U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

	o		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, 2006

CANADIAN PACIFIC RAILWAY LIMITED
(Commission File No. 1-01342)
CANADIAN PACIFIC RAILWAY COMPANY
(Commission File No. 1-15272)

CANADA		4011		98-0355078
				(Canadian Pacific Railway Limited)
				98-0001377
				(Canadian Pacific Railway Company)

(Province or other jurisdiction of		(Primary Standard Industrial Classification		(I.R.S. Employer Identification Number)
incorporation or organization)		Code Number)

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

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, without par value, of		New York Stock Exchange
Canadian Pacific Railway Limited
Common Share Purchase Rights of		New York Stock Exchange
Canadian Pacific Railway Limited
Perpetual 4% Consolidated Debenture Stock		New York Stock Exchange
of Canadian Pacific Railway Company

Securities registered or to be 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: None

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

x     Annual information form		x     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, 2006, 155,506,837 Common Shares of Canadian Pacific Railway Limited were issued and outstanding. At December 31, 2006, 347,170,009 Ordinary Shares of Canadian Pacific Railway Company 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     x

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     x		NO     o

PRIOR FILINGS MODIFIED AND SUPERSEDED

          The Registrants’ Annual Report on Form 40-F for the year ended December 31, 2006, at the time of filing with the Securities and Exchange Commission, modifies and supersedes all prior documents filed pursuant to Sections 13 and 15(d) of the Exchange Act for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement under the Securities Act of 1933 of either Registrant which incorporates by reference such Annual Report, including without limitation the following: Form S-8 No. 333-13962 (Canadian Pacific Railway Limited); Form S-8 No. 333-127943 (Canadian Pacific Railway Limited); and Form S-8 No. 333-140955 (Canadian Pacific Railway Limited).

CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENT’S DISCUSSION AND ANALYSIS

A.     Audited Annual Financial Statements

          For consolidated audited financial statements, including the report of the auditors with respect thereto, see pages 47 through 92 of the Registrants’ 2006 Annual Report incorporated by reference and included herein. For a reconciliation of important differences between Canadian and United States generally accepted accounting principles, see Note 26 — Supplementary Data of the Notes to Consolidated Financial Statements on pages 85 through 92 of such 2006 Annual Report.

B.     Management’s Discussion and Analysis

          For management’s discussion and analysis, see pages 8 through 46 of the Registrants’ 2006 Annual Report incorporated by reference and included herein.

          For the purposes of this Annual Report on Form 40-F, only pages 8 through 92 of the Registrants’ 2006 Annual Report referred to above shall be deemed filed, and the balance of such 2006 Annual Report, except as it may be otherwise specifically incorporated by reference in the Registrants’ Annual Information Form, shall be deemed not filed with the Securities and Exchange Commission as part of this Annual Report on Form 40-F under the Exchange Act.

DISCLOSURE CONTROLS AND PROCEDURES

          As of December 31, 2006, an evaluation was carried out under the supervision of and with the participation of the Registrants’ management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Registrants’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2006, to ensure that information required to be disclosed by the Registrants in reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

          For management’s report on internal control over financial reporting, see page 47 of the Registrants’ 2006 Annual Report, incorporated by reference and included herein.

          Management’s assessment of the effectiveness of the Registrants’ internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent public accounting firm, as stated in their report on pages 48 and 49 of the Registrants’ 2006 Annual Report.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

          During the period covered by this Annual Report on Form 40-F, the Registrants implemented a new revenue reporting system. The new system automates several processes previously performed manually and management expects that efficiencies will be achieved due to the implementation of this new system. Other than the foregoing change, no change occurred in the Registrants’ internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Registrants’ internal control over financial reporting.

CODE OF BUSINESS ETHICS

          The Registrants’ Code of Business Ethics was last revised in late 2003 to ensure that it was in compliance with the corporate governance standards of the New York Stock Exchange (“NYSE Standards”) and specifically addresses, among other things, conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing with third parties, compliance with laws, rules and regulations and reporting of illegal or unethical behavior. The Code applies to all directors, officers and employees, both unionized and non-unionized, of the Registrants and their subsidiaries in Canada, the U.S. and elsewhere, and forms part of the terms and conditions of employment of all such individuals. All Directors have signed acknowledgements that they have read, understood and agree to comply with the Code. Commencing in 2006 the Corporation introduced mandatory annual on-line ethics training for all officers and non-union employees. As part of the on-line ethics training officers and non-union employees are annually required to acknowledge that they have read, understood and agree to comply with the Code. Contractors engaged on behalf of the Registrants or their subsidiaries must undertake, as a condition of their engagement, to adhere to principles and standards of business conduct consistent with those set forth in the Code. The Code is available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests it. All amendments to the Code, and all waivers of the Code with respect to any director or executive officer of the Registrants, will be posted on the Registrants’ web site and provided in print to any shareholder who requests them.

CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS

          The Registrants adopted a Code of Ethics for Chief Executive Officer and Senior Financial Officers in 2003. This code applies to the Registrants’ President and Chief Executive Officer, the Executive Vice-President and Chief Financial Officer and the Vice-President and Comptroller. It is available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests it. All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Registrants’ web site and provided in print to any shareholder who requests them.

CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES

          The Registrants last amended their Corporate Governance Principles and Guidelines in February 2006. These principles and guidelines pertain to such matters as, but are not limited to: director qualification standards and responsibilities; election of directors; access by directors to management and independent advisors; director compensation; director orientation and continuing education; management succession; and annual performance evaluations of the board, including its committees and individual directors, and of the Chief Executive Officer. The Corporate Governance Principles and Guidelines are available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests them.

COMMITTEE TERMS OF REFERENCE

          The terms of reference of each of the following committees of the Registrants are available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests them: the Audit, Finance and Risk Management Committee; the Corporate Governance and Nominating Committee; the Management Resources and Compensation Committee; the Health, Safety, Security and Environment Committee; and the Pension Committee.

DIRECTOR INDEPENDENCE

          The boards of the Registrants have adopted the categorical standards for director independence: (a) prescribed by Section 10A(m)(3) of the Exchange Act and Rule 10A-3(b)(1) promulgated thereunder and Multilateral Instrument 52-110 for members of public company audit committees; and (b) set forth in the NYSE Standards, the Canadian corporate governance standards set forth in National Instrument 58-101 and Multilateral Instrument 52-110 in respect of public company directors. The boards also conducted a comprehensive assessment of each of their members as against these standards and determined that all current directors, except F.J. Green, have no material relationship with the Registrants and are independent. Mr. Green is not independent by virtue of the fact that he is the Chief Executive Officer of the Registrants.

EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS

          The Corporate Governance and Nominating Committees of the boards of the Registrants are comprised of all the independent directors on the boards and are required by their terms of reference to meet at least quarterly and at such other times as they deem appropriate. The Corporate Governance and Nominating Committee met 5 times during 2006; these meetings occurred at each meeting of the board. They are chaired by Mr. J.E. Cleghorn. Interested parties may communicate directly with Mr. Cleghorn by writing to him at the following address, and all communications received at this address will be forwarded to him:

Office of the Corporate Secretary
Canadian Pacific Railway
Suite 920, 401 – 9^th Avenue, S.W.
Calgary, Alberta
Canada
T2P 4Z4

AUDIT COMMITTEE FINANCIAL EXPERTS

          The following individuals comprise the current membership of the Registrants’ Audit, Finance and Risk Management Committees (“Audit Committees”), which have been established in accordance with Section 3(a)(58)(A) of the Exchange Act:

John P. Manley
Madeleine Paquin
Roger Phillips
Hartley T. Richardson
Michael W. Wright

          Each of the aforementioned directors, except Ms. Paquin, has been determined by the boards of the Registrants to meet the audit committee financial expert criteria prescribed by the Securities and Exchange Commission and has been designated as an audit committee financial expert for the Audit Committees of the boards of both Registrants. Each of the aforementioned directors has also been determined by the boards of the Registrants to be independent within the criteria referred to above under the subheading “Director Independence”.

          Mr. Manley is designated as an audit committee financial expert based on his experience as a lawyer advising on corporate, commercial and tax matters, his experience as a senior member of the Canadian federal government, including serving as Minister of Finance and as Deputy Chairman of the Treasury Board, and his current experience as a member of the audit committee of the Canadian Imperial Bank of Commerce.

FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS

          The boards of the Registrants have determined that all members of the Audit Committees, except Ms. Paquin, have “accounting or related financial management expertise” within the meaning of the NYSE Standards. The boards have determined that all members of the Audit Committees are financially literate within the definition contained in, and as required by, Multilateral Instrument 52-110 and the NYSE Standards.

SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES

          Each Registrant’s board has determined that no director who serves on more than two public company audit committees other than its own Audit Committee shall be eligible to serve as a member of the Audit Committee of that Registrant, unless that Registrant’s board determines that such simultaneous service would not impair the ability of such member to effectively serve on that Registrant’s Audit Committee. No member of the Audit Committees of the Registrants serves on more than two public company audit committees in addition to the Audit Committee of either Registrant.

PRINCIPAL ACCOUNTING FEES AND SERVICES — INDEPENDENT AUDITORS

          Fees payable to the Registrants’ independent auditor, PricewaterhouseCoopers, LLP for the years ended December 31, 2006, and December 31, 2005, totaled $2,824,200 and $2,142,140, respectively, as detailed in the following table:

		Year ended December 31, 2006		Year ended December 31, 2005
Audit Fees		$2,118,000		$1,086,000
Audit-Related Fees		$   438,900		$   812,540
Tax Fees		$   267,300		$   243,600
All Other Fees		$       0		$       0
TOTAL		$2,824,200		$2,142,140

The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered for the audit of the Registrants’ annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.

Audit-Related Fees

Audit-related fees were for attestation and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of: the audit or review of financial statements of certain subsidiaries and of various pension and benefits plans of the Registrants’; special attest services as may be required by various government entities; assistance with preparations for compliance with Section 404 of the Sarbanes-Oxley Act of 2002; access fees for technical accounting database resources; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed Canadian and U.S. Accounting Guidelines, securities regulations, and/or laws.

Tax Fees

Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and valued added tax); and access fees for taxation database resources.

All Other Fees

Fees disclosed under this category were for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees”, above. In both 2006 and 2005, there were no services in this category.

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS

          The Audit Committees have adopted a written policy governing the pre-approval of audit and non-audit services to be provided to the Registrants by their independent auditors. The policy is reviewed and renewed annually and the audit and non-audit services to be provided to the Registrants by their independent auditors, as well as the budgeted amounts for such services, are pre-approved at that time. A report of all such services performed or to be performed by the independent auditors pursuant to the policy must be submitted to the Audit Committees by the Vice-President and Comptroller at least quarterly. Any additional audit or non-audit services to be provided by the independent auditors either not included among the pre-approved services or exceeding the budgeted amount for such pre-approved services by more than 10% must be individually pre-approved by the Audit Committees or their Chairman, who must report all such additional pre-approvals to the Audit Committees at their next meeting following the granting thereof. The independent auditors’ annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committees. Non-audit services that the Registrants’ independent auditors are prohibited from providing to the Registrants may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committees or their Chairman, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. Compliance with this policy is monitored by the Registrants’ Chief Internal Auditor.

OFF-BALANCE SHEET ARRANGEMENTS

          A description of the Registrants’ off-balance sheet arrangements is set forth on pages 34 and 35 of the Registrants’ 2006 Annual Report incorporated by reference and included herein.

TABLE OF CONTRACTUAL COMMITMENTS

          The table setting forth the Registrants’ contractual commitments is set forth on page 35 of the Registrants’ 2006 Annual Report incorporated by reference and included herein.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A.     Undertaking

          Each 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 registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B.     Consent to Service of Process

          A Form F-X signed by Canadian Pacific Railway Limited and its agent for service of process was filed with the Commission together with Canadian Pacific Railway Limited’s Annual Report on Form 40-F for the fiscal year ended December 31, 2000. A Form F-X signed by Canadian Pacific Railway Company and its agent for service of process was filed with the Commission on April 21, 2004.

SIGNATURES

          Pursuant to the requirements of the Exchange Act, each Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report on Form 40-F to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.

DOCUMENTS FILED AS PART OF THIS REPORT

1.		Annual Information Form of the Registrants for the year ended December 31, 2006.
2.		Annual Report of the Registrants for the year ended December 31, 2006, including Management’s Discussion and Analysis, Management’s Report on Internal Control over Financial Reporting and the Audited Consolidated Financial Statements of the Registrants as of December 31, 2006 and for each of the three years then ended1.

EXHIBITS

A.		Consent of PricewaterhouseCoopers, Independent Accountants.
B.		Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
C.		Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

¹  For the purposes of this Annual Report on Form 40-F, only pages 8 through 92 of the Registrants’ 2006 Annual Report referred to above shall be deemed filed, and the balance of such 2006 Annual Report, except as it may be otherwise specifically incorporated by reference in the Registrants’ Annual Information Form, shall be deemed not filed with the Securities and Exchange Commission as part of this Annual Report on Form 40-F under the Exchange Act.

TABLE OF CONTENTS

COVER PAGE
TABLE OF CONTENTS
CORPORATE STRUCTURE
Name, Address and Incorporation Information			2
INTERCORPORATE RELATIONSHIPS
Principal Subsidiaries			3
GENERAL DEVELOPMENT OF THE BUSINESS
Recent Developments			4
DESCRIPTION OF THE BUSINESS
Our Background and Network			6
Strategy			6
Partnerships, Alliances and Network Efficiency			6
Network and Right-of-Way			7
Business Categories			10
Freight Revenues			10
Railway Performance			14
Performance Indicators			14
Franchise Investment			14
Integrated Operating Plan			15
Information Technology			15
Labour Productivity and Efficiency			16
Risk Factors			16
Safety			18
Border Security			19
Labour Relations			19
Environmental Protection			20
Regulation and Other Issues			21
Insurance			22
Related-party Transactions			22
DIVIDENDS
Declared Dividends and Dividend Policy			23
CAPITAL STRUCTURE
Description of Capital Structure			24
Security Ratings			26
MARKET FOR SECURITIES
Stock Exchange Listings			27
Trading Price and Volume			27
DIRECTORS AND OFFICERS
Directors			28
Cease Trade Orders			29
Senior Officers			30
Shareholdings of Directors and Officers			31
LEGAL PROCEEDINGS			32
TRANSFER AGENTS AND REGISTRARS
Transfer Agents			33
INTERESTS OF EXPERTS			34
AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience			35
Pre-Approval of Policies and Procedures			35
Audit, Finance and Risk Management Committee Charter			36
Audit and Non-Audit Fees and Services			41
ADDITIONAL INFORMATION
Additional Company Information			43
Consent of Pricewaterhouse Coopers
CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT

All dollar amounts in this Annual Information Form (“AIF”) are in Canadian dollars, unless otherwise noted.

