<Page>
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: 811-3896
FPA PERENNIAL FUND, INC.
(Exact name of registrant as specified in charter)
11400 WEST OLYMPIC BLVD., SUITE 1200, LOS ANGELES, CALIFORNIA 90064
(Address of principal executive offices)
J. RICHARD ATWOOD,
11400 WEST OLYMPIC BLVD., SUITE 1200, LOS ANGELES, CALIFORNIA 90064
(Name and address of agent for service)
Registrant's telephone number, including area code: 310-473-0225
Date of fiscal year end: DECEMBER 31
Date of reporting period: DECEMBER 31, 2003
Item 1. Report to Stockholders.
<Page>
FPA Perennial Fund, Inc.
ANNUAL REPORT
DECEMBER 31, 2003
[FPA LOGO]
DISTRIBUTOR:
FPA FUND DISTRIBUTORS, INC.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, CA 90064
39743
<Page>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
The year 2003 marked a dramatic reversal of the stock market decline which
began in March 2000, although at year-end most stocks were still well below
their record highs. Clearly, market participants decided that the economy was
rapidly improving, and that foreign affairs and the U.S. dollar were not
concerns either.
The year's advance was uneven, however. Smaller and more speculative stocks
dominated, those with low absolute prices, high beta (a measure of price
volatility), and often no earnings, with the Russell 2000 and the Nasdaq
performing far better that the S & P 500. We are concerned that we may be seeing
a re-emergence of the Bubble Market of the 1998-1999 period.
The extreme volatility of the stock market in recent years is clearly seen
on the following table. Massive advances in the late 90s was followed by several
years of dramatic decline. This ended in early 2003, and the market has forged
ahead ever since, with gains of over 70% for the Nasdaq and Russell 2000 from
the March 2003 lows to late January 2004.
The market's performance over the entire 6-year period, however, is less
exciting. After dramatic ups and downs, we ended up only a little higher than we
started, with annualized gains of just 4-5% for the major indexes.
<Table>
<Caption>
CUMULATIVE RETURNS ANNUALIZED RETURN
1998-1999 2000-2002 2003 1998-2003
--------- --------- ------ ---------
Nasdaq 159% (67)% 50% 4%
S&P 500 56% (38)% 29% 4%
Russell 2000 18% (21)% 47% 5%
Perennial 31% 21% 38% 14%
</Table>
Perennial's performance in 2003, a 37.9% gain, represents a dramatic
contrast to the prior year. In 2002, Perennial had one of its worst years while
in 2003 it had one of its best. The table below shows Perennial's investment
performance for each of the past five years, as well as that of the benchmark
Russell 2500.
<Table>
<Caption>
FIVE
1999 2000 2001 2002 2003 YEARS*
------ ------ ------ ------- ------ -------
Perennial 25.3% 10.2% 22.7% (10.6)% 37.9% 15.9%
Russell 2500 24.2% 4.3% 1.2% (17.8)% 45.5% 9.4%
</Table>
*Annualized Return
We would like to take this opportunity to review significant recent
developments affecting four Perennial holdings.
GRACO, a manufacturer of systems for dispensing viscous fluids like paint,
adhesives, and lubricants, has been one of the stars of the Perennial portfolio
since its purchase in 1996. Its earnings have increased three-fold and its share
price six-fold since that date. It has earned extraordinarily high returns -
recently 35% on equity and 50% pre-tax on operating assets. The negative aspect
of these high returns has been that cash flow has greatly exceeded available
investment opportunities. After prudent reinvestment in its existing business,
and a few small acquisitions, its surplus cash has been mostly spent on several
large share repurchases, totaling about 20% of shares outstanding.
More recently, Graco management has taken a somewhat different tack,
perhaps in response to the stock's historically rich PE ratio, and has decided
to pay out the surplus cash directly to shareholders. Graco's regular dividend
has been increased by 70%, and a special $2.25 per share payment has been
declared as well. The latter will consume most of Graco's $100 million of
balance sheet cash.
DENISON INTERNATIONAL, a manufacturer of hydraulic components for both
stationary and mobile machinery, was added to the portfolio in 1997. At the
time, we were attracted by Denison's high returns on capital and its strong
competitive position in high-end niche hydraulic markets, as well as its
fortress balance sheet.
Although Denison has been able to maintain its strong competitive position,
and has not squandered capital on unwise investments, it has not been able to
achieve meaningful earnings growth, in part burdened by difficult economic
environments as well as adverse currency movements. As a result, we must
describe Denison as one of Perennial's less successful investments.
In recent months Denison has put itself up for sale, and in December
announced a deal with Parker Hannifin, one of the world's largest hydraulics
companies. The price, $24 per share in cash, is a fair one in our opinion.
