<PAGE> 1
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
ROBERT R. FORTUNE
Chairman and President
October 31, 1995
Fellow Partner:
Our Fund earned $2.39 per share of net investment income in the nine months
ended September 30, 1995, as compared to $2.24 per share in the same period of
1994. No capital gains have been realized in 1995.
After providing for the $.60 per share distribution to partners of record
on September 30, 1995, the net asset value per partnership share at that date
was again a new high of $188.38.
There were no Portfolio additions since our last report. Securities
distributed in redemption of partners' shares were 17,394 shares of Intel Corp.
You will find an interesting comparison of the performance of our Fund with
leading stock market indexes together with comments on the economy and the
market in the accompanying adviser's report. Your comments or inquiries
concerning Chestnut Street Exchange Fund are welcomed.
Yours sincerely,
/s/ROBERT R. FORTUNE
--------------------
Robert R. Fortune
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INVESTMENT ADVISER'S REPORT
The U.S. equity market continued its rise through the third quarter of
1995. Through the end of September, the broad market as measured by the S&P 500,
produced a price-only return of 27.2%, outpacing the narrower Dow Jones
Industrial Average's return of 24.9%. Small-capitalization issues continued
their rally in the third quarter with the NASDAQ posting year-to-date returns of
38.8%. During the same period your Fund increased 30.4%.
The Dow Jones Industrial Average is close to a record, and the S&P 500 is
keeping pace. While the market continued upward, driven by strong mutual fund
flows in the third quarter, and somewhere around $50 billion in merger and
acquisition activity in August alone, we believe that the U.S. equity market is
becoming increasingly vulnerable to a 5-10% correction.
COMPARATIVE PERFORMANCE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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9/30/95 9/30/94
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<S> <C> <C>
Chestnut Street Exchange Fund................................... +30.4% +3.5%
Dow Jones Industrial Average.................................... +24.9% +2.4%
Standard & Poor's 500 Index..................................... +27.2% -0.8%
Standard & Poor's 400 Index..................................... +25.4% +1.5%
NASDAQ Composite................................................ +38.8% -1.6%
</TABLE>
Earnings generally have exceeded expectations for the first half of the
year. Operating earnings rose 21% during the second quarter leading us to raise
our earnings forecast for 1995 to $37.00, which gives us a market P/E of under
16 times for 1995. Using 1996 estimates, the market P/E calculates to 15 times
earnings, hardly overvalued. However, some earnings disappointments are due to
confront analysts and investors, and comparisons will become much more difficult
in coming periods.
While we continue to remain positive with respect to the fundamental
underpinnings of the markets, we also expect the equity markets to exhibit
greater volatility with each new high. And while earnings growth will continue
to be positive for the equity market, we reiterate that this growth will come at
a slower pace. The equity market still represents good value, relative to both
cash and bonds. Your Fund continues to be invested in companies with better than
market growth potential for sales, earnings and dividends.
October 20, 1995 PNC INSTITUTIONAL MANAGEMENT CORPORATION
2
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CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
- ----------- -------------
<S> <C>
COMMON STOCKS--96.8%
AUTO & AUTO PARTS--0.7%
41,299 Genuine Parts Company..... $ 1,657,122
-------------
BANKS--7.4%
12,476 Barnett Banks Inc. ....... 706,453
60,000 CoreStates Financial Corp. ... 2,197,500
16,993 First Chicago Corp. ...... 1,166,145
40,000 Morgan (J.P.) & Co.,
Inc. ................... 3,095,000
89,328 NationsBank Corp. ........ 6,007,308
157,266 Norwest Corp. ............ 5,150,462
-------------
18,322,868
-------------
BUILDING MATERIALS &
FOREST PRODUCTS--2.0%
45,130 Armstrong World
Industries, Inc. ....... 2,504,715
52,117 Weyerhaeuser Company...... 2,377,838
-------------
4,882,553
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BUSINESS PRODUCTS &
SERVICES--3.5%
50,647 Dun & Bradstreet
Corporation............. 2,931,195
68,416 Harland (John H.) Co. .... 1,513,704
52,000 Minnesota Mining &
Manufacturing Company... 2,938,000
30,000 PHH Corp. ................ 1,350,000
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8,732,899
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CHEMICALS--9.4%
96,700 Air Products & Chemicals,
Inc. ................... 5,040,487
53,948 Betz Laboratories,
Inc. ................... 2,205,125
104,214 Cabot Corporation......... 5,536,369
213,832 Loctite Corp. ............ 10,344,123
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23,126,104
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CONSUMER NON-DURABLES &
SERVICES--6.5%
231,354 Coca-Cola (The) Company... 15,963,426
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CONTAINERS--1.1%
67,148 *Crown Cork & Seal
Company, Inc. .......... 2,601,985
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DIVERSIFIED
COMPANIES--2.7%
78,595 Alco Standard Corporation... 6,660,926
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<CAPTION>
NO. OF
SHARES VALUE
- ----------- -------------
<S> <C> <C>
DRUGS & MEDICAL--15.5%
122,442 Abbott Laboratories,
Inc. ................... $ 5,219,090
39,177 Baxter International,
Inc. ................... 1,611,154
220,121 Johnson & Johnson,
Inc. ................... 16,316,469
211,266 Merck & Company, Inc. .... 11,830,896
62,000 SmithKline Beecham p.l.c.
