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 811-2631

Chestnut Street Exchange Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)

400 Bellevue Parkway
Wilmington, DE 19809
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

Edward J. Roach
400 Bellevue Parkway
Wilmington, DE 19809
- --------------------------------------------------------------------------------
(Name and address of agent for service)

Registrant's telephone number, including area code: 302-792-2555

Date of fiscal year end: December 31, 2003

Date of reporting period: December 31, 2003

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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

The Annual Report to stockholders is filed herewith.

CHESTNUT STREET EXCHANGE FUND

(A CALIFORNIA LIMITED PARTNERSHIP)

Robert R. Fortune
Chairman

February 2, 2004
Fellow Partner:

Enclosed is the Annual Report of Chestnut Street Exchange Fund for the year
ended December 31, 2003.

Our Fund earned $4.61 per share from net investment income for a share
outstanding throughout 2003, compared to $3.99 per share earned in 2002.
Dividend income increased by 3% over 2002 and expenses, principally the advisory
fee which is tied to the market, were lower by 7%.

A long-term capital loss of $3,705,400 on the sale of the remainder of our
holding in Schering-Plough was sustained in 2003 and is available for carry-over
to offset future realized gains.

After providing for the January 2004 distribution, the net asset value per
partnership share at December 31, 2003 was $327.39. The net asset value at
September 30, 2003, the date of our last report, was $299.93.

Data on the equity markets, on certain holdings and on the performance of
our Fund since inception, including comparisons to leading stock market indices
appear in the accompanying Investment Adviser's Report.

Your comments or questions concerning Chestnut Street Exchange Fund are
welcomed.

Yours sincerely,

-s- Robert R. Fortune

Robert R. Fortune

INVESTMENT ADVISER'S REPORT

MARKET REVIEW

The stock market rally that began in the Spring of 2003 marched on in the
fourth quarter as positive economic data, the capture of Saddam Hussein, and a
notable absence of bad news combined to keep investors upbeat. The S&P 500 Index
and the Dow Jones Industrial Average finished the quarter up 12.2% and 13.4%,
respectively, while the Russell 2000 Index of small company stocks gained 14.5%
and the NASDAQ rose 12.3%. The lofty fourth quarter returns added to already
impressive year to date gains for most indices through the first three quarters
of 2003. The S&P 500 finished the year up 28.7% and the Dow wasn't far behind
with a return of 28.3%. The Russell 2000 and NASDAQ indices were even more
impressive, gaining 47.3% and 50.8% respectively. From the lows in early March
through year-end, the S&P 500 Index rallied approximately 39% and the NASDAQ was
up 58% while the Russell 2000 gained approximately 60%.

Large cap stocks managed to outperform small cap stocks late in the year,
bringing the returns close to parity for the fourth quarter, but this did little
to chip away at the considerable outperformance turned in by the small caps for
the year. The two dominant investment themes throughout much of 2003 were the
outperformance of smaller capitalization stocks and stocks with higher
volatility. This high beta, low quality trend moderated toward the end of the
year as the prevailing opinion moved to the global cyclical recovery theme.
Industry groups and sectors viewed as beneficiaries of global growth
significantly outperformed as a result.

The corporate profit situation was surprisingly robust in the second half
of the year and has led to an improvement in market tone and investor
confidence. According to ISI Group, analysts are expecting earnings to be up
approximately 22% for the fourth quarter while expectations for 2004 are for
growth of 11% to 12% over 2003. Some sectors, including technology, industrials
and materials have even higher expectations for growth and, given the tremendous
gains in some of these stocks since March, any earnings disappointments could
stall the market rally.

For the year, the improving economy coupled with the recovery of corporate
profits resulted in increased investor confidence and an increased tolerance for
risk. The result was a surprisingly strong year for equities around the globe.
In the U.S. market, earnings recovery themes clearly dominated all else, despite
the uncertainty about the sustainability of earnings growth. Information
technology stocks led the market with the sector gaining approximately 46% for
the year. Consumer discretionary and materials stocks also performed very well
with returns of 36% and 35%, respectively. Defensive sectors generally lagged
with health care, consumer staples and telecomm up only 13.3%, 9.2% and 3.3%,
respectively.

