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p r e s i d e n t ’ s m e s s ag eOu r fou r key strategic areasremai n u nchanged as we bu i ld th ebu s i n ess to deliver con s i stent an dgrowi ng u n itholder di stri bution s.continue to work with our Board, Committees andAs an organization we will continue to improveauditors to ensure compliance with new governanceour processes and make further progress onregulatory changes.streamlining and integrating our marketingfunctions. We want to ensure that we have themanagement and the analytic capabilities of theGoing Forwardmarket leaders while maintaining the speed andOur four key strategic areas remain unchangedentrepreneurship of an independent operator.as we build the business to deliver consistent andgrowing unitholder distributions.In summary, I am very proud of what has beenaccomplished for our unitholders. I believeOur focus will remain on our core business ofParkland is well positioned to continue its solidpetroleum products distribution and conveniencegrowth record in 2006 and beyond. I would likestores. We will continue to pursue organic growthto give special thanks to our customers, suppliers,with our non-urban network expansion andretailers, employees and our Board, whose effortsupgrades. Beyond organic growth, we will look forand support have been critical to this performance.step changes through our investment and acquisitionTogether we can look forward to continued success.efforts and pursue opportunities related to ourBowden refinery site.We launched into 2006 with the prospects of highervolumes, both from our Fas Gas Plus and RaceTrac sites and from full implementation of the EssoAgreement. At the same time, we know that wehave to be prepared to operate in an environment ofMichael W. Chorltonmargin compression and that our focus continues toPresident and CEObe on net unit operating cost reduction. We expectMarch 1, 2006to generate sufficient cash flow from operations tosustain our 0.17 per unit monthly distributions,without relying on additional acquisitions. 2005 annual report112197-PKI Book6.indd 73/9/06 3:24:19 PM

ResourcefulParkland has developed a strong market niche through its focus onnon-urban markets, where there is loyalty to its brands, lower real estate andoverhead costs and more stable margins. With major competitors focusing on urbancentres, Parkland’s market presence has positioned us well for industry consolidation.

M a n a g e m e n t R o u n d t a b l eManagement Round TableParkland Income Fund has become the fastest growing independent marketer of transportation fuel in Western Canada. Withover 600 employees, Parkland has positioned itself as a significant player in non-urban markets, providing breadth andpresence through its network of 536 service stations. In late January 2006, four key members of the Parkland managementteam – Michael Chorlton, President and CEO, John Schroeder, Vice President and CFO, Stewart MacPhail, Vice President,Retail Markets and Bradley Williams, Vice President, Supply, Wholesale and Distribution – sat down to discuss the Fund’smarketing strategy, its successes and challenges, and opportunities for the future. Here is a summary of their conversation.On reorganizing the business unitsstructure, we are able to create a sharper focus, tobe more consistent and to reduce duplication ofOur reorganization of the company this past yearactivities across various functions.was a strategically driven change intended to alignour activities within a comprehensive marketingOn the growth strategystrategy that would effectively position Parkland.Previously, each of our three divisions had itsThe long-term growth strategy remains unchanged.own marketing strategy that was effective for thatWe will continue to focus on independent fueldivision but not necessarily aligned to positionmarketing and convenience store operations inParkland as a company. The organization is now innon-urban markets in Western Canada. We believea better position to deliver the objectives we set outthere is significant potential in this business, partlyin our strategy: to build upon our current strengthsdue to the opportunities in the market and alsowithin non-urban markets; to develop a clear brandbecause of our understanding of how to operate inposition within those markets; to consolidate oura very cost-effective way to take advantage of theseposition; to diversify away from reliance on fuelopportunities. Half our stations are in Alberta whichmargins as we build a more significant convenienceis experiencing rapid growth. We have a refinerystore business; and to deliver new sources ofasset that should offer some real opportunities for us.non-fuel margin, all the while keeping our costWe also have a well-integrated distribution system.structure low. By moving away from a divisional10P a r k l a n d I n c o m e F u n d

