<PAGE> 1
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
ROBERT R. FORTUNE
Chairman and President
August 3, 1995
Fellow Partner:
Our Fund earned $1.49 per share of net investment income in the six months
ended June 30, 1995, as compared to $1.47 per share in the same period of 1994.
After providing for the $.60 per share distribution to partners of record
on June 30, 1995, the net asset value per partnership share at that date was
another new high of $178.89.
Portfolio additions since our last report were 11,149 shares of
Hewlett-Packard Company and 177,708 shares of Intel Corp., arising from stock
splits. Securities distributed in redemption of partners' shares were 3,630
shares of Cabot Corporation, 5,446 shares of Intel Corp., and 1,337 shares of K
Mart Corp.
You will find an interesting comparison of the performance of our Fund with
leading stock market indexes in the accompanying adviser's report. Your comments
or inquiries concerning Chestnut Street Exchange Fund are welcomed.
Yours sincerely,
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
The U.S. equity markets continued to post gains during the second quarter
of 1995. Through the end of June, the broad market as measured by the S&P 500,
produced a return of 18.6%, underperforming the more narrow Dow Jones Industrial
Average's return of 18.8%. Small-capitalization issues rallied in the second
quarter with the NASDAQ posting year-to-date returns of 24.1%. During the same
period your Fund increased 23.9%.
A number of positive factors have continued to fuel the equity markets thus
far in 1995; positive cash flows, a significant decline in long-term interest
rates, as well as recent economic statistics pointing to slower growth and a
more accommodative posture in Fed monetary policy. In addition, corporate
earnings have met or exceeded expectations in many cases.
COMPARATIVE PERFORMANCE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
6/30/95 6/30/94
------- -------
<S> <C> <C>
Chestnut Street Exchange Fund......................... +23.9% -1.7%
Dow Jones Industrial Average.......................... +18.8% -3.4%
Standard & Poor's 500 Index........................... +18.6% -4.8%
Standard & Poor's 400 Index........................... +18.7% -4.4%
NASDAQ Composite...................................... +24.1% -8.6%
</TABLE>
For the remainder of 1995 operating earnings should expand at a better than
10% rate to about $34.50 per share for the S&P 500--a slower rate than last
year, but still quite healthy. The dynamics of cash flow have been extremely
positive so far this year. Anecdotal evidence suggests continued strong
activity, particularly into domestic funds. However, cash reserve levels have
dipped to 7.5%, suggesting some diminution in the potential buying power on
which the markets have become highly dependent.
We remain positive in the fundamental underpinnings of the markets.
However, some profit taking, perhaps on the order of 5% or more, cannot be ruled
out, due to the market's significant advances so far in 1995. At these levels,
the equity market is selling at approximately 15 times forecast earnings. This
valuation is well within the historical range of 7 to 20 times earnings.
Chestnut Street Exchange Fund continues to be invested in companies with better
than market growth potential for both earnings and dividends.
July 21, 1995 PNC INSTITUTIONAL MANAGEMENT CORPORATION
2
<PAGE> 3
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF NET ASSETS
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
----------- -------------
<C> <S> <C>
COMMON STOCKS--96.9%
AUTO & AUTO PARTS--0.7%
41,299 Genuine Parts Company..... $ 1,564,200
-------------
BANKS--6.8%
12,476 Barnett Banks Inc. ....... 639,395
60,000 CoreStates Financial
Corp. .................. 2,092,500
16,993 First Chicago Corp. ...... 1,017,456
40,000 Morgan (J.P.) & Co.,
Inc. ................... 2,805,000
89,328 NationsBank Corp. ........ 4,790,214
157,266 Norwest Corp. ............ 4,521,398
-------------
15,865,963
-------------
BUILDING MATERIALS &
FOREST PRODUCTS--2.0%
45,130 Armstrong World
Industries, Inc. ....... 2,262,141
52,117 Weyerhaeuser Company...... 2,456,014
-------------
4,718,155
-------------
BUSINESS PRODUCTS &
SERVICES--3.6%
50,647 Dun & Bradstreet
Corporation............. 2,658,968
68,416 Harland (John H.) Co. .... 1,565,016
52,000 Minnesota Mining &
Manufacturing Company... 2,977,000
30,000 PHH Corp. ................ 1,335,000
-------------
8,535,984
-------------
CHEMICALS--9.8%
96,700 Air Products & Chemicals,
Inc. ................... 5,391,025
53,948 Betz Laboratories,
Inc. ................... 2,441,147
104,214 Cabot Corporation......... 5,497,289
213,832 Loctite Corp. ............ 9,729,356
-------------
23,058,817
-------------
CONSUMER NON-DURABLES &
SERVICES--6.3%
231,354 Coca-Cola (The) Company... 14,748,818
-------------
CONTAINERS--1.4%
67,148 *Crown Cork & Seal
Company, Inc. .......... 3,365,794
-------------
DIVERSIFIED
COMPANIES--2.7%
78,595 Alco Standard
Corporation............. 6,277,776
-------------
<CAPTION>
NO. OF
SHARES VALUE
----------- -------------
<C> <S> <C>
DRUGS & MEDICAL--14.6%
122,442 Abbott Laboratories,
Inc. ................... $ 4,958,901
39,177 Baxter International,
Inc. ................... 1,425,063
220,121 Johnson & Johnson,
Inc. ................... 14,885,683
211,266 Merck & Company, Inc. .... 10,352,034
62,000 SmithKline Beecham p.l.c.