ECONOMY

Economic figures released during the fourth quarter indicate that the U.S.
economy continues to grow with new housing starts, existing home sales, GDP and
the ISM Manufacturing Index all signaling strength. Despite the apparent
strength in the economy, the labor market has been slow to recover significantly
and capacity utilization has remained stubbornly low at approximately 75%. On
the whole, we believe that the foundation for this economic recovery is becoming
increasingly solid and we expect this growth to continue in 2004, albeit at a
more modest pace. In the Fed's most recent risk assessment, the outlook for
inflation was changed to balanced from the previous bias toward deflation
despite declines in the PPI, core PPI, CPI and core CPI indices in December. We
believe an increase in

INVESTMENT ADVISER'S REPORT (CONTINUED)

the Fed Funds Rate is unlikely in the initial months of 2004 but with the
economy gaining ground and the dollar continuing to fall against world
currencies, we believe that the general trend for interest rates will be up in
2004.

OUTLOOK

As we head into 2004, the economy appears set to continue growing and
corporate profits should also continue to improve thanks to increases in
productivity and revenue generation. Later in the year, earnings growth rates
should moderate due to the comparison to the very strong second half of 2003 but
should remain healthy in general. So despite relatively high expectations for
earnings and less than compelling valuations, we expect the market's direction
to be generally positive from this point. On a more cautionary note, while the
economy and corporate profit performance have clearly improved, the continued
strong move up in some sectors of the market has bordered on speculation in our
view, most notably in technology and the "high-beta" low quality stocks that
have surged since March. We would be wary of these stocks and would focus on
companies where economic strength appears to be leading to measurably better
results and improving fundamentals.

PORTFOLIO REVIEW

For the year, the portfolio was up 25.78% compared to a return of 28.70%
for the S&P. Small cap stocks led the market by a wide margin once again in the
fourth quarter, as has been the case for most of the year. Many of these
companies were in danger of severe financial distress or even bankruptcy had the
technology recession or the bear market continued much longer. The economic
recovery breathed new life into these companies and prompted investors to rush
in to these small companies to take advantage of their depressed valuations.
This trend hurt the Fund relative to the S&P 500 Index, which has more exposure
to smaller companies. One reassuring fact is that these trends are not unusual
at the beginning of a market recovery, but typically do not last for very long.
Eventually, higher quality, established companies with tangible earnings growth
attract investors while the smaller, more speculative stocks that rally so
strongly early in the cycle suffer from profit taking. Chestnut Street Exchange
Fund is not managed to capture the short-term profits that can come from
investing in these speculative stocks. We have been, and will continue to focus
on well-managed companies with long-term staying power.

Stocks that added significantly to the Fund's return included Wells Fargo
and 3M. Wells Fargo shares were strong due to its exposure to the mortgage
market. It also benefited from the announcement that FleetBoston would be
acquired by Bank of America, which sparked some merger buying in the banking
group. 3M also performed well, benefiting from the strength of the economy.

For the year, Intel was the largest contributor to overall performance by a
wide margin as the stock comprised approximately 15% of the total portfolio and
rose more than 100% during the year. Unfortunately, the portfolio's health care
position, which was the largest sector represented in the portfolio, more than
offset the positive contribution from Intel. Compounding the issue was the fact
that the Fund's two largest positions in the sector, Merck and Johnson &
Johnson, underperformed within the group. Merck declined approximately 14% for
the year while J&J declined approximately 4%. Defensive groups lagged as
investors sought out stocks with more cyclical earnings streams that should
experience earnings acceleration in the current environment. Merck's slowing
growth rate plagued the stock all year. The decline in J&J was related to the
prospect of a soon to be released
3

INVESTMENT ADVISER'S REPORT (CONTINUED)

competitive product in the cardiac stent market that J&J had dominated. We
believe that the current valuation levels for both of these stocks are at the
low end of their expected ranges. In the long run, we believe that they offer
excellent return potential and we are confident that they will add value to the
Fund.

