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)

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

Edward J. Roach
Chestnut Street Exchange Fund
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, 2006

Date of reporting period: June 30, 2006

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. Section 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
August 14, 2006

Fellow Partner:

Our Fund earned $3.31 per share of net investment income in the six months
ended June 30, 2006. Earnings in the same period of 2005 were $2.99 per share.
Dividend income increased by $140,212 in the first six months of 2006 compared
to the same period of 2005, while interest income and expenses were reduced
slightly.

After providing for the $1.40 per share distribution to partners of record
on June 29, 2006, the net asset value per partnership share on June 30, 2006 was
$342.26. The net asset value on March 31, 2006, our last report date, was
$343.29, and the value at June 30, 2005, was $331.24.

A stock split added 57,292 shares of Schlumberger, Ltd. in the second
quarter of 2006.

Commentary on market conditions and a comparison of our Fund's performance
to the Standard & Poor's 500 Index and the Dow Jones Industrial Average will be
found in the accompanying Investment Adviser's Report.

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

Yours sincerely,

-s- David R. Wilmerding, Jr.

David R. Wilmerding, Jr.

INVESTMENT ADVISER'S REPORT

SECOND QUARTER 2006

MARKET REVIEW

For the quarter, the S&P 500 fell 1.44%, the Russell 1000 lost 1.66%, and
the Russell 2000 plunged 5.03%. Once again, interest rates were the primary
culprit as the Federal Reserve lifted its target Fed Funds rate to 5.25% at the
end of June, inline with market expectations. However, the market interpreted
the language in the official statement that accompanied the latest Fed action as
"milder" in tone concerning inflation risks compared to other recent Fed
comments. This line of reasoning then continued by speculating that additional
rate hikes might be coming to an end or at least be slowing, which would likely
benefit stocks in the short term. Such optimism may be rewarded with at least a
"pause" in the trend of higher rates, but the Fed's upcoming moves remain more
of a guessing game at the moment based upon the conflicting needs of restraining
current inflationary pressures while also continuing to maintain healthy annual
economic growth of about 3% or slightly more.

The correction in US stock markets during the second quarter, which started
in early May, resulted from both normal profit-taking due to the gains generated
early in the year but also from a reassessment of the speculative risks being
taken by investors in an environment where equities must confront some
formidable headwinds. Consequently, value investing, large caps, and more
defensive sectors re-emerged as the quarter's leaders. The Russell 1000 Value
Index returned a positive 0.59% for the quarter while the Russell 1000 Growth
Index dropped 3.9%. Similarly, the Russell 2000 Value Index was down 2.7%, but
the Russell 2000 Growth Index dived 7.25%. Large-cap stocks outperformed small-
caps for the quarter, but small-caps still lead for the year given their strong
first quarter run. Interestingly, results for most of the major equity indices
are positive on a year-to-date basis including the growth benchmarks.

Energy, utilities, and consumer staples, which are all traditionally
defensive sectors, dominated performance in the quarter. While the economy seems
to be absorbing the shock of historically high energy prices surprisingly well,
energy-related companies continue to generate enormous cash flows which may
persist until demand falls noticeably. Technology was the weakest group, hurt by
concerns over slowing economic growth. Within health care, service providers
struggled during the second quarter, causing the sector to underperform. Basic
materials companies were mostly lower following a frenzied race to record
commodity prices for metals such as gold, aluminum, and copper followed by an
equally frenzied sell-off by hedge funds and speculators. Industrials were mixed
but have performed strongly for the year. Financials were stagnant again thanks
to the Fed. Finally, consumer discretionary stocks were mostly lower on renewed
concerns about consumer spending.

With investors clinging to each word of the Federal Reserve policymakers,
we expect market volatility to continue its upward trend. The Fed's delicate
balancing act between promoting economic growth and maintaining price stability
will determine whether the market can once again resume its upward momentum or
continue to consolidate through the latter half of 2006. We remain cautious in
the near-term as macroeconomic concerns overhang the market and investors
attempt to time a cyclical interest rate peak.

