The Jensen Portfolio
LETTER FROM THE INVESTMENT ADVISER
November 30, 1995
Dear Shareholder:
The equity market during the first half of The Jensen Portfolio's 1996 fiscal
year was in stark contrast with the same period last year. The table below shows
the Portfolio's performance along with the Standard and Poor's 500, an index
which many investors consider a general market barometer. All figures shown are
with dividends reinvested.
6 Months, 11/30/95 6 Months, 11/30/94
------------------ ------------------
Jensen Portfolio +12.76% +1.38%
S&P 500 +14.89% +0.81%
The reasons for the rather significant difference in performance of the 1995 and
the 1994 periods are, as always, arguable; nonetheless one reason would make
most lists. After raising the discount rate seven times in 1994 and early 1995
in order to cool off the economy, the Federal Reserve nudged it lower in
November, 1995. Why the securities markets can be so unresponsive when the
economy is expanding and so hot when the Fed is applying the brakes to it, is a
question that may better be answered in 1996 - if ever.
Although year-end figures are not available for calendar 1995, it appears that
increases in business performance of most Portfolio companies will be in line
with 1994's. Over the short term, market performance and business performance
seldom act in unison. This, unfortunately, is not only true in active markets
such as we have today, but equally valid when few care about markets or
securities. In either event, the Portfolio's strategy remains the same: that
business performance must provide the foundation for any worthwhile increase in
market value.
The diabolical side of all this is that the only evidence that Portfolio
shareholders can see of business performance is the ever changing Portfolio's
market price in the news-paper - in other words, shareholders do not have any
other dial to read. On the other side of the coin, as investment advisers, we
have the comfort (and sometimes, discomfort) of following each company's
business performance through the company's financial reports or by contacting
the company directly. Thus we develop an expectation of what kind of value a
company can create for its owners over time.
In order to share some of our comfort with you, the following ten companies held
in the Portfolio reported both significant business performance and market
performance in the period just ended:
EQUIFAX (NYSE): Equifax serves 100,000 businesses throughout the world with
information through three business units: financial, insurance and credit
information services. Equifax's growth strategy is three pronged: geographic
expansion, market penetration and product line expansion, and by offering new
value-added services.
MERCK (NYSE): The company manufactures and markets a broad range of innovative
products to improve human and animal health. Merck-Medco Managed Care, a
subsidiary, manages pharmacy benefits for more than 40 million Americans,
encouraging appropriate use of medicines and providing disease management
programs.
WILMINGTON TRUST (OTC): This conservatively financed and operated commercial
bank serves clients in mid- and southern Atlantic states. The consistency of its
high returns is principally due to its high percentage of fee income, such as
trust department fees.
CLOROX (NYSE): The company has been revitalized by a new-to-top-management, 22-
year veteran of the Company. Using its traditional businesses' cash flow to
bring a bevy of new products to market, Clorox is a slimmed-down competitor on a
mission to create value for shareholders, particularly in the international
arena.
AUTOMATIC DATA PROCESSING (NYSE): Few companies have reported such consistently
good operating performance over the years. While best known as providing payroll
services to companies large and small, ADP has rapidly growing businesses
serving the automobile and the securities industries.
H&R BLOCK (NYSE): Block has two main business segments, tax-servicing - in which
the company is the largest domestic factor - and CompuServe which is the leading
on-line information services company with the most comprehensive network.
COCA-COLA (NYSE): A stock that has refreshed investors for over a decade. Two
notables, among many, are: first, the Company's retirement of 29% of its
outstanding shares since 1985 and secondly that 80% of its net income, and
growing, comes from outside the United States.
TAMBRANDS (NYSE): A leading manufacturer and marketer of feminine protection
products. Their flagship brand is the worldwide market leader sold in over 150
countries to over 100 million women.
DUN & BRADSTREET (NYSE): Among its businesses are A.C. Nielsen, R.H. Donnelly,
Moody's, and its credit tracking of 20 million domestic and international
companies. D&B and Tambrands share honors of NYSE listed-companies who have
consecutively increased their dividends over the longest period - since 1951.
GENERAL ELECTRIC (NYSE): Speaking of dividends, GE began paying dividends in
1899 and the way their businesses are being managed should keep their record
alive into the next century and beyond. Their annual report, written by Chairman
Jack Welch, is a perennial classic and recommended reading to all Portfolio
shareholders.