The Fund's position in Marsh & McLennan detracted from performance on the
year as the shares significantly underperformed both the broad market and the
financial sector in the second half of the year as a result of the widespread
inquiry into misdeeds in the mutual fund industry. Among its portfolio of
companies, Marsh & McLennan is the parent company of Putnam Investments, one of
the mutual fund complexes hardest hit by the trading issues. The stock declined
from a mid-year high of roughly $55 to nearly $38 in the fall, then subsequently
rallied to close the year at $47.89. Putnam is believed to have lost
approximately $50 billion in mutual fund assets as a result of the scandal,
which will certainly have a negative impact on Marsh's earnings. However, the
CEO has been replaced and we believe the issues can be corrected and expect the
effects of the lost assets to be temporary. As a result, we have not reduced the
position in the portfolio.

During the year, we eliminated the Fund's position in Schering-Plough based
on the deterioration of sales and earnings resulting from the loss of patent
protection on key drugs that was worse than anticipated. The Fund was able to
realize a tax loss on the shares, partially offsetting the loss of capital.
Proceeds from the sale were used to establish positions in several companies
that offered excellent long-term investment potential given valuation levels we
believed to be too low. Each of these companies has very capable management
teams, which we believe will increase shareholder value.

Within the consumer staples sector, the Fund purchased Sara Lee and
Safeway. Sara Lee was trading at the low end of historical ranges that we
believe more than discounted the long-term earnings potential of its Sara Lee,
Hanes and L'Eggs brands. Safeway was added after it had declined from
approximately $45 per share into the mid-teens on fears about increasing
competition in the supermarket industry. We believed the sell-off was overdone,
and the shares were trading below fair value given the companies earnings
prospects.

We also initiated a position in Comcast, a cable communications company
with more than 20 million subscribers. The company has a strong set of cable
programs such as QVC, E! Entertainment Television, the Golf Channel, Outdoor
Life Network and Style. In the industrial sector, we purchased Pitney Bowes, a
global mail and document management company that made it through the recession
with its strong record of positive earnings intact. We believe that the pick up
in the economy will reaccelerate earnings and were able to establish a position
at an attractive valuation. Temporary price declines also gave the Fund the
opportunity to start positions in industry leaders American International Group
in financials and Oracle in technology.

INVESTMENT ADVISER'S REPORT (CONCLUDED)

PERFORMANCE SUMMARY

<Table>
<Caption>
CHESTNUT STREET
EXCHANGE FUND S&P 500 INDEX DJIA INDEX
--------------- ------------- ----------

4th Quarter, 2003.......................... 9.75% 12.18% 13.35%
1 Year..................................... 25.78% 28.71% 28.29%
3 Years*................................... -2.02% -4.04% 1.04%
5 Years*................................... 0.03% -0.56% 4.57%
10 Years*.................................. 10.48% 11.07% 13.08%
Inception (12/29/76)
Annualized*.............................. 13.05% 12.71% 13.07%
Cumulative............................... 2,674.10% 2,430.20% 2,658.12%
</Table>

Returns are as of December 31, 2003

The performance data represent past performance and should not be
considered indicative of future performance which will fluctuate with changes in
market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.

In addition, the data does not reflect the deduction of taxes that a
shareholder would pay on distributions or redemption of Fund shares

January 28, 2004 BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
5

CHESTNUT STREET EXCHANGE FUND

(A CALIFORNIA LIMITED PARTNERSHIP)

STATEMENT OF NET ASSETS

DECEMBER 31, 2003

<Table>
<Caption>
SHARES VALUE
- ---------- ------------

COMMON STOCKS--97.7%
BASICS--3.7%
106,123 Air Products & Chemicals, Inc. .... $ 5,606,478
90,747 Cabot Corporation.................. 2,889,384
52,855* Cabot Microelectronics Corp. ...... 2,589,895
------------
11,085,757
------------
CAPITAL EQUIPMENT--6.4%
95,519 Emerson Electric Company........... 6,184,855
384,000 General Electric Co. .............. 11,896,320
25,000 Pitney Bowes, Inc. ................ 1,015,500
------------
19,096,675
------------
CONSUMER CYCLICALS--6.1%
69,000* Comcast Corp. Class A.............. 2,268,030
136,206 Disney (Walt) Company.............. 3,177,686
152,000 3M Co. ............................ 12,924,560
------------
18,370,276
------------
ENERGY--4.0%
44,280 BP plc ADR......................... 2,185,218
155,296 Exxon Mobil Corp. ................. 6,367,136
60,432 Schlumberger, Ltd. ................ 3,306,839
------------
11,859,193
------------
FINANCIAL--22.3%
117,433 American Express Co. .............. 5,663,794
30,000 American International Group,
Inc. ............................ 1,988,400
208,286 Bank of America Corp. ............. 16,752,443
70,000 Fannie Mae......................... 5,254,200
116,352 Marsh & McLennan Companies,
Inc. ............................ 5,572,097
50,647 Moody's Corporation................ 3,066,676
148,000 J.P. Morgan Chase & Co. ........... 5,436,040
97,200 Wachovia Corporation............... 4,528,548
314,532 Wells Fargo & Co. ................. 18,522,789
------------
66,784,987
------------
</Table>