ADR unit................ 2,805,500
-------------
34,427,181
-------------
ELECTRICAL EQUIPMENT--4.7%
102,865 Emerson Electric Company.. 7,354,848
64,000 General Electric Company.. 3,608,000
-------------
10,962,848
-------------
ELECTRONICS--19.2%
165,222 AMP, Inc. ................ 6,980,630
22,298 Hewlett-Packard Company... 1,661,201
354,328 Intel Corp. .............. 22,433,392
119,118 Motorola, Incorporated.... 7,995,796
79,666 Raytheon Company.......... 6,184,073
-------------
45,255,092
-------------
ENTERTAINMENT--1.6%
68,000 Walt Disney Company....... 3,782,500
-------------
FOOD PROCESSING &
DISTRIBUTION--1.6%
170,000 McCormick & Co. Inc. ..... 3,655,000
-------------
INSURANCE &
FINANCIAL--2.3%
22,000 Aetna Life & Casualty
Co. .................... 1,383,250
43,930 American Express
Company................. 1,543,041
12,028 CIGNA Corp. .............. 933,674
19,392 Marsh & McLennan
Companies, Inc. ........ 1,573,176
-------------
5,433,141
-------------
LODGING & RESTAURANT--1.7%
101,234 McDonald's Corporation.... 3,960,780
-------------
NATURAL GAS
TRANSMISSION--0.5%
24,000 Tenneco, Inc. ............ 1,104,000
-------------
OFFICE EQUIPMENT--0.4%
10,471 International Business
Machines Corporation.... 1,005,216
-------------
</TABLE>
See Accompanying Notes to Financial Statements.
3
<PAGE> 4
STATEMENT OF NET ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
----------- -------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PAPER--1.4%
30,000 Consolidated Papers,
Inc. ................... $ 1,728,750
36,955 Westvaco Corp. ........... 1,635,259
-------------
3,364,009
-------------
PETROLEUM--2.5%
13,500 Atlantic Richfield Co. ... 1,481,625
40,000 Exxon Corp. .............. 2,825,000
40,360 Louisiana Land &
Exploration Company..... 1,609,355
-------------
5,915,980
-------------
PETROLEUM EQUIPMENT &
SERVICES--0.8%
30,216 Schlumberger, Ltd. ....... 1,877,169
-------------
POLLUTION CONTROL--2.4%
114,556 Browning-Ferris
Industries, Inc. ....... 4,138,335
49,836 WMX Technologies, Inc. ... 1,414,096
-------------
5,552,431
-------------
RETAIL--GENERAL &
SPECIALTY--4.1%
116,772 Albertson's Inc. ......... 3,473,967
78,739 K Mart Corp. ............. 1,151,558
61,502 Melville Corp. ........... 2,106,444
60,000 Penney (J.C.) Company,
Inc. ................... 2,880,000
-------------
9,611,969
-------------
TELEPHONE UTILITIES--3.8%
65,000 AT&T Corp. ............... 3,453,125
163,900 GTE Corp. ................ 5,593,087
-------------
9,046,212
-------------
TRANSPORTATION--2.0%
39,932 Burlington Northern,
Inc. ................... 2,530,691
40,000 Union Pacific Corp. ...... 2,215,000
-------------
4,745,691
-------------
Total Common Stocks
(Cost $46,401,853).... 227,834,726
-------------
<CAPTION>
NO. OF
SHARES VALUE
----------- -------------
<C> <S> <C>
PREFERRED STOCKS--0.0%
2,994 *Al Copeland Enterprises,
Inc., 17.50%, Cum.Cvt.
