Report
of Independent Registered Public Accounting Firm
The
Administrative Committee
Canadian
National Railway Company
Union
Savings Plan for U.S. Operations:
We have
audited the accompanying statements of net assets available for benefits of
Canadian National Railway Company Union Savings Plan for U.S. Operations (the
Plan) as of December 31, 2007 and 2006, and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan’s management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Plan’s management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the net assets available for benefits of the Canadian
National Railway Company Union Savings Plan for U.S. Operations as of December
31, 2007 and 2006, and the changes in net assets available for benefits for the
years then ended in conformity with U.S. generally accepted accounting
principles.
Our audits
were performed for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedule H, line 4i – schedule of
assets (held at end of year) as of December 31, 2007 is presented for the
purpose of additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor’s Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This supplemental schedule is the
responsibility of the Plan’s management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
(signed)
KPMG
LLP
Denver,
Colorado
June 25,
2008
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
STATEMENTS
OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER
31, 2007 AND 2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
interest in Canadian National Railway Master Trust,
|
|
|
|
|
|
|
|
at
fair value (note 7)
|
|
$ |
201,684,826 |
|
|
$ |
186,264,155 |
|
|
|
|
|
|
|
|
|
|
|
|
Participant
loans
|
|
|
6,213,826 |
|
|
|
5,519,366 |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
Participants'
contributions
|
|
|
976,509 |
|
|
|
860,840 |
|
|
Employer's
contribution
|
|
|
109,237 |
|
|
|
86,285 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
receivables
|
|
|
1,085,746 |
|
|
|
947,125 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets available for benefits (at fair value)
|
|
|
208,984,398 |
|
|
|
192,730,646 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
from fair value to contract value for interest in
|
|
|
|
|
|
|
|
|
|
Canadian
National Railway Master Trust relating to
|
|
|
|
|
|
|
|
|
|
fully
benefit-responsive investment contracts
|
|
|
105,289 |
|
|
|
159,041 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets available for benefits (at contract value)
|
|
$ |
209,089,687 |
|
|
$ |
192,889,687 |
|
See
accompanying Notes to Financial Statements.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
STATEMENTS
OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
2007
|
|
|
2006
|
|
|
Additions
to net assets:
|
|
|
|
|
|
|
|
Plan
interest in investment income of the Canadian National
|
|
|
|
|
|
|
|
Railway
Master Trust (note 7)
|
|
$ |
13,970,696 |
|
|
$ |
19,892,957 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income on participant loans
|
|
|
426,799 |
|
|
|
330,885 |
|
|
|
|
|
|
|
|
|
|
|
|
Contributions:
|
|
|
|
|
|
|
|
|
|
Participants'
|
|
|
15,553,665 |
|
|
|
15,060,963 |
|
|
Employer's
|
|
|
1,633,684 |
|
|
|
1,474,323 |
|
|
Rollover
and other
|
|
|
256,074 |
|
|
|
225,291 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
contributions
|
|
|
17,443,423 |
|
|
|
16,760,577 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
additions
|
|
|
31,840,918 |
|
|
|
36,984,419 |
|
|
|
|
|
|
|
|
|
|
|
|
Deductions
from net assets:
|
|
|
|
|
|
|
|
|
|
Participants’
distributions
|
|
|
15,295,452 |
|
|
|
13,278,768 |
|
|
Transfer
out of plan assets, net (note 5)
|
|
|
270,671 |
|
|
|
49,436 |
|
|
Administrative
expenses
|
|
|
74,795 |
|
|
|
42,495 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
deductions
|
|
|
15,640,918 |
|
|
|
13,370,699 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase
|
|
|
16,200,000 |
|
|
|
23,613,720 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets available for benefits, beginning of year
|
|
|
192,889,687 |
|
|
|
169,275,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets available for benefits, end of year
|
|
$ |
209,089,687 |
|
|
$ |
192,889,687 |
|
See
accompanying Notes to Financial Statements.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
1. THE
COMPANY
Canadian
National Railway Company (CN or the Company), directly and through its
subsidiaries, is engaged in the rail and related transportation
business. CN spans Canada and mid-America, from the Atlantic and
Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince
Rupert, B.C., Montreal, Halifax, New Orleans and Mobile, Alabama, and the key
cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minnesota/Superior,
Wisconsin, Green Bay, Wisconsin, Minneapolis/St. Paul, Memphis, and Jackson,
Mississippi, with connections to all points in North America. CN’s
revenues are derived from the movement of a diversified and balanced portfolio
of goods, including petroleum and chemicals, grain and fertilizers, coal, metals
and minerals, forest products, intermodal and automotive.
