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,
      2009
            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:





4.25%
notes due August 1, 2009


6.38%
notes due October 15, 2011


4.40%
notes due March 15, 2013


4.95%
notes due January 15, 2014


5.80%
notes due June 1, 2016


5.85%
notes due November 15, 2017


5.55%
notes due May 15, 2018


6.80%
notes due July 15, 2018


5.55%
notes due March 1, 2019


7.63%
debentures due May 15, 2023


6.90%
notes due July 15, 2028


7.38%
debentures due October 15, 2031


6.25%
notes due August 1, 2034


6.20%
notes due June 1, 2036


6.71%
Puttable Reset Securities (PURS)SM
due July 15, 2036









6.375%
debentures due November 15, 2037


5.00%
99-year income debentures


7.70%
100-year debentures










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, 2009, 470,984,611 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, 2009 (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.




Management’s
Annual Report on Internal Control over Financial Reporting




The
report of management on our internal control over financial reporting is located
under the heading “Management’s Report on Internal Control Over Financial
Reporting” in our audited consolidated financial statements, which are filed as
Exhibit 99.2 to this annual report on Form 40-F and is incorporated by
reference herein.




Attestation
Report of the Registered Public Accounting Firm




The
attestation report on our internal control over financial reporting is located
under the heading “Reports of Independent Registered Public Accounting Firm” in
our audited consolidated financial statements, which are filed as
Exhibit 99.2 to this annual report on Form 40-F and is incorporated by
reference herein.




Changes
in Internal Control Over Financial Reporting




During the year ended December 31,
2009, there was no change in 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 2009 and 2008, fees for
audit, audit-related, tax and other services provided to the Company by KPMG LLP
were the following:











Year
      ended December 31,
            
            2009(1)
              (CAD$)
            
            
            2008(1)
              (CAD$)Audit
      fees
            
            $
            2,812,000
            
            
            $
            2,794,000Audit-related
      fees
            
            
            1,134,000
            
            
            
            1,170,000Tax
      fees
            
            
            811,000
            
            
            
            797,000Other
      fees
            
            
            ——
            
            
            
            ——Total
            
            
            4,757,000
            
            
            
            4,761,000(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, 2009 and 2008 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





The
information provided under the heading “Off Balance Sheet Arrangements” set
forth in the Management’s Discussion and Analysis filed as Exhibit 99.1 to this
annual report on Form 40-F, is incorporated by reference herein.




TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS




The
information provided under the heading “Contractual Obligations” set forth in
the Management’s Discussion and Analysis filed as Exhibit 99.1 to this annual
report on Form 40-F, is incorporated by reference herein.




IDENTIFICATION
OF THE AUDIT COMMITTEE




The
Registrant’s audit committee is composed of the following directors: The Hon.
Denis Losier (Chair), Michael R. Armellino, Hugh J. Bolton, Ambassador Gordon D.
Giffin 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
 
 
 
 
 
 
 
 
 
 2009
 
 ANNUAL
INFORMATION FORM
 
 
 
 
 
 
 
  
 February
5, 2010
  
  TABLE
OF CONTENTS
 Annual Information
      Form
                          
                          Management's
                            Discussion &
                            Analysis
                            (as filed on
                            February 5,
      2010)
                            Incorporated
      by
                            ReferenceItem 1
                          
                          General
      Information
                          3Item 2
                          
                          Incorporation
                          42.1
                          
                          Incorporation of the
      Issuer
                          42.2
                          
                          Subsidiaries
                          4Item 3
                          
                          General Development of the
      Business
                          53.1
                          
                          General Development of the
      Business During the Last Three Years
                          53.2
                          
                          Anticipated
      Developments
                          12
                          
                          46-48Item 4
                          
                          Description of the
      Business
                          124.1
                          
                          Overview
                          124.2
                          
                          Commodity
      Groups
                          12
                          
                          52-574.3
                          
                          Competitive
      Conditions
                          12
                          
                          874.4
                          
                          Labor
                          13
                          
                          88-894.5
                          
                          Social
    Policies
                          134.6
                          
                          Regulation
                          13
                          
                          90-934.7
                          
                          Environmental
      Matters
                          15
                          
                          79-81,
      87-884.8
                          
                          Legal
    Matters
                          16
                          
                          78-794.9
                          
                          Risk
Factors
                          17
                          
                          87-95Item 5
                          
                          Dividends
                          17Item 6
                          
                          Description of Capital
      Structure
                          176.1
                          
                          General Description of Capital
      Structure
                          176.2
                          
                          Share Ownership
      Constraints
                          186.3
                          
                          Ratings of Debt
      Securities
                          19Item 7
                          
                          Transfer Agent and
      Registrar
                          20Item 8
                          
                          Market for
      Securities
                          208.1
                          
                          Trading Price and
      Volume
                          208.2
                          
                          Prior Sales
                          20Item 9
                          
                          Directors and Executive
      Officers
                          219.1
                          
                          Directors
                          219.2
                          
                          Audit Committee
      Disclosure
                          239.3
                          
                          Executive
      Officers
                          259.4
                          
                          Cease Trade Orders, Bankruptcies,
      Penalties or Sanctions
                          26Item 10
                          
                          Interest of
      Experts
                          27Item 11
                          
                          Additional
      Information
                          28Schedule  A
                          
                          Charter of the Audit
      Committee
                          29
  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, 2009.  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 under Canadian securities
laws.  These statements generally can be identified by the use of the
conditional, the use of forward-looking terminology such as “may”, “will”,
“expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”,
“propose” or the negative of these terms or variations of them or similar
terminology. 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 cautions that its assumptions may not
materialize and that the current economic conditions render such assumptions,
although reasonable at the time they were made, subject to greater uncertainty.
These forward-looking statements include, but are not limited to, statements
with respect to long-term growth opportunities; statements that several of the
Company’s markets may have hit bottom; the anticipation that cash flow from
operations and from various sources of financing will be sufficient to meet debt
repayments and future obligations in the foreseeable future; statements
regarding future payments, including income taxes and pension contributions; as
well as the projected 2010 capital spending program.
  Such
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results or performance of the Company or the rail industry to be
materially different from the outlook or any future results or performance
implied by such statements. Key assumptions used in determining forward-looking
information are set forth below.
  Forward-looking
      statements
                Key
      assumptions or expectationsStatements
      relating to general economic and business conditions, including those
      referring to long-term growth opportunities and markets served by the
      Company having hit bottom
                ·Gradual recovery in the North American economy
                  ·Improving global economic conditions
                  ·Long-term growth opportunities being less affected by current
      economic conditions
                  ·Improving production rates in specific industries
                  ·Improving carload trafficStatements
      relating to the Company’s ability to meet debt repayments and future
      obligations in the foreseeable future, including income tax payments and
      2010 capital spending
                ·Gradual recovery in the North American economy
                  ·Improving global economic conditions
                  ·Adequate
      credit ratios
                  ·Investment grade credit rating
                  ·Access
      to capital markets
                  ·Adequate cash generated from operationsStatements
      relating to the 2010 pension contributions
                ·Reasonable level of funding as determined by actuarial
      valuations
                  ·Adequate
      return on investment on pension plan
assets
 