<Table>
<Caption>
SHARES VALUE
- ---------- ------------

HEALTHCARE--25.0%
243,928 Abbott Laboratories, Inc. ......... $ 11,367,045
78,354 Baxter International, Inc. ........ 2,391,364
79,516 IMS Health, Inc. .................. 1,976,768
758,416 Johnson & Johnson, Inc. ........... 39,179,771
48,448* Medco Health Solutions, Inc. ...... 1,646,747
401,729 Merck & Company, Inc. ............. 18,559,880
------------
75,121,575
------------
RETAIL--0.6%
57,133 Albertson's, Inc. ................. 1,294,062
20,000* Safeway, Inc. ..................... 438,200
------------
1,732,262
------------
STAPLES--4.3%
234,213 Coca Cola (The) Company............ 11,886,310
48,000 Sara Lee Corp. .................... 1,042,080
------------
12,928,390
------------
TECHNOLOGY--21.3%
61,097 Hewlett-Packard Company............ 1,403,398
41,884 International Business Machines
Corporation...................... 3,881,809
1,545,204 Intel Corp. ....................... 49,755,569
110,800 Microsoft Corp. ................... 3,051,432
357,354 Motorola, Incorporated............. 5,027,971
50,000* Oracle Corp. ...................... 660,000
------------
63,780,179
------------
TRANSPORTATION--2.2%
119,796 Burlington Northern Santa Fe
Corp. ........................... 3,875,401
40,000 Union Pacific Corp. ............... 2,779,200
------------
6,654,601
------------
UTILITIES--1.8%
151,713 Verizon Communications, Inc. ...... 5,322,092
------------
Total Common Stocks
(Cost: $35,251,616).......... 292,735,987
------------
</Table>

See Accompanying Notes to Financial Statements.
6

STATEMENT OF NET ASSETS (CONCLUDED)
<Table>
<Caption>
PAR VALUE
- ---------- ------------

SHORT-TERM OBLIGATIONS--2.7%
$8,100,000 Federal Home Loan Mortgage Corp.
01/02/04, 0.75%.................. $ 8,099,831
------------
(Cost: $8,099,831)
</Table>

<Table>

TOTAL INVESTMENT IN SECURITIES
(Cost: $43,351,447)............ 100.4% 300,835,818
Assets in excess of other
liabilities.................... 0.1% 447,036
Distributions payable............ (0.5%) (1,601,378)
Payable to:
Investment Advisors (Note B)... (0.0%) (85,694)
Managing general partners (Note
B)........................... (0.0%) (6,385)
Custodian (Note B)............. (0.0%) (2,979)
Transfer Agent (Note B)........ (0.0%) (2,938)
----- ------------
NET ASSETS (Applicable to 915,057
partnership shares
outstanding)................... 100.0% $299,583,480
===== ============
NET ASSET VALUE PER SHARE........ $ 327.39
============
NET ASSETS APPLICABLE TO SHARES
OWNED BY:
Limited partners
(910,301 shares)............... $298,026,398
Managing general partners (4,756
shares)........................ 1,557,082
------------
Total net assets
(915,057 shares)............... $299,583,480
============
</Table>

- ---------------
* Non-Income Producing

ADR-American Depositary Receipt

See Accompanying Notes to Financial Statements.
7

CHESTNUT STREET EXCHANGE FUND

(A CALIFORNIA LIMITED PARTNERSHIP)