2. DESCRIPTION
OF PLAN
The
following description of the Canadian National Railway Company Union Savings
Plan for U.S. Operations (the Plan) provides only general information.
Participants should refer to the summary plan description and prospectus for a
more complete description of the Plan’s provisions.
General
The Plan,
as amended through July 1, 2005, is a defined contribution plan, offering all
eligible employees an opportunity to defer annually from 1% to 100% of their
eligible earnings, subject to the legal limits allowed by the Internal Revenue
Service (IRS), for contribution to various investment funds. These funds and
their investment objectives are described in Note 4. Eligible
employees may participate in the Plan any time on or after their date of
hire.
The Plan
covers eligible union employees of Illinois Central Railroad Company, Grand
Trunk Western Railroad Incorporated, Chicago, Central and Pacific Railroad
Company, Cedar River Railroad Company, Duluth, Winnipeg and Pacific Railway
Company, Wisconsin Central Limited, Sault Ste. Marie Bridge Company, Bessemer
and Lake Erie Railroad Company, Duluth, Missabe and Iron Range Railway Company,
and the Pittsburgh and Conneaut Dock Company. Grand Trunk
Corporation, which owns directly or indirectly all of the above U.S. affiliates
of CN, is the Plan’s sponsor. Grand Trunk Corporation is a holding
company owned by CN. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA), as
amended.
Administration
of the Plan
Grand
Trunk Corporation Board of Directors has delegated to the Administrative
Committee, responsibility for the general operation and administration of the
Plan and for carrying out and interpreting the Plan’s provisions.
Trustee
and Recordkeeper
The
Administrative Committee has appointed Fidelity Management Trust Company (FMTC)
as trustee and Fidelity Investments Institutional Operations Company Inc. as
transfer agent and recordkeeper of the Plan. Other affiliated
Fidelity companies provide certain ministerial recordkeeping and administrative
services to the Plan pursuant to an agreement entered into with the Plan
Sponsor.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Contributions
Eligible
participants may elect to make contributions to the Plan in amounts ranging from
1% to 100% of their annual eligible earnings on a before-tax
basis. Such contributions are withheld by the Company from each
participant’s compensation and deposited in the appropriate fund in accordance
with the participant’s directives. Consistent
with provisions established by the IRS, the Plan’s limit on pre-tax
contributions by a participant was $15,500 for 2007 and $15,000 for
2006 (the limit will remain at $15,500 in 2008). Participants who are
at least age 50 by the end of a particular plan year and have contributed the
maximum 401(k) deferral amount allowed under the Plan for that year are eligible
to contribute an additional portion of their annual eligible earnings on a
before-tax basis as “catch-up” contributions, up to the annual IRS limit of
$5,000 in 2007 and 2006 (the limit will remain at $5,000 in 2008) such that the
total pre-tax contribution limit was $20,500 for 2007 and $20,000 for
2006.
For
employees who are members of participating unions, the Company generally
contributes to the account balance of the Plan participants
a “matching contribution” equal to 25% of the first 4% of annual
eligible earnings the participant defers (a maximum Company match of 1% of
eligible earnings) in accordance with such unions’ respective collective
bargaining agreements. The Company does not match the participants’
“catch-up” contributions.