  Important risk
factors that could affect the above forward-looking statements include, but
are not limited to, the effects of general economic and business conditions;
industry competition; inflation; currency and interest rate
  3
  fluctuations;
changes in fuel prices; legislative and/or regulatory developments; compliance
with environmental laws and regulations; actions by regulators; various events
which could disrupt operations, including natural events such as severe weather,
droughts, floods and earthquakes, labor negotiations and disruptions;
environmental claims, uncertainties of investigations,  proceedings or
other types of claims and litigation; risks and liabilities arising from
derailments 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 2009 Annual Consolidated
Financial Statements (the “Financial Statements”), Notes thereto and
Management’s Discussion and Analysis (the”MD&A”), for detailed information
on major risk factors, 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 Canadian 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 Actwas authorized by the CN Commercialization Actand
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 and became a publicly held corporation with
its Common Shares listed on the New York Stock Exchange (“NYSE”) and the Toronto
Stock Exchange (“TSX”). 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.
  The Company’s
registered and head office is located at 935 de La Gauchetière Street West,
Montreal, Quebec, H3B 2M9, Canada, and its telephone number is
1-888-888-5909.
  2.2
                Subsidiaries
  CN’s principal
subsidiaries as of December 31, 2009, all of which are wholly owned
(directly or indirectly), and their jurisdiction of incorporation, are indicated
below:
 
 Name
                Jurisdiction
      of
                  IncorporationGrand Trunk
      Corporation
                DelawareGrand Trunk
      Western Railroad Company (“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.
  4
  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 its 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:
 
 2009
Highlights
  Acquisitions and
Dispositions
  In January 2009,
the Company acquired the principal rail lines of the Elgin, Joliet and Eastern
Railway Company (“EJ&E”) for a total cash consideration of US$300 million
($C373 million) paid with cash on hand. The EJ&E is a short-line railway
previously owned by U.S. Steel Corporation (“U.S. Steel”) that operates over 198
miles of track in and around Chicago and serves steel mills, petrochemical
customers, utility plants and distribution centres in northeastern Illinois and
northwestern Indiana, as well as connects with all the major railroads entering
and exiting Chicago. Under the terms of the acquisition agreement, the Company
acquired substantially all of the railroad operations of EJ&E, except those
that support the Gary Works site in northwest Indiana and the steelmaking
operations of U.S. Steel.  The acquisition is expected to drive new
efficiencies and operating improvements on CN’s network as a result of
streamlined rail operations and reduced congestion in the Chicago
area.  Over the next few years, the Company has committed to spend
approximately US$100 million for railroad infrastructure improvements and over
US$60 million under a series of mitigation agreements with individual
communities, a comprehensive voluntary mitigation program and additional
conditions imposed by the U.S. Surface Transportation Board. For a discussion of
the EJ&E acquisition, see Note 3, entitled “Acquisitions”, to
the Financial Statements.
  In March 2009, CN
entered into an agreement with GO Transit, a Toronto, Ontario area commuter rail
agency, to sell the property known as the Weston subdivision in Toronto,
Ontario, together with the rail fixtures and certain passenger agreements
(collectively the “Rail Property”), for cash proceeds of $160 millionbefore transaction
costs. Under the agreement, the Company obtained the perpetual right to operate
freight trains over the Rail Property at its then current level of operating
activity, with the possibility of increasing its operating activity for
additional consideration. The transaction resulted in a gain on disposal of $157
million ($135 million after tax).
  In May 2009, CN
concluded agreements to sell three Mississippi line segments to Grenada Railway,
LLC and Natchez Railway, LLC, both non-carrier affiliates of V&S Railway and
A&K Railroad Materials. This deal transferred ownership of 252 miles of
track and preserves rail service on the two longest of these rail lines for at
least the next two years. Rail traffic and volume on these routes had dropped to
the point where it was no longer economically viable for CN to continue their
operation. This transaction involves the former CN Grenada subdivision, the
Water Valley Branch Line and the former CN Natchez subdivision. The Grenada line
runs approximately 175 miles from the Mississippi/Tennessee border to
approximately two miles north of Canton, Mississippi. The 11-mile Water Valley
Branch Line intersects the Grenada Line at W.V. Junction and extends to
Coffeeville, Mississippi. The 66-mile Natchez branch runs from Brookhaven,
Mississippi, to Natchez, Mississippi.
  In November 2009,
CN entered into an agreement with Metrolinx, a government transit agency, to
sell the property known as the the Lower Newmarket Subdivision in Vaughan and
Toronto, Ontario, together with the rail fixtures and certain passenger
agreements for cash proceeds of $71 million before transaction costs. Under the
agreement, the Company obtained the perpetual right to operate freight trains
over the lower Newmarket Subdivision at its then
  5
  current level of
operating activity, with the possibility of increasing its operating activity
for additional consideration.  The transaction resulted in a gain on
disposal of $69 million ($59 million after-tax).
  Strategic
Initiatives and Capital Spending
 
 In 2009, CN
invested approximately $1.5 billion on capital programs, of which approximately
$1 billion was for track infrastructure to continue to operate a safe railway
and to improve the productivity and fluidity of the network, including the
replacement of rail, ties, and other track materials and bridge improvements, as
well as rail-line improvements for its recently acquired EJ&E property. This
amount also included funds for strategic initiatives and additional enhancements
to the track infrastructure in western Canada. CN’s equipment spending, which
totaled approximately $200 million in 2009, was used to improve the quality of
the fleet to better meet customer requirements. CN also spent approximately $300
million on facilities to grow the business, including transloads, distribution
centers and the completion of CN’s multi-year upgrade of Harrison Yard, in
Memphis Tennessee; on information technology to improve service and operating
efficiency; and on other projects to increase productivity.
 