(Cost $25,670).......... $ 0
-------------
<CAPTION>
PAR
-----------
<C> <S> <C>
SHORT-TERM OBLIGATIONS--3.2%
$6,800,000 General Electric Capital
Corp., Commercial Paper,
5.95%, 07/31/95......... 6,800,000
800,000 General Electric Capital
Corp., Commercial Paper,
5.86%, 07/07/95......... 800,000
-------------
Total Short-Term
Obligations
(Cost $7,600,000)..... 7,600,000
-------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $54,027,523)........ 100.1% 235,434,726
Distributions payable....... (0.3) (802,455)
Other assets in excess of
other liabilities......... 0.2 599,867
----- ------------
NET ASSETS (Applicable to
1,314,964 partnership
shares outstanding)....... 100.0% $235,232,138
===== =============
NET ASSET VALUE PER SHARE... $ 178.89
=============
NET ASSETS APPLICABLE TO
SHARES OWNED BY:
Limited partners
(1,256,033 shares)........ $224,690,051
Managing general partners
(13,274 shares)........... $2,374,568
Non-managing general partner
(45,657 shares)........... 8,167,519 10,542,087
---------- ------------
Total net assets
(1,314,964 shares)........ $235,232,138
=============
</TABLE>
* Non-Income Producing
Values for securities listed on a securities exchange are based upon the last
reported sales price on June 30, 1995. Securities not so listed or not traded on
that date are valued at the latest bid price.
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................. $ 2,306,710
Interest............................... 212,986
-----------
Total income....................... 2,519,696
-----------
Expenses:
Investment advisory fee................ 472,857
Managing general partners' compensation
and officer's salary................. 21,273
Legal.................................. 16,290
Custodian fees......................... 12,820
Audit.................................. 12,579
Transfer agent......................... 6,999
Insurance.............................. 3,595
Printing............................... 3,982
Other.................................. 8,323
-----------
Total expenses..................... 558,718
-----------
Net investment income............ 1,960,978
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Realized gain from security
transactions:
Distributed upon redemption of
partnership shares................. 1,642,458
Unrealized appreciation of
investments:
Beginning of period.... $137,930,760
End of period.......... 181,407,203
------------
43,476,443
-----------
Net realized and unrealized gain
on investments................. 45,118,901
-----------
Net increase in net assets resulting
from operations.................... $47,079,879
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment
income.............. $ 1,960,978 $ 4,101,613
Net realized gain from
security transactions
(for federal income
tax purposes net
gain is $0 and
$11,893,727)........ 0 11,063,360
Excess of market
value over book
value of securities
distributed upon
redemption of
partnership shares... 1,642,458 6,399,493
Increase (decrease)
in unrealized
appreciation of
investments......... 43,476,443 (11,850,331)
------------ ------------
Increase in net assets
resulting from
operations.......... 47,079,879 9,714,135
------------ ------------
DISTRIBUTIONS TO
PARTNERS FROM:
Net investment
income.............. (1,580,298) (4,098,494)
Net realized gains
(federal income
tax basis).......... 0 (3,484,592)
------------ ------------
Total distributions to
partners............ (1,580,298) (7,583,086)
------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Net asset value of
4,895 and 1,853
shares issued to
partners in lieu of
cash distributions.. 713,116 264,120
Cost of 14,793 and
54,888 shares
repurchased......... (2,328,585) (7,795,028)
------------ ------------
Decrease in net
assets from capital
share transactions.. (1,615,469) (7,530,908)
------------ ------------
Total increase
(decrease) in net
assets.............. 43,884,112 (5,399,859)
NET ASSETS:
Beginning of period... 191,348,026 196,747,885
------------ ------------
End of period......... $235,232,138 $191,348,026
============= =============
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
CHESTNUT STREET EXCHANGE FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
1995 ----------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................... $ 144.43 $ 142.79 $ 134.44 $ 125.46 $ 92.98 $ 95.96
--------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income........ 1.49 3.07 2.62 2.48 2.40 2.26
Net gain (loss) on securities
(both realized and
unrealized)............... 34.17 4.27 8.35 8.99 32.47 (2.97)
--------- -------- -------- -------- -------- --------
Total from investment
operations........... 35.66 7.34 10.97 11.47 34.87 (.71)
--------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from net
investment income......... (1.20) (3.07) (2.62) (2.49) (2.39) (2.27)
Distributions from realized
gains (federal income tax
basis).................... .00 (2.63) .00 .00 .00 .00
--------- -------- -------- -------- -------- --------
Total distributions..... (1.20) (5.70) (2.62) (2.49) (2.39) (2.27)
--------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period................ $ 178.89 $ 144.43 $ 142.79 $ 134.44 $ 125.46 $ 92.98
========= ======== ======== ======== ======== ========
Total Return................... 24.74%* 5.19% 8.19% 9.23% 37.74% (.73%)
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................... $ 235,232 $191,348 $196,748 $196,263 $201,101 $152,321
Ratios to average net assets:
Operating expenses........ .53%* .54% .54% .54% .56% .60%
Net investment income..... 1.85%* 2.11% 1.87% 1.89% 2.18% 2.41%
Portfolio Turnover Rate...... .00% 3.88% .00% .00% .00% .00%
</TABLE>
* Annualized.