Compared to our original purchase price of about $16 per share, it represents a
50% gain, not a bad outcome for an unsuccessful investment.
LINCARE is the leading company providing oxygen to patients in their homes,
mostly people suffering from chronic obstructive pulmonary disease or congestive
heart failure. Because a large percent of Lincare's revenue is paid by Medicare,
it has always been exposed to changes in government reimbursement rates.
Recently, these rates have changed for the worse. The recently passed
1
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Medicare Prescription Drug legislation also contained some provisions which
could significantly reduce the revenue of home oxygen providers like Lincare.
This would involve both the rate paid for asthma drugs, often provided by oxygen
companies, as well as the basic rate for oxygen equipment. The effects of this
legislation on Lincare's 2004 earnings are well understood, but the year 2005
consequences are highly uncertain and potentially very adverse.
In response to the impending changes, Lincare's stock price declined from
over $40 to about $30, or almost 30%. Our response to the price decline was to
add to Perennial's position. We did this for two reasons. First, we believe that
the worst-case reimbursement changes directed by Congress would result in the
exit from the business of many smaller operators, with severe negative effects
on the mostly elderly oxygen using population. Since the federal agency
overseeing Medicare, or CMS, has considerable discretion in making the changes,
we do not expect the worst case to be implemented. Second, Lincare has
demonstrated in the past that it can take advantage of adverse environments. In
the late 1990's, for example, Medicare rates were reduced by 30% over a two-year
period. Lincare responded by cutting costs and taking market share from weakened
competitors, with the result that its earnings actually went up. While we
certainly do not expect an earnings increase, we do expect Lincare to greatly
outperform its competitors in the coming challenging period.
NORTH FORK BANK, first purchased late in 2002, has recently announced a
major acquisition. At the time we first purchased shares in North Fork, we were
impressed by its ability to gain market share as it steadily expanded west from
its original home in New York's Nassau and Suffolk counties. This was especially
true in the very large Manhattan market, which was poorly served by Citigroup
and Morgan Chase, the market share leaders there.
North Fork's December announcement of its agreement to purchase the Trust
Company of New Jersey represents a continuation of this strategy, and gives it a
substantial presence in the rapidly growing northern New Jersey suburbs. The
stock market seemingly shares our enthusiasm for the acquisition. North Fork's
shares rose on the announcement, unlike the typical bank merger, where only the
acquired bank's shares go up, while the buyer's shares fall.
Respectfully submitted,
/s/ Eric S. Ende
Eric S. Ende
President and Portfolio Manager
February 2, 2004
2
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HISTORICAL PERFORMANCE
[CHART]
CHANGE IN VALUE OF A $10,000 INVESTMENT IN FPA PERENNIAL FUND, INC. VS.
RUSSELL 2500 INDEX AND LIPPER SMALL-CAP VALUE FUND AVERAGE FROM JANUARY 1,
1994 TO DECEMBER 31, 2003
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
YEARS ENDED DECEMBER 31, 2003
-----------------------------
FPA PERENNIAL FUND, INC. 1 YEAR 5 YEARS 10 YEARS
- -------------------------------- ------ ------- --------
At Net Asset Value 37.89% 15.87% 14.40%
With Maximum 5.25% Sales Charge 30.65% 14.63% 13.79%
</Table>
<Table>
<Caption>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
Russell 2500 10,000 9,894 13,030 15,510 19,288 19,362
Lipper Small-Cap Core Fund Average 10,000 9,900 11,244 13,221 16,073 16,970
FPA Perennial Fund, Inc. (NAV) 10,000 9,997 11,723 14,114 17,544 18,386
FPA Perennial Fund, Inc. 9,475 9,472 11,108 13,373 16,623 17,420
<Caption>
12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- --------
Russell 2500 24,037 25,064 25,370 20,854 30,344
Lipper Small-Cap Core Fund Average 19,380 21,938 23,620 19,496 28,131
FPA Perennial Fund, Inc. (NAV) 23,039 25,380 31,149 27,850 38,404
FPA Perennial Fund, Inc. 21,830 24,047 29,513 26,388 36,388
</Table>
Past performance is not indicative of future performance. The Russell 2500 Index
consists of the 2,500 smallest companies in the Russell 3000 total
capitalization universe. This index is considered a measure of small to medium
capitalization stock performance. This index does not reflect any commissions or
fees which would be incurred by an investor purchasing the stocks it represents.
The Lipper Small-Cap Core Fund Average provides an additional comparison of how
your Fund performed in relation to other mutual funds with similar objectives.