M a n a g e m e n t R o u n d ta b l eOver the past 10 years we have had about 200make sense, such as co-developing gas bars andpercent volume growth. In 2005 we signed anfast-food outlets. In Manitoba for instance, we areagreement with Imperial Oil to market the Essoconstructing a combination gas bar, conveniencebrand to independent dealers in Alberta andstore and McDonald’s restaurant.Saskatchewan, excluding Calgary and Edmonton.In 2006 we expect a 25 percent volume growth fromOn the future of the refinerythat agreement alone. There is no reason to believeOperations were suspended at the Bowden refinerythat we won’t continue the upward trend.in central Alberta in September 2001. We areAs an independent marketer, we are well positionedlooking at alternative opportunities to generate cashversus our competitors for growth in this sector.flow from the facility. The refinery is in an excellentWe have three brand types aimed at three differentlocation, it’s very central, close to the highway,customer segments: Fas Gas Plus, Race Trac andrail and pipelines, and has some very goodEsso. At the same time however, we are not going toprocessing equipment. We are hopeful we willgrow for the sake of growth; we are going to growhave a solution soon.for the sake of unitholder value.On distributionsOn pursuing similar deals to theOur level of distributions is guided by continuousImperial Oil Agreementreview of the financial performance of the businessWe will pursue more arrangements like therather than a target pay-out ratio. We carefullyconsider our estimate of sustainable cash flowImperial Oil agreement if they present the rightand tax position going forward. We increasedopportunities. That kind of deal fits very nicelydistributions twice in the past two years when weinto a trust structure. A core piece of our growthsaw that distributable cash was growing and judgedstrategy is to continue building relationships withto be sustainable.other complementary branded businesses at oursites. There are a number of kinds of alliances that112005 annual report112197-PKI Book6.indd 113/9/06 3:24:28 PM

M a n a g e m e n t R o u n d t a b l eOn risk managementimpact on gross margins. To date we havebeen successful at keeping operating costs down atFuel margins, our biggest risk factor, are very hardcompetitive levels. See Management’sto gauge over any given 12-month period. ThatDiscussion and Analysis for a more extensiveis one reason we remain conservative with ourdiscussion of risks.distributions. Our risk management program isvery much focused on controlling our costs. WeOn the Fas Gas Plus upgrade programwork hard at reducing costs on a per unit basis andto date we have been successful. We also focus onDuring 2005 we upgraded 17 sites under our Fasfuel volume growth, which acts as a buffer duringGas Plus program bringing the total to 95. Weperiods when fuel margins are thin.have approximately 25 to 30 upgrades at controlledsites remaining, so by the end of 2007 we will haveOur marketing mix also helps us in managingcompleted our plan for the network. The programsome of the inherent risk in the business. Wehas exceeded our expectations, both in terms ofare not one brand or one go-to-market strategy.the fuel volume increases we have experienced asThe mix of retail, independent dealer businesswell as the non-fuel margins we have been able toand our arrangements such as the Esso deal eachachieve at our convenience store operations. Theprovide a different risk-reward profile. Geographicenhancements have attracted a broader range ofdiversification also offsets any spikes or dips incustomers and our locations are also reporting amargins at individual locations.markedly improved level of customer satisfaction.One significant market challenge in our sectorIn 2005 we re-branded our first two Race Tracis competition from food store chains, which arelocations as Fas Gas Plus because they met the moreexpanding their business into non-urban marketsstringent criteria. We plan to re-brand 25 of ourand cross merchandising their in-store and fuelindependent dealer sites Fas Gas Plus by the end ofproducts. Their entry into the market is having an2006 and another eight to ten stations in 2007.12P a r k l a n d I n c o m e F u n d

M a n a g e m e n t R o u n d t a b l eOn human resource shortagesIn order to attract and retain management andadministrative staff, we have revamped our payProbably the single largest human resource issuesystem and we have implemented better systems towe are facing, which is typical across the country,ensure our compensation is competitive and thatis a shortage of truck drivers for our fleet ofwe are consistent and fair in our treatmentPetrohaul trucks. We have been diligent in ourof employees.efforts to ensure we are providing the best trainingand recruitment opportunities for new employeesOn governance changesas well as competitive wages and a better workingenvironment. To that end, in 2005 we movedParkland Industries Ltd. was structured with aour Edmonton operations to upgraded facilities.Board of Directors. When we converted to a trustWe also provide our drivers with modernwe added independent trustees. However, as anequipment to drive, and additional incentives suchincreasing number of companies converted to trusts,as a unit purchase plan with a dollar matchingthey began using professional corporate trustees asprogram. We feel our efforts have positioned us wellthis proved to be a more efficient process. Duringin the industry.2005 we reorganized to include the corporate trusteemodel. The change does not impact the operationsAttracting and retaining quality convenienceof the Board or its decision-making process.store personnel is also a challenge, particularly inattempting to meet our objective of full 24-hourservice. We are addressing this issue throughwages and benefits as well as by creating a superiorworking environment.132005 annual report

