THE JENSEN PORTFOLIO
SEMI-ANNUAL REPORT
NOVEMBER 30, 1999
LETTER FROM THE INVESTMENT ADVISER
DECEMBER 31, 1999
Dear Fellow Shareholders:
By the time this letter is published the third millennium will have begun,
hopefully to everyone's pleasure. "Y2K" may well be remembered more as a
computer glitch than mankind's second risk of an apocalypse. Without question,
the computer has been a watershed in the human condition by significantly
speeding things up. (Whether speed improves the human condition is another
matter.) Nonetheless, economic historians will surely attach significance to the
computer equal to that of the Industrial Revolution.
For years, Wall Street has had a romance with the computer - an affair that
can be characterized as violent. IBM and the seven dwarfs (the dwarfs being
firms that were unable to achieve any success with computers) were the first of
the genre. Some rockets followed such as Wang and Amdahl. Then there was the
computer leasing industry whose companies joined IBM and Xerox in orbit until
investors realized there was no economic benefit to the owners of computer
leasing companies. Much credit is due IBM because the company has retained its
dominance in mainframes, but, alas, missed the opportunity of a lifetime in
personal computers. Many experts now proclaim the imminent demise of the PC. No
industry has benefited more from computers than Wall Street itself. (Perhaps the
downside to speed is obsolescence.) Besides the commissions the industries'
shares have created, security firms could not even begin to process the volume
of shares being traded today without the computer.
While the computer is the story in the history of 20th century security
markets, there has been other excitement:
Notable events included:
o The curtain being drawn on Standard Oil of New Jersey, American Telephone
and Telegraph, and possibly Microsoft for monopolistic practices;
o The closing of the New York Stock Exchange for six months in 1914 for fear
that Europeans would peddle their considerable holdings of US securities
for gold;
o The market being blamed for the Great Depression although less than 10
percent of Americans held directly or indirectly any securities;
o The President of the New York Stock Exchange, Richard A. Whitney, being
sent to Sing Sing for embezzling $1,000,000;
o The unprecedented one session drop of 22% in the Dow Jones Industrial
Average in October, 1987-being made back in the ensuing year;
o May Day in 1975. Ominous to the brokerage community since rates fixed by
the New York Stock Exchange were ordered to become negotiable-set by the
customer instead of the house;
o A small group of financiers called Long Term Capital Management would
nearly cause markets to destruct due to their heavy reliance on borrowings
from their clients who were often making the same bets with other money;
o That a government agency would be created that would become the best
contribution to orderly and fair markets in the century if not the
millennium. The Securities and Exchange Commission, financed entirely by
fees extracted from the sale of securities, is a model for other countries.
To be sure the Agency's challenges mount as armies of accountants and
lawyers figure how to shape the rules in their clients' favor.
This is not to disguise the impact of the Internet on securities. In a
historical blink of an eye, this thing called technology created an industry
that just might have reset the rules for investing. According to a recent New
York Times article, Oracle has a larger market cap than the gross domestic
product of Chile; Hewlett-Packard than Greece; America Online than Philippines;
and VA Linux Systems (with no prospects of making money anytime soon) than
Latvia. The Times article concluded that there probably is no other reasonable
comparison to use; (instead of formulas such as price to earnings), it is just
price to fantasy.
The fact that there are two distinct operations in securities markets is
clearly reflected in valuations in the Portfolio. Leon Cooperman, a prominent
hedge fund manager, was quoted in the New York Times saying "There is an
unbridled willingness to speculate, but no willingness to speculate on value."
This is reflected in the companies in the Portfolio; those that have been
identified as having direct involvement in the Internet have significantly
outperformed those that investors believe do not.
Among those of the Internet endowed in the Portfolio are Adobe (up 187% for
the calendar year), General Electric (up 54%); Intel (up 41%) and Omnicom (up
76%). Omnicom may be the least well known. The firm is the world's largest
advertising group ("Got Milk?") and began investing in Internet advertising
agencies in 1995. All told, the company has invested $92 million in Internet
advertising agencies that analysts estimate are worth $3.5 billion. Since the
Internet did not exist at the beginning of the Portfolio's required 10
consecutive years of high return-one has to credit the managers of these four
companies with prescient vision.
In November, Mutual Funds Magazine (a subsidiary of Time Inc.) notified The
Jensen Portfolio that it had been elevated to five stars for risk-adjusted
return out of a field of 2,680 funds.
The performance of the fund was 13.89% for the one year period ended November
30, 1999.