Of particular note, of the companies listed above, four (Wilmington Trust,
Clorox, Automatic Data Processing and General Electric) are recent additions to
the Portfolio resulting from our augmented investment strategy. While our basic
strategy (identifying companies that have demonstrated a consistent competitive
advantage, a strong financial statement, and increasing dividends) remains the
same, we adopted an additional yardstick by estimating the amount of value each
company can potentially create for shareholders. This "fourth leg" of our
strategy was announced to shareholders in May and covers all present - and
future -companies considered for the Portfolio.
This added process enables us to compute the value of each firm as if it were a
private company. By comparing our private valuation, or intrinsic value, with
the public valuation, we can determine each company's relative attractiveness.
There are three primary variables in our formula. 1 - Our estimate of the
present value of cash (net income plus depreciation less capital expenditures)
each company will generate for over the next decade; 2 - the cost of capital;
and 3 - the company's market price.
The more common method of evaluating businesses is to estimate net income after
taxes. This method does not allow the differentiation between companies which
consume large amounts of capital by spending it on new plant and equipment and
those businesses which are not capital intensive. For example, in order to
improve their market position, many paper companies must commit to new paper
mills which can cost upwards of $1 billion. A service company such as Automatic
Data Processing, on the other hand, can significantly expand their services by
merely adding computing power. Cash-generating companies like this can invest in
research and development programs, new production processes or services, worker
training programs, well thought out acquisitions and share buy-backs - all
potentially value-creating initiatives for their owners.
Based on this augmented approach, we sold six companies during May and June
which are relatively cash-hungry and replaced them with companies which report
much higher free cash flows. Happily, the newly-added companies performed over
twice as well in the market as the companies they replaced.
Six months is far too short a period in which to judge a long-term investment
strategy. The results are certainly positive enough for us to monitor and
develop the process. We look forward to reporting to you on its progress in
coming reports.
In closing, the turn of the year is a time for many to comment about the
economic and market outlook. American business remains ruthlessly competitive
and only political action could alter it. Nothing now on the horizon suggests
anything but moderate inflation and domestic growth, thus long term interest
rates should remain unattractive for investors. We believe companies with strong
domestic franchises and companies with experience in international trade
continue to represent excellent opportunity. Having said that, political egos
continue to hold up the national budget process - this could become the
"unexpected event" that could change this scenario.
If any shareholder wishes annual reports on companies held in the Portfolio and
an illustration on how we calculate business value, please call us at 1-800-221-
4384.
Best regards,
/s/ Val Jensen
Val Jensen
President, Jensen Investment Management, Inc.
STATEMENT OF ASSETS & LIABILITIES
November 30,1995 (unaudited)
ASSETS:
Investments, at value (cost $8,668,450) $10,320,924
Income receivable 26,062
Deferred organizational expenses,
net of accumulated amortization 23,141
Prepaid expenses 2,101
----------
Total Assets 10,372,228
----------
LIABILITIES:
Payable to investment adviser 1,549
Payable to directors
17,736
Accrued expenses 16,247
----------
Total Liabilities 35,532
----------
NET ASSETS $10,336,696
==========
NET ASSETS CONSIST OF:
Capital stock $ 9,219,525
Net unrealized appreciation on
investments 1,652,474
Undistributed net investment income 25,147
Accumulated net realized losses (560,450)
-----------
Total Net Assets $10,336,696
===========
Net Asset Value Per Share, 929,563
shares outstanding (100,000,000 shares
authorized, $.001 par value) $ 11.12
===========
See notes to financial statements.
SCHEDULE OF INVESTMENTS
November 30,1995 (unaudited)
Number of Shares Market Value
- ---------------- ------------
COMMON STOCK 98.54%
Banking & Finance 4.20%
13,500 Wilmington Trust
Corporation $ 433,688
----------
Chemical Specialty 4.37%
5,600 Betz Laboratories, Inc. 225,400
4,600 Sigma-Aldrich Corporation 226,550
---------
451,950
---------
Communications & Media 4.43%
7,500 Gannett Company, Inc. 457,500
---------
Computer Software Services 4.62%
6,000 Automatic Data
Processing, Inc. 477,750
---------
Cosmetic & Soap 4.40%
6,000 Clorox Company 454,500
---------
Drugs 9.57%
14,200 Glaxo Wellcome, PLC-ADR 379,850
9,850 Merck & Company, Inc. 609,469
---------
989,319
---------
Electrical Equipment 4.23%
6,500 General Electric Company 437,125
---------
Financial Services 4.82%
11,200 H&R Block, Inc. 498,400
---------
Food Processing 15.32%
9,750 The Coca-Cola Company 738,562
6,750 Kellogg Company 515,531
7,000 Wrigley (Wm.) Jr. Company 329,875
---------
1,583,968
---------
Industrial Services 16.74%
23,700 Equifax, Inc. $ 992,437
15,500 Premier Industrial
Corporation 385,563
17,000 Rollins, Inc. 352,750
---------
1,730,750
---------
Liquor 3.69%
1,000 Brown-Forman Corporation,
Class B 381,250
---------
Medical Supplies 6.52%
16,600 Abbott Laboratories 674,375
---------
Precision Instruments 3.31%
17,800 EG&G, Inc. 342,650
---------
Publishing 5.23%
4,650 Deluxe Corporation 128,456
6,600 Dun & Bradstreet
Corporation 411,675
---------
540,131
---------
Tire & Rubber 3.96%
8,050 Bandag, Inc. 409,544
---------
Toiletries & Cosmetics 3.13%
6,200 Tambrands, Inc. 323,175
---------
Total Common Stock
(Cost $8,533,601) $10,186,075
-----------
See notes to financial statements.
