SEMI-ANNUAL REPORT
THE JENSON PORTFOLIO
SEMI-ANNUAL REPORT
NOVEMBER 30, 1997
THE JENSEN PORTFOLIO
LETTER FROM THE INVESTMENT ADVISER
JANUARY 8, 1998
Dear Fellow Shareholders:
The usual volatile markets prevailed during The Jensen Portfolio's first half
ending November 30th. The climax was when the Dow Jones Industrial Average fell
554 points in a record single day session. According to the media, the cause was
concern over the Hong Kong dollar. Other concerns have since replaced Hong Kong,
but October's reputation was nonetheless preserved -- it continues to be the
most foreboding month for equities. Through it all, we are pleased to report a
10% gain in the Portfolio's net asset value.
Stock markets in Asia did not provide anything like the good fortune for
investors as our domestic markets. According to the Wall Street Journal, during
1997 Japanese stock markets fell 21%, Singapore's stock market was off 39%, and
South Korea's was down 60%. Part of the Asian problem was the massive inflow of
American dollars into their stock markets as a result of the curious
recommendations of many brokerage houses and financial consultants. (Their
investment vehicles of choice are international mutual funds as well as
individual offshore companies. Of this, more later.) Their recommendations were
curious not due to the lack of opportunity for gain but curious because of the
added political and economic risks that go along with foreign investments.
Since offshore investment can offer exciting opportunities, the question the
investor must face is how to reduce the risks of uncertainties, such as changes
in governments, unknowable customs, currency reevaluations, and languages. Just
how best can investors participate in the opportunities in emerging countries
where the vast majority of new consumers reside? Not surprisingly, we believe
the strategy employed in The Jensen Portfolio provides a prudent answer.
Besides international mutual funds and individual offshore companies, a third
way investors can participate in international commerce is through the ownership
of multi-national companies. As explained in the prospectus, any company can
qualify for inclusion in the Portfolio if it has reported 15% return-on-equity
(ROE) each year for ten consecutive years. We also require that each company's
shares be traded in U.S. markets and registered with the Securities and Exchange
Commission. A number of multi-nationals qualify for consideration for the
Portfolio.
The ten-year ROE requirement may seem unnecessarily arbitrary since it
provides no assurance that future returns will continue at that rate. Instead,
the requirement exists because it signifies that a company has a leading or
dominant market position. With leading market shares, companies can price their
products in a fashion to maximize their cash flow at the expense of competitors.
By extending their markets internationally, companies can reach new markets and
benefit from even greater economies of scale. For example, by increasing
production from 10,000 widgets to 12,000 widgets a firm will only nominally
increase its overhead cost (rent and utilities) -- costs exclusive of labor and
material. Another reason favoring multi-nationals is that their brands command
higher prices resulting in higher margins.
Registration with the SEC, the second requirement, provides investors with two
benefits as well. The first is accountability. Officers and directors of firms
whose shares are registered for domestic trading are held accountable for the
accuracy of their financial statements and public commentary about their firm. A
significant benefit registration offers is legal protection in U.S. courts for
the unwarranted promotion of securities. Secondly, the SEC is responsible for
the regulation of markets such as the New York Stock Exchange in which
registered foreign companies trade -- markets that the Portfolio investment
managers have had long experience.
The companies held in the Portfolio best express our opinion of the
opportunities available in international business. Seventeen of the nineteen
companies have significant foreign operations. Only two companies, Wilmington
Trust and Gannett, have confined their operations to this country.
Multi-national companies have some of the same risks as investors owning
international mutual funds; currencies de-value, governments change. Multi-
national companies can broadly diversify their foreign operations to a degree
unavailable to investors. Sales and profits lost can be offset by dozens of
other countries taking up the slack. Coca-Cola's products, for example, are
marketed in over 200 countries. Last year sales in Korea were up a scant 2% over
the year before, while China's 23 plants produced 32% more revenue. An added
benefit available to multi-nationals is that they can lock-in profits by the use
of currency hedging.
There are other reasons that we favor domestically traded shares. Capitalism
is firmly imbedded here and its tenets are not universally accepted elsewhere.
Shareholder rights are less clearly defined in other countries. While there will
surely be attractive investments offshore, multi-nationals offer participation
without facing the political and economic risks.
