UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-02631
Chestnut Street Exchange Fund
(Exact name of registrant as specified in charter)
301 Bellevue Parkway
Wilmington, DE 19809
(Address of principal executive offices) (Zip code)
Robert Amweg
Chestnut Street Exchange Fund
301 Bellevue Parkway
Wilmington, DE 19809
(Name and address of agent for service)
Registrant’s telephone number, including area code: (610) 558-1750
Date of fiscal year end: December 31
Date of reporting period: December 31, 2015
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
David R. Wilmerding, Jr.
Chairman
January 21, 2016
Fellow Partner:
Enclosed is the Annual Report of Chestnut Street Exchange Fund for the year ended December 31, 2015.
Our Fund earned $10.52 per share of net investment income for a share outstanding throughout 2015, compared to $10.05 per share earned in 2014. Dividend income in 2015 was increased by $215,131 from 2014. Expenses were increased slightly in 2015.
After providing for the December 2015 distribution, the net asset value per partnership share at December 31, 2015 was $529.81. The net asset value at September 30, 2015, the date of our last report, was $499.75.
Commentary on market conditions and a comparison of our Fund’s performance to the Standard & Poor’s 500® Index will be found in the accompanying Investment Adviser’s Report.
Your comments or questions concerning Chestnut Street Exchange Fund are welcomed.
Yours sincerely,
David R. Wilmerding, Jr.
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
INVESTMENT ADVISER’S REPORT
Market Review
U.S. large cap stocks, as represented by the S&P 500® Index, gained 1.38% in the twelve month period ended December 31, 2015.
The year started with U.S. stock prices falling as lower oil prices punished the energy sector and the negative impact of a stronger dollar began to show in the earnings of large global exporting companies. U.S. equities came back into favor in the spring, after a powerful rally in European equities left valuations in the United States looking more appealing by comparison. U.S. stocks continued to outperform international markets into the summer as increasing turmoil around Greece’s debt troubles drove investors to the relative stability of U.S. markets.
The second half of the year started well with strong manufacturing and construction data and merger and acquisition activity. This momentum stuttered as volatility and uncertainty became major themes through the remainder of 2015 as a result of a sharp selloff in Chinese equities, falling oil prices and anticipation of an interest rate hike from the Federal Reserve (“Fed”).
With easy monetary policy in the beginning of 2015, many markets reached all-time highs, but hit considerable headwinds in the latter half of the year. Geopolitical strife in the Middle East and Russia, terrorist attacks in France and San Bernardino, California, the slowing growth globally, oil price instability, and the Fed starting a tightening interest rate cycle were significant events that shaped 2015 market returns.
The U.S. dollar strengthened against most major currencies for the year, posting a 19.9% gain against the Canadian dollar, a 12.5% gain versus the Australian dollar, an 11.4% gain versus the euro, a 5.8% gain versus the British pound, a 0.7% gain versus the Swiss franc, and a 0.3% gain versus the Japanese yen. A key issue heading into 2016 is the divergence in monetary policy between the United States and the rest of the world.
From a sector perspective, consumer discretionary stocks (+10.11%) generated the strongest returns in the S&P 500® Index for 2015, followed by health care (+6.89%), consumer staples (+6.60%), information technology (+5.88%) and telecommunications services (+3.40%). Conversely, the energy sector (-21.12%) produced the lowest returns for the year, followed by materials (-8.38%), utilities (-4.85%), industrials (-2.53%) and financials (-1.49%).
2
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
INVESTMENT ADVISER’S REPORT (Continued)
Portfolio Review
Summary
U.S. stocks bounced back strongly in the final three months of 2015. The full year, however, may best be defined by lackluster returns and the reemergence of volatility. Equities spent much of the time oscillating between gains and losses, depending on the tenor of macroeconomic headlines. Several factors contributed to negative sentiment: a more sluggish global growth outlook; a surprise currency devaluation in China; persistent uncertainty around the Fed’s policy path; and, the twin drags of another down turn in commodity prices (especially oil) and continued U.S. dollar strength. Geopolitical events were an added source of vulnerability. By contrast, the relative strength of the domestic economy was a key support for stocks and ultimately allowed the Fed to raise interest rates for the first time in nearly a decade. The labor market, housing and U.S. consumer were all bright spots. The corporate sector added to positive momentum, with earnings outside energy respectable and strong balance sheets providing ample resources for dividends, buybacks and mergers and acquisitions—the last of which saw a record-breaking year.
All told, the broad-market S&P 500® Index added 7.0% in the fourth quarter, leaving it up a modest 1.4% for 2015 following three straight years of double-digit gains. Materials, information technology (IT) and health care were the best performers in the quarter, while the consumer discretionary sector’s 10% return topped all others for the year. Unsurprisingly, energy was the worst performer for both periods amid a further (and unexpected) decline in crude and other commodity prices.
Performance Attribution
The portfolio underperformed its benchmark index, the S&P 500®, during the 12-month period. Performance was most negatively impacted by the industrials and health care sectors. Within industrials, weakness was notable in the road and rail industry due to the Fund’s overweight position in Union Pacific Corporation. The electrical equipment segment also detracted in the sector. Within health care, the pharmaceutical industry was the main source of weakness, with zero exposure to providers and services also weighing on returns. IT also detracted from performance, with absence to internet software and services having the most negative impact. Elsewhere, consumer discretionary and consumer staples hindered results. Additional individual detractors included an overweight position in American Express Co. and zero exposure to Amazon.com Inc.
Energy was the largest positive contributor, where a lack of exposure to oil, gas and consumable fuels added notable value. The Fund’s absence in the utilities sector was an additional source of strength. The largest individual contributors were positions in General Electric Company and Walt Disney Company, as well as zero exposure to Kinder Morgan Inc.