Principal Amount Market Value
- ---------------- ------------
SHORT-TERM INVESTMENTS 1.31%
Variable Rate Demand Notes 1.31%
$131,849 Sara Lee Corporation $ 131,849
3,000 Wisconsin Electric 3,000
----------
Total Short-Term Investments
(Cost $134,849) 134,849
----------
TOTAL INVESTMENTS 99.85%
(Cost $8,668,450) 10,320,924
----------
OTHER ASSETS,
LESS LIABILITIES 0.15% 15,772
----------
NET ASSETS 100.00% $10,336,696
===========
See notes to financial statements.
STATEMENT OF OPERATIONS
Six Months Ended November 30, 1995 (unaudited)
INVESTMENT INCOME:
Dividends $ 127,644
Interest 4,588
-------
132,232
-------
EXPENSES:
Investment advisory fees 25,942
Shareholder servicing and accounting 14,189
Professional fees 10,306
Directors' fees and expenses 7,826
Amortization of deferred
organizational expenses 6,908
Administration fees 7,518
Reports to shareholders 1,531
Federal and state registration fees 1,580
Custody fees 1,058
Other 2,342
--------
Total expenses before reimbursement 79,200
Less: Reimbursement from Adviser (16,939)
--------
Net Expenses 62,261
--------
NET INVESTMENT INCOME 69,971
--------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 174,939
Change in unrealized appreciation
on investments 989,268
---------
Net gain on investments 1,164,207
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,234,178
==========
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
(unaudited)
Six Months
ended Year Ended
OPERATIONS: Nov 30, '95 May 31, '95
----------- -----------
Net investment income ........ $ 69,971 $ 135,570
Net realized gain on
investment transactions ........ 174,939 (218,592)
Change in unrealized appreciation
on investments 989,268 1,348,178
--------- ---------
Net increase in net assets
resulting from operations ...... 1,234,178 1,265,156
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Shares sold .................... 529,482 1,037,954
Shares issued to holders in
reinvestment of dividends ... 65,920 117,997
-------- ---------
595,402 1,155,951
Shares redeemed .............. (1,269,810) (1,219,001)
----------- -----------
Net (decrease) ............... (674,408) (63,050)
----------- ----------
Dividends paid from net
INVESTMENT INCOME ............... (82,704) (151,193)
----------- ----------
INCREASE
IN NET ASSETS ................... 477,066 1,050,913
NET ASSETS:
Beginning of period ............. 9,859,630 8,808,717
End of period (including undistributed
net investment income of $25,147
and $3,217, respectively) ....... $10,336,696 $9,859,630
=========== ==========
See notes to financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
(unaudited)
<CAPTION>
August 3
Six Months 1992<F1>
ended Year Ended Year Ended through
Per Share Data: Nov. 30, '95 May 31, '95 May 31, '94 May 31, '93
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ................. $9.94 $8.80 $9.36 $10.00
Income from investment operations:
Net investment income ................. 0.07 0.14 0.13 0.09
Net realized and unrealized
gains (losses) on investments .... 1.19 1.15 (0.56) (0.66)
------ ------ ------ ------
Total from investment operations 1.26 1.29 (0.43) (0.57)
------ ------ ------ ------
Less distributions:
Dividends from net investment
income ............................ (0.08) (0.15) (0.13) (0.07)
------ ------ ------ ------
Net asset value,
end of period $11.12 $9.94 $8.80 $9.36
====== ===== ===== =====
Total return<F2>....................... 12.76% 14.84% (4.64)% (5.72)%
Supplemental data and ratios:
Net assets, end of period ............ $10,336,696 $9,859,630 $8,808,717 $9,470,139
Ratio of expenses to average
net assets <F3>........................ 1.20% 1.20% 1.13% 0.89%
Ratio of net income to average
net assets <F3>...................... 1.35% 1.48% 1.36% 1.54%
Portfolio turnover rate ............ 18.32% 11.27% 5.26% 4.01%
<F1> Commencement of operations.