PORTFOLIO REVIEW

After a positive start to the quarter, domestic equity markets stumbled
during May and early June as anxiety surrounding interest rates, inflation and
slowing economic growth created a headwind for investors. Equities rallied in
late June, but were unable to produce positive results for the quarter. Given
its

INVESTMENT ADVISER'S REPORT (CONTINUED)

concentration in large cap, high quality companies the Chestnut Street Exchange
Fund outperformed during the second quarter posting a modestly negative absolute
return of 0.3%.

The strong relative performance was driven by a diverse group of names in
the portfolio. At the stock level, the top contributors to active returns during
the quarter were Bank of America and Wells Fargo, which benefited from solid
performance for the banking industry in the U.S., gaining 6.7% and 5.9%
respectively. After being out of favor for several quarters, investors began to
migrate towards large cap pharmaceutical companies during the second quarter.
Our positions in Johnson & Johnson, Merck and Abbot Laboratories all made
significant positive contributions to performance. Other individual positions
that added value included 3M within industrials and Comcast in the consumer
discretionary sector. Shares of Comcast rose over 25% during the quarter, as
strong first quarter earnings and renewed confidence in growth helped to boost
the share price.

In contrast, the fund's positions in Moody's Corp. and Motorola created a
drag on returns. Moody's shares slipped after the bond rating agency broke a 20-
quarter streak of earnings surprises. Motorola also lost ground during the
period, as lower first quarter earnings disappointed investors and contributing
to the recent weakness.

We continued to use Coca Cola to meet redemptions in kind during the
quarter. Our view remains that revenue growth at Coca Cola will be challenging
given the company's dependency on the carbonated soft drink market, which is
suffering as consumers gravitate toward the health and wellness type drinks
including Gatorade and bottled water. In addition, international markets are
already well-penetrated and input costs are rising while pricing is competitive
for the carbonated segments. Elsewhere, we began reducing the position in Fannie
Mae due to slowing growth and the continued overhang from regulatory issues.
With a slowing revenue growth rate, pressure on interest margins and slowing
growth in the mortgage market, we do not expect the stock to perform well.
Lastly, we eliminated the position in Marsh & McLennan during the quarter. We
believe this stock will continue to underperform as it struggles with
restructuring following the outflows from the Putnam asset management business.
Other sectors of the business have not met expectations in recent quarters and
the road to recovery appears quite long.

INVESTMENT ADVISER'S REPORT (CONCLUDED)

PERFORMANCE COMPARISON

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN CHESTNUT STREET
EXCHANGE FUND(1) VS. S&P 500 INDEX AND DOW JONES INDUSTRIAL AVERAGE INDEX(2)

(PERFORMANCE GRAPH)

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.

FOR THE SIX MONTHS ENDED JUNE 30, 2006

AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------
6 MONTH 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPTION(3)
------- ------ ------ ------ ------- ------------------

Chestnut Street Exchange Fund..... 1.48% 4.46% 7.39% 1.86% 6.31% 12.19%
S&P 500 Index..................... 2.71% 8.63% 11.22% 2.50% 8.32% 12.25%
Dow Jones Industrial Average
Index........................... 5.27% 11.15% 9.90% 3.45% 9.12% 12.38%
</Table>

- --------

(1) The chart assumes a hypothetical $10,000 initial investment in the Fund
made on January 1, 1996 and reflects Fund expenses. Investors should note
that the Fund is an aggressively managed fund while the indices are
unmanaged, do not incur expenses and are not available for investment.

(2) Results of index performance are presented for general comparative
purposes.

(3) Cumulative since inception total returns were 2,905.84%, 2,922.45% and
3,029.38% for the Chestnut Street Exchange Fund, the S&P 500 Index and the
Dow Jones Industrial Average Index, respectively for the period December
29, 1976 (inception) to June 30, 2006.

BLACKROCK INVESTMENT MANAGEMENT CORP.

FUND EXPENSES

(UNAUDITED)

As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, and (2) ongoing costs, including management fees; and other expenses.
These examples are 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.

These examples are based on an investment of $1,000 invested at the
beginning of the period and held for the entire six months ended June 30, 2006.