Outlook
As a result of market movement during the final quarter of 2015, the Fund’s overall weightings changed slightly. The Fund remains well diversified, with the largest overweight relative to the S&P 500® Index in financials, industrials, and materials and the largest underweight relative to the benchmark in IT, followed by utilities, and telecommunication services.
3
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
INVESTMENT ADVISER’S REPORT (Continued)
Portfolio Review (concluded)
We remain cautiously optimistic on U.S. stocks within specific sectors as we expect the U.S. economy/earnings to improve into 2016, driven by strong consumer spending, diminishing headwind of the stronger dollar, and lower crude prices.
Any opinions expressed are those of BlackRock as of the date of this report and are subject to change based on changes in market or economic conditions. Past performance is not a guarantee of future results. There is no guarantee that forecasts made herein will come to pass. The comments should not be construed as a recommendation for any individual holdings or market sectors. Information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable. We cannot guarantee the accuracy of such information, assure its completeness, or warrant that such information will not be changed without notice. Reliance upon information in this report is at the sole discretion of the reader.
4
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
INVESTMENT ADVISER’S REPORT (Concluded)
(Unaudited)
PERFORMANCE COMPARISON
Comparison of Change in Value of $10,000 Investment in Chestnut Street
Exchange Fund(1) vs. S&P 500® Index
The performance data represents past performance and the principal value and investment return will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Please call (800) 852-4750 for the most recent month-end performance.
In addition, the data does not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of Fund shares.
For the Periods Ended December 31, 2015
| | | | | | | | | | | | | | | | |
| | | Average Annual Total Returns | |
| | | 1 Year | | | 5 Year | | | 10 Year | | | Since
Inception(3) | |
Chestnut Street Exchange Fund | | | -3.42 | % | | | 11.21 | % | | | 6.82 | % | | | 10.93 | % |
S&P 500® Index | | | 1.38 | % | | | 12.57 | % | | | 7.31 | % | | | 11.05 | % |
| (1) | The chart assumes a hypothetical $10,000 initial investment in the Fund made on January 1, 2006 and reflects Fund expenses. Investors should note that the Fund is a managed fund while the indices are unmanaged, do not incur expenses and are not available for investment. The Fund’s gross expense ratio for the fiscal year ended December 31, 2015 was 0.56%. |
| (2) | Results of index performance are presented for general comparative purposes. |
| (3) | Cumulative since inception total returns were 5,624.81% and 5,856.48% for the Chestnut Street Exchange Fund and the S&P 500® Index, respectively, for the period December 29, 1976 (inception) to December 31, 2015. |
BLACKROCK CAPITAL MANAGEMENT, INC.
5
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
Fund Expense Example
(Unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period from July 1, 2015 through December 31, 2015, and held for the entire period.
Actual Expenses
The first line of the accompanying table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Six Months Ending December 31, 2015” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the accompanying table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not your Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the accompanying table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Chestnut Street Exchange Fund
| | | | | | | | | | | | |
| | | Beginning
Account Value
July 1, 2015 | | | Ending
Account Value
December 31, 2015 | | | Expenses Paid
During Six
Months Ending
December 31, 2015* | |
Actual | | $ | 1,000.00 | | | $ | 980.70 | | | $ | 2.90 | |
Hypothetical †
(5% return before expenses) | | $ | 1,000.00 | | | $ | 1,022.28 | | | $ | 2.96 | |
| * | Expenses are equal to the Fund’s annualized six-month expense ratio of 0.58%, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. The Fund’s ending account value on the first line of the table is based on the actual total return of (1.93)% for the six-month period ending December 31, 2015. |
| † | Hypothetical expenses are based on the Fund’s actual annualized six-month expense ratio and an assumed rate of return of 5% per year before expenses. |
6
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
PORTFOLIO HOLDINGS SUMMARY TABLE
December 31, 2015
(Unaudited)
| | | | | | | | |
Security Type/Industry | | % of Net
Assets | | | Value | |
COMMON STOCKS: | | | | | | | | |
Financial | | | 20.9 | % | | | $42,353,275 | |
Health Care | | | 15.7 | | | | 31,728,882 | |