Listed below are the Internet addresses of the companies held at the end of
the period in the Portfolio:
Abbott Labs www.abbott.com
Adobe Systems www.adobe.com
American Power Conversion www.apec.com
Automatic Data Processing www.adp.com
Clorox www.clorox.com
Coca-Cola www.thecoca-colacompany.com
Dionex www.dionex.com
Equifax www.equifax.com
Gannett Co. www.gannett.com
General Electric www.ge.com
Intel www.intc.com
Medtronic www.medtronic.com
Merck www.merck.com
Omnicom Group www.omnicomgroup.com
Paychex www.paychex.com
Sara Lee Corp. www.saralee.com
State Street Corp. www.statestreet.com
Stryker www.stryker.com
WD-40 www.wd40.com
Respectfully,
/s/ Val Jensen
Val Jensen
Chairman, Jensen Investment Management
STATEMENT OF ASSETS & LIABILITIES
NOVEMBER 30, 1999 (UNAUDITED)
ASSETS:
Investments, at value (cost $15,246,103) $26,516,716
Dividend and interest income receivable 17,231
Other assets 5,819
-----------
TOTAL ASSETS 26,539,766
-----------
LIABILITIES:
Payable to Investment Adviser 10,893
Payable to directors 8,246
Payable to custodian 353,684
Accrued expenses 22,742
-----------
TOTAL LIABILITIES 395,565
-----------
NET ASSETS $26,144,201
-----------
-----------
NET ASSETS CONSIST OF:
Capital stock $14,316,813
Unrealized appreciation on investments 11,270,613
Accumulated undistributed net investment income 5,602
Accumulated undistributed net realized gain 551,173
-----------
TOTAL NET ASSETS $26,144,201
-----------
-----------
NET ASSET VALUE PER SHARE, 1,241,498
SHARES OUTSTANDING (100,000,000 SHARES
AUTHORIZED, $.001 PAR VALUE) $21.06
------
------
See notes to financial statements.
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1999 (UNAUDITED)
Number of Shares Market Value
- ---------------- ------------
COMMON STOCK 90.26%
ADVERTISING 5.39%
16,000 Omnicom Group Inc. $ 1,410,000
-----------
BANKS 4.64%
16,500 State Street Corporation 1,211,719
-----------
BEVERAGES 4.89%
19,000 The Coca-Cola Company 1,278,938
-----------
CHEMICAL SPECIALTY 2.22%
25,000 WD-40 Company 581,250
-----------
COMPUTER SOFTWARE SERVICES 12.20%
22,000 Adobe Systems
Incorporated 1,511,125
34,000 Automatic Data
Processing, Inc. 1,678,750
-----------
3,189,875
-----------
DRUGS 4.62%
15,400 Merck & Company, Inc. 1,208,900
-----------
ELECTRICAL EQUIPMENT 10.56%
45,000 American Power Conversion
Corporation #<F1> 1,071,562
13,000 General Electric Company 1,690,000
-----------
2,761,562
-----------
FINANCIAL SERVICES 3.06%
20,000 Paychex, Inc. 798,750
-----------
FOOD PROCESSING 1.86%
20,000 Sara Lee Corporation 485,000
-----------
HOUSEHOLD PRODUCTS 5.03%
29,500 Clorox Company 1,314,594
-----------
INDUSTRIAL SERVICES 4.73%
50,000 Equifax Inc. 1,237,500
-----------
MEDICAL SUPPLIES 14.55%
36,000 Abbott Laboratories 1,368,000
48,000 Medtronic, Inc. 1,866,000
10,000 Stryker Corporation 569,375
-----------
3,803,375
-----------
NEWSPAPERS 4.11%
15,000 Gannett Company, Inc. 1,073,437
-----------
PRECISION INSTRUMENTS 5.95%
40,000 Dionex Corporation #<F1> 1,555,000
-----------
SEMICONDUCTORS 6.45%
22,000 Intel Corporation 1,687,125
-----------
Total Common Stock
(Cost $12,326,412) 23,597,025
-----------
Principal Amount Market Value
- ---------------- ------------
SHORT-TERM INVESTMENTS 11.17%
VARIABLE RATE DEMAND NOTES*<F2> 11.17%
$ 754,068 Firstar Bank, N.A.,
5.3400% 754,068
1,000,000 General Mills, Inc.,
5.1950% 1,000,000
821,037 Warner-Lambert Company,
5.1950% 821,037
344,586 Wisconsin Corporate
Central Credit Union,
5.2600% 344,586
-----------
Total Short-Term Investments
(Cost $2,919,691) 2,919,691
-----------
Total Investments 101.43%
(Cost $15,246,103) 26,516,716
-----------
Liabilities, Less
Other Assets (1.43%) (372,515)
-----------
NET ASSETS 100.00% $26,144,201
-----------
-----------
#<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, 1999.
