We use a fundamental, bottom-up stock selection process and perform all of our own business analysis. This includes periodically visiting managements, reviewing corporate data, reports, communications and announcements, and participation in quarterly conference calls.

We seek to manage the portfolio to several important factors:

• Generally, initial positions are at least 2% and individual stock exposure is limited to 7.5%.
• Portfolio turnover averages less than 15%
• Portfolio is fully invested, with cash as a residual.

Jensen works to provide strong long-term returns through stock selection while monitoring sector weightings and risk exposure of the portfolio. We work to control business and pricing risk with thorough, careful company analysis and by purchasing stock at a significant discount to what we believe is the company's intrinsic value.

Intensifying Scrutiny. This smaller universe provides a manageable list that remains relatively constant year to year, allowing our team to become very familiar with each company that qualifies for serious consideration. The team's intensive business analysis further culls the list to about 50-60. From this group emerge the approximately 25-30 top-tier companies that comprise the Jensen Equity Portfolio.

Highlighting Strong Balance Sheets. A strong balance sheet reflects financial security and the ability of a company to manage its debt, allowing it to capitalize on market-share opportunities. Additionally, the company would not need to access the equity markets for capital, a move that would dilute existing shareholder value.

Focusing on Increasing Levels of Free Cash Flow. Free cash flow as opposed to earnings, creates funding for increased expansion, debt repayment, share repurchases and in some cases, dividends. Company managements that successfully take advantage of the competitive environment to earn returns in excess of their cost of capital can create significant wealth for their shareholders.

Investing in Management that Believes in Compensating the Shareholder. We look for targeted reinvestment to foster the growth of operations, vigorous shareholder repurchase programs, increasing dividends and debt repayment.

Purchasing Positions at a Significant Discount to Intrinsic Value. Not all stocks that meet our other criteria are readily purchased. Each prospective investment is modeled using our proprietary system that allows us to estimate future free cash flows and arrive at what we see as an intrinsic value. This intrinsic valuation model is dynamic allowing changes to be made when necessary. The model is priced and updated daily.

Monitoring of Top Holdings and Prospects. Our investment team meets daily to review current holdings as well as prospective investments that could offer better opportunities.

• The market price of a company's stock is greater than Jensen's estimate of its intrinsic value.
• When a company fails to meet Jensen's minimum business performance standards in any year.
• When a more attractive opportunity exists.