Consumer Cyclicals | | | 15.2 | | | | 30,686,122 | |
Technology | | | 10.3 | | | | 20,806,782 | |
Staples | | | 8.3 | | | | 16,877,474 | |
Capital Equipment | | | 7.3 | | | | 14,824,028 | |
Energy | | | 7.2 | | | | 14,701,129 | |
Basics | | | 5.5 | | | | 11,100,559 | |
Transportation | | | 3.9 | | | | 7,851,436 | |
Retail | | | 2.2 | | | | 4,404,306 | |
Utilities | | | 1.8 | | | | 3,578,999 | |
Other Assets in Excess of Liabilities | | | 1.7 | | | | 3,415,678 | |
| | | | | | | | |
Net Assets | | | 100.0 | % | | $ | 202,328,670 | |
| | | | | | | | |
7
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
SCHEDULE OF INVESTMENTS
December 31, 2015
| | | | | | | | |
| | | Shares | | | Value | |
COMMON STOCKS—98.3% | |
BASICS—5.5% | |
Air Products & Chemicals, Inc. | | | 62,114 | | | $ | 8,081,653 | |
Cabot Corp. | | | 73,848 | | | | 3,018,906 | |
| | | | | | | | |
| | | | | | | 11,100,559 | |
| | | | | | | | |
CAPITAL EQUIPMENT—7.3% | |
Emerson Electric Co. | | | 106,453 | | | | 5,091,647 | |
General Electric Co. | | | 312,436 | | | | 9,732,381 | |
| | | | | | | | |
| | | | | | | 14,824,028 | |
| | | | | | | | |
CONSUMER CYCLICALS—15.2% | |
3M Co. | | | 23,636 | | | | 3,560,527 | |
CBS Corp.,—Class B | | | 51,548 | | | | 2,429,457 | |
Comcast Corp.,—Class A | | | 128,494 | | | | 7,250,916 | |
Procter & Gamble Co. | | | 73,071 | | | | 5,802,568 | |
Walt Disney Co. (The) | | | 110,798 | | | | 11,642,654 | |
| | | | | | | | |
| | | | | | | 30,686,122 | |
| | | | | | | | |
ENERGY—7.2% | |
Exxon Mobil Corp. | | | 100,626 | | | | 7,843,797 | |
Schlumberger, Ltd. | | | 98,313 | | | | 6,857,332 | |
| | | | | | | | |
| | | | | | | 14,701,129 | |
| | | | | | | | |
FINANCIAL—20.9% | |
American Express Co. | | | 84,503 | | | | 5,877,184 | |
Ameriprise Financial, Inc. | | | 19,150 | | | | 2,037,943 | |
Bank of America Corp. | | | 48,170 | | | | 810,701 | |
Blackhawk Network Holdings, Inc.—Class B* | | | 6,280 | | | | 277,640 | |
JPMorgan Chase & Co. | | | 120,418 | | | | 7,951,201 | |
Moody’s Corp. | | | 70,949 | | | | 7,119,023 | |
Wells Fargo & Co. | | | 336,269 | | | | 18,279,583 | |
| | | | | | | | |
| | | | | | | 42,353,275 | |
| | | | | | | | |
HEALTH CARE—15.7% | |
Abbott Laboratories | | | 112,356 | | | | 5,045,908 | |
AbbVie, Inc. | | | 112,356 | | | | 6,655,969 | |
Baxalta Inc. | | | 55,746 | | | | 2,175,766 | |
Baxter International, Inc. | | | 55,746 | | | | 2,126,710 | |
Johnson & Johnson | | | 86,533 | | | | 8,888,670 | |
Merck & Co., Inc. | | | 129,418 | | | | 6,835,859 | |
| | | | | | | | |
| | | | | | | 31,728,882 | |
| | | | | | | | |
| | | | | | | | |
| | | Shares | | | Value | |
RETAIL—2.2% | |
Home Depot, Inc. | | | 20,117 | | | $ | 2,660,473 | |
Kohl’s Corp. | | | 13,002 | | | | 619,285 | |
Safeway Casa Ley CVR*† | | | 38,225 | | | | — | |
Safeway PDC CVR*† | | | 38,225 | | | | — | |
Wal-Mart Stores, Inc. | | | 18,345 | | | | 1,124,548 | |
| | | | | | | | |
| | | | | | | 4,404,306 | |
| | | | | | | | |
STAPLES—8.3% | |
Altria Group, Inc. | | | 15,436 | | | | 898,530 | |
Coca-Cola Co. (The) | | | 222,727 | | | | 9,568,352 | |
Hanesbrands, Inc. | | | 19,408 | | | | 571,177 | |
Kraft Heinz Co. (The) | | | 3,607 | | | | 262,445 | |
Mondelez International, Inc.,—Class A | | | 10,720 | | | | 480,685 | |
PepsiCo, Inc. | | | 37,423 | | | | 3,739,306 | |
Philip Morris International, Inc. | | | 15,436 | | | | 1,356,979 | |
| | | | | | | | |
| | | | | | | 16,877,474 | |
| | | | | | | | |
TECHNOLOGY—10.3% | |
Apple, Inc. | | | 16,404 | | | | 1,726,685 | |
Check Point Software Technologies Ltd.* | | | 45,003 | | | | 3,662,344 | |
Cisco Systems, Inc. | | | 28,068 | | | | 762,187 | |
Intel Corp. | | | 287,570 | | | | 9,906,787 | |
Microsoft Corp. | | | 43,766 | | | | 2,428,138 | |
Oracle Corp. | | | 63,527 | | | | 2,320,641 | |
| | | | | | | | |
| | | | | | | 20,806,782 | |
| | | | | | | | |
TRANSPORTATION—3.9% | |
Union Pacific Corp. | | | 100,402 | | | | 7,851,436 | |
| | | | | | | | |
See Accompanying Notes to Financial Statements.
8
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
SCHEDULE OF INVESTMENTS (Continued)
December 31, 2015
| | | | | | | | |
| | | Shares | | | Value | |
UTILITIES—1.8% | | | | | | | | |
Verizon Communications, Inc. | | | 77,434 | | | $ | 3,578,999 | |
| | | | | | | | |
Total Common Stocks
(Cost: $27,718,635) | | | | | | | 198,912,992 | |
| | | | | | | | |
TOTAL INVESTMENTS IN SECURITIES | |
(Cost: $27,718,635) | | | 98.3 | % | | $ | 198,912,992 | |
Other assets in excess of liabilities | | | 1.7 | % | | | 3,415,678 | |
| | | | | | | | |
NET ASSETS | | | 100.0 | % | | $ | 202,328,670 | |
| | | | | | | | |
| † | Security has been valued at fair value. These securities have been deemed illiquid. |
| | |
Abbreviations: | | |
CVR | | Contingent Value Rights |
PDC | | Property Development Center |
See Accompanying Notes to Financial Statements.
