Hello!

Welcome to the sixth year of The Lawrence Foundation.

We received and reviewed 569 grant requests and letters of inquiry this year and made 37 grants. The 569 grant requests we received in 2005 represent a 40% increase over the 395 grant requests that we received in 2004. As we write this letter in early 2006 it appears that the number of grant requests that we will receive in 2006 will be significantly higher than 2005. The distribution of the grant requests was 38% environment, 22% education, 14% health, 22% human services and 4% other in 2005. We were able to make 37 new grants with a value of over $143,000 to a mix of large and small organizations. Of the 37 new commitments and grants made in 2005, 21 or 57% were made to environmental causes, 12 or 32% were made to human services causes and the remainder were made to other causes. For each 20 or so letters of inquiry or grant requests that we received we were able to make 1 grant. The grant making pendulum has swung to emphasize environmental issues, but we'd like it to swing back slightly to include other issues as well. Regular grants this year ranged in size from $500 to $10,000 with a typical size of $5,000. We have no geographic restrictions in our grant making although in 2005 we made grants to projects focused (in decreasing order) on a state, national, international, regional and local level. Since the foundation's inception we've made commitments and grants totaling over $2.5 million.

The asset value of the foundation increased about 9% this year. The foundation started the year with an asset value of about $4.4 million and ended the year ended with an asset value of about $4.8 million. The foundation's assets increased in value because of a strong equity market but this was countered by a decrease in assets because of the continued pay off the special grants. We've gone over the hump of paying off the special grants (described in earlier year's annual letters) and the future pay off for the special grants will be decreasing until we are finished paying them off in 2007. This should allow us to increase our regular grants in the future. We completed diversification out of our concentrated equity position. Our primary investment objective remained unchanged and is to target a real rate of return of 4.5+% (net of investment expenses) with a conservative to moderate risk tolerance and a 10+ year time horizon. We had a nominal rate of return of 8.0% (net of investment expenses) in 2005. Our assets are currently allocated between U.S. equities and international equities (51%), fixed income securities (28%), alternative investments (21%) and cash and cash equivalents (0%). Our asset value places us in the top 3,500 out of 25,000+ family foundations in the U.S.

Our new grant making budget for 2006 has been set and we look forward to the coming year. We will continue to spend more time understanding the most effective methods for choosing between the many grant requests we receive as well as evaluating the results and effectiveness of the grants we make. The continued increase in grant requests is straining our capability to review them efficiently. Towards each grant cycle deadline we become inundated in paper. We'll be moving towards an online grant application process towards the latter half of this year to help us manage the grant making process. As we move forward we d like to make more operating grants and make more multi-year grants. Our early model of single year project grants isn t the most effective way to fund organizations. We d also like to fund an increasing number of grant requests that we explicitly solicit from organizations that we believe are pursuing issues important to us. We believe that the best thing we can do is support good people and good ideas with grants that give people the flexibility they need to realize their ideas. This funding transition will not happen immediately and will probably take place over the next couple of years.

The foundation sponsored, organized and hosted, in association with the Natural Resources Defense Council (NRDC) and the Global Development and Environment Institute (GDAE) at Tufts University a workshop for environmental economics. The workshop was held from March 4 - 6, 2005 in Santa Monica, California. The vision for the workshop was to identify, develop and engage a network of economic experts and others that share and support a common vision of developing, delivering and advocating credible and effective economic theories and arguments for environmental protection, stewardship, and investment. The workshop was very well reviewed by attendees.

Jeff has been involved in various committees of a community hospital foundation where he has learned a lot about the healthcare industry. Jeff spoke at a philanthropy conference in June 2005 about his personal story and some of the challenges, disappointments, joys, and surprises he has experienced in forming and running a family foundation. He also shared some of his thoughts about the players, rules, strategies, tactics and future directions in the field of philanthropy. The presentation can be found at: The Game of Philanthropy.

Throughout the year we have received a number of visits from grant seekers at our office in Santa Monica. We've enjoyed all of the visits and appreciated the time they've all spent educating us on their issues of importance.

We completed our conflict of interest policy in 2005 and put it into operation. It can be found at: Conflict of Interest Policy. We also worked towards developing a proxy voting policy (as described in our 2004 Annual Letter) but we found that the systems needed at our financial advisors and asset managers are not sufficiently developed to support such a policy easily. We'll continue working towards this goal but it appears it will take longer to accomplish than we initially believed.

It is clear that the challenges the world faces are not going away. We hope that our activities, in some small way, will make the world a better place for future generations.

Respectfully Submitted,

Jeff Lawrence and Diane Troth
Trustees

Lori Mitchell
Executive Director

The Lawrence Foundation