ACTUAL EXPENSES

The first line of the accompanying table below 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 expense 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
Period" 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.

CHESTNUT STREET EXCHANGE FUND

EXPENSES PAID
BEGINNING ENDING DURING SIX
ACCOUNT VALUE ACCOUNT VALUE MONTHS ENDING
JANUARY 1, 2006 JUNE 30, 2006 JUNE 30, 2006*
--------------- ------------- --------------

Actual.................................. $1,000.00 $1,014.80 $2.20
Hypothetical (5% return before
expenses)............................. $1,000.00 $1,022.61+ $2.21
</Table>

- --------

* Expenses are calculated using the Fund's annualized expense ratio, which
represents the ongoing expenses as a percentage of net assets for the six
months ended June 30, 2006. Expenses are calculated by multiplying the
annualized expense ratio by the average account value for such period;
then multiplying the result by the number of days in the most recent
fiscal half year; and then dividing that result by the number of days in
the fiscal year. The expense ratio for the most recent fiscal half year
may differ from the expense ratio based on one-year data in the Financial
Highlights. The annualized expense ratio for the period was 0.44%. The
Fund's ending account values on the first line of the table are based on
the actual total return of 1.48% for the six month period ending June 30,
2006.

+ Hypothetical expenses are based on the Fund's actual annualized expense
ratios and an assumed rate of return of 5% per year before expenses.

PORTFOLIO HOLDINGS SUMMARY TABLE

JUNE 30, 2006

(UNAUDITED)

% OF NET
SECURITY TYPE/INDUSTRY ASSETS VALUE
- -------------------------- -------- ------------

COMMON STOCK:
Basics.................. 4.0% $ 10,685,078
Capital Equipment....... 7.9% 21,205,613
Consumer Cyclicals...... 8.8% 23,513,030
Energy.................. 7.2% 19,415,098
Financial............... 24.6% 66,053,998
Healthcare.............. 23.6% 63,361,877
Retail.................. 0.5% 1,158,508
Staples................. 2.9% 7,790,610
Technology.............. 13.3% 35,772,050
Transportation.......... 4.7% 12,525,810
Utilities............... 1.8% 4,816,867
SHORT-TERM INVESTMENTS.... 1.0% 2,695,308
LIABILITIES IN EXCESS OF
OTHER ASSETS............ -0.3% (812,367)
----- ------------
Net Assets.............. 100.0% $268,181,480
===== ============

</Table>

CHESTNUT STREET EXCHANGE FUND

(A CALIFORNIA LIMITED PARTNERSHIP)

STATEMENT OF NET ASSETS

JUNE 30, 2006

(UNAUDITED)

SHARES VALUE
- ---------- ------------

COMMON STOCKS--99.3%

BASICS--4.0%
100,609 Air Products &
Chemicals, Inc. ..... $ $6,430,927
86,032 Cabot Corp. ............ 2,969,825
42,373 Cabot Microelectronics
Corp.*............... 1,284,326
------------
10,685,078
------------

CAPITAL EQUIPMENT--7.9%
90,556 Emerson Electric Co. ... 7,589,498
364,049 General Electric Co. ... 11,999,055
39,154 Pitney Bowes, Inc. ..... 1,617,060
------------
21,205,613
------------

CONSUMER CYCLICALS--8.8%
99,829 Comcast Corp., Class
A*................... 3,268,401
129,129 Walt Disney Co. (The)... 3,873,870
85,100 Procter & Gamble Co.
(The)................ 4,731,560
144,103 3M Co. ................. 11,639,199
------------
23,513,030
------------

ENERGY--7.2%
41,979 BP plc ADR.............. 2,922,158
147,227 Exxon Mobil Corp. ...... 9,032,376
114,584 Schlumberger, Ltd. ..... 7,460,564
------------
19,415,098
------------