 In October 2009, CN
confirmed orders for 70 new high-horsepower locomotives from GE Transportation,
a unit of General Electric Co. (“GE”), and from Electro-Motive Diesel, Inc.
(“EMD”). CN will acquire 35 ES44DC locomotives from GE starting in the fourth
quarter of 2010, and 35 SD70M-2s from EMD beginning in January 2011. The GE
locomotives produce 4,400 horsepower and the EMDs 4,350 horsepower. The new
units are part of CN's multi-year locomotive-renewal program aimed at
continuously increasing fuel efficiency, improving service reliability for its
customers, and reducing greenhouse-gas emissions. The new locomotives are 15-20
per cent more fuel-efficient than the ones they will replace and will comply
fully with the latest regulatory requirements for reduced locomotive exhaust
emissions. In addition, the new GE and EMD locomotives will be equipped with
distributed power (“DP”) capability. DP enables remote control of a locomotive
or locomotives throughout a train from the lead control locomotive. DP provides
faster, smoother train starts, improved braking and lower pulling forces at the
head-end of a train. This enables CN to run fewer and more efficient trains and
to take advantage of the productivity gains from its extended siding program.
With more optimum matching of motive power to train weight, DP locomotives also
allow CN to reduce fuel consumption and reduce emissions.
 
 Financial
Management Initiatives
 
 In February 2009,
the Company completed a public debt offering of US$550 million 5.55 per cent
Notes due 2019. CN used the net proceeds of approximately US$540 million from
the offering to repay a portion of its then outstanding commercial paper and to
reduce its accounts receivable securitization program. The indebtedness being
repaid was incurred for general corporate purposes, including the financing of
CN's recent acquisition of the principal lines of the EJ&E, and three
railway subsidiaries and a rail-freight ferry operation of the Quebec Railway
Corp. (“QRC”). The debt offering was made in the United States under the shelf
registration statement CN filed in December 2007 and that expired in January
2010. Please see section 8.2 of this document for a further discussion of this
matter.
 
 In July 2009, the Company’s 25.0
million share repurchase program expired. Under this program, the Company
repurchased a total of 6.1 million common shares in 2008 for $331 million, at a
weighted-average price of $54.42 per share. The Company did not repurchase any
shares in 2009. Please note that,
in January 2010, the Board of Directors of the Company approved a new share
repurchase program, which allowed for the repurchase of up to 15.0 million
Common Shares between January 29, 2010 and December 31, 2010 pursuant to a
normal course issuer bid, at prevailing market prices or such other price as may
be permitted by the TSX.
 
 In July 2009, the
Company, through a wholly-owned subsidiary, repurchased 82% of the 4.25% Notes
due in August 2009 with a carrying value of US$245 million pursuant to a debt
tender offer for a total cost of US$245 million. The remaining 18% of the 4.25%
Notes with a carrying value of US$55 million were paid upon
maturity.
  6
  In the fourth
quarter of 2009, the Company reduced the limit in its accounts receivable
securitization program from $600 million to $350 million until September 30,
2010 to reflect the anticipated reduction in the use of the
program.  The Company has a five-year agreement, expiring in May 2011,
to sell an undivided co-ownership interest in arevolving pool of freight
receivables to an unrelated trust for maximum cash proceeds of $600 million.
After September 30, 2010, the program limit will remain at $600 million until
the expiry of the program.
 
 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 February 2009,
CN and Norfolk Southern Corporation (“NS”) entered into an agreement to create
a  “MidAmerica Corridor” in which the railroads will share track
between Chicago, St. Louis, Kentucky, and Mississippi to establish shorter and
faster routes for merchandise and coal traffic moving between the Midwest and
Southeast.  Under the first major component of this initiative, NS
will haul CN freight between Chicago and St. Louis, reducing the distance
between these points for CN shipments by 60 miles and providing improved
connections to other rail carriers through the St. Louis gateway. Second, NS
will use CN's routes between St. Louis and Fulton, Ky., as part of a new, more
efficient route from the Midwest to the Southeast, saving more than 50 miles on
NS shipments. Third, CN will haul NS freight between Chicago and Fulton,
shortening NS's Chicago-to-Birmingham route by almost 100 miles.  As
part of the MidAmerica Corridor, CN and NS plan to create a new coal gateway at
Corinth, Miss., to better link NS-served southeastern utility plants with
CN-served Illinois Basin coal producers. A key component of the new initiative
is the West Tennessee Railroad between Fulton and Corinth, which will be
upgraded to handle heavier shipments and additional rail traffic. Together, the
three components are designed to expedite customers' shipments, improve asset
utilization and generate new efficiencies for both CN and NS, including helping
to level demand on busy north-south routes and improving service to
customers.
 
 2008
Highlights
 
 Acquisitions
and Dispositions
 
 In November 2008,
CN completed the acquisition of the three principal railway subsidiaries of the
Quebec Railway Corporation (“QRC”) and a QRC rail-freight ferry operation for
$50 million. CN sold the rail lines to QRC in the late 1990s and held a minority
equity interest in the ferry operation since its start-up in
1975.  Included in the purchase were the following railways and
management company:
 
 ·
                Chemin de fer
      de la Matapédia et du Golfe
(“CFMG“) :
 
 CFMG has 221 miles
of track, interchanging with CN at Rivière-du-Loup, Quebec. It runs from
Rivière-du-Loup, Quebec, to Campbellton, New Brunswick, where it meets QRC’s New
Brunswick East Coast Railway. CFMG also has a line between Mont-Joli and Matane,
Quebec, where a rail ferry operates to the north shore of the St. Lawrence
River. CFMG serves major shippers of aluminum, paper and forest products. VIA
Rail Canada Inc. (“VIA Rail”) uses the line between Rivière-du-Loup and
Campbellton for its Maritime service between Montreal and Halifax.
 