9
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
SCHEDULE OF INVESTMENTS (Concluded)
December 31, 2015
Fair Value Measurements. The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| | | | | | |
| | | |
| • | | Level 1 | | — | | quoted prices in active markets for identical securities |
| | | |
| • | | Level 2 | | — | | other significant observable inputs (including quoted prices for identical securities in inactive markets and for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| | | |
| • | | Level 3 | | — | | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of inputs used, as of December 31, 2015, in valuing the Fund’s investments carried at value:
| | | | | | | | | | | | | | | | |
| | | Total
Value at
12/31/15 | | | Level 1
Quoted
Prices | | | Level 2
Significant
Observable
Inputs | | | Level 3
Significant
Unobservable
Inputs | |
Investments in Common Stocks* | | $ | 198,912,992 | | | $ | 198,912,992 | | | $ | — | | | $ | 0 | |
| | | | | | | | | | | | | | | | |
| * | See details of industry breakout in the Schedule of Investments. |
At the end of each calendar quarter, management evaluates the classification of Levels 1, 2 and 3 assets and liabilities. Various factors are considered, such as changes in liquidity from the prior reporting period; whether or not a broker is willing to execute at the quoted price; the depth and consistency of prices from third party pricing services; and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the classification of Level 1 and Level 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
For fair valuations using significant unobservable inputs, U.S. generally accepted accounting principles (“U.S. GAAP”) require the Fund to present a reconciliation of the beginning to ending balances for reported market values that presents changes attributable to total realized and unrealized gains or losses, purchase and sales, and transfers in and out of Level 3 during the period. Transfers in and out between Levels are based on values at the end of the period. U.S. GAAP also requires the Fund to disclose amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. A reconciliation of Level 3 investments is presented only when the Fund had an amount of Level 3 investments at the end of the reporting period that was meaningful in relation to its net assets. The amounts and reasons for all transfers in and out of each Level within the three-tier hierarchy are disclosed when the Fund had an amount of total transfers during the reporting period that was meaningful in relation to its net assets as of the end of the reporting period.
For the year ended December 31, 2015, there were no transfers among Levels 1, 2 and 3 for the Fund.
See Accompanying Notes to Financial Statements.
10
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
Statement of Assets and Liabilities
December 31, 2015
| | | | |
Assets | | | | |
Investments in securities, at value (cost $27,718,635) | | $ | 198,912,992 | |
Cash | | | 4,377,321 | |
Dividends receivable | | | 391,215 | |
Prepaid expenses | | | 13,983 | |
| | | | |
Total assets | | | 203,695,511 | |
| | | | |
Liabilities | | | | |
Payables for: | | | | |
Distributions | | | 1,236,595 | |
Advisory fees | | | 45,688 | |
Administration and accounting fees | | | 15,063 | |
Custodian fees | | | 11,106 | |
Transfer agent fees | | | 12,308 | |
Accrued expenses and other liabilities | | | 46,081 | |
| | | | |
Total liabilities | | | 1,366,841 | |
| | | | |
Net Assets | | $ | 202,328,670 | |
| | | | |
Net Assets consisted of: | | | | |
Other capital — paid-in or reinvested | | $ | 32,718,212 | |
Distributions in excess of net investment income | | | (534 | ) |
Accumulated net realized losses on securities | | | (1,583,365 | ) |
Net unrealized appreciation on investments | | | 171,194,357 | |
| | | | |
Net Assets (Applicable to 381,889 partnership shares outstanding) | | $ | 202,328,670 | |
| | | | |
Net Asset Value offering and redemption price per share ($202,328,670 / 381,889 shares) | | $ | 529.81 | |
| | | | |
Net assets applicable to shares owned by: | | | | |
Limited partners (381,796 shares) | | $ | 202,279,581 | |
Managing general partners (93 shares)* | | | 49,089 | |
| | | | |
Total net assets (381,889 shares) | | $ | 202,328,670 | |
| | | | |
| * | Net asset value per share may not recompute due to rounding. |
See Accompanying Notes to Financial Statements.
11
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
Statement of Operations
Year Ended December 31, 2015
| | | | | | | | |
| |
Investment income | | | | | |
Dividends | | | $ | 5,171,471 | |
| | | | | | | | |
Expenses | | | | | |
Investment advisory services (Note C) | | | | 584,384 | |
Administration and accounting fees (Note C) | | | | 179,603 | |
Legal fees (Note C) | | | | 177,953 | |
Managing general partners’ compensation, officer’s salary and expenses (Note C) | | | | 86,441 | |
Transfer agent fees | | | | 42,571 | |
Custodian fees | | | | 29,226 | |
Audit fees | | | | 23,504 | |
Insurance | | | | 22,136 | |
Printing | | | | 21,849 | |
Miscellaneous | | | | 8,942 | |
| | | | | | | | |
Total expenses | | | | 1,176,609 | |
| | | | | | | | |
Advisory fees waived | | | | (36,000 | ) |
| | | | | | | | |
Total expense, net | | | | 1,140,609 | |
| | | | | | | | |
Net investment income | | | | 4,030,862 | |
| | | | | | | | |
Net realized and unrealized gain/(loss) on investments | | | | | |
Realized gain on sale of investment securities | | | | 779,478 | |
Realized gain from securities transactions: Distributed on redemption of partnership shares | | | | 1,957,525 | |
Unrealized appreciation on investments | | | | | |
Beginning of year | | $ | 185,200,619 | | | | | |
End of year | | | 171,194,357 | | | | | |
| | | | | | | | |
Net change in unrealized appreciation | | | | (14,006,262 | ) |
| | | | | | | | |
Net realized and unrealized loss on investments | | | | (11,269,259 | ) |
| | | | | | | | |
Net decrease in net assets resulting from operations | | | $ | (7,238,397 | ) |
| | | | | | | | |
Statements of Changes in Net Assets
Year Ended December 31,
| | | | | | | | |
| | | 2015 | | | 2014 | |
Increase /(decrease) in net assets
Operations: | |
Net investment income | | $ | 4,030,862 | | | $ | 3,883,178 | |
Net realized gain from securities transactions, for federal income tax purposes net gain/(loss) is $779,478 and $0 | | | 779,478 | | | | — | |
Excess of market value over book value of securities distributed upon redemption of partnership shares | | | 1,957,525 | | | | 4,221,508 | |
Net change in unrealized appreciation on investments | | | (14,006,262 | ) | | | 17,481,260 | |
| | | | | | | | |
Increase/(Decrease) in net assets resulting from operations | | | (7,238,397 | ) | | | 25,585,946 | |
| | | | | | | | |
Distributions to partners from: | |
Net investment income | | | (4,032,073 | ) | | | (3,880,100 | ) |
| | | | | | | | |
Capital share transactions: | |
Net asset value of 633* and 542 shares issued in lieu of cash distributions | | | 335,603 | | | | 295,468 | |
Cost of 3,658 and 8,964 shares repurchased | | | (1,996,593 | ) | | | (4,665,113 | ) |
| | | | | | | | |
Decrease in net assets from capital share transactions | | | (1,660,990 | ) | | | (4,369,645 | ) |
| | | | | | | | |
Total increase/(decrease) in net assets | | | (12,931,460 | ) | | | 17,336,201 | |
Net assets: | |
Beginning of year | | | 215,260,130 | | | | 197,923,929 | |
| | | | | | | | |
End of year ** | | $ | 202,328,670 | | | $ | 215,260,130 | |
| | | | | | | | |
| | * | Included 632 Limited partners shares and 1 Managing general partners shares. |
| ** | Includes distributions in excess of net investment income of ($534) and undistributed net investment income of $677, respectively. |
See Accompanying Notes to Financial Statements.