CORPORATE STRUCTURE

In this Annual Information Form (“AIF”), “our”, “us”, “we”, “CP” and “the Company” refer to Canadian Pacific Railway Limited (“CPRL”), CPRL and its subsidiaries, CPRL and one or more of its subsidiaries, or one or more of CPRL’s subsidiaries, as the context may require.

Name, Address and Incorporation Information

Canadian Pacific Railway Limited was incorporated on June 22, 2001, as 3913732 Canada Inc. pursuant to the Canada Business Corporations Act (“the CBCA”). On July 20, 2001, CP amended its Articles of Incorporation to change its name to Canadian Pacific Railway Limited. On October 1, 2001, Canadian Pacific Limited (“CPL”) completed an arrangement (“the Arrangement”) whereby it distributed to its common shareholders all of the shares of newly formed corporations holding the assets of four of CPL’s five primary operating divisions. The Arrangement was effected as an arrangement pursuant to section 192 of the CBCA. On September 26, 2001, the Arrangement was approved by the shareholders of CPL, and Canadian Pacific Railway Company (“CPRC”), previously a wholly owned subsidiary of CPL, was transferred to CPRL, effective October 1, 2001. The transfer was accomplished as part of a series of steps, pursuant to the terms of the Arrangement, whereby CPL transferred all of its outstanding shares of CPRC to a CPL subsidiary, 3921760 Canada Inc. (“3921760”). CPL then transferred all of its outstanding shares of 3921760 to CPRL, and CPRL amalgamated with 3921760.

Our registered office, executive offices and principal place of business are located at Suite 500, 401 — 9th Avenue S.W., Calgary, Alberta T2P 4Z4.

INTERCORPORATE RELATIONSHIPS

Principal Subsidiaries

The table below sets out our principal subsidiaries, including the jurisdiction of incorporation and the percentage of voting and non-voting securities we currently own directly or indirectly:

Percentage of Non-

Percentage of

Voting Securities

Voting Securities

Beneficially Owned, or

Incorporated

Held Directly or

over which Control or

Principal Subsidiary

under the Laws of

Indirectly

Direction is Exercised

Canadian Pacific Railway Company

Canada

100

%

Not applicable

Soo Line Corporation (1)

Minnesota

100

%

Not applicable

Soo Line Railroad Company (2)

Minnesota

100

%

Not applicable

Delaware and Hudson Railway Company, Inc. (2)

Delaware

100

%

Not applicable

Mount Stephen Properties Inc.(3)

Canada

100

%

Not applicable

(1)		Indirect wholly owned subsidiary of Canadian Pacific Railway Company.
(2)		Wholly owned subsidiary of Soo Line Corporation.
(3)		Wholly owned subsidiary of Canadian Pacific Railway Company.

GENERAL DEVELOPMENT OF THE BUSINESS

Recent Developments

We continually seek to grow the value and scale of our core business through infrastructure-sharing and joint-service programs with other railways, strategic capital investment programs, and operating plan strategies. Combined with the ongoing improvement of our locomotive fleet, these strategies facilitate more predictable and fluid train operations between major terminals.

In May 2006, we completed the sale of our 92.3-mile Latta subdivision in Indiana between Bedford and Fayette, near Terre Haute, to Indiana Rail Road Company. The sale, which closed in the second quarter of 2006, included trackage rights over CSX Transportation, Inc. (“CSX”) rail lines from Chicago, Illinois, to Terre Haute, Indiana, and from Bedford to New Albany in Indiana, and over the Norfolk Southern Railway (“NS”) line from New Albany to Louisville, Kentucky.

In January 2006, CP and Canadian National Railway Company (“CN”) entered into an agreement, which assists in the optimization of railway infrastructure in the lower mainland of British Columbia (“B.C.”). Under the arrangement, CP will operate the trains of both railways using CP crews from Boston Bar, B.C. to the terminals on the south shore of the Burrard Inlet in Vancouver, and return to North Bend, B.C. CN will operate the trains of both railways using CN crews from Boston Bar to the terminals on the north shore of the Burrard Inlet and return to North Bend. CP will provide all switching on the south shore of the Burrard Inlet, with the exception of the Burlington Northern Santa Fe Railway barge slip, and CN will provide all switching on the north shore of the Burrard Inlet. In addition, CP will operate some CN trains to or from the Roberts Bank port at Delta, B.C.

In 2005, a significant investment was made in the western portion of our rail network to improve trade and capacity between the Port of Vancouver in B.C. and the Canadian prairies. Western commodities, such as coal from the B.C. interior, and grain, sulphur and fertilizers from the prairies, are being transported to the west coast of Canada in growing volumes. Similarly, increased trade with China and other Asian countries generates additional volumes of containerized freight in this region. We expanded train capacity on our western rail network by 12%, or approximately four extra trains per day. The expansion work was completed on time and within budget. It included:

	•		10 projects between Moose Jaw, Saskatchewan and Calgary, Alberta to extend sidings and lay sections of double track;
	•		three projects in Alberta, between Edmonton and Calgary, to extend sidings and build a new siding;
	•		12 projects between Calgary and the Port of Vancouver to extend sidings and lay sections of double track.

A siding is a limited length of track parallel to the main line that enables trains running in either direction to pass each other. Longer sidings permit the operation of longer trains, resulting in more freight moved per train and fewer trains required to move the same volume of freight traffic. Longer sidings also reduce the number of locomotives required to move the same amount of freight in a given rail corridor. We have identified other corridor bottlenecks on our network and a plan is in place to provide appropriate capacity in order to increase train density and capacity on all of our major routes.

In 2004, we entered into an agreement with CN and NS to provide a significantly shorter, more direct routing over our Delaware and Hudson Railway Company, Inc. (“D&H”) lines for NS-CN interline traffic moving between eastern Canada and the eastern U.S. Under the agreement:

	•		CN traffic destined for the eastern U.S. will move in our trains on the D&H line in New York between Rouses Point and Saratoga Springs under our freight haulage arrangement with NS;
	•		this CN traffic will then move in NS trains over the D&H line between Saratoga Springs and the NS connection near Harrisburg, Pennsylvania, under our trackage rights agreements with NS.

The agreement with CN and NS generated approximately one train per day of new business in each direction, seven days a week on the D&H. This arrangement is improving traffic density on the D&H and generating additional revenue.

On June 30, 2004, we entered into a Memorandum of Understanding with NS in an effort to improve the efficiency of railway operations and enhance rail service to customers of the D&H. Definitive agreements were reached, pursuant to which:

	•		NS provides yard services for CP at Buffalo, New York;
	•		NS hauls CP traffic between Buffalo and Binghamton in New York;
	•		CP grants trackage rights to NS between Binghamton and Saratoga Springs;
	•		CP hauls NS traffic between Rouses Point and Saratoga Springs;
	•		CP provides yard services for NS at Binghamton;
	•		NS grants CP trackage rights over certain NS lines in the vicinity of Buffalo; and
	•		NS grants CP trackage rights between Detroit, Michigan and Chicago, Illinois.

GENERAL DEVELOPMENT OF THE BUSINESS

Operations under the agreements commenced in 2005, and the last of the associated regulatory exemptions were obtained from the U.S. Surface Transportation Board (“STB”) in the second quarter of 2005. We are now realizing the benefits and savings from these agreements.

DESCRIPTION OF THE BUSINESS

Our Background and Network

CPRC was incorporated by Letters Patent in 1881 pursuant to an Act of the Parliament of Canada. CPRC is one of Canada’s oldest corporations and was North America’s first transcontinental railway. From our inception 126 years ago, we have developed into a fully integrated and technologically advanced Class 1 railway (a railroad earning a minimum of US$319.3 million in revenues annually) providing rail and intermodal freight transportation services over a 13,300-mile network serving the principal business centres of Canada, from Montreal, Quebec, to Vancouver, B.C., and the U.S. Midwest and Northeast regions.

We own approximately 9,100 miles of track. An additional 4,200 miles of track are owned jointly, leased or operated under trackage rights. Of the total mileage operated, approximately 6,550 miles are located in western Canada, 2,200 miles in eastern Canada, 3,250 miles in the U.S. Midwest and 1,300 miles in the U.S. Northeast. Our business is based on funnelling railway traffic from feeder lines and connectors, including secondary and branch lines, onto our high-density mainline railway network. We have extended our network reach by establishing alliances and connections with other major Class 1 railways in North America, which allow us to provide competitive services and access to markets across North America beyond our own rail network. We also provide service to markets in Europe and the Pacific Rim through direct access to the Port of Montreal, Quebec, and the Port of Vancouver, B.C., respectively.

Our network accesses the U.S. market directly through two wholly owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class 1 railway operating in the U.S. Midwest; and the D&H, which operates between eastern Canada and major U.S. Northeast markets, including New York City, New York; Philadelphia, Pennsylvania; and Washington, D.C.

Strategy

Our vision is to become the safest and most fluid railway in North America. Through the ingenuity of our people, it is our objective to create long-term value for customers, shareholders and employees by profitably growing within the reach of our rail franchise. We seek to accomplish this objective through the following three-part strategy:

	•		generating quality revenue growth by realizing the benefits of demand growth in our bulk, intermodal and merchandise business lines with targeted infrastructure capacity investments linked to global trade opportunities;
	•		improving productivity by leveraging strategic marketing and operating partnerships, executing a scheduled railway through our Integrated Operating Plan (“IOP”) and driving more value from existing assets and resources by improving “fluidity”; and
	•		continuing to develop a dedicated, professional and knowledgeable workforce that is committed to safety and sustainable financial performance through steady improvement in profitability, increased free cash flow and a competitive return on investment.

Partnerships, Alliances and Network Efficiency

Some customers’ goods may have to travel on more than one railway to reach their final destination. The transfer of goods between railways can cause delays and service interruptions. Our rail network connects to other North American rail carriers and, through partnerships, we continue to co-develop processes and products designed to provide seamless and efficient scheduled train service to these customers.

We continue to increase the capacity and efficiency of our core franchise through infrastructure-sharing and joint-service programs with other railways and third parties, strategic capital investment programs, and operating plan strategies. Combined with the continued improvement of our locomotive fleet, these strategies enable us to achieve more predictable and fluid train operations between major terminals.

Recent Class 1 railway initiatives include:

	•		a CP-CN directional running agreement over about 100 miles of parallel CP and CN track in Ontario between Waterfall (near Sudbury) and Parry Sound. The trains of both railways operate eastbound over CN’s line and westbound over our line;
	•		a CP-CN haulage agreement under which we transport CN freight over about 300 miles of CP track in Ontario between Thunder Bay and Franz;
	•		CP-CN initiatives in the Port of Vancouver Terminal and B.C. Lower Mainland;
	•		a CP-NS trackage rights agreement to handle NS traffic over our D&H lines in the U.S. Northeast; and
	•		a CP-NS track connection at Detroit, Michigan that provides service between eastern Canada and the U.S. Midwest.

DESCRIPTION OF THE BUSINESS

We also develop mutually beneficial arrangements with smaller railways, including shortline and regional carriers.

In November 2005, CP and the Fraser River Port Authority (“FRPA”) entered into a cooperation agreement to enhance service through the Fraser River Port, south of the Port of Vancouver, and to capture growth opportunities in global trade. Under the agreement, CP and FRPA will consult on market and trade outlooks and business development opportunities, coordinate investments, and engage in multi-modal planning to build or expand port and rail infrastructure, such as terminals and track. FRPA will also support efforts to enhance our access to Fraser River facilities to help meet increased demand for rail service.

In April 2005, we signed a cooperation agreement with the Vancouver Port Authority (“VPA”) to work on joint capacity developments to more fully capture expanding Asia-Pacific trade opportunities. Joint initiatives include marketing programs and domestic public policy advocacy to increase competitiveness, operational efficiencies and customer service at the Port of Vancouver. There is also a commitment by both parties to ensure that the Port of Vancouver is the most secure port system on the West Coast of the Americas. CP and VPA will also advocate a policy framework in Canada that fosters private sector investment in an integrated transportation system, including marine, rail, road and air, and encourages coordinated federal and provincial investment in Canada’s aging transportation network in local communities.

Network and Right-of-Way

Our 13,300-mile network extends from the Port of Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the U.S. industrial centres of Chicago, Illinois; Newark, New Jersey; Philadelphia, Pennsylvania; and New York City and Buffalo, New York.

Our network is composed of four primary corridors: Western, Southern, Central, and Eastern. These corridors are comprised of main lines, totalling approximately 4,750 miles, supported by secondary and branch rail lines (“feeder lines”) that carry traffic to and from the main lines.

The Western Corridor: Vancouver-Moose Jaw

Overview — The Western Corridor links Vancouver with Moose Jaw, which is the western Canadian terminus of our Southern and Central corridors. With service through Calgary, the Western Corridor is an important part of our routes between Vancouver and the U.S. Midwest, and between Vancouver and central and eastern Canada.

Products — The Western Corridor is our primary route for bulk and resource products traffic from western Canada to the Port of Vancouver for export. We also handle significant volumes of international intermodal containers and domestic general merchandise traffic.

Feeder Lines — We support our Western Corridor with three significant feeder lines: the “Coal Route”, which links southeastern B.C. coal deposits to the Western Corridor and to the Roberts Bank terminal at the Port of Vancouver; the “Calgary-Edmonton-Scotford Route”, which provides rail access to central Alberta’s petrochemical industries and natural resources markets; and the

DESCRIPTION OF THE BUSINESS

“Pacific CanAm Route”, which connects Calgary and Medicine Hat, Alberta, with Union Pacific Railroad Company (“UP”) at Kingsgate, B.C.

Connections — Our Western Corridor connects with UP at Kingsgate and with Burlington Northern Santa Fe Railway (“BNSF”) at Coutts, Alberta, and at New Westminster and Huntingdon in B.C. This corridor also connects with CN at Red Deer, Alberta; Calgary; Edmonton; Kamloops, B.C.; and several locations in the Vancouver Area.

Yards and Repair Facilities — We support rail operations on the Western Corridor with main rail yards at Vancouver, Calgary, Edmonton and Moose Jaw. We also have major intermodal terminals at Vancouver, Calgary and Edmonton, and locomotive and rail car repair facilities at Golden, B.C., Vancouver, Calgary and Moose Jaw.