<F2> Not annualized for the six months ended November 30, 1995 and for the period August 3, 1992 through May 31, 1993.
<F3> Annualized for the six months ended November 30, 1995 and for the period August 3, 1992 through May 31, 1993. Without expense
waivers or voluntary reimbursements of $16,939 for the six months ended November 30, 1995, $50,889 for the year ended May 31, 1995,
$54,481 for the year ended May 31, 1994, and $61,182 for the period August 3, 1992 through May 31, 1993, the ratio of expenses to
average net assets would have been 1.53%, 1.75%, 1.72% and 1.97%, respectively, and the ratio of net income to average net assets
would have been 1.02%, 0.93%, 0.77% and 0.25%, respectively.
See notes to financial statements.
</TABLE>
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
The Jensen Portfolio, Inc. (the "Fund") was organized as an Oregon Corporation
on April 17, 1992, and is registered as an open-end, nondiversified management
investment company under the Investment Company Act of 1940. The Fund issued and
sold 10,000 shares of its capital stock at $10 per share on June 29, 1992
("initial shares"). The Fund commenced operations on August 3, 1992.
Jensen Investment Management, Inc. (the "Investment Adviser") has advanced the
Fund $56,604 to cover costs in connection with the organization, initial
registration and public offering of shares. The Fund will reimburse these costs
under a five-year amortization schedule until the Fund has net assets of $50
million or more, at which time the Fund will reimburse the Investment Adviser
for all remaining organizational costs. The total organizational costs of
$57,854 (which includes both costs advanced by the Investment Adviser and costs
paid directly by the Fund) are being amortized over the period of benefit, but
not to exceed 60 months from the Fund's commencement of operations. If any of
the initial shares are redeemed during the amortization period, the redemption
proceeds will be reduced by the pro rata share (calculated as the number of
original shares being redeemed divided by the number of original shares
outstanding immediately prior to such redemption) of the unamortized costs as of
the date of redemption.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation - Securities that are listed on United States stock
exchanges are valued at the last sale price on the day the securities are valued
or, if there has been no sale on that day, then at the average of the last
available bid and ask prices. Quotations are taken from the market in which the
security is primarily traded. Over-the-counter securities are valued at the last
sale price on the day the securities are valued, or if there has been no sale on
that day, then at the average of the current bid and ask prices. Securities for
which market quotations are not readily available are valued at fair value as
determined by the Investment Adviser at or under the direction of the Fund's
Board of Directors. Variable rate demand notes are valued at cost which
approximates market value. Notwithstanding the above, fixed-income securities
may be valued on the basis of prices provided by an established pricing service
when the Board believes that such prices reflect market values.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code applicable to regulated investment companies and intends to continue to so
comply in the future and to distribute substantially all of its net investment
income and realized capital gains in order to relieve the Fund from all federal
income taxes.
c) Distributions to Shareholders - Dividends from net investment income are
declared and paid quarterly by the Fund. Distributions of net realized capital
gains, if any, will be declared at least annually.
d) Other - Investment and shareholder transactions are recorded no later than
the first business day after the trade date. Gains or losses from the investment
transactions are determined on the basis of identified carrying value. Dividend
income is recognized on the ex-dividend date and interest income is recognized
on an accrual basis. The Fund has investments in short-term variable rate demand
notes, which are unsecured instruments. These notes may present credit risk to
the extent the issuer defaults on its payment obligation. The credit-worthiness
of the issuer is monitored, and these notes are considered to present minimal
credit risk in the opinion of the Investment Adviser. Generally accepted
accounting principles require that permanent financial reporting and tax
differences be reclassified to capital stock.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
Six Months
ended Year Ended
Nov 30, '95 May 31, '95
----------- -----------
Shares sold.................... 51,067 112,636
Shares issued to holders in
reinvestment of dividends .. 6,254 12,970
Shares redeemed .............. (120,157) (133,856)
--------- ---------
Net (decrease)................ (62,836) (8,250)
========= =========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the six months ended November 30, 1995, were
$1,844,339 and $2,601,259, respectively.
At November 30, 1995, gross unrealized appreciation and depreciation of
investments were as follows:
Appreciation $2,065,546
(Depreciation) (413,072)
----------
Net appreciation on investments $1,652,474
==========
At November 30, 1995, the cost of investments for federal income tax purposes
was $8,668,450.