 ·
                New Brunswick
      East Coast Railway (“NBEC“):
 
 The NBEC runs
between Campbellton and Pacific Junction near Moncton, New Brunswick. It is 196
miles long and interchanges with CN at Moncton Yard. In tandem with CFMG, the
NBEC serves major shippers mainly in
  7
 the mining and pulp
and paper industries. VIA Rail uses the line between Campbellton and Pacific
Junction for its Montreal-Halifax service.
  ·
                Ottawa
      Central Railway (“OCR“):
  The 123 mile long
OCR runs between Coteau, Quebec, where it interchanges with CN, and Pembroke,
Ontario. It also serves Hawkesbury, Ontario. Between Coteau and Ottawa, the OCR
operates over VIA Rail trackage. Major commodities carried by the OCR include
newsprint, salt, forest products, steel wire rod and billets.
 
 ·
                Compagnie de
      gestion de Matane inc. (“COGEMA“):
 
 COGEMA provides
shuttle boat-rail freight service on the St. Lawrence River between Matane and
Baie-Comeau, Quebec, and other ports on the North Shore of the Gulf of St.
Lawrence when required. The rail ferry has a capacity of 25 rail cars. CFMG
connects with the ferry at Matane and interchanges traffic with CN at
Rivière-du-Loup.
 
 As part of the
transaction, CN also assumed the operation and management contract for the
Chemin de fer de la Gaspésie, which runs from Matapédia to Gaspé,
Quebec.
 
 Strategic
Initiatives and Capital Spending
 
 CN’s capital
expenditures were $1.54 billion company-wide in 2008, of which about $1 billion
was focused on track infrastructure and included replacement of rail, ties and
other track materials, and bridge improvement. Of that amount, $400 million was
devoted to rail infrastructure projects in CN’s Western Region where the Company
also invested in extended sidings and terminal improvements to grow its business
and permit more efficient movement of traffic in western Canada, including CN’s
line to the new Port of Prince Rupert container terminal, as well as upgrading
its recently acquired Athabasca Northern Railway (“ANY“). The ANY terminates
near Fort McMurray, Alberta, and is an important rail link to the oilsands
region of Northern Alberta. In addition, CN continued upgrading other former
Northern Alberta short lines purchased in 2006. In the Eastern Region, CN spent
close to $300 million in rail infrastructure to preserve the quality and
integrity of the physical plant.  Included in the approximately US$300
million spent on rail infrastructure projects in the United States, is the
continuing investment in the Company’s multi-year US$100 million upgrade of
Harrison Yard in Memphis and an investment in new and extended sidings to permit
more efficient operations. The Company also continued its investment in
equipment spending, which reached approximately $200 million in 2008 and
included the acquisition of new fuel-efficient locomotives, as well as
improvements to the existing fleet. CN also spent approximately $300 million on
facilities to grow the business, including transloads and distribution centers,
information technology to improve service and operating efficiency, and other
projects to increase productivity.
 
 In October 2008, CN
committed to the acquisition of 232 rapid-discharge ore cars and the
refurbishment of 500 existing ore cars as part of a long-term plan to upgrade
the Company’s car fleet for transporting pelletized iron ore produced in the
Upper Midwest with expected delivery of the new ore cars starting in January
2009. The refurbishment of 500 existing ore cars began in 2008 and included the
installation of new trucks and couplers, modernizing the braking system and
repairing outlet gates. CN’s plans are to acquire more new iron ore cars over
the following three to five years that will permit the retirement of an
equivalent number of cars from CN’s existing fleet. The fleet renewal program is
designed to increase rail efficiency and deliver better service to CN’s iron-ore
customers, including those for whom CN hauls pelletized iron ore in unit trains
from mines in northern Minnesota and Michigan primarily to Great Lakes ports,
for transportation to North American steel producers as well as to overseas
markets.
 
 In December 2008,
CN ordered 40 additional high-horsepower locomotives from EMD and secured an
option for 50 more of the EMD locomotives.  The 40 EMD SD70M-2
locomotives are scheduled for delivery in early 2010, with an
  8
  option for 50 more
of the 4,300 horsepower locomotives by 2011. This acquisition will enable
retirement of older locomotives and the new EMD locomotives will be up to 20 per
cent more fuel efficient than the ones they replace and comply fully with the
latest regulatory requirements for reduced locomotive emissions. All of the new
locomotives will have improved crew cabs that will also be isolated from the
frame to reduce noise and vibration for train personnel. In addition, the units
will be equipped with DP capability.
 
 Financial
Management Initiatives
 
 In May 2008, CN
closed a US$650 million debt offering of US$325 million (C$331 million) 4.95%
Notes due 2014, and US$325 million (C$331 million) 5.55% Notes due 2018. CN used
the net proceeds of US$643 million from the offering to repay a portion of its
commercial paper outstanding and to reduce its accounts receivable
securitization program. The indebtedness that was repaid had been incurred for
general corporate purposes, including CN’s share repurchase program. The debt
offering was made in the United States under the shelf registration statement CN
filed in December 2007.
 
 In July 2008, the
Board of Directors of the Company approved a new share repurchase program, which
allowed for the repurchase of up to 25.0 million Common Shares between July 28,
2008 and July 20, 2009 pursuant to a normal course issuer bid, at prevailing
market prices or such other price as may be permitted by the TSX. As at December
31, 2008, under this share repurchase program, 6.1 million Common Shares had
been repurchased for $331 million, at a weighted-average price of $54.42 per
share. The Company’s previous share repurchase program, initiated in July 2007,
allowed 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. In June 2008, the Company ended this share repurchase program
under which it repurchased 31.0 million Common Shares for $1,588 million at a
weighted-average price of $51.22 per share.
 
 Significant
Cooperation Agreements
 
 In July 2008, CN
and Canadian Pacific Railway Company (“CP”) formalized an agreement allowing the
Deltaport Division of a jointly owned rail subsidiary to manage rail switching
operations for CN’s and CP’s intermodal trains at Deltaport, a marine container
terminal located at Roberts Bank, 40 kilometres south of Vancouver's inner
harbour.  The Deltaport Division was designed to streamline the
logistics chain at the terminal, generating greater efficiencies in the overall
rail and port operation with the resulting service and productivity gains to
support Canada’s Asia-Pacific Gateway Initiative aimed at bolstering the
competitiveness of the nation’s west coast ports. CN and CP move significant
container volumes into and out of Deltaport each month. Container cars must be
switched into the terminal tracks for loading and unloading. The railways’
Deltaport switching agreement represents another positive development in CN’s
and CP’s directional running zone in the Fraser Canyon and co-production
operating agreements in the greater Vancouver area.
 