Other — In 2005, we completed a series of capacity expansion projects in the Western Corridor, which increased capacity in this corridor by approximately four trains per day. These projects are discussed further in the section “General Development of the Business” in this AIF.

The Southern Corridor: Moose Jaw-Chicago

Overview — The Southern Corridor connects with the Western Corridor at Moose Jaw. By running south to Chicago through the twin cities of Minneapolis and St. Paul in Minnesota, and through Milwaukee, Wisconsin, we provide a direct, single-carrier route between western Canada and the U.S. Midwest.

Products — Primary traffic categories transported on the Southern Corridor include intermodal containers from the Port of Vancouver, Canadian fertilizers, chemicals, grain, coal, and automotive and U.S. agricultural products.

Feeder Lines — We support the Southern Corridor with a major feeder line connecting Glenwood, Minnesota, and Winnipeg, Manitoba. This line is both a gathering network for U.S. grain and a route for Canadian fertilizers and merchandise traffic destined to the U.S.

We have operating rights over the BNSF line between Minneapolis and the twin ports of Duluth, Minnesota, and Superior, Wisconsin. This line provides an outlet for grain from the U.S. Midwest to the grain terminals at these ports.

Prior to the second half of 2006, we provided service on a route from Chicago to Louisville, Kentucky, through a combination of operating rights and owned lines. General merchandise traffic and a significant amount of coal traffic from mines in southern Indiana move over this route, which was sold to Indiana Rail Road Company in the second quarter of 2006 (discussed further in the section “General Development of the Business”).

Connections — Our Southern Corridor connects with all major railways at Chicago. Outside of Chicago, we have major connections with BNSF at Minneapolis and at Minot, North Dakota, and with UP at St. Paul. We connect with CN at Minneapolis, Milwaukee and Chicago. Our Southern Corridor also links to several shortline railways that primarily serve grain and coal producing areas in the U.S.

Yards and Repair Facilities — We support rail operations on the Southern Corridor with main rail yards in Chicago, St. Paul and Glenwood. We own 49% of the Indiana Harbor Belt Railroad Company, a switching railway serving Greater Chicago and northwest Indiana, and have two major intermodal terminals in Chicago and one in Minneapolis. In addition, we have a major locomotive repair facility at St. Paul and car repair facilities at St. Paul and Chicago.

The Central Corridor: Moose Jaw-Toronto

Overview — The Central Corridor extends from Moose Jaw through Winnipeg to its eastern terminus at Toronto. We complement the Central Corridor with a secondary route in Ontario that is leased and operated by Ottawa Valley Railway. This secondary route connects Sudbury and Smiths Falls, Ontario, and expedites the movement of our traffic between Montreal and western Canada. Our Central Corridor provides shippers direct rail service from Toronto and Montreal to Calgary and Vancouver via our Western Corridor. This is a key element of our transcontinental intermodal and other services. The Central Corridor also provides access to the Port of Thunder Bay, Ontario, Canada’s primary Great Lakes bulk terminal.

Products — Major traffic categories transported in the Central Corridor include Canadian grain, coal, forest and industrial and consumer products, intermodal containers, automotive products and general merchandise.

Feeder Lines — We support the Central Corridor with a main feeder line connecting Edmonton with Winnipeg, through Saskatoon and Regina in Saskatchewan. This line is an important collector of Canadian grain and fertilizer.

DESCRIPTION OF THE BUSINESS

Connections — The Central Corridor connects with BNSF at Emerson, Manitoba, and with a number of shortline railways. This corridor also connects with CN at Regina, Saskatoon, Winnipeg, Thunder Bay and Sudbury.

Yards and Repair Facilities — We support our rail operations in the Central Corridor with major rail yards at Saskatoon, Winnipeg, Toronto and Thunder Bay. Our largest intermodal facility is located in the northern Toronto suburb of Vaughan and

serves the Greater Toronto and southwestern Ontario areas. We also operate intermodal terminals at Thunder Bay, Winnipeg, Saskatoon and Regina.

We have major locomotive repair facilities at Winnipeg and Toronto and car repair facilities at Winnipeg, Thunder Bay and Toronto.

The Eastern Corridor

Overview — The Eastern Corridor provides an important link between the major population centres of eastern Canada, the U.S. Midwest and the U.S. Northeast. The corridor supports our market position at the Port of Montreal by providing one of the shortest rail routes for European cargo destined to the U.S. Midwest. The Eastern Corridor consists of a route between Montreal and Detroit, which we own and maintain, coupled with a trackage rights arrangement on NS track between Detroit and Chicago and a long-term rail car haulage contract with CSX that links Detroit with our lines in Chicago.

Products — Major traffic categories transported in the Eastern Corridor include intermodal containers, automotive, and forest and industrial and consumer products, as well as truck trailers moving in drive-on/drive-off Expressway service between Montreal and Toronto.

Feeder Lines — The Eastern Corridor connects with important feeder lines. Our route between Montreal and Sunbury, Pennsylvania, in combination with trackage rights over other railways, provides us with direct access to New York City and Albany, New York; Philadelphia; Newark, New Jersey; and Washington, D.C. The line between Guelph Junction, Ontario and Binghamton, including haulage rights over NS lines, links industrial southern Ontario with key U.S. connecting rail carriers at Buffalo and with the Montreal-to-Sunbury line at Binghamton.

Connections — The Eastern Corridor connects with all major railways at Chicago. We also have major connections with NS at Detroit, Buffalo, and at Harrisburg and Allentown in Pennsylvania, and with CSX at Detroit, Buffalo, Albany, Philadelphia, and Washington D.C. In addition, our eastern corridor connects with CN at Montreal and at Toronto, Windsor and London in Ontario.

Yards and Repair Facilities — We support our Eastern Corridor with major rail yards and terminals in Chicago, Toronto, Montreal and Binghamton. There are also intermodal facilities in Montreal and Detroit, as well as a second intermodal facility in Toronto dedicated to serving the Eastern Corridor. Terminals for our Expressway service are located in Montreal and at Milton and Agincourt in the Greater Toronto area. We have locomotive and car repair facilities in Montreal and Binghamton, in addition to car repair facilities in Chicago and locomotive and car repair facilities in Toronto,

Other — On June 30, 2004, we announced a restructuring of the D&H whereby D&H and NS provide yard and haulage services for each other (discussed further in the section “General Development of the Business” in this AIF). This restructuring has reduced costs and provided new income for the D&H. The STB in the second quarter of 2005 approved the final changes stemming from the agreement.

Right-of-Way

Our rail network is standard gauge, which is used by all major railways in Canada, the U.S. and Mexico. Continuous welded rail is used on almost all of our mainline. Virtually all of the network and primary feeder trackage is 100-pound or heavier rail, suitable for the movement of high-capacity 286,000-pound freight cars.

We use different train control systems on portions of our owned track, depending on the volume of rail traffic. Remotely controlled centralized traffic control signals are used to authorize the movement of trains where traffic is heaviest.

Where rail traffic is lightest, train movements are directed by written instructions transmitted electronically and by radio from rail traffic controllers to train crews. In areas of intermediate traffic density, we use an automatic block signalling system in conjunction with written instructions from rail traffic controllers.

DESCRIPTION OF THE BUSINESS

Business Categories

The following table compares the percentage of our total freight revenue derived from each of our major business lines in 2006 compared with 2005:

Business Category			2006				2005
Bulk				44	%			45	%
Merchandise				28	%			28	%
Intermodal				28	%			27	%

Freight Revenues

The following table summarizes our annual freight revenues since 2004:

Freight Revenues						Fiscal 2006								Fiscal 2005
(in $ millions, except for percentages)						Growth								Growth
						Rate as								Rate as
						Compared								Compared
		Fiscal				to Fiscal				Fiscal				to Fiscal				Fiscal
Business Category		2006				2005				2005				2004				2004
Bulk
Grain			905				20.0	%			754				12.9	%			668
Coal			592				(18.8	)%			729				37.5	%			530
Sulphur and fertilizers			439				(1.8	)%			447				(2.8	)%			460
Total bulk			1,936				0.3	%			1,930				16.4	%			1,658
Merchandise
Forest products			316				(5.4	)%			334				3.7	%			322
Industrial and consumer products			604				11.2	%			543				12.9	%			481
Automotive			314				5.4	%			298				3.1	%			289
Total merchandise			1,234				5.0	%			1,175				7.6	%			1,092
Intermodal			1,257				8.3	%			1,161				12.2	%			1,035
Total freight revenues			4,427				3.8	%			4,266				12.7	%			3,785

Bulk

Our bulk business represented approximately 44% of total freight revenues in 2006.

Grain

Our grain business accounted for approximately 20% of total freight revenues in 2006.

Grain transported by CP consists of both whole grains, including wheat, corn, soybeans and canola, and processed products, such as canola meal, vegetable oil and flour.

Our grain business is centred in two key agricultural areas: the Canadian prairies (Alberta, Saskatchewan and Manitoba) and the Northern Plains states of North Dakota and Minnesota. Western Canadian grain is shipped primarily west to the Port of Vancouver and east to the Port of Thunder Bay for export. Grain is also shipped to the U.S. Midwest and to eastern Canada for domestic consumption. U.S.-originated export grain traffic is shipped to ports at Duluth and Superior. In partnership with other railways, we also move grain to export terminals in the U.S. Pacific Northwest and the Gulf of Mexico. Grain destined for domestic consumption moves east via Chicago to the U.S. Northeast or is interchanged with other carriers to the U.S. Southeast, Pacific Northwest and California markets.

Railway rates for the movement of export grain in western Canada are subject to legislative provisions. These provisions apply to defined commodities and origin/destination pairings set out in the Canada Transportation Act (“CTA”). The revenue formula

DESCRIPTION OF THE BUSINESS

included in the CTA is indexed annually to reflect changes in the input costs associated with transporting grain destined for export markets. For additional information, refer to the section “Regulation and Other Issues”.

Coal

Our coal business represented approximately 14% of total freight revenues in 2006.

We handle mostly metallurgical coal destined for export through the Port of Vancouver for use in the steel-making process in the Pacific Rim, Europe and South America.

Our Canadian coal traffic originates mainly from mines in southeastern B.C. They are considered to be among the most productive, highest-quality metallurgical coal mines in the world. We move coal west from these mines to port terminals for export to world markets, and east for consumption in steel-making mills along the Great Lakes.

In the U.S., we move primarily thermal coal from the Powder River and Illinois Basins for use in power-generating plants. Our U.S. coal business also includes petroleum coke shipments to power-generating facilities.

Sulphur and Fertilizers

Sulphur and fertilizers business represented approximately 10% of total freight revenues in 2006.

•

Sulphur

Most sulphur produced in Alberta is a by-product of processing sour natural gas, refining crude oil and upgrading bitumen produced in the Alberta oil sands. Sulphur is a raw material used primarily in the manufacture of sulphuric acid, the most common industrial chemical in the world. Sulphuric acid is used most extensively in the production of phosphate fertilizers, and demand for elemental sulphur rises with demand for fertilizers. Sulphuric acid is also a key ingredient in industrial processes ranging from smelting and nickel leaching to paper production.

Alberta’s oil and gas industry produces more than eight million tonnes of sulphur annually. We transport approximately half of the sulphur that enters international markets from Canada and we are the leading transporter of formed sulphur shipped from gas plants in southern Alberta to the Port of Vancouver. The two largest shipping points in southern Alberta are Shantz and Waterton and both are located on our rail lines. Currently, our export traffic is destined mainly to China, Australia and the U.S. In addition, we transport liquid sulphur from Scotford, Alberta, site of one of the largest refineries in the Edmonton area, and from other origins to the southeastern and northwestern U.S. for use in the fertilizer industry.

•

Fertilizers

Fertilizers traffic consists primarily of potash and chemical fertilizers. Our potash traffic moves mainly from Saskatchewan to markets in the U.S. and to offshore markets through the ports of Vancouver, Thunder Bay and Portland, Oregon. Chemical fertilizers are transported to markets in Canada and the northwestern U.S. from key production areas in the Canadian prairies. Phosphate fertilizer is also transported from U.S. and Canadian producers to markets in Canada and the northern U.S.

We provide transportation services from major potash and nitrogen production facilities in western Canada and have efficient routes to the major U.S. markets. We also have direct service to key fertilizer distribution terminals, such as the barge facilities on the Mississippi River system at Minneapolis-St. Paul, as well as access to Great Lakes vessels at Thunder Bay.

Merchandise

Our merchandise business represented approximately 28% of total freight revenues in 2006.

Merchandise products move in trains of mixed freight and in a variety of car types and service involves delivering products to many different customers and destinations.

In addition to traditional rail service, we move merchandise traffic through a network of truck-rail transload facilities and provide logistics services through our Canadian Pacific Logistics Solutions (“CPLS”) division, which develops simplified logistics solutions to resolve complex supply chain issues.

DESCRIPTION OF THE BUSINESS

Forest Products

Our forest products business represented approximately 7% of total freight revenues in 2006.

Forest products traffic includes wood pulp, paper, paperboard, newsprint, lumber, panel and Oriented Strand Board shipped from key producing areas in B.C., northern Alberta, northern Saskatchewan, Ontario and Quebec to destinations throughout North America.

Industrial and Consumer Products

Our industrial and consumer products business represented approximately 14% of total freight revenues in 2006.

Industrial and consumer products traffic includes an array of commodities grouped as plastics, aggregates, minerals, metals, steel, chemicals and energy-related products.

Our industrial and consumer products traffic is widely dispersed throughout North America, with large bases in Alberta, Ontario, Quebec and the U.S. Midwest. The location of mines, steel mills and aggregate facilities adjacent to our rail lines provides for the convenient shipment of a diverse group of industrial products for a wide range of customers. We transport products to destinations throughout North America, including to and from ports. We also participate in the movement of products from the U.S. to Canadian destinations, including chemicals originating in and around the Gulf Coast and destined to points in eastern Canada.

Automotive

Our automotive business represented approximately 7% of total freight revenues in 2006.

Automotive traffic includes domestic, import and pre-owned vehicles as well as automotive parts. We transport finished vehicles from U.S. and Canadian assembly plants to the Canadian marketplace, and to other markets throughout North America via major interchanges at Detroit, Chicago and Buffalo. We also move imported vehicles from tidewater ports to retail markets in Canada and the U.S. Midwest. A comprehensive network of automotive compounds is utilized to facilitate final delivery of vehicles to dealers throughout Canada, in Minnesota and in the U.S. northeast.

Intermodal

Our intermodal business accounted for approximately 28% of total freight revenues in 2006.