Participant
Accounts
Participants
direct the investment of their account balance into a broad range of investment
funds offered by the Plan. The plan recordkeeper maintains an account
balance in the name of each participant to which each participant’s pre-tax
contributions, the Company’s contributions, and share of net earnings, losses
and expenses, if any, of the various investment funds, are
recorded. Interest, dividends, realized and unrealized gains and
losses on investment of the funds are allocated directly to each participant’s
account. The benefit to which a participant is entitled is the
benefit that can be provided from the participant’s account.
Vesting
Participants
are fully vested in their account balance at the time of contribution, including
the Company’s matching contribution and related earnings from such
contributions.
Distributions
Participants
are eligible for a distribution of the plan benefits upon termination of
service, whether by disability, retirement, death, or leaving the Company.In the
event of financial hardship, as defined in the Plan, participants may withdraw
money from their Plan accounts while they are still
employed. Participants who have attained age 59½ may request a
distribution of all or a portion of the value in the account. Withdrawals by the
participant before attaining age 59½ generally are subject to a penalty tax of
10%.
Participant
Loans
Participants
may borrow from their accounts by taking one loan (maximum of two
loans if one or both were outstanding as of June 30, 2004) with a minimum amount
of $1,000, and a total maximum amount equal to the lesser of $50,000 or 50% of
their account balance. Loans must be repaid within 5 years, or 10
years, if the funds are used to construct or purchase a primary
residence. The interest rate on the loans is equal to the prevailing
prime rate as of the beginning of the calendar quarter in which the participant
applies for the loan plus 1%, which ranged from 4.0% to 10.5% for loans
outstanding at December 31, 2007. Principal and interest are paid in
equal installments through employee payroll deductions. Participants
may prepay the entire outstanding loan balance at any time without
penalty. Loans deemed to be in default are recorded as distributions,
which amounted to $96,508 for the year ended December 31, 2007 ($139,214 for
2006).
As at
December 31, 2007, loans outstanding were $6,213,826 ($5,519,366 in 2006), net
of deemed defaulted loans of $445,917 ($359,057 in 2006).
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Termination
of Service
Upon
termination of service, a participant may leave their account in the Plan, or
may elect to receive the value of the account in a lump-sum payment or as a
direct transfer to another qualified retirement plan subject to certain
conditions. However, a participant with an account balance of $5,000
or less may select from the latter two options only.
Expenses
Administrative
expenses for maintenance of plan financial records, participant statements,
service fees on insurance contracts and trustee fees are paid from plan
assets. The Investment Committee, appointed by the Administrative
Committee, employs an independent investment consultant to evaluate investment
options, conduct fund searches and monitor fund manager activity, the fees
incurred are paid from plan assets. All other administrative
expenses of the Plan are paid by the Company.
Risks
and Uncertainties
The Plan
provides for various investment options in any combination of stocks, bonds,
mutual funds, and other investment securities. Investment securities are exposed
to various risks, such as interest rate, market, and credit. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in risks in the near term could materially
affect participants’ account balances and the amounts reported in the statement
of net assets available for benefits and the statement of changes in net assets
available for benefits.
The Plan
invests in securities with contractual cash flows, such as asset backed
securities, collateralized mortgage obligations and commercial mortgage backed
securities, including securities backed by subprime mortgage loans. The value,
liquidity and related income of those securities are sensitive to changes in
economic conditions, including real estate value, delinquencies or defaults, or
both, and may be adversely affected by shifts in the market’s perception of the
issuers and changes in interest rates.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting
The
financial statements of the Plan are prepared under the accrual method of
accounting.
Use
of Estimates
The
preparation of the financial statements in conformity with U.S. generally
accepted accounting principles requires the Plan Administrator to make estimates
and assumptions that affect the reported amounts of assets, liabilities, and
changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those
estimates.