Cordially,
/s/ Val Jensen
Val Jensen
President, Jensen Investment Management
STATEMENT OF ASSETS & LIABILITIES
NOVEMBER 30, 1997 (UNAUDITED)
ASSETS:
Investments, at value (cost $13,177,821) $18,844,256
Income receivable 17,841
Prepaid expenses 2,840
-----------
Total Assets 18,864,937
-----------
LIABILITIES:
Payable for investments purchased 1,413,369
Payable to investment adviser 7,009
Payable to directors 9,926
Accrued expenses 30,276
-----------
Total Liabilities 1,460,580
-----------
NET ASSETS $17,404,357
===========
NET ASSETS CONSIST OF:
Capital stock $11,326,214
Unrealized appreciation on
investments 5,666,436
Undistributed net investment income 7,003
Undistributed net realized gain 404,704
-----------
Total Net Assets $17,404,357
===========
NET ASSET VALUE PER SHARE, 1,068,788
SHARES OUTSTANDING (100,000,000 SHARES
AUTHORIZED, $.001 par value) $16.28
======
See notes to financial statements.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1997 (UNAUDITED)
Number of Shares Market Value
- ---------------- ------------
COMMON STOCK 97.39%
BANKS 5.37%
16,000 Wilmington Trust
Corporation $934,000
----------
BEVERAGES 3.59%
10,000 The Coca-Cola Company 625,000
----------
CHEMICAL SPECIALTY 8.37%
11,500 BetzDearborn, Inc. 700,063
28,000 WD-40 Company 756,000
----------
1,456,063
----------
COMPUTER SOFTWARE SERVICES 5.49%
17,000 Automatic Data
Processing, Inc. 956,250
----------
DRUGS 4.18%
7,700 Merck & Company, Inc. 728,131
----------
ELECTRICAL EQUIPMENT 5.51%
13,000 General Electric Company 958,750
----------
FOOD PROCESSING 4.71%
15,500 Sara Lee Corporation 819,562
----------
HOUSEHOLD PRODUCTS 5.35%
12,000 Clorox Company 931,500
----------
INDUSTRIAL SERVICES 9.80%
50,000 Equifax, Inc. 1,706,250
----------
MACHINERY 4.68%
15,500 Nordson Corporation 813,750
----------
MEDICAL SUPPLIES 18.06%
18,000 Abbott Laboratories 1,170,000
24,000 Medtronic, Inc. 1,146,000
21,000 Stryker Corporation 826,875
----------
3,142,875
----------
NEWSPAPERS 5.00%
15,000 Gannett Company, Inc. 870,938
----------
PRECISION INSTRUMENTS 4.60%
16,000 Dionex Corporation #<F1> 801,000
----------
SEMICONDUCTORS 4.46%
10,000 Intel Corporation 776,250
----------
SHOE INDUSTRY 4.34%
15,500 Nike, Inc. - Class B 754,656
----------
TELECOMMUNICATIONS 3.88%
10,000 Reuters Holdings
PLC - ADR 676,250
----------
Total Common Stock
(Cost $11,284,790) 16,951,225
----------
PRINCIPAL AMOUNT MARKET VALUE
- ---------------- -------------
SHORT-TERM INVESTMENTS 10.88%
VARIABLE RATE DEMAND NOTES*<F2> 10.88%
$713,832 American Family Financial
Services Inc., 5.2555% $713,832
100,000 General Mills, Inc.,
5.2925% 100,000
752,688 Johnson Controls, Inc.,
5.2925% 752,688
20,000 Pitney Bowes, Inc.,
5.2925% 20,000
4,850 Sara Lee Corporation,
5.2875% 4,850
301,661 Wisconsin Electric Power
Company, 5.2555% 301,661
----------
Total Short-Term Investments
(Cost $1,893,031) 1,893,031
----------
Total Investments 108.27%
(Cost $13,177,821) 18,844,256
----------
Liabilities, Less Other
Assets (8.27%) (1,439,899)
----------
NET ASSETS 100.00% $17,404,357
============
#<F1>Non income producing security.
*<F2>Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates. The
rate is as of November 30, 1997.
See notes to financial statements.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1997 (UNAUDITED)
INVESTMENT INCOME:
Dividends $111,050
Interest 21,137
---------
132,187
---------
EXPENSES:
Investment advisory fees 40,201
Shareholder servicing and accounting 14,787
Professional fees 6,259
Directors' fees and expenses 8,364
Amortization of deferred
organizational expenses 2,454
Administration fees 8,341
Reports to shareholders 3,602
Federal and state registration fees 2,251
Custody fees 2,108
Other 675
---------
Total expenses 89,042
---------
NET INVESTMENT INCOME 43,145
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 695,774
Change in unrealized appreciation
on investments 821,685
---------
Net gain on investments 1,517,459
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,560,604
==========
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
NOV. 30, '97 MAY 31, '97
------------ -----------
(UNAUDITED)
OPERATIONS:
Net investment income $43,145 $75,658
Net realized gain on
investment transactions 695,774 48,074
Change in unrealized appreciation
on investments 821,685 2,435,266
----------- ----------
Net increase in net assets
resulting from operations 1,560,604 2,558,998
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,790,228 2,414,861
Shares issued to holders in
reinvestment of dividends 24,713 79,511
Shares redeemed (448,359) (1,699,617)
----------- ----------
Net increase 1,366,582 794,755
----------- ----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income (33,916) (89,436)
In excess of net investment
income#<F3> -- (10,260)
----------- ----------
Total dividends and
distributions (33,916) (99,696)
----------- ----------
INCREASE IN NET ASSETS 2,893,270 3,254,057
NET ASSETS:
Beginning of year 14,511,087 11,257,030
----------- ----------
End of year (including
undistributed net investment
income of $7,003
and $9,098, respectively) $17,404,357 $14,511,087
=========== ===========
#<F3>On a tax basis, this is not a return of capital.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AUGUST 3,
SIX MONTHS 1992(1)<F4>
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
PER SHARE DATA: NOV. 30, '97 MAY 31, '97 MAY 31, '96 MAY 31, '95 MAY 31, '94 MAY 31, '93