Domestic intermodal freight consists primarily of manufactured consumer products moving in containers.

International intermodal freight moves in marine containers between ports and North American inland markets.

Domestic Intermodal

Our domestic intermodal segment consists primarily of long-haul intra-Canada and cross-border business. Key service factors in domestic intermodal include consistent on-time delivery, the ability to provide door-to-door service and the availability of value-added services. The majority of our domestic intermodal business originates in Canada where we market our services directly to retailers, providing complete door-to-door service and maintaining direct relationships with our customers. In the U.S., our service is delivered mainly through wholesalers.

International Intermodal

Our international intermodal business consists primarily of containerized traffic moving between the ports of Vancouver, Montreal, New York and Philadelphia and inland points across Canada and the U.S.

We are a major carrier of containers moving via the ports of Montreal and Vancouver. Import traffic from the Port of Vancouver is mainly long-haul business destined for eastern Canada and the U.S. Midwest and Northeast, and our trans-Pacific service offers the shortest route between the Port of Vancouver and Chicago. We work closely with the Port of Montreal, a major year-round East Coast gateway to Europe, to serve markets primarily in Canada and the U.S. Midwest. Our U.S. Northeast service connects eastern Canada with the ports of Philadelphia and New York, offering a competitive alternative to trucks.

Recent investments in terminals and track infrastructure as well as operating and service initiatives have enhanced our strategic position for future growth.

DESCRIPTION OF THE BUSINESS

Other Business

We earn additional revenues through the sale and lease of assets. Other arrangements include infrastructure and operating agreements with government-sponsored commuter rail authorities and contracts with passenger service operators.

Significant Customers

At December 31, 2006, one customer comprised 11.5% of total revenues and 5.6% of total accounts receivable. At December 31, 2005 and 2004, the same customer comprised 14.5% and 11.7% of total revenues and 8.0% and 12.4% of total accounts receivable, respectively.

DESCRIPTION OF THE BUSINESS

Railway Performance

We focus on franchise investment, increasing network efficiency and improving asset utilization, train operations productivity and labour productivity. The following table summarizes the effect of these strategies based on industry-recognized performance indicators:

		Year Ended December 31
Performance Indicators(1)		2006				2005				2004				2003				2002
Gross ton-miles (GTM) (millions)(2)			236,405				242,100				236,451				221,884				209,596
Revenue ton-miles (RTM) (millions)(3)			122,874				125,303				123,627				114,599				107,689
Number of active employees — end of period(4)			15,327				16,295				15,637				15,645				15,860
Employee productivity (GTMs per average active employee (thousands))			14,824				14,719				14,727				13,759				13,005
Traffic density (GTMs per mile of road operated, excluding track on which CP has haulage rights (thousands))(5)			17,828				17,681				17,113				16,023				15,107
Fuel efficiency (U.S. gallons of locomotive fuel per 1,000 GTMs — freight and yard)			1.20				1.18				1.20				1.24				1.24

(1)		Train-miles and average train weights are no longer reported as we no longer consider these to be the main drivers for managing our operating costs.
(2)		Gross ton-miles of freight measure the movement of total train weight over a distance of one mile. (Total train weight is comprised of the weight of the freight cars, their contents and any inactive locomotives.)
(3)		Revenue ton-miles of freight measure the distance traveled by the head locomotive on each train operating over our track.
(4)		The number of actively employed workers during the last month of the period. This includes employees who are taking vacation and statutory holidays and other forms of short-term paid leave, and excludes individuals who have a continuing employment relationship with us but are not currently working.
(5)		Certain prior period figures have been revised to conform with current presentation or have been updated to reflect new information.

Franchise Investment

Franchise investment is an integral part of our multi-year capital program and supports our growth initiatives. Our annual capital program typically includes investments in track and facilities (including rail yards and intermodal terminals), locomotives, information technology, and freight cars and other equipment.

We invested approximately $2.4 billion in our core assets from 2004 to 2006, with annual capital spending over this period averaging approximately 19% of revenues. This included approximately $1.7 billion invested in track and facilities, $0.3 billion in locomotives, $0.1 billion in information technology and $0.3 billion in freight cars and other equipment.

Locomotive Fleet

We continue to upgrade our locomotive fleet by acquiring high-adhesion alternating current (“AC”) locomotives, which are more fuel efficient and reliable and have superior hauling capacity compared with standard direct current (“DC”) locomotives. Our locomotive fleet now includes 677 AC locomotives. While AC locomotives represent approximately 61% of our road-freight locomotive fleet, they handle about 82% of our workload. Our investment in AC locomotives has helped to improve service reliability and generate cost savings in fuel, equipment rents and maintenance. It has also allowed us to remove from service 887 older less-efficient locomotives and to more efficiently utilize our repair and maintenance facilities.

DESCRIPTION OF THE BUSINESS

Following is a synopsis of our owned and leased locomotive fleet:

Number of Locomotives
(owned and leased)

		Road Freight								Road				Yard
Age in Years		AC				DC				Switcher				Switcher				Total
0-5			347				—				—				—				347
6-10			247				—				—				—				247
11-15			83				—				—				—				83
16-20			—				67				2				—				69
Over 20			—				370				267				252				889
Total			677				437				269				252				1,635

Railcar Fleet

We own or lease approximately 47,800 freight cars. Approximately 20,800 are owned by CP, 7,300 are hopper cars owned by Canadian federal and provincial government agencies, and 19,700 are leased. Long-term leases on approximately 3,900 cars are scheduled to expire during 2007, and the leases on approximately 10,500 additional cars are scheduled to expire before the end of 2011.

Our covered hopper car fleet, used for transporting regulated grain, consists of owned and leased cars. A portion of the fleet used to transport export grain is leased from the Government of Canada, with whom we are currently negotiating a new operating agreement.

Integrated Operating Plan

Our IOP is the foundation for our scheduled railway operations, through which we strive to provide quality service for customers and improve asset utilization to achieve high levels of efficiency. The key principles upon which our IOP is built include moving freight cars across the network with as few handlings as possible, creating balance in directional flow of trains in our corridors by day of week, and minimizing the time that locomotives and freight cars are idle.

Under our IOP, trains are scheduled to run consistently at times agreed upon with our customers. To accomplish this, we establish a plan for each rail car that covers its entire trip from point of origin to final destination. Cars with similar destinations are consolidated into blocks. This reduces delays at intermediate locations by simplifying processes for employees, eliminating the duplication of work and helping to ensure traffic moves fluidly through rail yards and terminals.

These measures improve transit times for shipments throughout our network and increase car availability for customers. Our IOP also increases efficiency by more effectively scheduling employee shifts, locomotive maintenance, track repair and material supply.

We have capitalized on the new capabilities of our network, our upgraded locomotive fleet and the IOP to operate longer and heavier trains. This has reduced associated expenses, simplified the departure of shipments from points of origin and provided lower-cost capacity for growth.

We are committed to continuously improve scheduled railway operations as a means to achieve additional efficiencies that will enable further growth without the need to incur significant capital expenditures to accommodate the growth.

Information Technology

As a 24-hour-a-day, seven-day-a-week business, we rely heavily on our computer systems to schedule all components of our operations. Computer applications map out complex interconnections of freight cars, locomotives, facilities, track and train crews to meet more than 10,000 individual customer service commitments every day. We use an intricate automated traffic forecasting system that determines optimal freight car routings and the workload in our yards by using sophisticated, industry-specific software and generating time-distance diagrams to examine track capacity.

During 2005, we completed the implementation of TYES, a new yard inventory management system. Using waybill information, TYES triggers classification instructions from CP’s trip planning system so that individual shipments are matched to freight car blocks, which in turn are matched to trains. The result is optimized routing and improved fluidity in CP freight yards. A trip plan is

DESCRIPTION OF THE BUSINESS

created for each customer’s shipment and integrated with train planning and yard applications to ensure that the instructions issued for the customer’s shipment are consistent with the information given to the customer. With TYES now fully implemented, we have completed our Service Excellence suite of operating systems. These operating systems manage the overall movement of our customers’ shipments and provide railway managers with highly reliable data on shipment performance, transit times, connections with other trains, train and yard capacities, and locomotive requirements. This data is used to make adjustments to the IOP to achieve specific service and productivity targets and ensure all design objectives are achieved.

We have begun the implementation of the TRIEX system to further improve our intermodal service offering. TRIEX will provide a customer self-service offering, including reservations, proof of delivery and full shipment tracking. TRIEX will also give us the means to have more sophisticated pricing options and simplify our billing processes. TRIEX was implemented at two intermodal terminals in 2006 and we are planning on completing implementation of TRIEX at all our remaining intermodal terminals by the end of 2007, along with the customer and accounting functionality.

During 2005, we signed a license agreement with SAP Canada to leverage use of its software to functions beyond managing assets and expenditures , such as revenue management, supplier management and pricing.

In addition, with the outsourcing of a substantial amount of our information technology infrastructure to world-class service providers, our information technology focus is on leveraging information and applications to improve railway productivity and obtaining more value from our existing assets and resources.

Labour Productivity and Efficiency

We continually take steps to improve the effectiveness of our organizational structure in order to increase productivity and efficiency. Since 1996, we have improved communication and decision-making, simplified the organization’s management structure, and increased the responsibility given to management personnel. We regularly review our organizational processes, workforce needs and related organizational costs with a focus on improving the productivity and efficiency of our workforce while reducing expenses.

In 2003, we began a program to eliminate 820 positions by consolidating administrative functions, applying new information technology to increase productivity in administrative areas and yard operations, and to increase car and locomotive maintenance efficiency.

In 2005, we began a restructuring initiative to further improve efficiency in our administrative areas. The restructuring was intended to eliminate more than 400 management and administration positions. As part of this initiative, we introduced a voluntary incentive retirement program for long-service employees in Canada.

The targeted reductions for these initiatives were successfully achieved by 2006.

In order to stimulate and reward employee participation in our efficiency initiatives, we have implemented a number of incentive-based compensation programs designed to allow eligible unionized and non-unionized employees to share in the profits they help generate.

Risk Factors

Competition

The freight transportation industry is highly competitive. We face intense competition for freight transportation in Canada and the U.S., including competition from other railways and trucking companies. We are subject to competition for freight traffic from other Class 1 railways, particularly BNSF, CN, CSX, NS and UP. Competition is based mainly on price, quality of service and access to markets. Competition with the trucking industry is generally based on freight rates, flexibility of service and transit time performance. Any improvement in the cost structure or service of our competitors could increase competition and have a materially adverse impact on our business or operating results.

There was significant consolidation of the railway industry in North America during the 1990s, which led to larger railway companies. These companies offer services in large market areas and compete with us in these markets. Increased competition from current and future competitors in the railway industry could adversely affect our competitive position, financial condition and operating results.

Economic and Other Conditions

Our freight volumes and revenues are largely dependent upon the health of the North American and global economies and other factors affecting the volumes and patterns of international trade. We are also sensitive to factors such as weather, security

DESCRIPTION OF THE BUSINESS

threats, commodity pricing and global supply and demand, as well as developments affecting North America’s agricultural, mining, forest products, consumer products, import/export and automotive sectors. These factors and developments are beyond the influence or control of the railway industry generally and CP specifically and may have a material adverse effect on our business or operating results.

Fuel Prices

Fuel expense constitutes a significant portion of CP’s operating costs. Fuel price volatility can therefore have a material effect on operating results. Fuel prices can be influenced by local and international supply disruptions stemming from the loss of crude oil production or refining capacity. These disruptions can be caused by weather, unplanned infrastructure failures or geopolitical events. To manage this exposure to fluctuations in fuel prices, CP utilizes a fuel surcharge program to partially offset fuel cost increases. In addition to the fuel surcharge, we may from time to time sell or purchase crude-related derivative instruments. To the extent that fuel costs decline below the levels specified in any such derivative instrument, we will not receive the full benefit of the reduction.

Foreign Exchange Risk

Although we conduct our business and receive revenues primarily in Canadian dollars, a significant portion of our revenues, expenses, assets and liabilities including debt are denominated in U.S. dollars. Consequently, our results are affected by fluctuations in the exchange rate between these currencies. In addition, changes in the exchange rate between the Canadian dollar and other currencies (including the U.S. dollar) make the goods transported by us more or less competitive in the world marketplace and, in turn, positively or negatively affect our revenues and expenses. To manage this exposure to fluctuations in exchange rates between Canadian and U.S. dollars, we sell or purchase forward U.S. dollars at fixed rates in future periods. To the extent that exchange rates decline below the rate fixed by such futures contracts, we will not receive the full benefit of these contracts.

Interest Rate Risk

In order to finance our capital purchases, we may enter into long-term debt agreements These debt agreements expose us to increased interest costs on future fixed debt instruments and existing variable rate debt instruments should market rates increase. In addition, the present value of our assets and liabilities will also vary with interest rate changes. To manage our interest rate exposure, we may enter into forward rate agreements (“Treasury Locks”) that lock in rates for a future date, thereby protecting ourselves against interest rate increases. We may also enter into swap agreements whereby one party agrees to pay a fixed rate of interest while the other party pays a floating rate. Contingent on the direction of interest rates, we may incur higher costs, depending on our contracted rate.

Regulatory Authorities

Our railway operations in Canada are subject to regulations under the CTA, the Railway Safety Act and certain other statutes administered by the Canadian Transportation Agency and the federal Minister of Transport. Our U.S. railway operations are subject to regulation by the STB and the Federal Railroad Administration (“FRA”). We are also subject to federal, provincial, state and local laws and regulations dealing with health, security, safety, labour, environmental, rate and other matters, all of which may affect our business or operating results.

In addition, we are subject to statutory and regulatory directives in the U.S. that address homeland security concerns. Future decisions by the U.S. government on homeland security matters or decisions by the industry in response to security threats to the North American rail network could have a materially adverse effect on our business or operating results.

Environmental Laws and Regulations

Our operations and real estate assets are subject to extensive federal, provincial, state and local environmental laws and regulations governing emissions to the air, discharges to waters and the handling, storage, transportation and disposal of waste and other materials. We transport hazardous materials and periodically use hazardous materials in our operations. Any findings that we have violated such laws or regulations could have a materially adverse effect on our business or operating results.