Reclassifications
Certain of
the 2006 comparative figures have been reclassified in order to conform to the
financial statement presentation adopted in the current year. Included in these
reclassifications was the reclassification of investments held by the Plan as an
interest in a master trust. These reclassifications had no impact on net assets
available for benefits or changes in net assets available for benefits as
previously reported.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Investment
Valuation
The Plan’s
investments are stated at fair value. The fair value of the Plan’s
interest in the Canadian National Railway Master Trust (Master Trust) is based
on the specific interest that each plan has in the underlying participant
directed investment options. The investments held by the Master Trust are valued
as follows. Investments in mutual funds are valued at quoted market prices that
represent the net asset values of shares held at year-end. Short-term
investments are valued at cost plus accrued interest, which approximates fair
value. The CN Stock Fund is tracked on a unitized basis, whereby the
value of a unit reflects the combined market value of CN common stock and the
cash investments held by the fund. The Master Trust’s interest in the common
collective trust fund is based on the fair value of the common collective
trust’s underlying investments as based on information reported by the
investment advisor using the audited financial statements of the common
collective trust fund at year-end. Participant loans are valued at their
outstanding balances, which approximate fair value.
Security
Transactions and Related Investment Income
Purchases
and sales of securities are recorded on a trade-date basis. Dividends
are recorded on the ex-dividend date, and interest income is recorded on the
accrual basis.
Net
investment income includes the realized gains and losses on the sale of
securities and the unrealized appreciation and depreciation in the fair value of
investments.
Contributions
Receivable
Contributions
receivable are the amounts due, as of the date of the financial statements, to
the Plan from the employer and participants. Participant
contributions from employee payroll deductions made subsequent to the Plan’s
year-end attributable to the preceding plan year are accrued, as are employer
contributions coinciding with these salary deferrals, if any.
Distributions
Distributions
to participants or beneficiaries are recorded upon payment.
Impact
of New Accounting Standards and Interpretations
In
December 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position FSP AAG INV-1 and SOP 94-4-1, “Reporting of Fully
Benefit-Responsive Investment Contracts Held by Certain Investment Companies
Subject to the AICPA Investment Company Guide and Defined-Contribution Health
and Welfare and Pension Plans” (the FSP). The FSP requires
that fully benefit-responsive investment contracts be reported at fair value
rather than contract value with an offsetting asset or liability in the
statement of net assets available for benefits. The adoption of the
FSP in 2006 did not impact the amount of net assets available for
benefits.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS No. 157 applies only to
fair value measurements already required or permitted by other accounting
standards and does not impose requirements for additional fair value measures.
SFAS No. 157 was issued to increase consistency and comparability in reporting
fair values. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. The Company does not expect the adoption of SFAS No. 157 to have a
material impact on the statement of net assets available for benefits or the
statement of changes in net assets available for
benefits.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
4. DESCRIPTION
OF INVESTMENT FUNDS
Participants
direct the investment of their account balance into a broad range of investment
funds offered by the Plan, within the Master Trust. The objectives of
the various investment funds, effective December 31, 2007, are described
below. The Plan Administrator may add or replace any investment funds
as appropriate and as allowed by the plan document and the Plan Administrator’s
Investment Policy Statement.
Fidelity Spartan U.S. Equity
Index Fund
This
mutual fund invests a minimum of 80% of the fund’s assets in common stocks
included in the S&P 500 Index, which broadly represents the performance of
common stocks publicly traded in the U.S.
American Funds Investment
Company of America
This
mutual fund invests primarily in common stocks based on the possibility of
appreciation and potential dividends rather than on current
yield. The fund may invest in securities of companies located outside
of the U.S. and not included in the S&P 500 Index.
PIMCO Total Return
Fund
This
mutual fund invests a minimum of 65% of the fund’s assets in debt securities,
including U.S. government securities, corporate bonds, and mortgage-related
securities. It may invest a maximum of 30% of the fund’s assets in
foreign-currency denominated securities and a maximum of 10% of the fund’s
assets in high-yield securities rated B or higher, with an average maturity of
three to six years.