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(A) The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management company. Significant accounting
policies are as follows: Investments are stated at value in the accompanying
financial statements. Securities listed on a securities exchange are valued
at the last reported sales price on June 30, 1995 for such security.
Securities not so listed or not traded on that date are valued at the latest
bid price. Short-term obligations are valued at amortized cost which
approximates market. Security transactions are accounted for on trade date.
The cost of investments sold or redeemed in kind is determined by the use of
the specific identification method for both financial reporting and income
tax purposes. For securities received in the Exchange at inception of the
Fund in 1976, cost for financial reporting purposes is the value of the
securities as used in the Exchange and for income tax purposes, the tax
basis of the individual investor. Interest income is recorded on an accrual
basis; dividend income is recorded on the ex-dividend date. No provision is
made for federal income taxes inasmuch as the Fund is a partnership and net
income will be taxable to the individual partners on a pro-rata basis. The
Fund intends to distribute investment income quarterly and approximately 30
percent of its net realized capital gains (federal income tax basis)
annually.
(B) Under agreements among the Fund, PNC Bank, National Association, (PNC Bank)
and PNC Institutional Management Corporation (PIMC), an indirect
wholly-owned subsidiary of PNC Bank, PIMC manages the Fund's portfolio and
maintains the Fund's financial accounts. PFPC, an indirect wholly-owned
subsidiary of PNC Bank, is the Fund's transfer agent. PNC Bank is obligated
to provide a non-managing general partner who will own at all times at least
1% of the Fund's outstanding shares. PNC Bank pays the non-managing general
partner a fee, computed daily and payable monthly, at the annual rate of
1/10th of 1% of the Fund's average daily net assets as consideration for
acting in that capacity. The Fund pays PIMC a fee, as investment adviser,
computed daily and payable monthly, at an annual rate of 5/10ths of 1% of
the first $100,000,000 of the Fund's average daily net assets plus 4/10ths
of 1% of net assets exceeding $100,000,000. The managing general partners
each receive a fixed fee as compensation for their services.
(C) The aggregate cost of investments for federal income tax purposes at June
30, 1995 was $39,822,020. The gross unrealized appreciation (depreciation)
for all securities is as follows: excess of value over tax cost
$195,833,238, excess of tax cost over value ($220,532).
(D) There were no purchases or sales of securities other than short-term
obligations for the six months ended June 30, 1995.
(E) At June 30, 1995, net assets consisted of:
<TABLE>
<S> <C>
Undistributed net investment income.................................... $ 385,822
Unrealized gain on investments......................................... 181,407,203
Other capital--paid-in or reinvested................................... 53,439,113
------------
$ 235,232,138
============
</TABLE>
7
<PAGE> 8
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
MANAGING GENERAL PARTNERS
Robert R. Fortune Chestnut Street Exchange LOGO
G. Willing Pepper
R. Stewart Rauch
David R. Wilmerding, Jr.
INVESTMENT ADVISERS
Semiannual Report
PNC Bank, National Association June 30, 1995
and
PNC Institutional
Management Corporation
400 Bellevue Parkway
Wilmington, Delaware 19809
TRANSFER AGENT
Chestnut Street Exchange
PFPC Inc. Fund
P.O. Box 8950 400 Bellevue Parkway
Wilmington, Delaware 1989 Suite 100
(800) 852-4750 Wilmington, Delaware 19809
(302) 791-1043 (Delaware) (302) 792-2555
Edward J. Roach, Treasurer
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