In certain locations, we operate on properties that have been used by railways for over a century. As a result, historical releases of hazardous waste or materials may be discovered, requiring remediation of our properties or subjecting us to liability for damages, the cost of which could have a materially adverse impact on our business or operating results. Changing regulations and remedial approaches in Canada and the U.S. will ultimately affect the costs of remediation and overall environmental liability. The regulatory trend towards increased protection of human health from specific chemicals may mean sites that were previously remediated, or that did not require action, could be subject to further scrutiny. There is a possibility that an accidental release of

DESCRIPTION OF THE BUSINESS

hazardous waste or materials on our properties could occur and the costs of remediation of properties affected by such accidental release could materially affect our business or operating results.

In operating a railway, it is possible that derailments or other accidents may occur that could cause harm to human health or to the environment. As a result, we may incur costs in the future to address any such harm, including costs relating to the performance of remediation, natural resource damages and compensatory or punitive damages relating to harm to individuals or property. These costs could have an adverse material affect on our business or operating results.

Labour Relations

Relations with our employees could deteriorate due to disputes related to, among other things, wage or benefit levels or our response to changes in government regulation of workers and the workplace. Our operations rely heavily on our employees. Any labour shortage or stoppage caused by poor relations with employees, including those represented by unions, could adversely affect our ability to provide services and the costs of providing such services, which could materially harm our business or operating results and may materially harm relationships with our customers.

Certain of our union agreements are currently under renegotiation, as discussed in the section “Labour Relations”. We cannot guarantee these negotiations will be resolved in a timely manner or on favourable terms.

Pension Plans

We maintain defined benefit and defined contribution pension plans. With current low interest rates, the defined benefit plans’ presently have unfunded liabilities. Pension funding requirements are dependent upon various factors, including interest rate levels, asset returns, regulatory requirements for funding purposes and changes to pension plan benefits. In the absence of favourable changes to these factors, we will have to satisfy the under-funded amounts of our plans through cash contributions from time to time.

Indemnifications

Pursuant to a trust and custodial services agreement with the trustee of the Canadian Pacific Railway Company Pension Trust Fund, we have undertaken to indemnify and save harmless the trustee, to the extent not paid by the Fund, from any and all taxes, claims, liabilities, damages, costs and expenses arising out of the performance of the trustee’s obligations under the agreement, except as a result of misconduct by the trustee. The indemnity includes liabilities, costs or expenses relating to any legal reporting or notification obligations of the trustee with respect to the defined contribution option of the pension plans or otherwise with respect to the assets of the pension plans that are not part of the Fund. The indemnity survives the termination or expiry of the agreement with respect to claims and liabilities arising prior to the termination or expiry. At December 31, 2006, we had not recorded a liability associated with this indemnification, as we do not expect to make any payments pertaining to it.

Pursuant to our by-laws, we indemnify all our current and former directors and officers. In addition to the indemnity provided for in our by-laws, we also indemnify our directors and officers pursuant to indemnity agreements. We carry a liability insurance policy for directors and officers, subject to a maximum coverage limit and certain deductibles in cases where a director or officer is reimbursed for any loss covered by the policy.

Safety

Safety is a key priority for our management and Board of Directors. Our two main safety indicators — personal injuries and train accidents — follow strict U.S. FRA reporting requirements used by all Class 1 railways in Canada and the U.S.

In 2006, our rate of FRA personal injuries per 200,000 employee hours was 2.0, down 17% from 2005 and down 26% from 2004.

The rate of FRA reportable train accidents per million train miles was 1.4 in 2006, down 39% from 2.3 in 2005, and down 33% from 2.1 in 2004. CP led the North American railway industry in safe train operations in 2006.

Our Health, Safety, Security and Environment Committee provides ongoing focus, leadership, commitment and support for efforts to improve the safety of our operations as well as the safety and health of our employees. The committee is comprised of all of the most senior representatives from our different operations departments and is a key component of safety governance at CP. Our Safety Framework governs the safety management process, which involves more than 1,000 employees in planning and implementing safety-related activities. This management process, combined with planning that encompasses all operational functions, ensures a continuous and consistent focus on safety.

DESCRIPTION OF THE BUSINESS

Border Security

CP was the first railway in North America to be approved under a new Canada Border Services Agency (“CBSA”) program to streamline clearance at the border for imports from the U.S. Under the Customs Self-Assessment (“CSA”) program, goods and shippers approved as low risk have a virtual fast lane into Canada on our railway. Eligible goods include finished vehicles, parts for vehicles, food products and other common items frequently imported from the U.S.

The CSA program reduces the cost of compliance with Canada’s import regulations, as approved importers can file monthly summary customs reports on their shipments instead of a report on each shipment. Approved importers also benefit from improved efficiencies, as their goods can be delivered directly to their facilities without stopping for inspection at the border or waiting for customs clearance. We benefit from improved freight car velocity, as shipments for customers approved under CSA move more easily across the border.

We are also a certified carrier with the U.S. Customs and Border Protection’s (CBP) Customs — Trade Partnership Against Terrorism program and the CBSA’s Partners in Protection program. C-TPAT and PIP are partnership programs that seek to strengthen overall supply chain and border security.

Under a joint Declaration of Principles signed in April 2003, we made a commitment to work with the CBSA and CBP to install a new Vehicle and Cargo Inspection System (“VACIS”) at five of our border crossings. Rail VACIS uses non-intrusive gamma ray technology to scan U.S.-bound rail shipments. The joint government-industry initiative to enhance the security of U.S.-bound rail shipments ensures trade continues to flow efficiently between Canada and the U.S. All five systems are now fully operational. Additional work is also being undertaken at Windsor, Ontario, to secure the rail corridor between the Windsor VACIS facility and the U.S. border.

These measures were part of the larger process of implementing the Smart Border Declaration adopted by Canada and the U.S. in December 2001.

Labour Relations

At December 31, 2006, approximately 79% of our workforce was unionized, with approximately 81% of our workforce located in Canada. Unionized employees are represented by a total of 35 bargaining units. Seven bargaining units represent our employees in Canada and the remaining 28 represent employees in our U.S. operations.

Labour Relations — Canada

Agreements are currently in place with five of the seven bargaining units in Canada.

	•		A three-year collective agreement with the Canadian Auto Workers, representing employees who maintain and repair locomotives and freight cars, extends to the end of 2007.
	•		A five-year collective agreement with the International Brotherhood of Electrical Workers, representing signal maintainers, extends to the end of 2009.
	•		A four-year collective agreement with the Canadian Pacific Police Association, representing CP Police sergeants and constables, extends to the end of 2009.
	•		A three-year collective agreement, with the Teamsters Canada Rail Conference, Rail Canada Traffic Controllers, representing employees who control train traffic. The agreement, which extends to the end of 2008, was ratified on March 7, 2006.
	•		A three-year agreement with Steelworkers Union, representing intermodal operation and clerical employees extends to the end of 2009.
	•		A three-year collective agreement with the Teamsters Canada Rail Conference (TCRC-MWED), which represents maintenance of way employees and was certified as bargaining agent by track maintenance employees in July 2004. The agreement, which extended to the end of 2006, was ratified on March 18, 2005. Our collective agreement with the former bargaining agent expired on December 31, 2003. Negotiations for a new agreement commenced in the second half of 2006. On January 23, 2007, both CP and TCRC-MWED applied jointly for conciliation, which commenced in February of 2007.
	•		A four-year collective agreement with the Teamsters Canada Rail Conference (TCRC-RTE), which represents running trade employees and was elected as bargaining agent by train crew employees in June 2004. The agreement, which extended to the end of 2006, was ratified on January 17, 2005. Our collective agreement with the previous bargaining

DESCRIPTION OF THE BUSINESS

agent expired on December 31, 2002. Negotiations for a new agreement, which commenced in the second half of 2006, continue in 2007.

Labour Relations — U.S.

Most U.S. Class 1 railroads negotiate labour agreements collectively on a national basis. At the end of 2004, a new round of bargaining commenced with all 13 national unions. There have been no settlements to date. Several difficult issues present significant challenges for the parties, including health care cost containment and more flexible use of employees and contractors.

Soo Line and D&H have elected to negotiate independently of the national bargaining process.

We are party to collective agreements with 28 bargaining units: 15 on the Soo Line and 13 on the D&H.

Agreements with 14 of the 15 bargaining units on the Soo Line are currently open for renegotiation. Our agreement with yard supervisors extends to the end of 2009. Negotiations have commenced with track maintainers, conductors, clerks, car repair employees, mechanical labourers, machinists, electricians, train dispatchers, signal repair employees, police, blacksmiths and boilermakers, sheetmetal workers, locomotive engineers and mechanical supervisors. Negotiations with the Teamsters, representing locomotive engineers, resulted in both parties agreeing to binding arbitration, which was held in November 2005. An arbitration decision issued January 26, 2006 satisfactorily finalized an agreement which extended through December of 2004.

D&H has agreements in place with nine unions representing freight car repair employees, clerks, signal repair employees, mechanical supervisors, mechanical labourers, yard supervisors, engineering supervisors, machinists, and police. Negotiations are under way with the remaining four bargaining units, which represent locomotive engineers, electricians, track maintainers and conductors.

Environmental Protection

We have implemented a comprehensive Environmental Management System (“EMS”), which uses the five elements of the ISO 14001 standard – policy, planning, implementation and operation, checking and corrective action, and management review – as described below.

Policy

We have adopted an Environmental Protection Policy and continue to develop and implement policies and procedures to address specific environmental issues and reduce environmental risk. Each policy is implemented with training for employees and a clear identification of roles and responsibilities.

Our partnership in Responsible CareÒ is a key part of our commitment as we strive to be a leader in railway and public safety. Responsible CareÒ, an initiative of the Canadian Chemical Producers Association, is an ethic for the safe and environmentally sound management of chemicals throughout their life cycle. Partnership in Responsible CareÒ involves a public commitment to continually improve the industry’s environmental, health and safety performance. We successfully completed our first Responsible CareÒ external verification in June 2002 and were granted “Responsible CareÒ practice-in-place” status. We were successfully re-verified in 2005.

We have also been a partner of the American Chemistry Council (“ACC”) since 1999 and are currently working with the ACC and its Transportation Partner Group to develop verification protocols and processes for our U.S. facilities.

Planning

We prepare an annual Corporate Environmental Plan, which includes details of our environmental goals and objectives as well as high-level strategies and tactics. The plan is used by various departments to integrate key corporate environmental strategies into their business plans.

Implementation and Operation

We have developed specific environmental programs to address areas such as air emissions, wastewater, management of vegetation, chemicals and waste, storage tanks and fuelling facilities, and environmental impact assessment. Our environmental specialists and consultants lead these programs.

Our focus is on preventing spills and other incidents that have a negative impact on the environment. As a precaution, we have established a Strategic Emergency Response Contractor network and located spill equipment kits across Canada and the U.S. to ensure a rapid and efficient response in the event of an environmental incident. In addition, we regularly update and test emergency preparedness and response plans.

DESCRIPTION OF THE BUSINESS

We have taken a proactive position on the remediation of historically impacted sites and have an accounting accrual for environmental costs that extends to 2016.

Environmental Contamination

In the fourth quarter of 2004, we recorded a $90.9-million charge for costs associated with investigation, characterization, remediation and other applicable actions related to environmental contamination at a CP-owned property in the U.S., which includes areas previously leased to third parties.

In the third quarter of 2005, we reached a binding settlement in relation to a lawsuit with a potentially responsible party involving portions of past environmental contamination at the above-mentioned property in the U.S. The lawsuit against this other party has been dismissed and the party has accepted responsibility for designated portions of the property and paid us a settlement sum in partial payment of the response costs we have incurred.

As a result of the settlement, we were able to reverse accrued liabilities related to the property and recognize a total reduction of $33.9 million to the special charges accrued in prior years. Under applicable accounting rules, this reduction could not be recognized until the outcome of the lawsuit or any binding settlement with the other responsible party became known.

We continue to be responsible for remediation work on portions of the property in the State of Minnesota and continue to retain liability accruals for remaining future anticipated costs. The costs are expected to be incurred over approximately 10 years. The state’s voluntary investigation and remediation program will oversee the work to ensure it is completed in accordance with applicable standards. We currently estimate the remaining liability associated with these areas to be $37.9 million.

Checking and Corrective Action

Our environmental audit comprehensively, systematically and regularly assesses our facilities for compliance with legal requirements and conformance to our policies, which are based on legal requirements and accepted industry standards. Audits are scheduled based on risk assessment for each facility and are led by third-party environmental audit specialists supported by our environmental staff.

Audits are followed by a formal Corrective Action Planning (“CAP”) process that ensures findings are addressed in a timely manner. Progress is monitored against completion targets and reported quarterly to senior management. Completion targets have been substantially met every year since the CAP process was created in 1999.

Management Review

Our Board of Directors’ Health, Safety, Security and Environment Committee conducts a semi-annual comprehensive review of environmental issues. An Environmental Lead Team, which is comprised of senior leaders of our Real Estate, Legal Services, Marketing and Sales, Finance, Operations, Supply Services, and Environmental Services departments, meets quarterly to review environmental matters.

Expenditures

We spent $36.0 million in 2006 for environmental management, including amounts spent for ongoing operations, capital upgrades and remediation.

Regulation and Other Issues

Our rail operations in Canada are subject to regulation of service, rate setting, network rationalization and safety by the CTA, the Railway Safety Act and certain other statutes. Our U.S. rail operations are subject to regulations administered by the STB and the FRA.

Canadian Regulation

Our economic activities, including matters relating to rates, level of service obligations and line discontinuance, are subject to the provisions of the CTA.

The CTA contains shipper rate and service protections, including final-offer arbitration, competitive line rates, and compulsory interswitching, which allows a shipper to request a railway to move its traffic to the nearest competitive interchange point with another railway within a 30-kilometre radius for a regulated fee. However, to gain recourse to certain of these protections, shippers must establish that they would suffer substantial commercial harm if the relief sought were not granted. These shipper protections also extend to western Canadian grain transportation.

In Canada, Bill C-11, legislation amending the CTA, was introduced in Parliament in spring 2006. Bill C-11 contains some of the amendments that had been included in Bill C-44, which was introduced in 2005 but was terminated when Parliament was

DESCRIPTION OF THE BUSINESS

dissolved on November 29, 2005. Bill C-11 includes, among other things, amendments concerning the grain revenue cap, commuter and passenger access, and railway noise. Amendments concerning Final Offer Arbitration (“FOA”) and other shipper remedies are not included in Bill C-11. Bill C-11 passed Second Reading in the House of Commons (“the House”) and was sent

to the Standing Committee on Transport and Infrastructure (“the Committee”). It was reported by the Committee with some amendments on issues including noise in December, 2006. It is anticipated that, unless Parliament is dismissed, Bill C-11 will be passed in the House in the first half of 2007 and will then be sent to the Senate. There may be additional changes to the CTA in respect of FOA and other matters that had been dealt with in Bill C-44. No assurance can be given as to the effect on CP of the provisions of Bill C-11 or as to the content, timing or effect on CP of any anticipated additional legislation.