American Funds EuroPacific
Growth Fund
This
mutual fund invests a minimum of 80% of the fund’s assets in securities of
companies located overseas, primarily in Europe and the Pacific
Basin. The fund may also hold cash, money market instruments, and
fixed-income securities.
Fidelity Capital
Appreciation Fund
This
mutual fund invests primarily in common stocks of domestic and foreign
issuers. It may invest in either growth stocks or value stocks or
both. In selecting instruments, it uses fundamental analysis of each
issuer’s financial condition and industry position and market and economic
conditions.
Dodge & Cox Balanced
Fund
This
mutual fund invests in a diversified mix of common stocks, preferred stocks, and
fixed-income securities with the objective of long-term growth income and
conservation of principal. It may invest a maximum of 75% of the
fund’s assets in common stocks and convertible securities. It may
invest in government obligations, mortgage- and asset-backed securities,
collateral mortgage obligations, and corporate bonds.
ICM Small Company
Portfolio
This
mutual fund invests a minimum of 80% of the fund’s assets in common stocks of
smaller companies. It may invest in equity securities listed on the
New York and American Stock Exchanges or traded on the over-the-counter markets
operated by the NASD.
Dodge & Cox Stock
Fund
This
mutual fund invests primarily in a broadly diversified portfolio of common stock
of companies which, in its opinion, appear to be temporarily undervalued by the
stock market, but have a favorable outlook for long-term growth. The
fund remains fully invested in equities with a minimum of 80% of the fund’s
assets in common stocks. It may invest in preferred shares, and convertibles,
and a maximum of 20% of the fund’s assets in American Depository
Receipts.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Vanguard Mid-Cap Index
Fund
This
mutual fund invests in the MSCI U.S. Cap 450 Index in approximately the same
proportion as they are presented in the index.
Northern Institutional Small
Company Index
This
mutual fund seeks to provide investment results approximating the aggregate
price and dividend performance of the securities included in the Russell 2000
Index. Under normal circumstances, the Portfolio will invest substantially all
(or at least 80%) of its net assets in the equity securities included in the
Russell 2000 Index, in weightings that approximate the relative composition of
securities contained in the Russell 2000 Index, and in Russell 2000 Index
futures approved by the Commodities Futures Trading Commission.
Fidelity Spartan
International Index Fund
This
mutual fund invests a minimum of 80% of the fund’s assets in common stocks that
are included in the Morgan Stanley Capital International Europe, Australasia,
and Far East (MSCI EAFE) Index, which represents the performance of foreign
stock markets, excluding emerging market countries. It aims to
provide investment results that correspond to the total return of foreign stock
markets.
Fidelity Freedom
Funds
These
mutual funds invest in a combination of Fidelity equity, fixed-income, and money
market mutual funds, with the allocation among the three varying with the number
of years until the Freedom funds reach their respective target retirement date
(the Fidelity Freedom 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and 2050
funds are targeted to investors expected to retire around those
years). Once the target dates have been met, the funds continue to
become more conservative for five to ten years until the asset mix is
approximately the same as the Freedom Income Fund at which time the funds will
merge.
CN Stock
Fund
This fund
invests in the common stock of CN and short-term investments sufficient to meet
the fund’s daily cash needs. At December 31, 2007, the fund held an
interest-bearing cash balance of $683,395 ($663,241 in 2006).
Fidelity Retirement Money
Market Portfolio
This
mutual fund invests in short-term, high quality debt securities which include
certificates of deposit of highly rated banks, U.S. Treasury notes and bills and
Agency issues, and top rated commercial paper.