12
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Year)
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | | | | |
Net Asset Value, Beginning of Year | | $ | 559.24 | | | $ | 503.19 | | | $ | 389.89 | | | $ | 348.17 | | | $ | 344.85 | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations: | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | 10.52 | | | | 10.05 | | | | 9.22 | | | | 9.42 | | | | 6.85 | |
Net gain (loss) on securities
(both realized and unrealized) | | | (29.43 | ) | | | 56.04 | | | | 113.31 | | | | 41.72 | | | | 3.32 | |
| | | | | | | | | | | | | | | | | | | | |
Total from investment operations | | | (18.91 | ) | | | 66.09 | | | | 122.53 | | | | 51.14 | | | | 10.17 | |
| | | | | | | | | | | | | | | | | | | | |
Less Distributions: | | | | | | | | | | | | | | | | | | | | |
From net investment
income | | | (10.52 | ) | | | (10.04 | ) | | | (9.23 | ) | | | (9.42 | ) | | | (6.85 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Asset Value,
End of Year | | $ | 529.81 | | | $ | 559.24 | | | $ | 503.19 | | | $ | 389.89 | | | $ | 348.17 | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | (3.42 | )% | | | 13.19 | % | | | 31.59 | % | | | 14.75 | % | | | 2.99 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Ratios/Supplemental Data: | | | | | | | | | | | | | | | | | | | | |
Net Assets, End of Year (000’s) | | $ | 202,329 | | | $ | 215,260 | | | $ | 197,924 | | | $ | 182,628 | | | $ | 176,553 | |
Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | |
Including waivers, if any | | | 0.54 | % | | | 0.52 | % | | | 0.52 | % | | | 0.53 | % | | | 0.50 | % |
Excluding waivers, if any | | | 0.56 | % | | | 0.53 | % | | | 0.52 | % | | | 0.53 | % | | | 0.50 | % |
Net investment income | | | 1.93 | % | | | 1.89 | % | | | 1.95 | % | | | 2.44 | % | | | 1.92 | % |
Portfolio Turnover Rate | | | 0.02 | % | | | — | % | | | — | % | | | — | % | | | — | % |
See Accompanying Notes to Financial Statements.
13
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
Chestnut Street Exchange Fund (the “Fund”), a California Limited Partnership, is registered under the Investment Company Act of 1940, as amended, as a diversified open-end investment management company. The Fund’s investment objective is to seek long-term growth of capital and, secondarily, current income. Effective January 1, 1998, the Fund changed its status for tax purposes from a partnership to a regulated investment company. The change resulted from the enactment of the “Publicly Traded Partnership” rules to the Internal Revenue Code in 1987 which first applied to the Fund after 1997.
| (B) | SIGNIFICANT ACCOUNTING PRINCIPLES |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security Valuations
Securities listed or traded on an exchange are valued generally at the last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, valued at the closing bid price on that day. Each security reported on the NASDAQ Stock Market, Inc. is valued at the NASDAQ Official Close Price. Securities for which market quotations are not readily available or are believed to be unreliable are valued at fair value as determined in good faith using methods approved by the Managing General Partners. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value.
Securities Transactions and Investment Income
Securities transactions are accounted for on a trade date basis. Realized gains and losses on sales and redemptions in-kind are computed on the basis of specific identification for both financial reporting and income tax purposes. For securities exchanged into the Fund at the Fund’s inception in 1976, the cost for financial reporting purposes is the value of those securities as used in the exchange. The cost, for income tax purposes, of securities exchanged into the Fund is the tax basis of the individual investor. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date.
Distributions
Distributions from net investment income are paid quarterly and recorded on the ex-dividend date. Distributions of capital gains, if any, are paid annually and recorded on the ex-dividend date.
14
Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income which is distributed to shareholders. The Fund may elect not to distribute long-term capital gains to shareholders, but retain these gains and pay the income tax at the applicable income tax rate. If the Fund elects to pay the tax on long-term capital gains, on the last day of the year the tax is paid, the partners are entitled to a proportionate credit for the tax payment and the tax basis of their shares is increased by the amount of undistributed gains less the tax paid by the Fund. At December 31, 2015, the Fund had a capital loss carryforward of $1,583,365, which expires December 31, 2016. Therefore, no provision for federal income taxes is recorded in the financial statements.
Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund after December 31, 2010 will not be subject to expiration. In addition, such losses must be used to offset future capital gains realized prior to losses incurred in the years preceding enactment.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (December 31, 2012—2015) and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
At December 31, 2015, the federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Fund were as follows:
| | | | |
Federal tax cost | | $ | 25,908,874 | |
| | | | |
Gross unrealized appreciation | | | 173,044,778 | |
Gross unrealized depreciation | | | (40,660 | ) |
| | | | |
Net unrealized appreciation | | $ | 173,004,118 | |
| | | | |
The difference between book basis and tax basis of investments is attributable to the use of the individual partners’ tax basis for those securities contributed to the Fund at its inception, as required by law.
| (C) | INVESTMENT ADVISORY FEES, OTHER SERVICES AND TRANSACTIONS WITH AFFILIATES |
BlackRock Capital Management, Inc. (“BCM” or the “Adviser”), a wholly owned subsidiary of BlackRock Institutional Management, Inc., serves as Investment Adviser to the Fund pursuant to an advisory agreement dated September 29, 2006 as amended November 1, 2014 (“Advisory Agreement”). All BlackRock entities named are subsidiaries of BlackRock, Inc.
The Advisory Agreement provides for a fee, computed daily and paid monthly at the annual rate of 0.32% of the first $100,000,000 of the Fund’s net assets, plus 0.24% of the next $100,000,000 of the Fund’s net assets, plus 0.26% of the Fund’s net assets exceeding $200,000,000, which is reduced by an annual charge of $36,000 that is charged ratably against monthly payments. For the year ended December 31, 2015, this fee reduction equaled $36,000.
BNY Mellon Investment Servicing (US) Inc. also serves as the Fund’s administrator and accounting agent and transfer and dividend disbursing agent.
15
BNY Mellon Investment Servicing Trust Company serves as the Fund’s custodian.
The Managing General Partners each receive a fixed fee as compensation for their services. In addition, the President, Chief Financial Officer and Chief Compliance Officer receive additional payments for overseeing the Fund’s activities, plus reimbursements of related expenses. For the year ended December 31, 2015, payments to or for the Managing General Partners amounted to $86,441.
Legal fees amounting to $177,953 for the year ended December 31, 2015 were paid to Drinker Biddle & Reath LLP.
| (D) | INVESTMENT TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term obligations and redemptions in-kind) were $40,660 and $1,434,992, respectively, for the year ended December 31, 2015.
| (E) | DISTRIBUTIONS TO SHAREHOLDERS |
Net investment income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. The primary difference applicable to the Fund’s distributions is the requirement to pass through 40% of its aggregate expenses to the partners of the Fund. This is required because the Fund has fewer than 500 partners and does not continuously offer shares. The partners treat this pass-through of expenses as a distribution of net investment income and a corresponding miscellaneous itemized deduction of investment expense.
The tax character of distributions paid during 2015 and 2014 were as follows:
| | | | | | | | |
| | | 2015 | | | 2014 | |
Ordinary income | | $ | 4,488,317 | | | $ | 4,309,473 | |
Investment expense | | | (456,244 | ) | | | (429,373 | ) |
| | | | | | | | |
Distributed to partners | | $ | 4,032,073 | | | $ | 3,880,100 | |
| | | | | | | | |
For federal income tax purposes, distributions of net investment income and short-term capital gains are treated as ordinary income dividends.
| (F) | IN-KIND DISTRIBUTION OF SECURITIES |
During the year ended December 31, 2015, the Fund distributed portfolio securities in lieu of cash for most shareholder redemptions. The value of these redemptions in portfolio securities and cash was as follows:
| | | | | | | | | | | | |
| | | Value of the
Redemptions | | | Net Realized
Gain Included
In Redemptions | | | Fund
Shares
Redeemed | |
Portfolio Securities | | $ | 1,996,593 | * | | $ | 1,957,525 | | | | 3,658 | |
Cash | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
| | $ | 1,996,593 | | | $ | 1,957,525 | | | | 3,658 | |
| | | | | | | | | | | | |
| | * | Includes $334 in cash redeemed. |
16
Net realized gains from these transactions are not taxable to the Fund. Such gains are not distributed to shareholders and will be reclassified to paid-in capital at the Fund’s fiscal year end. These transactions were completed following guidelines approved by the Managing General Partners.
In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future, and therefore, cannot be estimated. However, based on experience, the risk of material loss for such claims is considered remote.
At December 31, 2015, the components of distributable earnings on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | (534 | ) |
Capital loss carryover | | | (1,583,365 | ) |
Other timing differences | | | (1,809,761 | ) |
Net unrealized appreciation of investments | | | 173,004,118 | |
| | | | |
| | $ | 169,610,458 | |
| | | | |
On December 31, 2015, undistributed realized gain/accumulated realized loss on securities was decreased by $1,957,525 and additional paid-in capital was increased by $1,957,525 due to permanent differing book and tax treatment of realized gains and losses attributable to redemptions in kind and the differences in book and tax cost of securities described in Note B. Net assets of the Fund were unaffected by this change.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and determined that there were no subsequent events requiring disclosure.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Chestnut Street Exchange Fund
We have audited the accompanying statement of assets and liabilities of Chestnut Street Exchange Fund (the “Fund”), including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2015 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Chestnut Street Exchange Fund as of December 31, 2015, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
February 24, 2016
18
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
Additional Information (Unaudited)
Annual Approval Investment Advisory Agreement
At a meeting held on July 22, 2015, the Managing General Partners of the Chestnut Street Exchange Fund (the “Fund”), including the Independent Managing General Partners, approved the continuation of the investment advisory agreement with BlackRock Capital Management, Inc. (“BCM”) with respect to the Fund for an additional one-year period. In connection with their approval, the Managing General Partners considered, with the assistance of independent counsel, their legal responsibilities and reviewed the nature and quality of services provided to the Fund and BCM’s experience and qualifications. The Managing General Partners reviewed and considered BCM’s report and presentation that included among other things, (1) a comparison of the advisory fee of the Fund to that of the BlackRock Funds Exchange Portfolio (the “BlackRock Portfolio”), the other exchange portfolio managed by BCM; (2) a comparison of the performance of the Fund to the BlackRock Portfolio, its benchmark (S&P 500® Index) as well as the Dow Jones Industrial Average™; (3) compensation or possible benefits to BCM arising from its relationship with the Fund; (4) a discussion of the current business activities of BCM’s parent, BlackRock, Inc.; (5) information about the services provided to the Fund, the experience and qualifications of the personnel that are involved in the management of the Fund and how they are compensated; (6) a description of the procedures for determining that the Fund receives best execution and for allocating portfolio opportunities among the Fund and other advisory clients of BlackRock; (7) the nature of BlackRock’s internal controls to monitor portfolio compliance; and (8) the costs of the services provided and BCM’s profits with respect to the Fund. Since the Fund was closed to new investors, economies of scale were not considered relevant.