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003

<Table>

INVESTMENT INCOME
Dividends (Net of foreign taxes withheld
of $7,530)............................ $ 5,436,429
Interest................................ 96,093
-----------
Total investment income........... 5,532,522
-----------
Expenses
Investment advisory fee................. 929,685
Managing general partners' compensation
and officer's salary.................. 87,500
Legal................................... 67,500
Audit................................... 25,000
Custodian............................... 24,093
Printing................................ 18,900
Insurance............................... 17,541
Transfer agent.......................... 16,000
Miscellaneous........................... 5,000
-----------
Total expenses...................... 1,191,219
-----------
Net investment income............. 4,341,303
-----------

REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized loss on sale of investment
securities (for federal tax purposes
net loss is $3,705,400)............... (3,705,400)
Realized gain from security
transactions: distributed upon
redemption of partnership shares...... 25,691,943
Unrealized appreciation of investments:
Beginning of year....... $219,286,594
End of year............. 257,484,371
------------
Net change in unrealized
appreciation.................... 38,197,777
-----------
Net realized and unrealized gain
on investments.................. 60,184,320
-----------
Net increase in net assets resulting
from operations..................... $64,525,623
===========
</Table>

STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,

<Table>
<Caption>
2003 2002
------------ ------------

INCREASE/(DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.. $ 4,341,303 $ 4,117,025
Net realized loss from
security transactions
(for federal income
tax purposes net loss
is $3,705,400 and
$2,288,260).......... (3,705,400) (2,288,260)
Excess of market value
over book value of
securities
distributed upon
redemption of
partnership shares... 25,691,943 9,902,097
Increase/(decrease) in
unrealized
appreciation of
investments.......... 38,197,777 (86,724,968)
------------ ------------
Increase/(decrease) in
net assets resulting
from operations...... 64,525,623 (74,994,106)
------------ ------------
DISTRIBUTIONS TO PARTNERS
FROM:
Net investment
income............... (4,330,721) (4,122,735)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net asset value of
1,390 and 1,144
shares issued in lieu
of cash
distributions........ 391,979 348,519
Cost of 100,338 and
44,897 shares
repurchased.......... (28,990,104) (13,299,768)
------------ ------------
Decrease in net assets
from capital share
transactions of
98,948 and 43,753.... (28,598,125) (12,951,249)
------------ ------------
Total
increase/(decrease)
in net assets........ 31,596,777 (92,068,090)
NET ASSETS:
Beginning of year...... 267,986,703 360,054,793
------------ ------------
End of year*........... $299,583,480 $267,986,703
============ ============
</Table>

- ---------------

* Includes undistributed net investment income of $11,600 and $1,018,
respectively.

See Accompanying Notes to Financial Statements.
8

CHESTNUT STREET EXCHANGE FUND

FINANCIAL HIGHLIGHTS

(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT EACH YEAR)

<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------

Net Asset Value, Beginning of Year....... $ 264.29 $ 340.39 $ 362.68 $ 369.83 $ 347.51
-------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income.................. 4.61 3.99 3.79 3.76 3.64
Net gain (loss) on securities (both
realized and unrealized)............. 63.09 (76.09) (22.30) (7.15) 22.39
-------- -------- -------- -------- --------
Total from investment
operations...................... 67.70 (72.10) (18.51) (3.39) 26.03
-------- -------- -------- -------- --------
Less Distributions:
From net investment income............. (4.60) (4.00) (3.78) (3.76) (3.65)
From realized gains.................... -- -- -- -- (0.06)
-------- -------- -------- -------- --------
Total distributions............... (4.60) (4.00) (3.78) (3.76) (3.71)
-------- -------- -------- -------- --------
Net Asset Value, End of Year............. $ 327.39 $ 264.29 $ 340.39 $ 362.68 $ 369.83
======== ======== ======== ======== ========
Total Return............................. 25.78% (21.25)% (5.05)% (0.92)% 7.52%
Ratios/Supplemental Data:
Net Assets, End of Year (000's)........ $299,583 $267,987 $360,055 $398,580 $422,604
Ratios to average net assets:
Operating expenses................... 0.43% 0.41% 0.39% 0.38% 0.38%
Net investment income................ 1.57% 1.31% 1.12% 0.96% 1.00%
Portfolio Turnover Rate................ 1.18% 0.98% 0.00% 1.77% 2.48%
</Table>

See Accompanying Notes to Financial Statements.
9

NOTES TO FINANCIAL STATEMENTS

(A) ORGANIZATION

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 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 at the date of the financial statements
and the reported amounts of revenues and expenses 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 National Market System is valued at the
NASDAQ Official Close Price. Securities for which market quotations are
not readily available or are believed to be incorrect 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.