------------ ------------ ------------ ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.78 $12.16 $9.94 $8.80 $9.36 $10.00
Income from investment
operations:
Net investment income 0.04 0.10 0.15 0.14 0.13 0.09
Net realized and unrealized
gains (losses) on investments 1.49 2.63 2.23 1.15 (0.56) (0.66)
------- ------- ------- ------- ------- -------
Total from investment
operations 1.53 2.73 2.38 1.29 (0.43) (0.57)
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income (0.03) (0.10) (0.15) (0.15) (0.13) (0.07)
Distribution in excess of net
investment income -- (0.01) (0.01) -- -- --
------- ------- ------- ------- ------- -------
(0.03) (0.11) (0.16) (0.15) (0.13) (0.07)
------- ------- ------- ------- ------- -------
Net asset value,
end of period $16.28 $14.78 $12.16 $9.94 $8.80 $9.36
======= ======= ======= ======= ======= =======
Total return(2)<F5> 10.38% 22.56% 24.14% 14.84% (4.64)% (5.72)%
Supplemental data and ratios:
Net assets, end of
period $17,404,357 $14,511,087 $11,257,030 $9,859,630 $8,808,717 $9,470,139
Ratio of expenses to average
net assets(3)<F6> 1.11% 1.32% 1.20% 1.20% 1.13% 0.89%
Ratio of net investment income to
average net assets(3)<F6> 0.54% 0.61% 1.23% 1.48% 1.36% 1.54%
Portfolio turnover rate 18.50% 24.50% 47.93% 11.27% 5.26% 4.01%
Average commission rate paid $0.0186 $0.0196 $0.0198
(1)<F4>Commencement of operations.
(2)<F5>Not annualized for the periods August 3, 1992 through May 31, 1993 or six
months ended November 30, 1997.
(3)<F6>Annualized for the periods August 3, 1992 through May 31, 1993 and six
months ended November 30, 1997. Without expense waivers or voluntary
reimbursements of $4,043 for the year ended May 31, 1997, $30,602 for the year
ended May 31, 1996, $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 1.35%,
1.49%, 1.75%, 1.72% and 1.97%, respectively, and the ratio of net income to
average net assets would have been 0.58%, 0.94%, 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 principal
investment objective of the Fund is long-term capital appreciation. 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 has reimbursed these costs
under a five-year amortization schedule. The total organizational costs of
$57,854 (which includes both costs advanced by the Investment Adviser and costs
paid directly by the Fund) were completely amortized in August 1997.
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. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. The Fund's primary
financial reporting and tax difference relates to the differing treatment for
the amortization of deferred organization expenses. Permanent financial
reporting and tax differences are reclassified to capital stock.
d) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
e) Other - Investment and shareholder transactions are recorded on 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.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
SIX MONTHS
ENDED YEAR ENDED
NOV. 30, '97 MAY 31, '97
------------ -----------
Shares sold 113,552 178,249
Shares issued to holders in
reinvestment of dividends 1,542 6,168
Shares redeemed (28,299) (128,324)
-------- ---------
Net increase 86,795 56,093
======== =========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the six months ended November 30, 1997, were
$3,951,460 and $2,854,194, respectively.
At November 30, 1997, gross unrealized appreciation and depreciation of
investments were as follows:
Appreciation $5,964,905
(Depreciation) (298,469)
----------
Net appreciation on investments $5,666,436
=========
At November 30, 1997, the cost of investments for federal income tax purposes
was $13,177,821.
At May 31, 1997, the Fund had accumulated net realized capital loss carryovers
of $72,477 and $218,592 expiring in 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.
Certain officers and directors of the Fund are also officers and directors of
the Investment Adviser.
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 1998 in order to keep
regular operating expenses at no more than 1.40%. 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.
6. DISTRIBUTIONS
On December 31, 1997 an ordinary income dividend of $0.02666366 per share
aggregating $29,346 and a long term capital gain distribution, 100% taxed at
maximum 20% rate, of $0.36771248 per share aggregating $404,704 were declared.
The distributions were paid on December 31, 1997 to shareholders of record on
December 30, 1997.
END OF NOTES TO THE FINANCIAL STATEMENTS
Effective December 13, 1995, Deloitte & Touche, L.L.P. ("Deloitte") resigned as
the Fund's independent accountants. For the years ended May 31, 1994 and 1995,
Deloitte expressed an unqualified opinion on the Fund's financial statements.
There were no disagreements between Fund management and Deloitte prior to their
resignation. On December 13, 1995, the Board of Directors of the Fund approved
the appointment of Coopers & Lybrand L.L.P. as the Fund's independent
accountants. The Fund has received a letter from Deloitte addressed to the
Securities and Exchange Commission stating that Deloitte agrees with the above
statements (other than the statement with respect to the approval of the Board
of Directors, as to which Deloitte expresses no knowledge).
430 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204-2018
503-274-2044
800-221-4384
Fax 503-274-2031