 2007
Highlights
  Acquisitions
and Dispositions
  In September 2007,
CN entered into an agreement with U.S. Steel for the acquisition of the key
operations of EJ&E. Please see the 2009 Highlights, above, for a further
discussion of this acquisition.
  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 entered into long-term arrangements to lease back its
corporate headquarters building and the Central Station railway passenger
facilities. The transaction resulted in a gain on disposal of $222 million,
including amounts related to the corporate headquarters building and the Central
Station railway passenger facilities, which are being deferred and amortized
over their respective lease terms. A gain of $92 million ($64 million after-tax)
was recognized in Other income.
 9
 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, for which CN accounted using the equity method. Pursuant to the sale
of the Company’s investment in EWS, a gain on disposal of $61 million ($41
million after-tax) was recognized. The Company’s share of the cash proceeds was
$114 million and  an additional amount of £18 million (Cdn$36 million)
was placed in escrow to be recognized when defined contingencies are resolved.
At December 31, 2009, £2 million (C$4 million) remained in escrow.
  In December 2007,
CN acquired the rail assets of the 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, with a planned investment of
$135 million in rail-line upgrades over a four-year period 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 the future to support oil sands development.
  Strategic
Initiatives and Capital Spending
  In April 2007, CN
set up CN WorldWide North America 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 a two-year period. These are in addition
to the 65 locomotives previously ordered for delivery in 2007. In addition to
offering improved reliability, the new units are about 15 per cent more fuel
efficient than the locomotives they replace and 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, the last of which were delivered in Q1 2009, are equipped with DP
capability, which allows them to be placed in the middle of a freight train and
to be remotely controlled from the lead locomotive.
  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, seeks 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 serving North
America’s newest Pacific Gateway. CN plans continued investment in its western
Canadian network, which benefits Canada's Pacific Gateway. These improvements,
which have already begun, 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,
CNbegan 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
  10
  containers moving
to Asia via Prince Rupert with lumber, panels, woodpulp and paper. 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
is provided by CN WorldWide North America, including product transfer,
inspection, consolidation/deconsolidation, inventory control and transportation.
Loaded containers are 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 emerging opportunities in western Canada. 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
 
 As mentioned above
in the 2008 Highlights, in July 2007, the Board of Directors of the Company
approved a share repurchase program, which allowed 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 TSX. In June 2008, the Company ended this repurchase program
under which it repurchased 31.0 million Common Shares for $1,588 million at a
weighted average price of $51.22 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 filed in May 2006 to issue a US$550 million debt
offering composed of US$250 million (C$250 million) 5.85% Notes due 2017, and
US$300 million (C$300 million) 6.375% Debentures due 2037. CN used the net
proceeds of US$544 million from the offering to repay a portion of its
outstanding commercial paper and to reduce its accounts 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
US$2.5 billion of debt securities in Canadian and U.S. markets in one or more
offerings. CN used 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.
 11
 Significant
Cooperation Agreements
 
 In 2007, CN
concluded several 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 CP concluded a routing protocol to expedite the exchange of
      interline freight traffic at key gateways in both Canada and the
      U.S.
 
 2007 also saw the
conclusion of additional co-production agreements covering various parts of CN’s
network, including one with 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.
  3.2
                Anticipated
      Developments
  For a discussion of
anticipated developments for 2010, please see the section entitled “Strategy
overview” on pages 46 to 48 of the  MD&A, which are incorporated
by reference herein.  The MD&A may be found on SEDAR at www.sedar.com.
 
 ITEM
      4
                DESCRIPTION
      OF THE BUSINESS
  4.1
                Overview
  CN is engaged in
the rail and related transportation business. CN’s network of approximately
21,100 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,
British Columbia, Montreal, Halifax, New Orleans, and Mobile, Alabama and the
key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth,
Minnesota/Superior, Wisconsin, Green Bay, Wisconsin, Minneapolis/St. Paul,
Memphis and Jackson, Mississippi, with connections to all points in North
America. CN’s extensive network, and its co-production agreements, routing
protocols, marketing alliances and interline agreements, provide CN customers
access to all three North American Free Trade (NAFTA) nations. 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 2009, no individual commodity group accounted for
more than 18% of revenues. From a geographical standpoint, in 2009, 19% of
revenues came from U.S. domestic traffic, 28% from transborder traffic, 24% from
Canadian domestic traffic, and 29% 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 52 to
57 of the MD&A, which are incorporated by reference herein.
  CN was the
originating carrier for approximately 85% of traffic moving along its network in
2009. 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 52 to 57 of the MD&A, which are incorporated by reference
herein.
  12
  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 page 87 of
the MD&A, which is incorporated by reference herein.
  4.4
                Labor
  As at December 31,
2009, CN employed a total of 21,501 employees.
  For a discussion of
CN’s labor negotiations, see the section entitled “Labor negotiations” in the
Business risks discussion located on pages 88 and 89 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
U.S. employees), CN maintains a comprehensive Human Rights Policy and a
Harassment Free Environment Policy for its Canadian employeesand a
Prohibited Harassment, Discrimination and Anti-Retaliation Policy for its U.S.
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 whereby any person covered by the Harassment
Free Environment Policy (for Canadian employees) and the Equal Employment
Opportunity Policy or theProhibited Harassment, Discrimination and
Anti-Retaliation Policy(for U.S.
employees) can contact his or her human resources director or human resources
manager who will address their complaint. The employee can also call the Human
Resources Center and the complaint will be forwarded to the appropriate human
resources manager for further handling.
  4.6
                Regulation
  The Company’s rail operations in Canada
are subject to (i) economic regulation by the Canadian Transportation Agency
(the “Agency”) under theCanada
Transportation Act(the
“CTA”), and (ii) safety regulation by the federal Minister of Transport under
theRailway Safety
Actand certain other
statutes. The Company’s U.S. rail operations are subject to (i) economic
regulation by the U.S. Surface Transportation Board (“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.   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
in U.S. coastal waters. In addition, the Environmental Protection Agency (“EPA”)
has authority to regulate air emissions from these vessels.
 