Fidelity Managed Income
Portfolio II (FMIP II)
This
stable value fund is a commingled pool of the Fidelity Group Trust for Employee
Benefit Plans. The portfolio invests in investment contracts issued
by insurance companies and other financial institutions, fixed income
securities, and money market funds to provide daily liquidity. Some
investment contracts are structured solely as a general debt obligation of the
issuer. Other investment contracts (i.e. wrap contracts) are
purchased in conjunction with an investment by the portfolio in fixed income
securities, which may include, but are not limited to, U.S. Treasury and agency
bonds, corporate bonds, mortgage-backed securities, asset-backed securities, and
bond funds. The portfolio may also invest in futures contracts,
option contracts, and swap agreements (see Note 3).
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
5. TRANSFER
OF PLAN ASSETS
In 2007,
transfers of plan assets to a CN-related employee plan, the Canadian National
Railway Company Management Savings Plan for U.S. Operations, relate to employees
who changed participation between plans.
6. PLAN
TERMINATION
Although
the Company has not expressed any intent to do so, it has the right under the
Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event the Plan is
terminated, participants will receive the full amount of plan assets in their
respective accounts.
7. INTEREST
IN MASTER TRUST
The Master
Trust was created pursuant to a trust agreement between the Plan Sponsor and
FMTC, as trustee of the funds, for investment and administrative
purposes. The Master Trust includes all of the investment assets of
the following plans:
· Canadian
National Railway Company Union Savings Plan for U.S. Operations (Union
Plan)
· Canadian
National Railway Company Management Savings Plan for U.S. Operations (Management
Plan)
The Plan’s
record keeper maintains supporting records for the purpose of allocating net
gains or losses to each of the Plans and to each participant’s
accounts. The net investment income or loss of the investment assets
is allocated to each Plan and to each participant’s account based on the
investments held in their account.
The fair
value of investments, by significant investment type, in the Master Trust at
December 31 is as follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Investments
in Master Trust, at fair value:
|
|
|
|
|
|
|
|
Mutual
funds
|
|
$ |
259,651,994 |
|
|
$ |
240,126,592 |
|
|
CN
common stock
|
|
|
11,071,402 |
|
|
|
10,583,078 |
|
|
CN
Stock Fund
|
|
|
15,900,996 |
|
|
|
14,194,739 |
|
|
Money
market funds
|
|
|
13,668,426 |
|
|
|
12,421,494 |
|
|
Common
collective trust fund
|
|
|
36,262,366 |
|
|
|
38,827,162 |
|
|
Total
investments in Master Trust
|
|
$ |
336,555,184 |
|
|
$ |
316,153,065 |
|
|
|
|
|
|
|
|
|
|
|
|
Union
Plan, interest in Master Trust
|
|
$ |
201,684,826 |
|
|
$ |
186,264,155 |
|
|
Percentage
interest
|
|
|
59.9% |
|
|
|
58.9% |
|
|
|
|
|
|
|
|
|
|
|
|
Management
Plan, interest in Master Trust
|
|
$ |
134,870,358 |
|
|
$ |
129,888,910 |
|
|
Percentage
interest
|
|
|
40.1% |
|
|
|
41.1% |
|
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Investment
income for the Master Trust for the year ended December 31 is as
follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Dividends
and interest
|
|
$ |
20,002,106 |
|
|
$ |
16,289,247 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
appreciation of investments:
|
|
|
|
|
|
|
|
|
|
Mutual
funds
|
|
|
1,181,216 |
|
|
|
16,052,809 |
|
|
CN
common stock
|
|
|
1,007,349 |
|
|
|
828,604 |
|
|
CN
Stock Fund
|
|
|
1,330,685 |
|
|
|
758,355 |
|
|
|
|
|
3,519,250 |
|
|
|
17,639,768 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment income
|
|
$ |
23,521,356 |
|
|
$ |
33,929,015 |
|
|
|
|
|
|
|
|
|
|
|
|
Plan
interest in investment income of the Master Trust:
|
|
|
|
|
|
|
|
|
|
Union
Plan
|
|
$ |
13,970,696 |
|
|
$ |
19,892,957 |
|
|
|
|
|
|
|
|
|
|
|
|
Management
Plan
|
|
$ |
9,550,660 |
|
|
$ |
14,036,058 |
|
Investments
that represent 5% or more of net assets available for benefits as of December
31, 2007 and 2006 were the Plan’s interest in the Master Trust.