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 corporate 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, 2003, the Fund had a capital loss
carryover of $5,993,660, of which $2,288,260 expires December 31, 2010
and $3,705,400 expires December 31, 2011. Therefore, no provision for
federal income taxes is recorded in the financial statements.

PNC Bank and BlackRock Institutional Management Corporation ("BIMC"), a
majority-owned subsidiary of PNC Bank, are co-investment advisers to the
Fund pursuant to an Advisory Agreement dated January 1, 1998. In June 1998,
PNC Bank and BIMC restructured their operations and BlackRock Financial
Management, Inc. ("BFM"), a majority-owned subsidiary of PNC Bank, assumed
the rights and obligations of PNC Bank under the Advisory Agreement. The
Fund pays BIMC an investment advisory fee for advisory, accounting and
administrative services of BIMC and BFM.

The Advisory Agreement provides for a fee at the annual rate of 4/10ths of
1% of the first $100,000,000 of the Fund's average daily net assets plus
3/10ths of 1% of net assets exceeding $100,000,000.

PFPC Inc., an affiliate of PNC Bank, serves as the Fund's transfer and
dividend disbursing agent. As compensation for these services, PFPC Inc. is
entitled to a fee equal to $12,500 per year plus related out-of-pocket
expense.

PFPC Trust Company, a subsidiary of PFPC Inc, serves as the Fund's
custodian. As compensation for its services as custodian, PFPC Trust
Company is entitled to a fee computed at an annual rate of .0065% of the
Fund's average gross assets plus additional fees based on the number and
type of transactions.

The managing general partners each receive a fixed fee as compensation for
their services. In addition, the President and Principal Financial Officer
receives additional payments for overseeing the Fund's activities and
reimbursements of related expenses. Total payments to or for the managing
general partners amounted to $87,500.

(D) INVESTMENT TRANSACTIONS

Purchases and sales of investment securities (excluding short-term
obligations) were $6,610,848 and $3,158,204, respectively, for the year
ended December 31, 2003.

(E) NET ASSETS

At December 31, 2003, net assets consisted of:

<Table>

Undistributed net investment income......................... $ 11,600
Accumulated net realized losses on securities............... (5,993,660)
Net unrealized appreciation of investments (book basis)..... 257,484,371
Other capital -- paid-in or reinvested...................... 48,081,169
------------
$299,583,480
============
</Table>

(F) 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 2003 and 2002 was as
follows:

<Table>
<Caption>
2003 2002
---------- ----------

Ordinary income............................................. $4,807,208 $4,637,285
Investment expense.......................................... (476,487) (514,550)
---------- ----------
$4,330,721 $4,122,735
========== ==========
</Table>

(G) TAX MATTERS

At December 31, 2003, the components of distributable earnings on a tax
basis were as follows:

<Table>

Undistributed ordinary income (before tax allocation
described above).......................................... $ 11,600
Capital loss carryover...................................... (5,993,660)
Net unrealized appreciation of investments.................. 262,839,878
------------
$256,857,818
============
</Table>

The cost of investments for federal income tax purposes at December 31,
2003 was $37,995,940. The unrealized appreciation (an excess of value over
cost) was $262,839,878. 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.

On December 31, 2003, undistributed net realized gains (losses) on
securities was decreased by $27,980,203 and additional paid in capital was
increased by $27,980,203 due to permanent differing book and tax treatment
of realized gains and losses. Net assets of the Fund were unaffected by
this change.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Partners
Chestnut Street Exchange Fund

We have audited the accompanying statement of net assets of Chestnut Street
Exchange Fund (the "Fund"), as of December 31, 2003, and the related statement
of operations, statement of changes in net assets and the financial highlights
for the year 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
audit. The statement of changes in net assets for the year ended December 31,
2002 and the financial highlights for each of the four years in the period ended
December 31, 2002 were audited by other auditors whose report dated February 14,
2003 expressed an unqualified opinion on the statement of changes in net assets
and those financial highlights.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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, 2003 by correspondence with the custodian
and a broker. 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 audit provides 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, 2003, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.