At May 31, 1995, the Fund had accumulated net realized capital loss carryovers
of $109,595, $407,202 and $218,592 expiring in 2001, 2002 and 2003,
respectively. To the extent the Fund realizes future net capital gains, taxable
distributions to its shareholders will be offset by any unused capital loss
carryover.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory and Service Contract with
Jensen Investment Management, Inc. Pursuant to its advisory agreement with the
Fund, the Investment Adviser is entitled to receive a fee, calculated daily and
payable monthly, at the annual rate of 0.50% as applied to the Fund's daily net
assets.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held bank
holding company, serves as custodian, transfer agent, administrator and
accounting services agent for the Fund.
5. EXPENSE GUARANTEE
In order to limit the Fund's expenses, the Investment Adviser has guaranteed
that certain expenses payable by the Fund (including, but not limited to,
management fees, legal, audit, custodial, printing and other regular Fund
expenses, but excluding brokerage commissions, taxes, interest, organizational
costs and other expenses that are capitalized, and all extraordinary items such
as litigation or indemnification expenses) will not exceed specified levels in
any fiscal year. If the Fund's regular operating expenses exceed the applicable
limit specified below (expressed as a percentage of average daily net assets on
an annual basis), the Investment Adviser will reduce its management fee, or
reimburse the Fund, in an amount equal to the excess:
Average Daily Net Annual
Assets for the Year Expense Limit
------------------- -------------
$100,000 - $10,000,000 2.00%
$10,000,001 - $15,000,000 1.75%
$15,000,001 - $25,000,000 1.50%
$25,000,001 - $50,000,000 1.25%
$50,000,001 - $100,000,000 1.00%
$100,000,001 and above 0.75%
In addition, the Investment Adviser has voluntarily agreed to reimburse the Fund
for its expenses or waive management fees during fiscal 1996 in order to keep
regular operating expenses at no more than 1.20% for the year. Any reduction in
management fees or reimbursement of expenses by the Investment Adviser required
pursuant to the above expense guarantee will be computed and accrued daily, paid
monthly and adjusted annually on the basis of the Fund's average daily net
assets for the year. The Investment Adviser waived $16,939 of management fees
for the six months ended November 30, 1995.
6. DISTRIBUTIONS
On December 29, 1995 an ordinary income dividend of $.03731354 per share
aggregating $35,073 was declared. The distribution was paid on December 29, 1995
to shareowners of record on December 28, 1995.
THE JENSEN PORTFOLIO
Semi-Annual Report
November 30, 1995
JENSEN
INVESTMENT
MANAGEMENT
430 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204-2018
503-274-2044
800-221-4384
Fax 503-274-2031
[ARTICLE] 6
[CIK] 0000887215
[NAME] THE JENSEN PORTFOLIO, INC.
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] MAY-31-1996
[PERIOD-START] JUN-01-1995
[PERIOD-END] NOV-30-1995
[INVESTMENTS-AT-COST] 8,668,450
[INVESTMENTS-AT-VALUE] 10,320,924
[RECEIVABLES] 26,062
[ASSETS-OTHER] 25,242
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 10,372,228
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 35,532
[TOTAL-LIABILITIES] 35,532
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9,218,595
[SHARES-COMMON-STOCK] 929,563
[SHARES-COMMON-PRIOR] 992,399
[ACCUMULATED-NII-CURRENT] 25,147
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (560,450)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,652,474
[NET-ASSETS] 10,336,696
[DIVIDEND-INCOME] 127,644
[INTEREST-INCOME] 4,588
[OTHER-INCOME] 0
[EXPENSES-NET] 62,261
[NET-INVESTMENT-INCOME] 69,971
[REALIZED-GAINS-CURRENT] 174,939
[APPREC-INCREASE-CURRENT] 989,268
[NET-CHANGE-FROM-OPS] 1,234,178
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 82,704
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 51,067
[NUMBER-OF-SHARES-REDEEMED] 120,157
[SHARES-REINVESTED] 6,254
[NET-CHANGE-IN-ASSETS] 477,066
[ACCUMULATED-NII-PRIOR] 3,217
[ACCUMULATED-GAINS-PRIOR] (735,389)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 25,942
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 79,200
[AVERAGE-NET-ASSETS] 10,356,021
[PER-SHARE-NAV-BEGIN] 9.94
[PER-SHARE-NII] 0.07
[PER-SHARE-GAIN-APPREC] 1.19
[PER-SHARE-DIVIDEND] 0.08
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.12
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