8. FEDERAL
INCOME TAXES
The Plan
has received a favorable determination letter from the IRS, dated April 21,
2003, indicating that it is qualified under Section 401(a) of the Internal
Revenue Code (the Code), as amended, and, therefore, the Plan and related trust
are exempt from taxation. Although the Plan has been amended since
receiving the determination letter, the Plan Administrator continues to believe
the Plan and related trust are designed to be in compliance with the applicable
requirements of the Code.
9. RELATED
PARTY TRANSACTIONS
A
significant portion of the Master Trust’s assets was invested in FMTC
funds. FMTC also acts as the trustee for the Plan and therefore,
these investments qualify as party-in-interest transactions.
The Plan,
through its investment in the Master Trust, held an investment in the CN Stock
Fund valued at $15,900,996 and $14,194,739 at December 31, 2007 and 2006,
respectively.
The Master
Trust held shares of CN common stock valued at $11,071,402 and $10,583,078 at
December 31, 2007 and 2006, respectively.
CANADIAN
NATIONAL RAILWAY COMPANY
UNION SAVINGS
PLAN FOR U.S. OPERATIONS
NOTES TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
10.
DIFFERENCES
BETWEEN FINANCIAL STATEMENTS AND FORM 5500
The Plan’s
investments, within the Master Trust, include the FMIP II, which is stated at
contract value on the financial statements whereas it is stated at fair value on
the Form 5500.
The
following is a reconciliation of net assets available for benefits per the
financial statements to Form 5500 as of December 31:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Net
assets available for benefits per the financial statements
|
|
$ |
209,089,687 |
|
|
$ |
192,889,687 |
|
|
Less:
Adjustment from contract value to fair value for
|
|
|
|
|
|
|
|
|
|
interest
in Master Trust relating to fully
|
|
|
|
|
|
|
|
|
|
benefit-responsive
investment contracts
|
|
|
105,289 |
|
|
|
159,041 |
|
|
Net
assets available for benefits per the Form 5500
|
|
$ |
208,984,398 |
|
|
$ |
192,730,646 |
|
The
following is a reconciliation of investment income per the financial statements
to Form 5500 for the years ended December 31:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Total
investment income per the financial statements
|
|
$ |
14,397,495 |
|
|
$ |
20,223,842 |
|
|
Add
(less): Change in fair value to contract value for
|
|
|
|
|
|
|
|
|
|
interest
in Master Trust relating to fully
|
|
|
|
|
|
|
|
|
|
benefit-responsive
investment contracts
|
|
|
53,752 |
|
|
|
(159,041 |
) |
|
Total
investment income per the Form 5500
|
|
$ |
14,451,247 |
|
|
$ |
20,064,801 |
|
CANADIAN
NATIONAL RAILWAY COMPANY
UNION
SAVINGS PLAN FOR U.S. OPERATIONS
Schedule
H, Line 4i – Schedule of Assets (Held at End of Year)
|
|
|
|
Description
of investment,
|
|
|
|
|
|
|
|
|
including
maturity date,
|
|
|
|
|
|
|
Identity
of issuer, borrower,
|
|
rate
of interest, collateral,
|
|
Current
|
|
|
|
|
lessor,
or similar party
|
|
par,
or maturity value
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Participant
loans
|
|
4.0%
- 10.5%, maturing
through October 2016
|
|
6,213,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6,213,826
|
|
|
| |
|
|
|
|
|
|
|
|
*
|
Party-in-interest
transaction
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
See
accompanying Report of Independent Registered Public Accounting
Firm.
|
|
|
|
|