The Managing General Partners considered the scope and quality of services provided by the Adviser, particularly the qualifications and capabilities of the personnel responsible for providing services to the Fund. On the basis of this evaluation, the Managing General Partners concluded that the nature, quality and extent of services provided by BCM was satisfactory. The Managing General Partners then considered the Fund’s performance as compared to its benchmark, the S&P 500® Index, the BlackRock Funds Exchange Portfolio (the “BlackRock Portfolio”) and the Dow Jones Industrial Average™ for the year-to-date, 1-, 3-, 5- and 10-year periods ended June 30, 2015, noting that the Fund had out-performed the BlackRock Portfolio for all periods with the exception of the year-to-date period, out-performed the Dow Jones Industrial Average™ with the exception of the 1-year and 10-year periods, and under-performed the S&P 500® Index for all periods with the exception of the year-to-date period. The Managing General Partners also considered the advisory fee comparisons of the Fund compared to the BlackRock Portfolio and the Adviser’s profitability information. The Managing General Partners noted that the Fund’s advisory fees were lower than the BlackRock Portfolio and that its expense ratio for the current year has not changed significantly as compared to the same period last year.
After discussion, the Managing General Partners concluded that BCM had the capabilities, resources and personnel necessary to manage the Fund. The Managing General Partners considered the services provided by BCM and the fees paid by the Fund in relation to the BlackRock Portfolio’s fees and the Fund’s Lipper peer group, as well as the Fund’s performance and other information presented and discussed, and the Managing General Partners concluded that the advisory fees paid by the Fund are reasonable and fair.
19
Proxy Voting
Policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities as well as information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling (800) 852-4750 and on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended March 31 and September 30) on Form N-Q. The Fund’s Form N-Q is available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling 1-800-SEC-0330.
Tax Information
As required by the Internal Revenue Code, 100% of ordinary income dividends paid for the year ended December 31, 2015 have been designated as: 1) qualified for the reduced tax rate under The Job and Growth Relief Reconciliation Act of 2003, and 2) eligible for the dividend received deduction for corporate shareholders.
20
CHESTNUT STREET EXCHANGE FUND
(A California Limited Partnership)
INFORMATION ON THE MANAGING GENERAL
PARTNERS AND OFFICERS OF THE FUND
(Unaudited)
The list below provides certain information about the identity and business experience of the Managing General Partners and officers of the Fund. The Fund’s Statement of Additional Information includes additional information about the Fund’s Managing General Partners, which may be obtained from the Fund free of charge by calling 1-800-852-4750.
TERM OF OFFICE: The Fund’s partnership agreement provides that each Managing General Partner holds office until the earliest of (a) the election of his or her successor; or (b) the date a Managing General Partner dies, resigns, becomes insane, is adjudicated as bankrupt or is removed by a majority of the partners. The officers of the Fund are elected by the Managing General Partners and each officer holds office for one year or until he or she shall resign or be removed or until his or her successor is elected and qualified.*
| | | | | | | | |
Name, Address, and Age | | Position with
the Fund and
Length of
Time Served | | Principal
Occupations During
Past 5 Years and
Current Affiliations | | Number of Portfolios
in Fund
Complex(1)
Overseen by
Managing
General Partners | | Other Directorship(2) Held by
Managing General Partner During Past 5 Years |
| | | | |
| Disinterested Managing General Partners | | | | | | | | |
Gordon L. Keen, Jr.
c/o BNY Mellon Investment
Servicing (US) Inc.
103 Bellevue Parkway
Wilmington, DE 19809
Age: 71 | | Managing General Partner since 2006 | | Senior Vice President, Law & Corporate Department, Airgas, Inc. (Radnor, PA-based distributor of industrial, medical and specialty gases, and welding and safety equipment and supplies) from January 1992 to January 2006. | | 1 | | None |
| | | | |
Langhorne B. Smith
c/o BNY Mellon Investment
Servicing (US) Inc.
103 Bellevue Parkway
Wilmington, DE 19809
Age: 79 | | Managing General Partner since 1997 | | Retired. President and Director, The Sandridge Corporation (private investment company); Director, Claneil Enterprises, Inc. (private investment company). | | 1 | | None |
| | | | |
David R. Wilmerding, Jr.
c/o BNY Mellon Investment
Servicing (US) Inc.