 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
theFederal Railroad Safety
Act, as well as the rail portions of other safety statutes. In addition,
the Company is subject to statutory and regulatory directives in the United
States addressing homeland security concerns. In the U.S., safety matters
related to security are overseen by
  13
  the Transportation
Security Administration (“TSA”), which is part of the U.S. Department of
Homeland Security (“DHS”) and the Pipeline and Hazardous Materials Safety
Administration (“PHMSA”), which, like the FRA, is part of the U.S. Department of
Transportation. Border security falls under the jurisdiction of U.S. Customs and
Border protection (“CBP”), which is part of the DHS. In Canada, the Company is
subject to regulation by the Canada Border Services Agency
(“CBSA”).
  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.
  To supplement
public rates issued under tariffs, the CTA permits confidential contracts to be
negotiated between rail carriers and shippers to govern the terms, conditions
and rates for service. 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 plan for lines it intends to sell or
discontinue within the next three years. 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
theCTA, the
Canadian Railway Safety Actand other statutes related to transportation, which may prompt regulatory
amendments as a result. For a further discussion of recent and pending
legislative and other regulatory developments in Canada, see the section
entitled “Regulation” in the Business risks discussion located on pages 90 to 93
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.
  14
  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, U.S. Homeland Security, and the transportation of hazardous material,
as well as recent and pending developments in legislative and regulatory reform
in the U.S., see the section entitled “Regulation” in the Business risks
discussion located at pages 90 to 93 of the MD&A, which are incorporated by
reference herein.
  4.7
                EnvironmentalMatters
  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 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 17 – Major
commitments and contingencies (paragraph D), to the Financial Statements for a
further discussion of environmental matters, as well as the section entitled
“Environmental claims”, on pages 79 to 81 of the MD&A, and the section
entitled “Environmental matters” in the Business risks discussion located on
pages 87 and 88 of the MD&A, which are incorporated by reference
herein.
  15
  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 meet or exceed applicable
      environmental requirements; to measure environmental performance; to
      conduct regular environmental audits and assessments of compliance with
      Company requirements and its Environmental Policy; and to timely provide
      appropriate information to the Board of Directors, employees, the
      authorities, and other
stakeholders.
 2.
                To develop, design and operate
      facilities and conduct activities taking into consideration the efficient
      use of energy and materials, the sustainable use of renewal resources, the
      minimization of waste generation and the adverse environmental impact, and
      the safe and responsible disposal of residual
    wastes.
 3.
                To assess environmental impacts
      before starting a new activity or project and before decommissioning a
      facility.
 4.
                To develop and maintain emergency
      preparedness plans in conjunction with the emergency services, relevant
      authorities, and the local
community.
 5.
                To educate, train and motivate
      employees to conduct their activities in an environmentally responsible
      manner.
 6.
                To promote the adoption of the
      principles of CN’s Environmental Policy by contractors and
      suppliers.
 7.
                To conduct or support research on
      the environmental impacts of its operations and on the means of minimizing
      such adverse impacts, and to contribute to the transfer of environmentally
      sound technology throughout the industrial and public
      sector.
 8.
                To foster openness and dialogue
      with employees and other stakeholders with respect to their concerns about
      potential hazards and impacts of the company’s
      operations.
 9.
                To contribute, along with public
      and private bodies and organizations to the development of policies and
      programs that will enhance environmental awareness and protection based on
      sound scientific principles and
  procedures.
  4.8
                Legal
      Matters
  Legal
Proceedings
  As of the date
hereof, the only legal proceedings to which CN is 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.
  A proposed class
proceeding was brought before the Ontario Superior Court of Justice on March 19,
2008 by a representative plaintiff who proposes to represent all current and
former non-unionized employees of CN in Canada who are or were first line
supervisors on and after July 5, 2002. The plaintiff alleges that CN has
breached its obligations under the Canada Labour Code with respect to overtime
pay and other related matters.  The plaintiff claims $250 million in
general damages and $50 million in punitive damages.  CN is opposing
certification of the action as a class action. The certification hearing is
scheduled for April 12, 2010.
  See Note 17 – Major
commitments and contingencies (paragraph C) to the Financial Statements, for a
further discussion of legal actions, as well as pages 78 and 79 of the MD&A
for a general discussion of personal injury and other claims, which are
incorporated by reference herein.
  16
  Aboriginal
Claims
  CN and its predecessor companies have
acquired lands throughout Canada from the Crown, including certain lands
contained in aboriginal reserves. A portion of the Company’s network, primarily
in British 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 pages87 to95of
the MD&A, which pages are incorporated by reference herein. See Item 1
of this AIF for a further discussion of risks associated with forward-looking
statements.
  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 $0.21 per share, starting with the
first quarter of 2007, was increased to $0.23 per share, starting with the first
quarter of 2008; the quarterly dividend was next increased to $0.2525 per share,
starting with the first quarter of 2009 and to $0.27per share, starting with the first
quarter of 2010. There can be no assurance as to the amount or timing of such
dividends in the future.
  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.
  17
  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 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.
  18
  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’sLong-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.
  ·
                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 eight 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.
  19
  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, Colorado
80401
 Telephone: (303)
262-0600
  ITEM
      8
                MARKET
      FOR SECURITIES
  8.1
                Trading Price and
      Volume
  CN’s Common Shares
are listed on both the TSX and the NYSE 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
2009.
  MONTH
                HIGH
                LOW
                VOLUMEJanuary
                48.68
                38.90
                26,746,593February
                47.18
                38.98
                20,278,242March
                47.00
                37.85
                33,005,559April
                51.24
                44.09
                28,113,478May
                51.47
                44.35
                23,451,430June
                51.00
                45.60
                25,167,409July
                53.23
                44.31
                20,776,882August
                55.00
                52.00
                15,567,537September
                55.39
                51.05
                18,897,861October
                55.19
                50.75
                18,573,095November
                58.20
                51.25
                14,495,822December
                59.14
                55.41
                14,596,475
  8.2
                Prior
    Sales
  In
February 2009, CN, under its shelf prospectus and registration statement filed
in December 2007, issued a US$550 million debt offering of  5.55%
Notes due in 2019, which is detailed in the following table.
  20
 
 Security
                Notes
      due 2019Size of
      Offering:
                US$550,000,000Maturity
      Date:
                March 1,
      2019Coupon
      Rate:
                5.55%Net Proceeds
      of Issue:
                US$540,270,500Public
      Offering Price:
                98.881% per
      noteApplication
      of Proceeds:
                Repay a
      portion of outstanding commercial paper and reduce a portion of its
      accounts receivable securitization program. The indebtedness being repaid
      was incurred by the Company for general corporate purposes, including for
      the financing of the Company’s recent acquisitions of the principal lines
      of the EJ&E and three railway subsidiaries and a rail-freight ferry
      operation of the QRC.
 
