<PAGE> 1
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
ROBERT R. FORTUNE
Chairman and President
April 25, 1996
Fellow Partner:
Our Fund earned $0.82 per share of net investment income in the three
months ended March 31, 1996, as compared to $0.78 per share in the same period
of 1995. No capital gains have been realized in 1996.
After providing for the $.60 per share distribution to partners of record
on March 31, 1996, the net asset value per partnership share at that date was a
new high of $204.17.
A stock split of 104,000 shares was received on Cabot Corporation since our
last report.
The accompanying Investment Adviser's Report provides insights into the
stock market and the economy and comparisons of the performance of our Fund with
leading indexes.
Your comments or questions about Chestnut Street Exchange Fund are
welcomed.
Yours sincerely,
/s/ Robert R. Fortune
Robert R. Fortune
<PAGE> 2
INVESTMENT ADVISER'S REPORT
The U.S. equity markets continued their strong advance in the first
quarter, but returns were more volatile than in the past several quarters. As
the bull market aged, market advances tended to be weaker than in the same
quarter last year. As the quarter ended, investors focused on cyclical stocks in
light of stronger-than-expected employment reports in 1996.
Large capitalization equities, both growth and value stocks, turned in
solid gains in the first quarter; the S&P 500 index price-only return was 4.8%
for the quarter. The Dow Industrials benefitted from investors' focus on
cyclicals to rise 9.2% for the quarter. Small capitalization equities also
turned in good results, although small growth stocks significantly outperformed
small value stocks. Chestnut Street Exchange Fund returned 5.1%.
COMPARATIVE PERFORMANCE
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
3/30/96 3/30/95
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<S> <C> <C>
Chestnut Street Exchange Fund................................... 5.1% 11.1%
Dow Jones Industrial Average.................................... 9.2% 8.4%
Standard & Poor's 500 Index..................................... 4.8% 9.0%
</TABLE>
We continue to expect the economy to show modest growth through 1996, with
growth slowing in 1997 after the election is behind us. Final revisions to
fourth quarter 1995 GDP indicate that the economy grew at a rate of only .5%,
with GDP growth for the year at 2%. We expect economic growth to remain at a
similar level in 1996. Consumer confidence remains strong, although consumer
debt burdens are high and delinquencies are rising. Recent employment numbers
have shown strength while the latest retail sales results have been good. The
business sector, the main driver of economic activity in recent quarters, is
slowing its orders for capital goods, including technology goods, as companies
work on integrating the technology they have already purchased. The dollar's
rise may slow the export growth we saw in 1995. We expect interest rates to
continue to move a bit lower over the course of the year.
Corporate profits' strong 1995 growth has begun to slow. We expect the rate
of change to slow further in 1996. In this environment stable growth stocks
should continue to do well. The Fund's diversification should enable us to
benefit from these trends.
PNC INSTITUTIONAL MANAGEMENT CORPORATION
April 15, 1996
2
<PAGE> 3
CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF NET ASSETS
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
- -------- -------------
<C> <S> <C>
COMMON STOCKS -- 97.1%
AUTO & AUTO
PARTS -- 0.7%
41,299 Genuine Parts Company......... $ 1,858,455
-------------
BANKS -- 7.9%
12,476 Barnett Banks Inc. ........... 776,631
60,000 CoreStates Financial Corp. ... 2,542,500
30,757 First Chicago NBD Corp. ...... 1,276,416
40,000 Morgan (J.P.) & Co., Inc. .... 3,320,000
89,328 NationsBank Corp. ............ 7,157,406
157,266 Norwest Corp. ................ 5,779,525
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20,852,478
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BUILDING MATERIALS & FOREST
PRODUCTS -- 2.0%
45,130 Armstrong World Industries,
Inc. ....................... 2,803,701
52,117 Weyerhaeuser Company.......... 2,403,897
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5,207,598
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BUSINESS PRODUCTS &
SERVICES -- 3.7%
50,647 Dun & Bradstreet
Corporation................. 3,070,474
68,416 Harland (John H.) Co. ........ 1,505,152
52,000 Minnesota Mining &
Manufacturing Company....... 3,373,500
30,000 PHH Corp. .................... 1,668,750
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9,617,876
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CHEMICALS --9.4%
96,700 Air Products & Chemicals,
Inc. ....................... 5,282,238
52,100 Betz Laboratories, Inc. ...... 2,422,650
208,000 Cabot Corporation............. 6,344,000
213,034 Loctite Corp. ................ 10,758,217
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24,807,105
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CONSUMER NON-DURABLES &
SERVICES --7.2%
228,000 Coca-Cola (The) Company....... 18,838,500
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CONTAINERS -- 1.2%
67,148 Crown Cork & Seal Company,
Inc. ....................... 3,273,465
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DIVERSIFIED
COMPANIES -- 3.1%
157,190 Alco Standard
Corporation................. 8,193,529
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DRUGS &
MEDICAL -- 16.3%
121,964 Abbott Laboratories,
Inc. ....................... $ 4,970,033
39,177 Baxter International,
Inc. ....................... 1,772,759
213,149 Johnson & Johnson, Inc. ...... 19,662,995
210,987 Merck & Company, Inc. ........ 13,133,941
62,000 SmithKline Beecham p.l.c.