Canada’s federally regulated railways are also subject to the Railway Safety Act, which governs safety and operational aspects of the industry, and to the Canadian Transportation Accident Investigation and Safety Board Act. They are also subject to legislation relating to the environment and the transportation of hazardous materials.

U.S. Regulation

There have been efforts in recent years to re-regulate certain aspects of the U.S. rail industry previously deregulated under the Staggers Rail Act of 1980. The rail industry opposes re-regulation.

The STB regulates a variety of railway matters, including: service levels; certain freight car rental payments; certain rail traffic rates; the terms under which railways may gain access to each other’s facilities and traffic; mergers and acquisitions of railways; and the abandonment, sale and discontinuance of operations on rail lines.

We believe STB regulations governing mergers and consolidation of Class 1 railways require applicants to demonstrate that a proposed transaction would be in the public interest and would enhance competition where necessary to offset any negative effects.

The FRA governs all safety-related aspects of railway operations and, therefore, has jurisdiction over our operations in the U.S. State and local regulatory agencies may also exercise jurisdiction over certain safety and operational matters of local significance.

Insurance

We maintain insurance policies to protect our assets and to protect against liabilities. Our insurance policies include, but are not limited to, liability insurance, director and officer liability insurance, automobile insurance and property insurance. The property insurance program includes business interruption coverage, which would respond in the event of catastrophic damage to our infrastructure. We believe our insurance is adequate to protect us from known and unknown liabilities. However, in certain circumstances, certain losses may not be covered or completely covered by insurance and we may suffer losses, which could be material.

Related-party Transactions

No rail services were provided to related parties in 2006.

DIVIDENDS

Declared Dividends and Dividend Policy

Dividends declared by the Board of Directors in the last three years are as follows:

	Dividend
	Amount			Record Date			Payment Date
	$0.1275 $0.1275 $0.1325 $0.1325 $0.1325 $0.1500 $0.1500 $0.1500 $0.1875 $0.1875 $0.1875 $0.1875 $0.2250			March 26, 2004 June 25, 2004 September 24, 2004 December 31, 2004 March 25, 2005 June 24, 2005 September 30, 2005 December 30, 2005 March 31, 2006 June 30, 2006 September 29, 2006 December 29, 2006 March 30, 2007			April 26, 2004 July 26, 2004 October 25, 2004 January 31, 2005 April 25, 2005 July 25, 2005 October 31, 2005 January 30, 2006 April 24, 2006 July 31, 2006 October 30,2006 January 29, 2007 April 30, 2007

Our Board of Directors will give consideration on a quarterly basis to the payment of future dividends. The amount of any future quarterly dividends will be determined based on a number of factors that may include the results of operations, financial condition, cash requirements and future prospects of the Company. We are, however, under no obligation to declare dividends and the declaration of dividends is wholly within the Board of Directors’ discretion. Further, our Board of Directors may cease declaring dividends or may declare dividends in amounts that are different from those previously declared. Restrictions in the credit or financing agreements entered into by the Company or the provisions of applicable law may preclude the payment of dividends in certain circumstances.

CAPITAL STRUCTURE

Description of Capital Structure

The Company is authorized to issue an unlimited number of Common Shares, an unlimited number of First Preferred Shares and an unlimited number of Second Preferred Shares. At December 31, 2006, no Preferred Shares had been issued.

1).

The rights, privileges, restrictions and conditions attaching to the Common Shares are as follows:

	a).		Payment of Dividends: The holders of the Common Shares will be entitled to receive dividends if, as and when declared by CP’s Board of Directors out of the assets of the Company properly applicable to the payment of dividends in such amounts and payable in such manner as the Board may from time to time determine. Subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to or rateably with the holders of the Common Shares, the Board may in its sole discretion declare dividends on the Common Shares to the exclusion of any other class of shares of the Company.
	b).		Participation upon Liquidation, Dissolution or Winding Up: In the event of the liquidation, dissolution or winding up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the Common Shares will, subject to the rights of the holders of any other class of shares of the Company entitled to receive the assets of the Company upon such a distribution in priority to or rateably with the holders of the Common Shares, be entitled to participate rateably in any distribution of the assets of the Company.
	c).		Voting Rights: The holders of the Common Shares will be entitled to receive notice of and to attend all annual and special meetings of the shareholders of the Company and to one (1) vote in respect of each Common Share held at all such meetings, except at separate meetings of or on separate votes by the holders of another class or series of shares of the Company.

2).

The rights, privileges, restrictions and conditions attaching to the First Preferred Shares are as follows:

	a).		Authority to Issue in One or More Series: The First Preferred Shares may at any time or from time to time be issued in one (1) or more series. Subject to the following provisions, the Board may by resolution fix from time to time before the issue thereof the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series of First Preferred Shares.
	b).		Voting Rights: The holders of the First Preferred Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and will not be entitled to vote at any such meeting, except as may be required by law.
	c).		Limitation on Issue: The Board may not issue any First Preferred Shares if by so doing the aggregate amount payable to holders of First Preferred Shares as a return of capital in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs would exceed $500,000,000.
	d).		Ranking of First Preferred Shares: The First Preferred Shares will be entitled to priority over the Second Preferred Shares and the Common Shares of the Company and over any other shares ranking junior to the First Preferred Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of any liquidation, dissolution or winding up of the Company or other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs.
	e).		Dividends Preferential: Except with the consent in writing of the holders of all outstanding First Preferred Shares, no dividend can be declared and paid on or set apart for payment on the Second Preferred Shares or the Common Shares or on any other shares ranking junior to the First Preferred Shares unless and until all dividends (if any) up to and including any dividend payable for the last completed period for which such dividend is payable on each series of First Preferred Shares outstanding has been declared and paid or set apart for payment.

3).

The rights, privileges, restrictions and conditions attaching to the Second Preferred Shares are as follows:

	a).		Authority to Issue in One or More Series: The Second Preferred Shares may at any time or from time to time be issued in one (1) or more series. Subject to the following provisions, the Board may by resolution fix from time to time before the issue thereof the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series of Second Preferred Shares.
	b).		Voting Rights: The holders of the Second Preferred Shares will not be entitled to receive notice of or to attend any meetings of the shareholders of the Company and will not be entitled to vote at any such meeting, except as may be required by law.
	c).		Limitation on Issue: The Board may not issue any Second Preferred Shares if by so doing the aggregate amount payable to holders of Second Preferred Shares as a return of capital in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs would exceed $500,000,000.
	d).		Ranking of Second Preferred Shares: The Second Preferred Shares will be entitled to priority over the Common Shares of the Company and over any other shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up of its affairs.
	e).		Dividends Preferential: Except with the consent in writing of the holders of all outstanding Second Preferred Shares, no dividend can be declared and paid on or set apart for payment on the Common Shares or on any other shares ranking junior to the Second Preferred Shares unless and until all dividends (if any) up to and including any dividend payable for the last completed period for which such dividend is payable on each series of Second Preferred Shares outstanding has been declared and paid or set apart for payment.

CAPITAL STRUCTURE

Security Ratings

The Company’s debt securities are rated annually by three approved rating organizations — Moody’s Investors Service, Inc., Standard & Poor’s Corporation and Dominion Bond Rating Service Limited. Currently, our securities are rated as Investment Grade, shown in the table below:

				Long-Term
	Approved Rating			Debt
	Organization			Rating
	Moody’s Investors Service			Baa2
	Standard & Poor’s			BBB
	Dominion Bond Rating Service			BBB(high)

Credit ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities and are indicators of the likelihood of payment and of the capacity and willingness of a company to meet its financial commitment on an obligation in accordance with the terms of the obligation. A description of the rating categories of each of the rating agencies in the table above is set out below.

Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor and may be subject to revision or withdrawal at any time by the rating agencies. Credit ratings may not reflect the potential impact of all risks on the value of securities. In addition, real or anticipated changes in the rating assigned to a security will generally affect the market value of that security. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be revised or withdrawn entirely by a rating agency in the future.

Moody’s Investors Service

Standard & Poor’s

Dominion Bond Rating Service

Aaa

AAA

AAA

High Investment Grade

Aa1

AA+

AA(high)

Aa2

AA

AA

Aa3

AA-

AA(low)

A1

A+

A(high)

A2

A

A

A3

A-

A(low)

Investment Grade

Baa1

BBB+

BBB(high)

Baa2

BBB

BBB

Baa3

BBB-

BBB(low)

Ba1

BB+

BB(high)

Below Investment Grade

Ba2

BB

BB

Ba3

BB-

BB(low)

B1

B+

B(high)

B2

B

B

B3

B-

B(low)

Caa

CCC

CCC

Ca

CC

CC

C

C

C

MARKET FOR SECURITIES

Stock Exchange Listings

The Common Shares of CP are listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “CP”.

Trading Price and Volume

The following table provides the monthly trading information for our Common Shares on the Toronto Stock Exchange during 2006.

Opening

High

Low

Closing

Number of

Volume of

Price per

Price per

Price per

Price per

Trades

Shares

Month

Share ($)

Share ($)

Share ($)

Share ($)

Performed

Traded

January February March April May June July August September October November December

48.44 54.50 58.15 58.53 60.15 57.00 57.90 54.42 54.56 55.50 62.80 63.89

56.16 60.85 59.99 65.17 63.43 57.90 57.97 55.44 55.81 64.15 65.29 64.46

45.55 53.70 55.88 58.52 55.07 52.55 51.05 51.86 51.91 54.95 60.86 60.43

54.71 58.20 58.26 59.43 56.60 56.91 54.00 54.30 55.56 63.40 63.51 61.40

65,551 47,409 45,476 44,142 38,597 42,444 39,772 48,407 33,482 50,664 42,720 29,770

27,331,083 15,144,307 16,157,785 12,160,447 12,373,511 15,724,333 11,720,333 13,896,160 10,896,140 15,710,416 10,110,242 7,725,259

The following table provides the monthly trading information for our Common Shares on the New York Stock Exchange during 2006.

Opening

High

Low

Closing

Number of

Volume of

Price per

Price per

Price per

Price per

Trades

Shares

Month

Share ($)

Share ($)

Share ($)

Share ($)

Performed

Traded

January February March April May June July August September October November December

41.00 47.85 51.19 50.00 53.80 51.30 51.20 47.83 49.48 49.71 54.70 55.70

49.12 52.89 53.00 57.12 57.73 52.59 52.17 49.39 49.91 57.32 57.31 56.49

39.10 46.71 47.64 50.00 49.00 47.10 44.85 46.19 46.36 48.75 54.65 52.34

48.24 51.19 49.97 53.14 52.30 51.14 47.87 49.09 49.74 56.49 55.73 52.76

27,672 20,597 22,882 21,467 22,918 25,492 24,296 22,347 18,685 29,270 19,587 14,342

8,272,200 5,359,400 6,604,200 5,832,600 6,244,500 7,016,600 6,679,100 5,758,600 4,471,000 7,405,000 4,224,600 3,205,400

DIRECTORS AND OFFICERS

Following are the names and municipalities of residence of the directors and officers of the Company, their positions and principal occupations within the past five years, the period during which each director has served as director of the Company, and the date on which each director’s term of office expires.

Directors

				Year of Annual Meeting
		Position Held and Principal Occupation within		at which Term of Office
Name and Municipality of Residence		the Preceding Five Years (1)		Expires (Director Since)
S.E. Bachand (3)(5)(6) Ponte Vedra Beach, Florida, U.S.A.		Retired President and Chief Executive Officer, Canadian Tire Corporation, Limited (hard goods retailer specializing in automotive, sports and leisure and home products)		2007 (2001)
J.E. Cleghorn, O.C., F.C.A. (3) Toronto, Ontario, Canada		Chairman, Canadian Pacific Railway Limited and, Chairman, SNC-Lavalin Group Inc., (international engineering and construction firm)		2007 (2001)
T.W. Faithfull (3)(4)(5) Oxford, England		Retired President and Chief Executive Officer Shell Canada Limited (oil and gas company)		2007 (2003)
F.J. Green Calgary, Alberta, Canada		President and Chief Executive Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited		2007 (2006)
The Hon. J.P. Manley (2)(3)(6) Ottawa, Ontario, Canada		Senior Counsel, McCarthy Tétrault LLP (law firm)		2007 (2006)
L.J. Morgan (3)(4)(5) Bethesda, Maryland, U.S.A.		Chair of the Transportation Practice and Partner, Covington & Burling LLP (law firm)		2007 (2006)
Dr. J.R. Nininger (3)(4)(5) Ottawa, Ontario, Canada		Retired President and Chief Executive Officer, The Conference Board of Canada (private not-for-profit research group)		2007 (2001)
M. Paquin (2)(3)(4) Montreal, Quebec, Canada		President and Chief Executive Officer, Logistec Corporation (international cargo-handling company)		2007 (2001)
M.E.J. Phelps, O.C. (3)(5)(6) West Vancouver, B.C., Canada		Chairman, Dornoch Capital Inc. (private investment company)		2007 (2001)
R. Phillips, O.C. (2)(3)(6) Regina, Saskatchewan, Canada		Retired President and Chief Executive Officer, IPSCO Inc. (steel manufacturing company)		2007 (2001)
H.T. Richardson Winnipeg, Manitoba, Canada		President and Chief Executive Officer, James Richardson & Sons Limited (privately owned corporation)		2007 (2006)
M.W. Wright (2)(3)(4) Longboat Key, Florida, U.S.A.		Retired Chairman of the Board and Chief Executive Officer, SUPERVALU INC. (food distributor and grocery retailer)		2007 (2001)

Notes:

(1)		T.W. Faithfull was President and Chief Executive Officer of Shell Canada Limited from April 1999 until July 2003. F.J. Green was President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited from November 2005 until May 2006, Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited from October 2004 until November 2005; Executive Vice-President, Operations and Marketing, Canadian Pacific Railway Company from January 2004 until October 2004 and Senior Vice-President, Marketing and Sales, Canadian Pacific Railway Company from April 2002 until January 2004. The Hon. J.P. Manley was the Member of Parliament for Ottawa South from November 1988 until June 2004 and Chairman of the Ontario Power Generation Review Committee from December 2003 until March 2004. L.J. Morgan was Chairman of the United States Surface Transportation Board and its predecessor the Interstate Commerce Commission from March 1995 until December 2002. M.E.J. Phelps was Chairman and Chief Executive Officer of Westcoast Energy Inc. from June 1988 until March 2002. M.W. Wright was Chairman and Chief Executive Officer of SUPERVALU INC. from June 1981 until June 2001 and Chairman until June 2002.
(2)		Member of the Audit, Finance and Risk Management Committee.
(3)		Member of the Corporate Governance and Nominating Committee.
(4)		Member of the Environmental and Safety Committee.
(5)		Member of the Management Resources and Compensation Committee.
(6)		Member of the Pension Trust Fund Committee.