103 Bellevue Parkway
Wilmington, DE 19809
Age: 80 | | Managing General Partner since 1976; Chairman of the Managing General Partners since 2006 | | Retired. Chairman, Wilmerding & Associates (investment advisers) from February 1989 to 2006. | | 1 | | Director, Beaver Management Corporation |
21
| | | | | | | | |
Name, Address, and Age | | Position with
the Fund and
Length of
Time Served | | Principal
Occupations During
Past 5 Years and
Current Affiliations | | Number of Portfolios
in Fund
Complex(1)
Overseen by
Managing
General Partners | | Other Directorship(2) Held by
Managing General Partner During Past 5 Years |
| | | | |
| Officers | | | | | | | | |
Robert F. Amweg, CMA, MBA Vigilant Compliance LLC Gateway Corporate Center, Suite 216 223 Wilmington West Chester Pike Chadds Ford, PA 19317 Age: 62 | | President and Chief Compliance Officer since 2014 | | Compliance Director, Vigilant Compliance LLC since 2013; Consultant to the financial services industry since 2012; Chief Financial Officer, Turner Investments, LP 2007-2012. | | N/A | | N/A |
| | | | |
John Boyle, CPA, MBA
Vigilant Compliance LLC Gateway Corporate Center, Suite 216 223 Wilmington West Chester Pike Chadds Ford, PA 19317 Age: 62 | | Chief Financial Officer since 2012 | | Director, Vigilant Compliance LLC since 2006. | | N/A | | N/A |
| | | | |
Michael P. Malloy
Drinker Biddle & Reath
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
Age: 56 | | Secretary since 2001 | | Secretary of Chestnut Street Exchange Fund; Partner in the law firm of Drinker Biddle & Reath LLP. | | N/A | | N/A |
| | | | |
James G. Shaw
103 Bellevue Parkway
Wilmington, DE 19809
Age: 55 | | Treasurer Since 2012 | | Vice President since 1995 and Senior Director since 2005; BNY Mellon Investment Servicing (US) Inc. (formerly PNC Global Investment Servicing (U.S.), Inc.); Assistant Treasurer of the Fund 2009-2012. | | N/A | | N/A |
| * | Mr. Edward J. Roach retired as Managing General Partner effective February 5, 2016. |
| (1) | The Fund Complex includes all registered investment companies that are advised by BlackRock Capital Management, Inc. or one of its affiliates. |
| (2) | Directorships of companies required to report to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (i.e., “public companies”) or other investment companies registered under the 1940 Act. |
22
CHESTNUT STREET EXCHANGE FUND
Privacy Notice
Chestnut Street Exchange Fund is committed to protecting the security and confidentiality of the personal information of our partners. We provide you with this notice to inform you about our practices with respect to personal information.
We collect nonpublic personal information about you from the following sources:
| • | | Information we receive from you; and |
| • | | Information about your transactions with us or others |
We do not disclose any nonpublic personal information about you to anyone, except as permitted by law. If you decide to close your account we will adhere to the privacy policies and practices as described in this notice.
We restrict access to your personal and account information to those employees of BNY Mellon Investment Servicing Inc. and the Fund’s Treasurer who need to know that information to provide services to you. We maintain physical, electronic and procedural safeguards to guard your nonpublic personal information.
23
MANAGING GENERAL PARTNERS
Gordon L. Keen, Jr.
Edward J. Roach
Langhorne B. Smith
David R. Wilmerding, Jr.
INVESTMENT ADVISER
BlackRock Capital Management, Inc.
100 Bellevue Parkway
Wilmington, Delaware 19809
ADMINISTRATOR
AND
TRANSFER AGENT
BNY Mellon Investment
Servicing (US) Inc.
P.O. Box 8950
Wilmington, Delaware 19899
(800) 852-4750
Annual Report
December 31, 2015
Chestnut Street Exchange Fund
301 Bellevue Parkway
Wilmington, Delaware 19809
(800) 852-4750
Item 2. Code of Ethics.
| | (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| | (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| | (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
| | (f) | A copy of the Code of Ethics is available as provided in Item 12(a)(1) of this report. |
Item 3. Audit Committee Financial Expert.
The registrant’s board of managing general partners has determined that the registrant has at least one “audit committee financial expert” (as defined in Item 3 of Form N-CSR) serving on its audit committee. Langhorne B. Smith is the “audit committee financial expert” and is “independent” (as each item is defined in Item 3 of Form N-CSR).
Item 4. Principal Accountant Fees and Services.
Audit Fees
| | (a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $20,500 for 2014 and $20,500 for 2015. |
Audit-Related Fees
| | (b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 for 2014 and $0 for 2015. |
Tax Fees
| | (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $1,500 for 2014 and $1,000 for 2015. |
All Other Fees
| | (d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2014 and $0 for 2015. |
| (e)(1) | Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
The Audit Committee does not have pre-approved policies and procedures. Instead, the Audit Committee approves on a case-by-case basis each audit or non-audit service before the accountant is engaged by the Registrant.
| (e)(2) | No services described in paragraph (b) through (d) were approved by the Audit Committee pursuant to the “de minimis” exception of Rule 2-01(c)(7)(i)(c) of Regulation S-X. |
| | (f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
| | (g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 for 2014 and $0 for 2015. |
| | (h) | The registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
| Item 10. Submission | of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of managing general partners.
| Item 11. Controls | and Procedures. |
| | (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.15d-15(b)). |
| | (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))), that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
| | (a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
| | (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| | (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(12.other) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | |
(Registrant) | | Chestnut Street Exchange Fund | | |
| | | | |
By (Signature and Title)* | | /s/ Robert Amweg | | |
| | Robert Amweg, President & Chief Compliance Officer | | |
| | (principal executive officer) | | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
By (Signature and Title)* | | /s/ Robert Amweg | | |
| | Robert Amweg, President & Chief Compliance Officer | | |
| | (principal executive officer) | | |
| | | | |
By (Signature and Title)* | | /s/ John Boyle | | |
| | John Boyle, Chief Financial Officer | | |
| | (principal financial officer) | | |
* Print the name and title of each signing officer under his or her signature.