FINANCIAL--24.6%
111,332 American Express Co. ... 5,925,089
22,266 Ameriprise Financial,
Inc. ................ 994,622
28,441 American International
Group, Inc. ......... 1,679,441
394,928 Bank of America Corp. .. 18,996,037
48,853 Fannie Mae.............. 2,349,829
96,032 Moody's Corp. .......... 5,229,903
140,310 J.P. Morgan Chase &
Co. ................. 5,893,020
92,150 Wachovia Corp. ......... 4,983,472
298,190 Wells Fargo & Co. ...... 20,002,585
------------
66,053,998
------------

HEALTHCARE--23.6%
231,254 Abbott Laboratories,
Inc. ................ 10,084,987
64,986 Baxter International,
Inc. ................ 2,388,885
23,125 Hospira, Inc.*.......... 992,988
75,385 IMS Health, Inc. ....... 2,024,087
542,577 Johnson & Johnson....... 32,511,214
45,931 Medco Health Solutions,
Inc.*................ 2,630,928
349,404 Merck & Company, Inc. .. 12,728,788
------------
63,361,877
------------

RETAIL--0.1%
44,558 Safeway, Inc.*.......... 1,158,508
------------

STAPLES--2.9%
164,147 Coca Cola (The) Co. .... 7,061,604
45,506 Sara Lee Corp. ......... 729,006
------------
7,790,610
------------

TECHNOLOGY--13.3%
30,192 Freescale Semiconductor,
Inc., Class B*....... 887,645
57,923 Hewlett-Packard Co. .... 1,835,001
39,708 International Business
Machines Corp. ...... 3,050,369
1,120,595 Intel Corp. ............ 21,235,275
139,643 Microsoft Corp. ........ 3,253,682
273,453 Motorola, Inc. ......... 5,510,078
------------
35,772,050
------------

TRANSPORTATION--4.7%
113,572 Burlington Northern
Santa Fe Corp. ...... 9,000,581
37,922 Union Pacific Corp. .... 3,525,229
------------
12,525,810
------------

UTILITIES--1.8%
143,830 Verizon Communications,
Inc. ................ 4,816,867
------------
Total Common Stocks
(Cost:
$38,596,536).... 266,298,539
------------
</Table>

See Accompanying Notes to Financial Statements.

STATEMENT OF NET ASSETS (CONCLUDED)

<Table>
<Caption>
PAR VALUE
- ---------- ------------

SHORT-TERM INVESTMENTS--1.0%
$2,500,000 Federal Home Loan Bank
7/14/2006, 5.140%.... $ 2,495,360
200,000 Federal Home Loan Bank
7/3/2006, 4.70%...... 199,948
------------

</Table>

<Table>

TOTAL SHORT TERM INVESTMENTS
(Cost: $2,695,308)....... 2,695,308
------------
TOTAL INVESTMENT IN SECURITIES
(Cost: $41,291,844)...... 100.3% 268,993,847
Other assets in excess of
other liabilities........ 0.1% 366,802
Distributions payable...... (0.4%) (1,096,995)
Payable to:
Investment Advisors (Note
C).................... (0.0%) (73,914)
Managing General Partners
(Note C).............. (0.0%) (3,445)
Custodian (Note C)....... (0.0%) (1,175)
Transfer Agent (Note C).. (0.0%) (3,640)
------------
NET ASSETS (Applicable to
783,552 partnership
shares outstanding)...... 100.0% $268,181,480
===== ============
NET ASSET VALUE PER SHARE.. $ 342.26
============

NET ASSETS APPLICABLE TO
SHARES OWNED BY:
Limited partners (783,469
shares).................. $268,153,072
Managing general partners
(83 shares).............. 28,408
------------
Total net assets (783,552
shares).................. $268,181,480
============

</Table>

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

ADR-American Depository Receipt

See Accompanying Notes to Financial Statements.

CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)

<Table>

INVESTMENT INCOME
Dividends............................. $ 3,171,671
Interest.............................. 42,833
-----------
Total investment income....... 3,214,504
-----------
Expenses
Investment advisory fees.............. 456,821
Managing general partners'
compensation and officer's salary.. 49,938
Legal fees............................ 31,001
Custodian fees........................ 12,320
Printing expense...................... 7,281
Audit fees............................ 10,882
Transfer agent fees................... 8,395
Insurance expense..................... 11,568
Miscellaneous......................... 4,941
-----------
Total expenses................... 593,147
-----------
Net investment income......... 2,621,357
-----------
REALIZED AND UNREALIZED GAIN(LOSS) ON
INVESTMENTS:
Realized gain from security
transactions: distributed upon
redemption of partnership shares... 6,057,193
Unrealized appreciation of
investments:
Beginning of
period............ $230,165,274
End of period....... 227,702,003
------------
Net change in unrealized
appreciation................ (2,463,271)
-----------
Net realized and unrealized
gain on investments......... 3,593,922
-----------
Net increase in net assets
resulting from operations........ $ 6,215,279
===========

</Table>

STATEMENTS OF CHANGES IN NET ASSETS

SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2006 2005
------------ ------------
(UNAUDITED)

INCREASE/(DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment
income........... $ 2,621,357 $ 5,071,488
Net realized gain
from security
transactions (for
federal income
tax purposes net
gain is $0 and
$928,780,
respectively).... -- 928,780
Excess of market
value over book
value of
securities
distributed upon
redemption of
partnership
shares........... 6,057,193 28,437,435
Increase/(decrease)
in unrealized
appreciation of
investments...... (2,463,271) (25,974,026)
------------ ------------
Increase in net
assets resulting
from operations.. 6,215,279 8,463,677
------------ ------------
DISTRIBUTIONS TO
PARTNERS FROM:
Net investment
income........... (2,218,558) (5,069,859)
------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Net asset value of
879 and 1,500
shares issued in
lieu of cash
distributions.... 302,403 494,407
Cost of 21,977 and
91,748 shares
repurchased...... (7,507,411) (30,657,931)
------------ ------------
Decrease in net
assets from
capital share
transactions..... (7,205,008) (30,163,524)
------------ ------------
Total
increase/(decrease)
in net assets...... (3,208,287) (26,769,706)
NET ASSETS:
Beginning of
period........... 271,389,767 298,159,473
------------ ------------
End of period*..... $268,181,480 $271,389,767
============ ============

</Table>

- --------
* Includes undistributed net investment income of $410,636 and $7,837,
respectively.

See Accompanying Notes to Financial Statements.

CHESTNUT STREET EXCHANGE FUND
(A CALIFORNIA LIMITED PARTNERSHIP)

FINANCIAL HIGHLIGHTS

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

SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2006 2005 2004 2003 2002 2001
----------- -------- -------- -------- -------- --------
(UNAUDITED)

Net Asset Value, Beginning of
Period........................ $ 337.28 $ 333.18 $ 327.39 $ 264.29 $ 340.39 $ 362.68
-------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income......... 3.31 6.19 5.65 4.61 3.99 3.79
Net gain (loss) on securities
(both realized and
unrealized)................ 4.47 4.10 5.80 63.09 (76.09) (22.30)
-------- -------- -------- -------- -------- --------
Total from investment
operations............ 7.78 10.29 11.45 67.70 (72.10) (18.51)
-------- -------- -------- -------- -------- --------
Less Distributions:
From net investment income.... (2.80) (6.19) (5.66) (4.60) (4.00) (3.78)
From realized gains........... 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- --------
Total distributions...... (2.80) (6.19) (5.66) (4.60) (4.00) (3.78)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.. $ 342.26 $ 337.28 $ 333.18 $ 327.39 $ 264.29 $ 340.39
======== ======== ======== ======== ======== ========
Total Return.................... 1.48% 3.12% 3.56% 25.78% (21.25)% (5.05)%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $268,181 $271,390 $298,159 $299,583 $267,987 $360,055
Ratios to average net assets:
Operating expenses......... 0.44% 0.43% 0.42% 0.43% 0.41% 0.39%
Net investment income...... 1.93% 1.82% 1.75% 1.57% 1.31% 1.12%

Portfolio Turnover Rate....... 0.00% 0.82% 0.47% 1.18% 0.98% 0.00%
</Table>

See Accompanying Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

(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 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.