 In the ordinary
course of business, the Company also issues commercial paper with maturities of
less than 12 months. There was no commercial paper outstanding as at December
31, 2009.
 
 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:
 
 Name and Province or
      State of
                  Residence
                
                Date of First Election
                  to
      Board
                
                Principal Occupations
      within the Preceding
                  Five
      YearsMichael 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)Ambassador
      Gordon D. Giffin
                  Georgia,
      U.S.A.
                
                May 1,
      2001
                
                Senior
      Partner, McKenna Long & Aldridge (law firm)Edith 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 the Cabinet,The White
      House
   21
  Name and Province or
      State of
                  Residence
                
                Date of First Election
                  to
      Board
                
                Principal Occupations
      within the Preceding
                  Five
      YearsV. Maureen
      Kempston Darkes, O.C., D. Comm. LL.D.
                  Florida,
      U.S.A.
                
                March 29,
      1995
                
                Corporate
      Director, and former Group Vice-President and President Latin America,
      Africa and Middle East, General Motors CorporationThe Hon.
      Denis Losier, P.C., 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-Chairman,
      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)Claude
      Mongeau
                  Quebec,
      Canada
                
                October 20,
      2009
                
                President and
      Chief Executive Officer, CN; Executive Vice-President, CN; Executive
      Vice-President and Chief Financial Officer, CNRobert
      Pace
                  Nova Scotia,
      Canada
                
                October 25,
      1994
                
                President and
      Chief Executive Officer,The Pace
      Group (private holding company)
 
 Committee
Membership
  The membership of
each Board committee is composed of the following Directors:
  Audit
Committee
  Michael R.
Armellino,  Hugh J. Bolton, Ambassador Gordon D. Giffin, The Hon.
Denis Losier (chair), Robert Pace.
  Corporate
Governance and Nominating Committee
  Hugh J. Bolton,
Edith E. Holiday, The Hon. Denis Losier, David G. A. McLean (chair), Robert
Pace.
  Environment,
Safety and Security Committee
  A. Charles Baillie,
Edith E. Holiday, V. Maureen Kempston Darkes (chair), 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, The Hon. Edward C. Lumley.
  22
  Human
Resources and Compensation Committee
  A. Charles Baillie,
Hugh J. Bolton, Ambassador Gordon D. Giffin, 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, A. Charles Baillie, Edith E. Holiday, V. Maureen Kempston Darkes, The
Hon. 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, Ambassador Gordon D.
Giffin, Edith E. Holiday, V. Maureen Kempston Darkes, The Hon. Denis Losier, The
Hon. Edward C. Lumley, David G. A. McLean, Claude Mongeau, Robert
Pace.
  9.2
                Audit Committee
      Disclosure
  Composition
of the Audit Committee
  The Audit Committee
is composed of five “independent” directors, namely, Denis Losier, chair of the
Committee, Michael R. Armellino, Hugh J. Bolton, Ambassador Gordon D. Giffin and
Robert Pace.
  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 and member of the audit committee of
Plazacorp Retail Properties Ltd., and he is also a director of Enbridge Gas New
Brunswick Limited Partnership 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. Bolton is the
Chairman of the Board of Directors of EPCOR Utilities Inc. and Matrikon Inc. Mr.
Bolton is a director and member of the audit committees of Teck Resources
Ltd. and 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.
  23
  Mr. Giffin is
Senior Partner of the law firm of McKenna Long & Aldridge, where he
maintains offices in Washington, D.C. and Atlanta. His practice focuses on
international transactions and trade matters and public policy. He has been
engaged in the practice of law or government service for more than thirty years.
Mr. Giffin was United States Ambassador to Canada from August 1997 to April
2001. He is also a director and member of the audit committee of Canadian
Natural Resources Limited, as well as a director of Canadian Imperial Bank of
Commerce, TransAlta Corporation and Just Energy Income Fund and was previously a
member of the audit committee of AbitibiBowater Inc.
  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 25 years of business
experience.
  Auditors’
Fees
  KPMG LLP has served
as the Company’s auditors since 1992. For the years ended December 31, 2009 and
2008, the fees for audit, audit related, tax and other services provided to the
Company by KPMG LLP were the following:
  Fees
                2009(1)
                2008(1)Audit
                $2,812,000
                $2,794,000Audit-related
                $1,134,000
                $1,170,000Tax
                $811,000
                $797,000Other
                ——
                ——Total
      Fees
                $4,757,000
                $4,761,000(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, 2009 and 2008 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.
  24
 
 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 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 Occupations
      within
                  the Preceding
      Five YearsClaude
      Mongeau
                  Quebec,
      Canada
                
                President and
      Chief Executive Officer
                
                Executive
      Vice-President; Executive Vice-President and Chief Financial
      Officer;Russell
      Hiscock
                  Quebec,
      Canada
                
                President and
      Chief Executive Officer,
                  CN Investment
      Division
                
                President and
      Chief Executive Officer, CN Investment Division; General Manager; Manager
      Common Stocks (Canada), CN Investment Division;Mike
      Cory
                  Alberta,
      Canada
                
                Senior
      Vice-President,
                  Western
      Region
                
                Senior
      Vice-President, Western Region; Senior Vice-President, Eastern Region;
      Vice-President, Operations, Eastern Region; Vice-President, Operations,
      Western Region; Assistant Vice-President, Network Operations; General
      Manager, Operations, Michigan Sub Region; Network Operations
      Superintendent; Director, Service Design;Keith E.
      Creel
                  Illinois,
      U.S.A.
                