RootedParkland is strongly rooted in Western Canada. Parkland’s strategy is to increasevolumes, enhance the brand and deliver new sources of non-fuel margin, all the whilemaintaining a low cost structure. Parkland will continue to upgrade sites, debrandunder-performing sites, increase customer satisfaction through new customer orientedprograms, add new convenience store products and provide beneficial programs tothe dealer network.

REVIEW OF O P ERATIONSReview of OperationsIn 2005 Parkland upgraded 17 sites, and added two1999 the Fund has constructed 34 large formatnew service stations and 18 independent dealers toconvenience stores of approximately 2,100 squareits network. It also entered into a long-term Retailfeet. Commission stores are controlled sites eitherBranded Distributorship agreement with Imperialthrough ownership or a long-term lease, whereOil which will add approximately 150 new sites.Parkland contracts with a commission operatorto manage the site and store staff. The operator iscompensated through a commission on fuel salesFas Gas Plusvolumes and in many cases pays a variable rentIn 2005 Parkland continued its Fas Gas Plusbased on merchandise sales. With independentprogram, upgrading 15 of its Fas Gas retail and twodealers, who own or lease their own sites, Parklandof its wholesale service stations in order to improveenters into an agreement to supply fuel to the site.the customer experience, as well as broadening theCommission and independent dealer operated retailin-store product offering. To date 95 stations havesites that have not been upgraded to the Fas Gas Plusbeen rebranded to Fas Gas Plus. In total, Fas Gasstandard are operated under the Fas Gas brand.has 206 service stations across Western Canada, 63of which include a Short Stop or Short Stop ExpressIn 2005, total Fas Gas Plus and Fas Gas retailconvenience store.volumes increased 11.6 million litres over 2004as a result of the Fas Gas Plus upgrade program,Fas Gas retail service stations are operated asimproved marketing programs and the introductioncorporate stores, commissioned operations or asof a new Fleet Plus charge card program. At theindependent dealerships. Corporate stores aresame time, the number of actual sites decreasedwholly owned and operated sites. Parkland managesto 206 from 211 sites in 2004 with the closing ofthe fuel and adjacent Short Stop conveniencenon-performing sites. In 2006, volume increases arestore operations and employs the staff. Theexpected to continue with additional upgrades, newconvenience store is normally a larger format. Sincesites and new marketing programs.16P a r k l a n d I n c o m e F u n d

REVIEW OF O P ERATIONSParkland Retail OutletsParkland BrandedVolumes(as at December 31, 2005)(millions of litres)Fas GasFas Gas Plus Race Trac 11195215Short Stop Food Stores692706716200320042005Express locations offer a more limited selection bestsuited to their needs.Parkland’s convenience store business, launchedin 1999, has become one of the fastest-growingParkland has assembled an experienced team ofconvenience store chains in non-urban Westernmerchandise and convenience store professionals toCanada. There are now 63 outlets under the Shortevaluate and select sites that would make profitableStop Food Stores and Short Stop Express brands.store locations, develop marketing programs,The addition of these stores has had an impact onmanage relationships with merchandise suppliersboth transportation fuel volumes and overall non-and oversee daily operations at these sites.fuel revenue growth. Parkland’s Short Stop FoodStores offer a broad selection of food, beverage,In 2005, merchandise sales grew 6.9 millionsnack and convenience products together withor 18.1 percent over 2004 as a result ofservices such as lottery terminals, phone cardsstronger promotional programs and improvedand automated teller machines. Our 29 Short Stopproduct management.172005 annual report