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,
2005, the Fund had a capital loss carryforward of $5,286,081, of which
$1,359,480 expires December 31, 2010, $3,705,400 expires December 31,
2011 and $221,201 expires December 31, 2012. 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, Treasurer and Chief Compliance
Officer receives additional payments for overseeing the Fund's activities
including compliance with federal securities laws, plus reimbursements of
related expenses. Total payments to or for the managing general partners
amounted to $49,938.

Legal fees amounting to $31,001 were paid to Drinker, Biddle & Reath LLP.
Michael P. Malloy, Esq., Secretary of the Fund, is a partner of that firm.

(D) INVESTMENT TRANSACTIONS

Purchases and sales of investment securities (excluding short-term
obligations) were $0.00 and $0.00 respectively, for the six-months ended
June 30, 2006.

(E) NET ASSETS

At June 30, 2006, net assets consisted of:

<Table>

Undistributed net investment income.......................... $ 410,636
Accumulated net realized losses on securities................ (5,286,081)
Net unrealized appreciation of investments (book basis)...... 227,702,003
Other capital -- paid-in or reinvested....................... 45,354,922
------------
$268,181,480
============

</Table>

(F) IN-KIND DISTRIBUTION OF SECURITIES

During the six-months ended June 30, 2006, the Fund distributed portfolio
securities in lieu of cash for most shareholder redemptions. The value of
these redemptions was as follows:

NET REALIZED FUND
VALUE OF THE GAIN INCLUDED SHARES
REDEMPTIONS IN REDEMPTIONS REDEEMED
- ------------ -------------- --------

$7,451,484 $6,057,193 21,946
</Table>

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.

(G) INDEMNIFICATIONS

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 immaterial. The Fund has not had prior claims or
losses pursuant to the contracts and expects the risk of loss to be remote.

(H) PENDING MEETING OF PARTNERS

BlackRock, Inc. ("BlackRock"), the parent company of the Fund's advisers,
and Merrill Lynch & Co, Inc. ("Merrill Lynch") announced on February 15,
2006 that they had reached an agreement pursuant to which Merrill Lynch will
contribute its investment management business, Merrill Lynch Investment
Managers, to BlackRock, to form a new asset management company. Although
BlackRock has informed the Board that it does not believe the Transaction
will be an assignment of our current investment advisory agreement under the
Investment Company Act of 1940, it is possible that the Transaction could be
determined to be such an assignment, which would result in the automatic
termination of the current agreement. Due to this uncertainty, Chestnut
Street Exchange Fund will be submitting a new investment advisory agreement
to the Partners to prevent any potential disruption in the adviser's ability
to provide services after the Transaction is completed. The Fund's total
fees for advisory services will remain the same under its new investment
advisory agreement. Information relative to this change and the necessary
meeting of Partners to approve the change and other business will be
forwarded to you.

ADDITIONAL INFORMATION (UNAUDITED)

FORM N-PX

A description of the Fund's Proxy Voting Policies and Procedures as well as
information regarding the voting of proxies relating to portfolio securities for
the most recent 12-month period ended June 30, 2006, are

available upon request and without charge by calling (800) 852-4750 or by
visiting the Securities and Exchange Commission's ("SEC" 's) website at
http://www.sec.gov.

FORM N-Q

The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov. The Fund's Forms N-Q
may be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information about the Public Reference Room may be obtained by calling
(800) SEC-0330.

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

MANAGING GENERAL PARTNERS
Richard C. Caldwell
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/

SEMI-ANNUAL REPORT
JUNE 30, 2006
(UNAUDITED)

CHESTNUT STREET EXCHANGE FUND

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

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

ITEM 2. CODE OF ETHICS.

Not applicable.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.

ITEM 6. SCHEDULE OF INVESTMENTS.

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 the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR
240.14a-101), or this Item.

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 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 second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.

ITEM 12. EXHIBITS.

(a)(1) Not applicable.

(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.

(a)(3) Not applicable.

(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.

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 and Principal Financial Officer)

Date August 23, 2006
--------------------------------------------------------------------

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 August 23, 2006
----------------------------------------------------------------------------

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