ADR unit.................... 3,193,000
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42,732,728
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ELECTRICAL
EQUIPMENT -- 5.0%
101,567 Emerson Electric Company...... 8,201,535
64,000 General Electric Company...... 4,984,000
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13,185,535
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ELECTRONICS -- 15.0%
105,538 AMP, Inc. .................... 4,366,635
22,298 Hewlett-Packard Company....... 2,096,012
320,960 Intel Corp. .................. 18,254,600
119,118 Motorola, Incorporated........ 6,313,254
159,207 Raytheon Company.............. 8,159,359
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39,189,860
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ENTERTAINMENT -- 1.7%
68,000 Walt Disney Company........... 4,343,500
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FOOD PROCESSING &
DISTRIBUTION -- 1.4%
170,000 McCormick & Co. Inc. ......... 3,740,000
-------------
INSURANCE &
FINANCIAL -- 2.7%
22,000 Aetna Life & Casualty
Co. ........................ 1,661,000
43,930 American Express Company...... 2,169,044
12,028 CIGNA Corp. .................. 1,374,199
19,392 Marsh & McLennan Companies,
Inc. ....................... 1,801,032
-------------
7,005,275
-------------
LODGING & RESTAURANT -- 1.9%
101,234 McDonald's Corporation........ 4,859,232
-------------
NATURAL GAS TRANSMISSION --
0.5%
24,000 Tenneco, Inc. ................ 1,341,000
-------------
OFFICE
EQUIPMENT -- 0.4%
10,471 International Business
Machines Corporation........ 1,163,590
-------------
</TABLE>
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<PAGE> 4
STATEMENT OF NET ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
NO. OF
SHARES VALUE
- -------- -------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PAPER -- 1.3%
30,000 Consolidated Papers,
Inc. .................... $ 1,687,500
55,432 Westvaco Corp. ............ 1,628,315
-------------
3,315,815
-------------
PETROLEUM -- 2.6%
13,500 Atlantic Richfield Co. .... 1,606,500
40,000 Exxon Corp. ............... 3,265,000
40,360 Louisiana Land &
Exploration Company...... 1,881,785
-------------
6,753,285
-------------
PETROLEUM EQUIPMENT &
SERVICES -- 0.9%
30,216 Schlumberger, Ltd. ........ 2,390,841
-------------
POLLUTION CONTROL -- 2.0%
114,556 Browning-Ferris
Industries, Inc. ........ 3,608,514
48,736 WMX Technologies, Inc. .... 1,547,368
-------------
5,155,882
-------------
RETAIL -- GENERAL &
SPECIALTY -- 3.6%
116,772 Albertson's Inc. .......... 4,335,161
58,600 Melville Corp. ............ 2,102,275
60,000 Penney (J.C.) Company,
Inc. .................... 2,985,000
-------------
9,422,436
-------------
TELEPHONE UTILITIES -- 4.3%
65,000 AT&T Corp. ................ 3,981,250
163,900 GTE Corp. ................. 7,191,112
-------------
11,172,362
-------------
TRANSPORTATION -- 2.3%
39,932 Burlington Northern,
Inc. .................... $ 3,279,415
40,000 Union Pacific Corp. ....... 2,745,000
-------------
6,024,415
-------------
Total Common Stocks
(Cost $45,444,957)..... 254,444,762
-------------
<CAPTION>
PAR
- --------
<C> <S> <C>
SHORT-TERM OBLIGATIONS -- 2.6%
$6,800,000 General Electric Capital
Corp., Commercial Paper,
5.33%, 04/29/96
(Cost $6,800,000)........ 6,800,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $52,244,957)......... 99.7% 261,244,762
Distributions payable........ (0.3) (769,868)
Other assets in excess of
other liabilities.......... 0.6 1,484,669
----- ------------
NET ASSETS (Applicable to
1,283,019 partnership
shares outstanding)........ 100.0% $261,959,563
===== ============
NET ASSET VALUE PER SHARE.... $ 204.17
============
NET ASSETS APPLICABLE TO
SHARES OWNED BY:
Limited partners
(1,224,017 shares)........ $249,912,868
Managing general partners
(13,345 shares)........... $2,724,707
Non-managing general partner
(45,657 shares)........... 9,321,988 12,046,695
---------- ------------
Total net assets
(1,283,019 shares)........ $261,959,563
=============
</TABLE>
Values for securities listed on a securities exchange are based upon the last
reported sales price on March 29, 1996. 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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LOGO
First Quarter Report
March 31, 1996
Chestnut Street Exchange
Fund
400 Bellevue Parkway
Suite 100
Wilmington, Delaware 19809
(302) 792-2555
Edward J. Roach, Treasurer
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