R e v i e w o f o P e r at i o n sOngoing growth in sales and the increased focus onAs of December 31, 2005, Parkland had added 115convenience offerings at all our retail sites continuesEsso branded sites and expects to bring on about 35to improve Parkland’s relationship with merchandiseadditional sites in 2006. The benefit of this businessvendors. This results in more competitivewas nominal in 2005 as sites were not added untilproduct costs, timely access to new products,the fourth quarter and only 28 million litres of fuelbroader product selection and increased overallproducts had been marketed. Volumes in 2006promotional support.are expected to be around 250 million litres andrepresent a significant growth area for Parkland.Race TracGreat Northern OilRace Trac sells and delivers fuel to 215 independentbranded retail dealers who operate their own sitesParkland owns and operates a bulk facility inthroughout Western Canada. Parkland is focused onWhitehorse, Yukon, that provides home heatingupgrading its Race Trac locations to better attractfuels to its marketing area under the brand namehigh volume retailers. As part of its incentive toGreat Northern Oil and also supports 22 Fas Gasattract those retailers, Parkland offers promotionaland Race Trac stations in Northern B.C., the Yukonprograms, a proprietary fleet card offering and aand the Northwest Territories.Gold Points loyalty program. In 2005 Parklandadded 18 new independent dealers to its growingSupply and Distributionnetwork. Parkland also debranded two sites whichA key success factor for Parkland is its ability todid not meet Parkland’s criteria. In 2006 Parklandhave secure sources of fuel supply at competitiveplans to improve its loyalty program and continue toprices. Parkland has long-term contracts withattract higher quality independent dealers.three major refiners. Each contract has a differentcost structure and different volume commitments.Esso Branded Dealer SitesParkland ensures it meets its obligations underIn 2005, Parkland entered a Retail Brandedthese contracts and balances its supply to obtainDistributorship agreement with Imperial Oil.the most beneficial overall product cost. ParklandThe agreement makes Parkland responsible foris a large customer of each of these refiners andmanaging most of the Esso independent dealerhas established a history of meeting volume andnetwork in Alberta and Saskatchewan, excludingpayment commitments. This history makes it aEdmonton and Calgary. It also gives Parklanddesired customer and helps ensure competitivethe ability to provide the Esso brand to its ownpricing is received.dealers where it makes economic sense to do so.Fuel supply for the Esso dealers is purchasedCommercial and Resellerexclusively from Imperial. Margins availableParkland sells directly to resellers and commercialto Parkland in this arrangement are limited butcustomers, either through its 12 cardlock facilitiesadditional benefit is gained from the value of theor by direct delivery. Parkland plans to continueEsso brand generated by its national marketing.to add cardlock facilities on an annual basis. Sales18P a r k l a n d I n c o m e F u n d

REVIEW OF O P ERATIONSFuel Volumesby TypeCommercial andReseller Volumes(year ended December 31, 2005)(millions of litres)(millions of litres)433360Parkland Branded Retail 716Esso28 Commercial and Reseller 4332003 38020042005 to reseller and commercial customers are a keyupgraded office building and yard close to its supplycomponent of Parkland’s supply chain as it allowsterminals. Parkland also leased a significant numberParkland to increase the size of its supply contractsof new trucks, replacing 25 percent of its fleet.and balance supply commitments.Bowden RefineryPetrohaulParkland owns the Bowden refinery located justOne of Parkland’s key business strengths is itssouth of Red Deer, Alberta. Operations at thedistribution capabilities through its fleet of 37refinery were suspended in September 2001. APetrohaul trucks and related fuel tankers. InternalLetter of Intent to sell the refinery to the Bloodcontrol of trucking operations allows better qualityTribe of Standoff, Alberta has expired but would beassurance and customer service levels. Volumeexpected to be renewed if conditions to thegrowth, primarily related to the Imperial Oilsale were me

Parkland income FUnd annUal rePort 2005 Parkland income FUnd Suite 236, riverside office Plaza 4919 - 59th Street red deer, alberta t4n 6c9 www.parkland.ca Parkland income FU nd ann U al re P ort 2005. Head Office Suite 236, Riverside Office Plaza 4919 - 59th Street Red Deer, Alberta T4N 6C9 Tel: (403) 357-6400 Fax: (403) 346-3015 Email: corpinfo@parkland.ca Website: www.parkland.ca Annual .