Briggs, Bunting & Dougherty, LLP

Philadelphia, Pennsylvania
January 23, 2004

ADDITIONAL INFORMATION

PricewaterhouseCoopers LLP ("PwC"), the independent auditors to Chestnut Street
Exchange Fund (the "Registrant"), have been retained as an internal audit
supporting service provider by The PNC Financial Services Group, Inc. ("PNC"),
an affiliate of the Registrant's investment adviser and certain other of its
service providers. In order to provide certain contemplated services to PNC and
its affiliates in the future, which would cause PwC to no longer be independent
with respect to the Registrant, PwC informed the Registrant on September 8, 2003
that it would decline to stand to serve as independent auditors to the
Registrant as of October 29, 2003.

PwC's reports on the Registrant's financial statements for the fiscal year ended
December 31, 2002 contained no adverse opinion or disclaimer of opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. During the Registrant's fiscal year ended December 31, 2002, (i)
there were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports on the Registrant's financial statements for such years, and (ii)
there were no "reportable events" of the kind described in Item 304(a)(1)(v) of
Regulation S-K under the Securities Exchange Act of 1934, as amended.

On December 18, 2003, the Registrant by action of its Managing General Partners
upon the recommendation of its Audit Committee engaged Briggs Bunting &
Dougherty LLP as the independent auditors to audit the Registrant's financial
statements for the fiscal year ending December 31, 2003. During the Registrant's
fiscal year ended December 31, 2002, neither the Registrant, its portfolio nor
anyone on their behalf has consulted Briggs Bunting & Dougherty LLP on items
which (i) concerned the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Registrant's financial statements or (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of
Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of
said Item 304).

- ------------------------------

The above information is required to be included in our Annual Report to
Partners for two years following a change of independent auditors.
14

INFORMATION ON THE MANAGING GENERAL PARTNERS AND OFFICERS OF THE FUND

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 officer until the earliest of (a) the election of his
successor; or (b) the date a Managing General Partner dies, resigns, becomes
insane, is adjudicated a 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.

INTERESTED DIRECTORS*

Richard C. Caldwell(1)
Age 59

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Managing General
Partner since 1997.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: Advisory Director, PNC
Florida, FSB; Advisory Director in Philadelphia and Southern New Jersey
region for PNC Bank; Consultant for PNC Florida; Chairman, Florida Advisory
Council; formerly President and Chief Executive Officer, PNC Bank FSB from
May 1998 until July 1999; Director, JLC, Inc. since February 1996
(investment holding company); Director, DR Inc. since April 1994
(investment holding company).

NUMBER OF PORTFOLIOS IN FUND COMPLEX(2) OVERSEEN BY FUND DIRECTOR: 1

Edward J. Roach(1)
Age: 79

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Managing General
Partner since 2000, President since 2002 and Treasurer since 1981.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: Certified Public
Accountant; Partner of the accounting firm of Main Hurdman until 1981; Vice
Chairman of the Board, Fox Chase Cancer Center; President, Vice President
and/or Treasurer of one other investment company advised by BIMC; Director,
The Bradford Funds, Inc. until 2000.

NUMBER OF PORTFOLIOS IN FUND COMPLEX(2) OVERSEEN BY FUND DIRECTOR: 2

INDEPENDENT DIRECTORS

Robert R. Fortune(1)
Age: 87

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Managing General
Partner since 1976 and Chairman since 1994.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: Financial Consultant;
Former Chairman, President and Chief Executive Officer, Associated Electric
& Gas Insurance Service Limited from

1984 to 1993; Member of the Financial Executives Institute and American
Institute of Certified Public Accountants.