                Executive
      Vice-President and Chief Operating Officer
                
                Executive
      Vice-President, Operations; Senior Vice-President, Eastern
      Region;
  25
  Name and Province or
      State of
                    Residence
                  
                  Position
                  
                  Principal Occupations
      within
                    the Preceding
      Five YearsSameh
      Fahmy
                    Quebec,
      Canada
                  
                  Senior
      Vice-President,
                    Engineering,
      Mechanical and
                    Supply
      Management
                  
                  Senior
      Vice-President, Engineering,
                    Mechanical
      and Supply Management;Sean
      Finn
                    Quebec,
      Canada
                  
                  Executive
      Vice-President
                    Corporate
      Services and
                    Chief Legal
      Officer
                  
                  Executive
      Vice-President Corporate Services and Chief Legal Officer; Senior
      Vice-President Public Affairs, Chief Legal Officer and Corporate
      Secretary;Stan
      Jablonski
                    Quebec,
      Canada
                  
                  Senior
      Vice-President,
                    Sales
                  
                  Senior
      Vice-President, Sales; Vice-President, Sales;Luc
      Jobin
                    Quebec,
      Canada
                  
                  Executive
      Vice-President and Chief Financial Officer
                  
                  Executive
      Vice-President and Chief Financial Officer; Executive Vice-President,
      Power Corporation of Canada; President and Chief Executive Officer,
      Imperial Tobacco;Jeff
      Liepelt
                    Ontario,
      Canada
                  
                  Senior
      Vice-President, Eastern Region
                  
                  Vice-President,
      Eastern Region; Vice-President, Operations, Southern Region; General
      Manager, Wisconsin Division;Kimberly A.
      Madigan
                    Quebec,
      Canada
                  
                  Vice-President,
                    Human
      Resources
                  
                  Vice-President,
      People; Vice-President, Labour Relations – North
  America;Robert
      Noorigian
                    Quebec,
      Canada
                  
                  Vice-President,
                    Investor
      Relations
                  
                  Vice-President,
      Investor Relations;Jean-Jacques
      Ruest
                    Quebec,
      Canada
                  
                  Executive
      Vice-President and Chief Marketing Officer
                  
                  Senior
      Vice-President, Marketing;
                    Vice-President,
      Marketing;Jim
      Vena,
                    Illinois,
      U.S.A.
                  
                  Senior
      Vice-President, Southern Region
                  
                  Senior
      Vice-President, Southern Region; 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 February 4,
2010, 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 ofapproximately
5.5 million Common Shares of the Company, representing approximately 1.16% 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
  26
  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. Lumley,
      a Director of the Company, was a director of Air Canada when it
      voluntarily filed for protection under theCompanies’ Creditors
      Arrangement Act(“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;
  (iii)
                Mr. Mongeau,
      a director and the new President and Chief Executive Officer of the
      Company, became a director of Nortel Networks Corporation ("NNC") and
      Nortel Networks Limited ("NNL") on June 29, 2006.  On January
      14, 2009, NNC, NNL and certain other Canadian subsidiaries initiated
      creditor protection proceedings under the CCAA in Canada. Certain U.S.
      subsidiaries filed voluntary petitions in the United States under Chapter
      11 of the U.S. Bankruptcy Code, and certain Europe, Middle East and Africa
      (EMEA) subsidiaries made consequential filings in Europe and the Middle
      East.  These proceedings are ongoing. Mr. Mongeau resigned as a
      director of NNC and NNL effective August 10,
  2009.
  Mr. Mongeau was
also acting as a director of 360networks Corporation (“360networks”) prior to
the latter filing for creditor protection on June 28, 2001. 360networks
underwent restructuring in 2002 and sold its Canadian assets to Bell Canada in
November 2004. Mr. Mongeau resigned as a director of 360networks with effect as
of June 28, 2001;
  (iv)
                Mrs. Kempston
      Darkes, a director of the Company, was an officer of General Motors
      Corporation (“GM”) when GM filed for bankruptcy protection under Chapter
      11 of the U.S. Bankruptcy Code on June 1, 2009. None of the operations for
      which she was directly responsible in Latin America, Africa and the Middle
      East were included in the bankruptcy filing. GM emerged from bankruptcy
      protection on July 10, 2009 in a reorganization in which a new entity
      acquired the most valuable assets. Mrs. Kempston Darkes retired as a GM
      officer on December 1, 2009; and
  (v)
                Mr. Giffin, a
      director of the Company, was a director of AbitibiBowater Inc. until
      January 22, 2009. AbitibiBowater Inc. and certain of its U.S. and Canadian
      subsidiaries filed voluntary petitions in the United States under Chapter
      11 of the U.S. Bankruptcy Code on April 16, 2009. AbitibiBowater Inc. and
      certain of its Canadian subsidiaries filed for creditor protection under
      the CCAA in Canada on April 17, 2009. Mr. Giffin is no longer a director
      of AbitibiBowater Inc.
  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
  27
  and relating to the
audit of the 2009 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 Quebec.
  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 27, 2010 (the “Circular”).  The Circular will become available
on SEDAR at www.sedar.com
on or about March 22, 2010.
  28
  SCHEDULE
A
  CHARTER OF THE
AUDIT COMMITTEE
  1.
                Membership
      and Quorum
  ·
                      a minimum of
      five Directors appointed by the Board, one of whom must be the chair of
      the Human Resources and Compensation
Committee;
  ·
                only
      Independent  Directors, as determined by the Board of Directors
      and following the Canadian and U.S. Securities’ legislation and
      regulations, may be appointed to the Audit Committee. 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;
  29
  ·
                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;
  30
  ·
                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.
  31
  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.
  32




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 COMPANYBy:
            /s/
      Sean FinnName:
            Sean
      FinnTitle:
            Executive Vice-President Corporate
              Services and Chief Legal
      OfficerDate:
            February
      5, 2010









EXHIBIT
INDEX




Exhibit
      No.
            
            Description99.1
            
            Management's
      Discussion and Analysis for the year ended December 31,
    2009*99.2
            
            Audited
      Annual Consolidated Financial Statements for the year ended December 31,
      2009*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.101
            
            Interactive
      Data File*


____________


*Incorporated
by reference to the Registrant’s Form 6-K dated February 5, 2010.