Cease Trade Orders

S.E. Bachand was a director of Krystal Bond Inc. when it was subject to a cease trade order on April 12, 2002 for failure to file financial statements. It has since ceased to operate as a going concern.

As a result of the announcement in May 2004 by Nortel Networks Corporation and Nortel Networks Limited (collectively, the “Nortel Companies”) of the need to restate certain of their previously reported financial results and the resulting delays in filing interim and annual financial statements for certain periods by the required filing dates under Ontario securities laws, the Ontario Securities Commission made a final order on May 31, 2004 prohibiting all trading by directors, officers and certain current and former employees including J.E. Cleghorn, a former director, and J.P. Manley, a current director. The Quebec and Alberta Securities commissions issued similar orders. The cease trade order issued by the Ontario Securities Commission was revoked on June 21, 2005. The Quebec and Alberta orders were revoked shortly thereafter. Mr. Cleghorn and Mr. Manley were not subject to the Quebec and Alberta orders. Following the March 10, 2006 announcement by the Nortel Companies of the need to restate certain of their previously reported financial results and the resulting delay in the filing of certain 2005 financial statements by the required filing dates, the Ontario Securities Commission issued a final management cease trade order on April 10, 2006 prohibiting all of the directors, officers and certain current and former employees including Mr. Cleghorn and Mr. Manley from trading in the securities of the Nortel Companies. The British Columbia and Quebec Securities commissions issued similar orders. The Ontario Securities Commission lifted the cease trade order effective June 8, 2006 and the British Columbia and the Quebec Securities commissions also lifted their cease trade orders shortly thereafter. Mr. Cleghorn and Mr. Manley were not subject to the British Columbia and Quebec orders.

DIRECTORS AND OFFICERS

Senior Officers

As at March 2, 2007, the following were executive officers of CPRL:

				Principal occupation within the
Name and municipality of residence		Position held		preceding five years
J.E. Cleghorn, O.C., F.C.A. Toronto, Ontario, Canada		Chairman		Chairman, SNC-Lavalin Group Inc., (international engineering and construction firm)
F.J. Green Calgary, Alberta, Canada		President and Chief Executive Officer		President and Chief Executive Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President, Operations and Marketing, Canadian Pacific Railway Company; Senior Vice-President, Marketing, Canadian Pacific Railway Company; Vice-President, Marketing, Canadian Pacific Railway Company
M.R. Lambert Calgary, Alberta, Canada		Executive Vice- President and Chief Financial Officer		Executive Vice-President and Chief Financial Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President, Canadian Tire Corporation (retail goods); President, Mark’s Work Warehouse (retail goods); Chief Financial Officer, Mark’s Work Warehouse (retail goods)
P. Clark Calgary, Alberta, Canada		Vice-President, Communications and Public Affairs		Vice-President, Communications and Public Affairs, Canadian Pacific Railway Company and Canadian Pacific Railway Limited
B. Grassby Calgary, Alberta, Canada		Vice-President and Comptroller		Vice-President and Comptroller, Canadian Pacific Railway Company and Canadian Pacific Railway Limited
P.A. Guthrie, Q.C. Municipal District of Rockyview, Alberta, Canada		Vice-President, Law		Vice-President, Law, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Vice-President Legal Services, Canadian Pacific Railway Company; Chief Regulatory Counsel, Canadian Pacific Railway Company
T. A. Robinson Calgary, Alberta, Canada		Vice-President and Treasurer		Vice-President and Treasurer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Treasurer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Comptroller, Canadian Pacific Railway Company; Assistant Vice-President, Customer Service, Canadian Pacific Railway Company
D. F. Barnhardt Calgary, Alberta, Canada		Corporate Secretary		Corporate Secretary, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Lawyer/Commercial Coordinator, Canadian Pacific Railway Company
G.A. Feigel Calgary, Alberta, Canada		Assistant Corporate Secretary		Assistant Corporate Secretary, Canadian Pacific Railway Company and Canadian Pacific Railway Limited

DIRECTORS AND OFFICERS

Shareholdings of Directors and Officers

As at December 31, 2006, the directors and senior officers, as a group, beneficially owned, either directly or indirectly, or exercised control or direction over a total of 68,736 Common Shares of CP, representing 0.04% of the outstanding Common Shares as of that date.

Announcements

Dr. J.R. Nininger will retire on May 11, 2007, having attained the retirement age of 70 years for directors under our by-laws.

LEGAL PROCEEDINGS

We are involved in various claims and litigation arising in the normal course of business. Following are the only significant legal proceedings currently in progress.

Stoney Tribal Council v. Canada, EnCana and CP

On February 26, 1999, a Statement of Claim was issued in the Court of Queen’s Bench of Alberta, Judicial Centre of Calgary. The Stoney Tribal Council filed an action against CP and others in the amount of $150 million for alleged trespass and unlawful removal of oil and gas from reserve lands.

It is too early to make an assessment of the amount in question in this action, an assessment of the merits of the claim, the likelihood that the Plaintiffs will succeed against any or all of the Defendants or the degree to which we may be entitled to indemnity from other parties. We believe adequate provision has been made in our financial statements for this lawsuit.

Derailment — Minot, North Dakota

On January 18, 2002, one of our trains derailed outside of Minot, North Dakota. The site of the derailment was immediately west of the city and adjacent to a residential neighbourhood. Thirty-one cars of the 112 cars on the train derailed. Five cars containing anhydrous ammonia catastrophically ruptured and a vapour plume covered the derailment site and surrounding area.

Immediately following the derailment, we began a process of environmental remediation and monitoring at a cost in excess of US$8 million. In addition, in the months following the derailment, we settled in excess of 20,000 claims from residents of the Minot area for damages.

Following the derailment, a class action and several individual lawsuits were filed against CP in North Dakota. The Chief Judge of the federal court in North Dakota has dismissed all of these claims on the basis that the Plaintiffs have no private cause of action. That decision has been appealed to the federal court of appeals for the 8th Circuit. The Chief Judge of the federal court in Minnesota has also dismissed several cases brought by individuals in Minnesota. That decision too is under appeal to the federal court of appeals 8th circuit. There are several hundred other cases which had been filed in the state court in Minnesota which have been removed to the federal court in Minnesota. The Chief Judge of the federal court of Minnesota will soon determine whether those cases should be heard in state court or whether they should be heard in federal court and dismissed.

CP is working closely with its insurers to settle cases on an individual basis. Many cases, including the claim of the estate of a man who died as a result of the derailment have been settled.

We believe adequate provision has been made in our financial statements for this lawsuit.

TRANSFER AGENTS AND REGISTRARS

Transfer Agent

Computershare Investor Services Inc., with transfer facilities in Montreal, Toronto, Calgary and Vancouver, serves as transfer agent and registrar for CP’s Common Shares in Canada.

Computershare Trust Company NA, Denver Colorado, serves as co-transfer agent and co-registrar for CP’s Common Shares in the United States.

Requests for information should be directed to:

Computershare Trust Company of Canada
100 University Avenue, 9^th Floor
Toronto, Ontario Canada
M5J 2Y1

INTERESTS OF EXPERTS

The Company’s auditors are PricewaterhouseCoopers LLP, Chartered Accountants. PricewaterhouseCoopers LLP has prepared an independent auditors’ report dated March 2, 2007, in respect of our consolidated financial statements, with accompanying notes as at December 31, 2006 and 2005 and for each of the years in the three year period ended December 31, 2006. They have also prepared an audit report on management’s assessment of the effectiveness of internal control over financial reporting, and on the effectiveness of internal control over financial reporting, at December 31, 2006. PricewaterhouseCoopers LLP has advised that it is independent with respect to CP within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Alberta and the rules of the U.S. Securities and Exchange Commission.

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience

The following individuals comprise the entire membership of the Audit, Finance and Risk Management Committee (“the Committee”).

John P. Manley - Mr. Manley is Senior Counsel at the law firm of McCarthy Tétrault LLP. He has held that position since May 2004. He is a director of Nortel Networks Corporation and Nortel Networks Limited, Canadian Imperial Bank of Commerce and a director and Board Chair of Optosecurity Inc. (a private company). In addition Mr. Manley serves on the boards of the University of Waterloo, MARS (not-for-profit corporation founded by leaders from the business and public sectors to improve commercial outcomes from Canada’s foundation of science and technology innovation), National Arts Center Foundation and CARE Canada. Mr. Manley was previously the Member of Parliament for Ottawa South from November 1988 to June 2004 and Chairman of the Ontario Power Generation Review Committee, which was responsible for reviewing the state of the energy system of Ontario, from December 2003 to March 2004. As a Member of Parliament, Mr. Manley also held various positions in the Canadian Federal Government, including Deputy Prime Minister of Canada from January 2002 to December 2003, Minister of Finance from June 2002 to December 2003, Chair of the Cabinet Committee on Public Security and Anti-Terrorism from October 2001 to December 2003, Minister of Foreign Affairs from October 2000 to January 2002 and Minister of Industry prior thereto. He graduated from Carleton University with a B.A. and from the University of Ottawa with an LL.B. He was granted the designation C.Dir (Chartered Director) by McMaster University in February 2006.

Madeleine Paquin - Ms. Paquin is the President and Chief Executive Officer and a director of Logistec Corporation, an international cargo-handling company. She has held that position since January 1996. She is also a director of Aéroports de Montréal. She graduated from École des Hautes Études Commerciales, Université de Montréal with a G.D.A.S. and from the Richard Ivey School of Business, University of Western Ontario with an H.B.A.

Roger Phillips (Chair) - Mr. Phillips is the Retired President and Chief Executive Officer of IPSCO Inc., a steel manufacturing company. He held that position from February 1982 until his retirement in December 2001. He is a director of Toronto Dominion Bank, Imperial Oil Limited and Cleveland-Cliffs Inc. Mr. Phillips is a Fellow of the Institute of Physics and a Member of the Canadian Association of Physicists. He is also President of La Sauciere Investments Inc., a private company. He was appointed an Officer of the Order of Canada in 1999 and was presented with the Saskatchewan Order of Merit in 2002. He graduated from McGill University in Montreal with a B.Sc. in Physics and Mathematics.

Hartley T. Richardson - Mr. Richardson is President and Chief Executive Officer of James Richardson & Sons, Limited, a privately owned corporation involved in the international grain trade, real estate, oil and gas development, family wealth management services, and private equity investments. He has held that position since April 1998. He is a director of Angiotech Pharmaceuticals, Inc., Railpower Technologies Corp. and SemBiosys Genetics Inc.. He is the Chairman of the Business Council of Manitoba and Vice-Chairman of the Canadian Council of Chief Executives. Mr. Richardson’s other affiliations include The Trilateral Commission and the World Economic Forum Global Leaders of Tomorrow. He is involved in a number of charitable endeavours and community organizations, including serving as Chairman of Winnipeg’s United Way 2004 Campaign. He graduated from the University of Manitoba in Winnipeg with a B.Com. (Hons.). The University of Manitoba conferred upon Mr. Richardson the honorary degree of Doctor of Laws in 2004.

Michael W. Wright - Mr. Wright is the Retired Chairman of the Board and Chief Executive Officer of SUPERVALU INC., a food distributor and grocery retailer. He was Chairman and Chief Executive Officer from June 1981 to June 2001 and Chairman until June 2002. He is a Past Chairman of Food Distributors International and the Food Marketing Institute, and is a director of Wells Fargo & Company, Honeywell International, Inc., S.C. Johnson & Son, Inc., and Cargill Inc. He is a Trustee Emeritus of the University of Minnesota Foundation, and is a member of the University of Minnesota Law School Board of Visitors and the Board of Trustees of St. Thomas Academy. He graduated from the University of Minnesota with a B.A. and from the University of Minnesota Law School with a J.D. (Honours).

Each of the aforementioned committee members has been determined by the board to be independent and financially literate within the meaning of Multilateral Instrument 52-110.

Pre-Approval of Policies and Procedures

The Committee has adopted a written policy governing the pre-approval of audit and non-audit services to be provided to CP by our independent auditors. The policy is reviewed annually and the audit and non-audit services to be provided by our independent auditors, as well as the budgeted amounts for such services, are pre-approved at that time. Our Vice-President and Comptroller must submit to the Committee at least quarterly a report of all services performed or to be performed by our

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

independent auditors pursuant to the policy. Any additional audit or non-audit services to be provided by our independent auditors either not included among the pre-approved services or exceeding the budgeted amount for such pre-approved services by more than 10% must be individually pre-approved by the Committee or its Chairman, who must report all such additional pre-approvals to the Committee at its next meeting following the granting thereof. Our independent auditors’ annual audit services engagement terms and fees are subject to the specific pre-approval of the Committee. In addition, prior to the granting of any pre-approval, the Committee or its Chairman, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of our independent auditors. Our Director, Internal Audit monitors compliance with this policy.

Audit, Finance and Risk Management Committee Charter

The term “Corporation” herein shall refer to each of Canadian Pacific Railway Limited (“CPRL”) and Canadian Pacific Railway Company (“CPRC”), and the terms “Board,” “Directors”, “Board of Directors” and “Committee” shall refer to the Board, Directors, Board of Directors, or Committee of CPRL or CPRC, as applicable.

A. Committee and Procedures

1.