NUMBER OF PORTFOLIOS IN FUND COMPLEX(2) OVERSEEN BY FUND DIRECTOR: 1

Langhorne B. Smith(1)
Age: 67

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Managing General
Partner since 1997.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: President and Director, The
Sandridge Corporation (private investment company); Executive Vice
President and Director, Claneil Enterprises, Inc. (private investment
company).

NUMBER OF PORTFOLIOS IN FUND COMPLEX(2) OVERSEEN BY FUND DIRECTOR: 1

David R. Wilmerding, Jr.(1)
Age: 68

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Managing General
Partner since 1976.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: Chairman, Wilmerding &
Associates, Inc. (investment advisers) since February 1989; Director,
Beaver Management Corporation (land management corporation); Director,
People First, Inc., The Peoples Bank of Oxford (bank holdings company);
Chairman and trustee of one other investment company advised by BIMC or its
affiliates.

NUMBER OF PORTFOLIOS IN FUND COMPLEX(2) OVERSEEN BY FUND DIRECTOR: 43

OFFICER

Michael P. Malloy(1)
Age: 44

POSITION(S) HELD WITH THE FUND AND LENGTH OF TIME SERVED: Secretary since
2001.

PRINCIPAL OCCUPATIONS DURING THE LAST 5 YEARS: Partner in the law firm of
Drinker Biddle & Reath LLP, Philadelphia.

NOTES

* These Managing General Partners each may be deemed to be an "interested
director" of the Fund within the meaning of the Investment Company Act of
1940. Mr. Roach is an officer of the Fund and Mr. Caldwell owns stock of an
affiliate of the adviser.

(1) Each Managing General Partner and officer may be contacted by writing to the
Managing General Partner, c/o The Chestnut Street Exchange Fund, Bellevue
Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809,
Attn: Edward J. Roach.

(2) A Fund complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an investment
adviser that is an affiliated person of the investment adviser of any of the
other investment companies. David R. Wilmerding, Jr. also serves as Chairman
and a Trustee of the BlackRock Funds and Mr. Roach serves as President and
Treasurer of The RBB Fund, Inc.

- ---------------------------------------------------
- ---------------------------------------------------
MANAGING GENERAL PARTNERS

Richard C. Caldwell
Robert R. Fortune
Edward J. Roach
Langhorne B. Smith
David R. Wilmerding, Jr.

INVESTMENT ADVISERS

BlackRock Financial Management, Inc.
and
BlackRock Institutional
Management Corporation
100 Bellevue Parkway
Wilmington, Delaware 19809

TRANSFER AGENT

PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19899
(800) 852-4750
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------

[CHESTNUT STREET EXCHANGE FUND LOGO]

ANNUAL REPORT
DECEMBER 31, 2003

CHESTNUT STREET EXCHANGE
FUND

400 Bellevue Parkway
Wilmington, Delaware 19809
(302) 792-2555
Edward J. Roach, President & Treasurer
- ---------------------------------------------------
- ---------------------------------------------------

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 (the "Code of Ethics"). The Code of Ethics is attached
hereto as Exhibit 11(a)(1).

(b) There have been no amendments, during the period covered by
this report, to the provisions of the Code of Ethics.

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.

(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 $25,824 for 2002 and
$17,500 for 2003.

(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 2002 and $0 for
2003.

(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 $0 for
2002 and $0 for 2003.

(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 2002 and $0 for 2003.

(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) The percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X are as follows:

(b) Not applicable.

(d) Not applicable.

(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 zero percent (0%).

(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 2002 and $0 for 2003.

(h) Not applicable.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.

ITEM 6. [RESERVED]

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable for fiscal year reporting period ended December 31, 2003.

ITEM 10. 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 the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 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
registrant's last fiscal half-year (the registrant's second
fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.

ITEM 11. EXHIBITS.

(a)(1) The registrant's Code of Ethics for Chief Executive and
Senior Financial Officers is filed herewith.

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are filed herewith.

(a)(3) Not applicable.

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 are filed herewith.

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/ Edward J. Roach
-------------------------------------------------------
Edward J. Roach, President & Treasurer
(principal executive officer)

Date February 25, 2004

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/ Edward J. Roach
-------------------------------------------------------
Edward J. Roach, President & Treasurer
(principal executive and principal financial officer)

Date February 25, 2004

* Print the name and title of each signing officer under his or her signature.