.
  Because
        of the Audit
        Committee’s demanding role and responsibilities, the Board chair, together with
        the Corporate Governance and Nominating Committee chair, reviews any invitation
        to Audit Committee members to join the audit committee of another entity.
        Where
        a member of the Audit Committee simultaneously serves on the audit committee
        of
        more than three public companies, including CN, the Board determines whether
        such simultaneous service impairs the ability of such member to effectively
        serve on the Audit Committee and either requires a correction to the situation
        or discloses in CN’s Information Circular that there is no such
        impairment.
  As
        appropriate, the Audit Committee may retain independent advisors to help
        it
        carry out its responsibilities, including fixing such advisors’ fees and
        retention terms, subject to advising the Board chair; the Committee makes
        arrangements for the appropriate funding for payment of the external auditors
        and any advisors retained by it. The Board also provides appropriate funding
        for
        all administrative expenses necessary or appropriate to allow the Audit
        Committee to carry out its duties.
  30
  The
        Audit Committee has direct communication channels with the internal and external
        auditors to discuss and review specific issues, as appropriate. In addition,
        each must meet separately with the Audit Committee, without management, twice
        a
        year, and more frequently as required; the Audit Committee must also meet
        separately with management twice a year, and more frequently as
        required.
  The
        Audit Committee shall report to the Board regularly on its deliberations
        and
        annually on the adequacy of its mandate.
  Nothing
        contained in
        the above mandate is intended to assign to the Audit Committee the Board’s
        responsibility to ensure CN’s compliance with applicable laws or regulations or
        to expand applicable standards of liability under statutory or regulatory
        requirements for the Directors or the members of the Audit Committee. Even
        though the Audit Committee has a specific mandate and its members may have
        financial experience and expertise, it is not the duty of the Audit Committee
        to
        plan or conduct audits, or to determine that the Company’s financial statements
        are complete and accurate and are in accordance with generally accepted
        accounting principles. Such matters are the responsibility of management,
        the
        internal auditors and the external auditors.
  Members
        of the Audit
        Committee are entitled to rely, absent knowledge to the contrary, on (i)
        the
        integrity of the persons and organizations from whom they receive information,
        (ii) the accuracy and completeness of the information provided, and (iii)
        representations made by management as to the non-audit services provided
        to the
        Company by the external auditors.
  The
        Audit Committee’s oversight responsibilities are not established to provide an
        independent basis to determine that (i) management has maintained appropriate
        accounting and financial reporting principles or appropriate internal controls
        and procedures, or (ii) the Company’s financial statements have been prepared
        and, if applicable, audited in accordance with generally accepted accounting
        principles or generally accepted auditing standards.
  31






**SIGNATURES**




Pursuant
      to the requirements of the
      Exchange Act, the Registrant certifies that it meets all of the requirements
      for
      filing on Form 40-F and has duly caused this annual report to be signed on
      its behalf by the undersigned, thereto duly authorized.


**CANADIAN
                  NATIONAL RAILWAY COMPANY**By:
              /s/
                  Sean FinnName:
              Sean
                  FinnTitle:
              Senior
                  Vice-President Public
                  Affairs, Chief Legal Officer
                and
                  Corporate
                  SecretaryDate:
              February
                  12, 2008









**EXHIBIT
      INDEX**




Exhibit
                No.
            
            Description99.1
            
            Management's
                Discussion and Analysis for the year ended December 31,
                2007*99.2
            
            Audited
                Annual Consolidated Financial Statements for the year ended December
                31,
                2007*99.3
            
            Consent
                of KPMG LLP.99.4
            
            CEO
                Section 302 Certification.99.5
            
            CFO
                Section 302 Certification.99.6
            
            CEO
                and CFO Section 906 Certification.





*Incorporated
      by reference to the Registrant’s Form 6-K dated February 12, 2008.