Purposes The purposes of the Audit, Finance and Risk Management Committee (the “Committee”) of the Board of Directors of the Corporation are to fulfill applicable public company audit committee legal obligations and to assist the Board of Directors in fulfilling its oversight responsibilities in relation to the disclosure of financial statements and information derived from financial statements, and in relation to risk management matters including:

	•		the review of the annual and interim financial statements of the Corporation;
	•		the integrity and quality of the Corporation’s financial reporting and systems of internal control, and risk management;
	•		the Corporation’s compliance with legal and regulatory requirements;
	•		the qualifications, independence, engagement, compensation and performance of the Corporation’s external auditors; and
	•		the performance of the Corporation’s internal audit function;

		and to prepare, if required, an audit committee report for inclusion in the Corporation’s annual management proxy circular, in accordance with applicable rules and regulations.
		The Corporation’s external auditors shall report directly to the Committee.
2.		Composition of Committee The members of the Committee of each of CPRL and CPRC shall be identical and shall be Directors of CPRL and CPRC, respectively. The Committee shall consist of not less than three and not more than six Directors, none of whom is either an officer or employee of the Corporation or any of its subsidiaries. Members of the Committee shall meet applicable requirements and guidelines for audit committee service, including requirements and guidelines with respect to being independent and unrelated to the Corporation and to having accounting or related financial management expertise and financial literacy, set forth in applicable securities laws or the rules of any stock exchange on which the Corporation’s securities are listed for trading. No director who serves on the audit committee of more than two public companies other than the Corporation shall be eligible to serve as a member of the Committee, unless the Board of Directors has determined that such simultaneous service would not impair the ability of such member to effectively serve on the Committee. Determinations as to whether a particular Director satisfies the requirements for membership on the Committee shall be affirmatively made by the full Board.
3.		Appointment of Committee Members Members of the Committee shall be appointed from time to time by the Board and shall hold office at the pleasure of the Board. Where a vacancy occurs at any time in the membership of the Committee, it may be filled by the Board. The Board shall fill a vacancy whenever necessary to maintain a Committee membership of at least three Directors.
4.		Committee Chair The Board shall appoint a Chair for the Committee from among the Committee members.
5.		Absence of Committee Chair

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

		If the Chair of the Committee is not present at any meeting of the Committee, one of the other members of the Committee who is present at the meeting shall be chosen by the Committee to preside at the meeting.
6.		Secretary of Committee The Committee shall appoint a Secretary who need not be a director of the Company.
7.		Meetings The Committee shall meet at regularly scheduled meetings at least once every quarter and shall meet at such other times during each year as it deems appropriate. In addition, the Chair of the Committee may call a special meeting of the Committee at any time.
8.		Quorum Three members of the Committee shall constitute a quorum.
9.		Notice of Meetings Notice of the time and place of every meeting shall be given in writing by any means of transmitted or recorded communication, including facsimile, telex, telegram or other electronic means that produces a written copy, to each member of the Committee at least 24 hours prior to the time fixed for such meeting; provided however, that a member may in any manner waive a notice of a meeting. Attendance of a member at a meeting constitutes a waiver of notice of the meeting, except where a member attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
10.		Attendance of Others at Meetings At the invitation of the Chair of the Committee, other individuals who are not members of the Committee may attend any meeting of the Committee.
11.		Procedure, Records and Reporting Subject to any statute or the articles and by-laws of the Corporation, the Committee shall fix its own procedures at meetings, keep records of its proceedings and report to the Board when the Committee may deem appropriate (but not later than the next meeting of the Board). The minutes of its meetings shall be tabled at the next meeting of the Board.
12.		Delegation The Committee may delegate from time to time to any person or committee of persons any of the Committee’s responsibilities that lawfully may be delegated.
13.		Report to Shareholders The Committee shall prepare a report to shareholders or others concerning the Committee’s activities in the discharge of its responsibilities, when and as required by applicable laws or regulations.
14.		Guidelines to Exercise of Responsibilities The Board recognizes that meeting the responsibilities of the Committee in a dynamic business environment requires a degree of flexibility. Accordingly, the procedures outlined in these Terms of Reference are meant to serve as guidelines rather than inflexible rules, and the Committee may adopt such different or additional procedures as it deems necessary from time to time.
15.		Use of Outside Legal, Accounting or Other Advisors; Appropriate Funding The Committee may retain, at its discretion, outside legal, accounting or other advisors, at the expense of the Corporation, to obtain advice and assistance in respect of any matters relating to its duties, responsibilities and powers as provided for or imposed by these Terms of Reference or otherwise by law.
		The Committee shall be provided by the Corporation with appropriate funding, as determined by the Committee, for payment of:

	(i)		compensation of any outside advisors, as contemplated by the immediately preceding paragraph;
	(ii)		compensation of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; or

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

(iii)

ordinary administrative expenses that are necessary or appropriate in carrying out the Committee’s duties.

All outside legal, accounting or other advisors retained to assist the Committee shall be accountable ultimately to the Committee.

16.		Remuneration of Committee Members No member of the Committee shall receive from the Corporation or any of its affiliates any compensation other than the fees to which he or she is entitled as a Director of the Corporation or a member of a committee of the Board. Such fees may be paid in cash and/or shares, options or other in-kind consideration ordinarily available to Directors.
B.		Mandate
17.		The Committee’s role is one of oversight. Management is responsible for preparing the interim and annual financial statements of the Corporation and for maintaining a system of risk assessment and internal controls to provide reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly, for maintaining disclosure controls and procedures to ensure that it is informed on a timely basis of material developments and the Corporation complies with its public disclosure obligations, and for ensuring compliance by the Corporation with legal and regulatory requirements. The external auditors are responsible for auditing the Corporation’s financial statements. In carrying out its oversight responsibilities, the Committee does not provide any professional certification or special assurance as to the Corporation’s financial statements or the external auditors’ work.
		The Committee shall:
		Audit Matters
		External Auditors’ Report on Annual Audit

a)

obtain and review annually prior to the completion of the external auditors’ annual audit of the year-end financial statements a report from the external auditors describing:

	(i)		all critical accounting policies and practices to be used;
	(ii)		all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditors; and
	(iii)		other material written communications between the external auditors and management, such as any management letter or schedule of unadjusted differences;

         Management’s and Internal Auditors’ Reports on External Audit Issues

b)

review any reports on the above or similar topics prepared by management or the internal auditors and discuss with the external auditors any material issues raised in such reports;

         Annual Financial Reporting Documents and External Auditors’ Report

c)

meet to review with management and the external auditors the Corporation’s annual financial statements, the report of the external auditors thereon, the related Management’s Discussion and Analysis, and the information derived from the financial statements, as contained in the Annual Information Form and the Annual Report. Such review will include obtaining assurance from the external auditors that the audit was conducted in a manner consistent with applicable law and will include a review of:

	(i)		all major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting policies or principles;
	(ii)		all significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including the effect on the financial statements of alternative methods within generally accepted accounting principles;
	(iii)		the effect of regulatory and accounting issues, as well as off-balance sheet structures, on the financial statements;
	(iv)		all major issues as to the adequacy of the Corporation’s internal controls and any special steps adopted in light of material control deficiencies; and

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

(v)

the external auditors’ judgment about the quality, and not just the acceptability, of the accounting principles applied in the Corporation’s financial reporting;

d)

following such review with management and the external auditors, recommend to the Board of Directors whether to approve the audited annual financial statements of the Corporation and the related Management’s Discussion and Analysis, and report to the Board on the review by the Committee of the information derived from the financial statements contained in the Annual Information Form and Annual Report;

     Interim Financial Statements and MD&A

e)

review with management and the external auditors the Corporation’s interim financial statements and its interim Management’s Discussion and Analysis, and if thought fit, approve the interim financial statements and interim Management’s Discussion and Analysis and the public release thereof by management;

     Earnings Releases and Earnings Guidance

f)

review and discuss earnings press releases, including the use of “pro forma” or “adjusted” information determined other than in accordance with generally accepted accounting principles, and the disclosure by the Corporation of earnings guidance and other financial information to the public including analysts and rating agencies, it being understood that such discussions may, in the discretion of the Committee, be done generally (i.e., by discussing the types of information to be disclosed and the type of presentation to be made) and that the Committee need not discuss in advance each earnings release or each instance in which the Corporation discloses earnings guidance or other financial information; and be satisfied that adequate procedures are in place for the review of such public disclosures and periodically assess the adequacy of those procedures;

     Material Litigation, Tax Assessments, Etc.

g)

review with management, the external auditors and, if necessary, legal counsel all legal and regulatory matters and litigation, claims or contingencies, including tax assessments, that could have a material effect upon the financial position of the Corporation, and the manner in which these matters may be, or have been, disclosed in the financial statements; and obtain reports from management and review with the Corporation’s chief legal officer, or appropriate delegates, the Corporation’s compliance with legal and regulatory requirements;

     Oversight of External Auditors

h)

subject to applicable law relating to the appointment and removal of the external auditors, be directly responsible for the appointment, retention, termination, compensation and oversight of the external auditors; and be responsible for the resolution of disagreements between management and the external auditors regarding financial reporting;

     Rotation of External Auditors’ Audit Partners

i)

review and evaluate the lead audit partner of the external auditors and assure the regular rotation of the lead audit partner and the audit partner responsible for reviewing the audit and other audit partners, as required by applicable law; and consider whether there should be a regular rotation of the external audit firm itself;

     External Auditors’ Internal Quality Control

j)

obtain and review, at least annually, and discuss with the external auditors a report by the external auditors describing the external auditors’ internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues;

     External Auditors’ Independence

k)

review and discuss at least annually with the external auditors all relationships that the external auditors and their affiliates have with the Corporation and its affiliates in order to assess the external auditors’ independence, including, without limitation:

(i)

obtaining and reviewing, at least annually, a formal written statement from the external auditors delineating all relationships that in the external auditors’ professional judgment may reasonably be thought to bear on the independence of the external auditors with respect to the Corporation,

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

	(ii)		discussing with the external auditors any disclosed relationships or services that may affect the objectivity and independence of the external auditors, and
	(iii)		recommending that the Board take appropriate action in response to the external auditors’ report to satisfy itself as to the external auditors’ independence;

     Policies Regarding Hiring of External Auditors’ Employees and Former Employees

l)

set clear policies for the hiring by the Corporation of partners, employees and former partners and employees of the external auditors;

     Pre-Approval of Audit and Non-Audit Services Provided by External Auditors

	m)		be solely responsible for the pre-approval of all audit and non-audit services to be provided to the Corporation and its subsidiary entities by the external auditors (subject to any prohibitions provided in applicable law), and of the fees paid for these services; provided however, that the Committee may delegate to an independent member or members of the Committee authority to pre-approve such non-audit services, and such member(s) shall report to the Committee at its next meeting following the granting of any pre-approvals pursuant to such delegated authority;
	n)		review the external auditors’ annual audit plan (including scope, staffing, reliance on internal controls and audit approach);
	o)		review the external auditors’ engagement letter;

     Oversight of Internal Audit

	p)		oversee the internal audit function by reviewing senior management action with respect to the appointment or dismissal of the Chief Internal Auditor; afford the Chief Internal Auditor unrestricted access to the Committee; review the charter, activities, organizational structure, and the skills and experience of the Internal Audit Department; discuss with management and the external auditors the competence, performance and cooperation of the internal auditors; and discuss with management the compensation of the internal auditors;
	q)		review and consider, as appropriate, any significant reports and recommendations issued by the Corporation or by any external party relating to internal audit issues, together with management’s response thereto;

     Internal Controls and Financial Reporting Processes

	r)		review with management, the internal auditors and the external auditors, the Corporation’s financial reporting processes and its internal controls;
	s)		review with the internal auditors the adequacy of internal controls and procedures related to any corporate transactions in which directors or officers of the Corporation have a personal interest, including the expense accounts of officers of the Corporation at the level of Vice-President and above and officers’ use of corporate assets, and consider the results of any reviews thereof by the internal or external auditors;

     Complaints Processes

t)

establish procedures for:

	(i)		the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and
	(ii)		the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters,

and review periodically with management and the internal auditors these procedures and any significant complaints received;

     Separate Meetings with External Auditors, Internal Audit, Management

u)

meet separately and periodically with management, the external auditors and the internal auditors periodically to discuss matters of mutual interest, including any audit problems or difficulties and management’s response thereto, the responsibilities, budget and staffing of the Internal Audit Department and any matter they recommend bringing to the attention of the full Board;

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

     Finance

	v)		review all major financings, including financial statement information contained in related prospectuses, information circulars, etc., of the Company and its subsidiaries and annually review the Company’s financing plans and strategies;
	w)		review management’s plans with respect to Treasury operations, including such items as financial derivatives and hedging activities;

     Risk Management

x)

discuss risk assessment and risk management policies and processes to be implemented for the Corporation, review with management and the Corporation’s internal auditors the effectiveness and efficiency of such policies and processes and their compliance with other relevant policies of the Corporation, and make recommendations to the Board with respect to any outcomes, findings and issues arising in connection therewith;

y)

review management’s program to obtain appropriate insurance to mitigate risks;

     Terms of Reference and Performance Evaluation of Committee

z)

review and reassess the adequacy of these Terms of Reference at least annually, and otherwise as it deems appropriate, and recommend changes to the Board. The Committee shall also undertake an annual evaluation of the Committee’s performance.

     Other

	aa)		perform such other activities, consistent with these Terms of Reference, the Corporation’s articles and by-laws and governing law, as the Committee or the Board deems appropriate.
	bb)		report regularly to the Board of Directors on the activities of the Committee.

Audit and Non-Audit Fees and Services

Fees payable to PricewaterhouseCoopers LLP for the years ended December 31, 2006, and December 31, 2005, totalled $2,824,200 and $2,142,140, respectively, as detailed in the following table:

		Year ended				Year ended
		December 31, 2006				December 31, 2005
Audit Fees		$	2,118,000			$	1,086,000
Audit-Related Fees		$	438,900			$	812,540
Tax Fees		$	267,300			$	243,600
All Other Fees		$	—			$	—
TOTAL		$	2,824,200			$	2,142,140

The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered for the audit of CP’s annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.

Audit-Related Fees

Audit-related fees were for attestation and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of: the audit or review of financial statements of certain subsidiaries and of various pension and benefits plans of CP; special attest services as may be required by various government entities; assistance with preparations for compliance with Section 404 of the Sarbanes-Oxley Act of 2002; access fees for technical accounting database resources; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed Canadian and U.S. Accounting Guidelines, securities regulations, and/or laws.

Tax Fees

AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and valued added tax); and access fees for taxation database resources.

All Other Fees

Fees disclosed under this category were for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above. In both 2006 and 2005, there were no services in the category.

ADDITIONAL INFORMATION

Additional Company Information

Additional information about CP is available on our website at www.cpr.ca and on SEDAR (System for Electronic Document Analysis and Retrieval) at www.sedar.com in Canada, and on the U.S. Securities and Exchange Commission’s website (EDGAR) at www.sec.gov. The aforementioned documents are issued and made available in accordance with legal requirements and are not incorporated by reference into this AIF.

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and securities authorized for issuance under equity compensation plans, where applicable, is contained in the information circular for our most recent annual meeting of shareholders at which directors were elected.

Additional financial information is provided in our Consolidated Financial Statements and Management’s Discussion and Analysis for the most recently completed financial year.