ADR unit................ 3,138,750
-------------
38,116,359
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ELECTRICAL EQUIPMENT--4.6%
102,865 Emerson Electric Company... 7,354,847
64,000 General Electric Company... 4,080,000
-------------
11,434,847
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ELECTRONICS--18.0%
165,222 AMP, Inc. ................ 6,361,047
22,298 Hewlett-Packard Company... 1,859,096
336,934 Intel Corp. .............. 20,258,157
119,118 Motorola, Incorporated.... 9,097,637
79,666 Raytheon Company.......... 6,771,610
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44,347,547
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ENTERTAINMENT--1.6%
68,000 Walt Disney Company....... 3,901,500
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FOOD PROCESSING &
DISTRIBUTION--1.6%
170,000 McCormick & Co. Inc. ..... 4,058,750
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INSURANCE &
FINANCIAL--2.6%
22,000 Aetna Life & Casualty
Co. .................... 1,614,250
43,930 American Express
Company................. 1,949,394
12,028 CIGNA Corp. .............. 1,252,416
19,392 Marsh & McLennan
Companies, Inc. ........ 1,704,072
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6,520,132
-------------
LODGING & RESTAURANT--1.6%
101,234 McDonald's Corporation.... 3,872,201
-------------
NATURAL GAS
TRANSMISSION--0.5%
24,000 Tenneco, Inc. ............ 1,110,000
-------------
OFFICE EQUIPMENT--0.4%
10,471 International Business
Machines Corporation.... 988,201
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</TABLE>
3
5,040,487
<PAGE> 4
STATEMENT OF NET ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
- ----------- -------------
<S> <C>
COMMON STOCKS (CONTINUED)
PAPER--1.4%
30,000 Consolidated Papers, Inc. ... $ 1,676,250
36,955 Westvaco Corp. ........... 1,686,072
-------------
3,362,322
-------------
PETROLEUM--2.3%
13,500 Atlantic Richfield Co. ... 1,449,562
40,000 Exxon Corp. .............. 2,890,000
40,360 Louisiana Land &
Exploration Company..... 1,437,825
-------------
5,777,387
-------------
PETROLEUM EQUIPMENT &
SERVICES--0.8%
30,216 Schlumberger, Ltd. ....... 1,971,594
-------------
POLLUTION CONTROL--2.0%
114,556 Browning-Ferris
Industries, Inc. ....... 3,479,639
49,836 WMX Technologies, Inc. ... 1,420,326
-------------
4,899,965
-------------
RETAIL--GENERAL &
SPECIALTY--4.1%
116,772 Albertson's Inc. ......... 3,984,844
78,739 K Mart Corp. ............. 1,141,715
61,502 Melville Corp. ........... 2,121,819
60,000 Penney (J.C.) Company,
Inc. ................... 2,977,500
-------------
10,225,878
-------------
TELEPHONE UTILITIES--4.3%
65,000 AT&T Corp. ............... 6,433,075
163,900 GTE Corp. ................ 4,273,750
-------------
10,706,825
-------------
TRANSPORTATION--2.2%
39,932 Burlington Northern,
Inc. ................... 2,895,070
40,000 Union Pacific Corp. ...... 2,650,000
-------------
5,545,070
-------------
Total Common Stocks
(Cost
$46,380,013)............ 238,786,461
-------------
<CAPTION>
NO. OF
SHARES VALUE
- ----------- -------------
<S> <C> <C>
PREFERRED STOCKS--0.0%
2,994 *Al Copeland Enterprises,
Inc., 17.50%, Cum.Cvt.
(Cost $25,670).......... $ 0
-------------
<CAPTION>
PAR
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<C> <S> <C>
SHORT-TERM OBLIGATIONS--3.2%
$7,000,000 General Electric Capital
Corp., Commercial Paper,
5.78%, 10/30/95......... 7,000,000
800,000 General Electric Capital
Corp., Commercial Paper,
5.93%, 10/06/95......... 800,000
200,000 General Electric Capital
Corp., Commercial Paper,
5.76%, 10/06/95......... 200,000
-------------
Total Short-Term
Obligations
(Cost $8,000,000)..... 8,000,000
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $54,405,683)........ 100.0% 246,786,461
Distributions payable....... (0.3) (785,532)
Other assets in excess of
other liabilities......... 0.3 609,621
----- ------------
NET ASSETS (Applicable to
1,309,146 partnership
shares outstanding)....... 100.0% $246,610,550
===== ============
NET ASSET VALUE PER SHARE... $ 188.38
=============
NET ASSETS APPLICABLE TO
SHARES OWNED BY:
Limited partners
(1,250,215 shares)........ $235,509,415
Managing general partners
(13,274 shares)........... $2,500,492
Non-managing general partner
(45,657 shares)........... 8,600,643 11,101,135
---------- ------------
Total net assets
(1,309,146 shares)........ $246,610,550
=============
</TABLE>
* Non-Income Producing
Values for securities listed on a securities exchange are based upon the last
reported sales price on September 29, 1995. Securities not so listed or not
traded on that date are valued at the latest bid price.
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MANAGING GENERAL PARTNERS
Robert R. Fortune
G. Willing Pepper
R. Stewart Rauch
David R. Wilmerding, Jr.
INVESTMENT ADVISERS
PNC Bank, National Association
and
PNC Institutional
Management Corporation
400 Bellevue Parkway
Wilmington, Delaware 19809
TRANSFER AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19899
(800) 852-4750
(302) 791-1043 (Delaware)
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[CHESTNUT STREET EXCHANGE FUND LOGO]
Third Quarter Report
September 30, 1995
Chestnut Street Exchange
Fund
400 Bellevue Parkway
Suite 100
Wilmington, Delaware 19809
(302) 792-2555
Edward J. Roach, Treasurer
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