See notes to financial statements.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1999 (UNAUDITED)
INVESTMENT INCOME:
Dividend income $ 126,274
Interest income 18,127
----------
144,401
----------
EXPENSES:
Investment advisory fees 62,320
Shareholder servicing and accounting 19,032
Administration fees 12,627
Professional fees 9,844
Directors' fees and expenses 7,851
Custody fees 2,337
Reports to shareholders 2,196
Federal and state registration fees 897
Other 549
----------
Total expenses 117,653
----------
NET INVESTMENT INCOME 26,748
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions 935,891
Change in unrealized appreciation on investments 1,094,507
----------
Net gain on investments 2,030,398
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,057,146
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
NOV. 30, '99 MAY 31, '99
------------ -----------
(UNAUDITED)
OPERATIONS:
Net investment income $ 26,748 $ 59,962
Net realized gain (loss) on
investment transactions 935,891 (281,552)
Change in unrealized
appreciation on
investments 1,094,507 3,400,417
----------- -----------
Net increase in net assets
resulting from operations 2,057,146 3,178,827
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 419,506 2,502,390
Shares issued to holders in
reinvestment of dividends 12,090 45,090
Shares redeemed (866,238) (1,011,162)
----------- -----------
Net increase (decrease) (434,642) 1,536,318
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income (21,147) (59,962)
In excess of net investment
income #<F3> 0 (12,712)
----------- -----------
Total dividends and
distributions (21,147) (72,674)
----------- -----------
INCREASE
IN NET ASSETS 1,601,357 4,642,471
NET ASSETS:
Beginning of period 24,542,844 19,900,373
----------- -----------
End of period (including
undistributed net investment
income of $5,602 and
$0, respectively) $26,144,201 $24,542,844
----------- -----------
----------- -----------
#<F3> On a tax basis, this is not a return of capital.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
Per Share Data: NOV. 30, '99 MAY 31, '99 MAY 31, '98 MAY 31, '97 MAY 31, '96 MAY 31, '95
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.42 $16.87 $14.78 $12.16 $9.94 $8.80
Income from investment
operations:
Net investment income 0.02 0.05 0.23 0.10 0.15 0.14
Net realized and unrealized
gains on investments 1.64 2.56 2.46 2.63 2.23 1.15
------ ------ ------ ------ ------ ------
Total from investment
operations 1.66 2.61 2.69 2.73 2.38 1.29
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income (0.02) (0.05) (0.23) (0.10) (0.15) (0.15)
Distribution in excess of net
investment income -- (0.01) -- (0.01) (0.01) --
From net realized gains -- -- (0.37) -- -- --
------ ------ ------ ------ ------ ------
(0.02) (0.06) (0.60) (0.11) (0.16) (0.15)
------ ------ ------ ------ ------ ------
Net asset value,
end of period $21.06 $19.42 $16.87 $14.78 $12.16 $9.94
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return(1)<F4> 8.54% 15.51% 18.28% 22.56% 24.14% 14.84%
Supplemental data and ratios:
Net assets,
end of period $26,144,201 $24,542,844 $19,900,373 $14,511,087 $11,257,030 $9,859,630
Ratio of expenses to
average net assets(2)<F5> 0.94% 0.96% 1.02% 1.32% 1.20% 1.20%
Ratio of net investment income
to average net assets(2)<F5> 0.21% 0.27% 1.44% 0.61% 1.23% 1.48%
Portfolio turnover rate 12.86% 13.87% 20.80% 24.50% 47.93% 11.27%
</TABLE>
(1)<F4> Not annualized for the six months ended November 30, 1999.
(2)<F5> Annualized for the six months ended November 30, 1999. 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 and
$50,889 for the year ended May 31, 1995, the ratio of expenses to
average net assets would have been 1.35%, 1.49% and 1.75%,
respectively, and the ratio of net income to average net assets would
have been 0.58%, 0.94% and 0.93%, respectively. For the six months
ended November 30, 1999 and the years ended May 31, 1999 and May 31,
1998 the ratio of expenses to average net assets was less than the
annual expense limit.
See notes to financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1999 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT
ACCOUNTINGPOLICIES
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.
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. There were no securities valued by the Board of Directors
for the six months ending November 30, 1999. 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 to shareholders are recorded on
ex-dividend date. Dividends from net investment income are declared and paid
quarterly by the Fund. Distributions of net realized capital gains, if any, will
be declared and paid at least annually. Income and capital gain distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. 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, '99 MAY 31, '99
------------ ------------
Shares sold 21,237 138,587
Shares issued to holders in
reinvestment of dividends 622 2,605
Shares redeemed (44,123) (56,871)
--------- ---------
Net increase (decrease) (22,264) 84,321
Shares outstanding:
Beginning of period 1,263,762 1,179,441
--------- ---------
End of period 1,241,498 1,263,762
--------- ---------
--------- ---------
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the six months ended November 30, 1999, were
$3,100,962 and $5,616,865, respectively.
At November 30, 1999, gross unrealized appreciation and depreciation of
investments were as follows:
Appreciation $11,380,709
(Depreciation) (110,096)
-----------
Net appreciation on
investments $11,270,613
-----------
-----------
At November 30, 1999, the cost of investments for federal income tax purposes
was $15,246,103.
At May 31, 1999, the Fund had an accumulated net realized capital loss
carryover of $16,593 expiring in 2007. 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.
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%
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 23, 1999 an ordinary income dividend of $0.01483423 per share
aggregating $18,164 was declared. The distribution was paid on December 23, 1999
to shareholders of record on December 22, 1999.
JENSEN INVESTMENT MANAGEMENT
430 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204-2018
503-274-2044
800-221-4384
Fax 503-274-2031