The Lipper data does not include sales charges. The performance shown for FPA
Perennial Fund, Inc., with an ending value of $36,388, reflects deduction of the
current maximum sales charge of 5.25% of the offering price. In addition, since
investors purchase shares of the Fund with varying sales charges depending
primarily on volume purchased, the Fund's performance at net asset value (NAV)
is also shown, as reflected by the ending value of $38,404. The performance of
the Fund and of the Averages is computed on a total return basis which includes
reinvestment of all distributions.
3
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MAJOR PORTFOLIO CHANGES
For the Six Months Ended December 31, 2003
(Unaudited)
<Table>
<Caption>
SHARES OR
PRINCIPAL
AMOUNT
----------
NET PURCHASES
COMMON STOCKS
Advanced Fibre Communications, Inc. 85,000
Brown & Brown, Inc. 33,200
Cal Dive International, Inc. 92,500
CarMax, Inc. 15,000
Charles River Laboratories International, Inc. (1) 37,300
Cognex Corporation 25,000
Health Management Associates, Inc. (1) 68,000
Lincare Holdings Inc. 50,000
National Commerce Financial Corporation 34,600
Noble Corporation 77,500
North Fork Bancorporation, Inc. 40,000
Office Depot, Inc. 100,000
O'Reilly Automotive, Inc. 30,000
Renal Care Group, Inc. 35,000
Tidewater Inc. 80,000
NET SALES
COMMON STOCKS
Clayton Homes, Inc. (2) 225,000
OM Group, Inc. (2) 65,000
SanDisk Corporation 115,000
CONVERTIBLE DEBENTURE
Reptron Electronics, Inc. --6.75% 2004 (2) $ 777,500
</Table>
(1) Indicates new commitment to portfolio
(2) Indicates elimination from portfolio
4
<Page>
PORTFOLIO OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
COMMON STOCKS SHARES VALUE
- -------------------------------------------------- -------------- --------------
PRODUCER DURABLE GOODS -- 12.2%
Cognex Corporation 165,000 $ 4,659,600
Crane Co. 105,000 3,227,700
Denison International plc (ADR)* 75,000 1,792,500
Graco Inc. 100,000 4,010,000
IDEX Corporation 66,500 2,765,735
Zebra Technologies Corporation (Class A)* 61,500 4,081,755
--------------
$ 20,537,290
--------------
ENERGY -- 10.1%
Cal Dive International, Inc.* 250,000 $ 6,027,500
Noble Corporation* 162,500 5,814,250
Tidewater Inc. 175,000 5,229,000
--------------
$ 17,070,750
--------------
TECHNOLOGY -- 9.4%
Advanced Fibre Communications, Inc.* 250,000 $ 5,037,500
KEMET Corporation* 60,900 833,721
Plantronics, Inc.* 95,000 3,101,750
SanDisk Corporation* 90,000 5,502,600
TriQuint Semiconductor, Inc.* 209,691 1,482,515
--------------
$ 15,958,086
--------------
HEALTH CARE -- 9.3%
Charles River Laboratories International, Inc.* 37,300 $ 1,280,509
Health Management Associates, Inc. 68,000 1,632,000
Landauer, Inc. 10,000 407,800
Lincare Holdings Inc.* 135,000 4,054,050
Ocular Sciences, Inc.* 115,000 3,301,650
Renal Care Group, Inc.* 120,000 4,944,000
--------------
$ 15,620,009
--------------
RETAILING -- 7.6%
CEC Entertainment, Inc.* 55,000 $ 2,606,450
CarMax, Inc.* 174,987 5,412,348
O'Reilly Automotive, Inc.* 125,000 4,795,000
--------------
$ 12,813,798
--------------
BUSINESS SERVICES & SUPPLIES -- 6.7%
HON INDUSTRIES Inc. 85,000 $ 3,682,200
Manpower Inc. 65,000 3,060,200
Office Depot, Inc.* 275,000 4,595,250
--------------
$ 11,337,650
--------------
</Table>
5
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<Table>
<Caption>
SHARES OR
PRINCIPAL
COMMON STOCKS--CONTINUED AMOUNT VALUE
- ---------------------------------------------------------------- -------------- --------------
BANKING -- 5.6%
National Commerce Financial Corporation 162,500 $ 4,433,000
North Fork Bancorporation, Inc. 125,000 5,058,750
--------------
$ 9,491,750
--------------
DISTRIBUTION -- 5.4%
Black Box Corporation 65,000 $ 2,994,550
ScanSource, Inc.* 135,000 6,158,700
--------------
$ 9,153,250
--------------
MATERIALS -- 2.1%
Engelhard Corporation 120,000 $ 3,594,000
--------------
INSURANCE -- 1.4%
Brown & Brown, Inc. 70,000 $ 2,282,700
--------------
TRANSPORTATION -- 0.2%
Knight Transportation, Inc.* 10,000 $ 256,500
--------------
TOTAL COMMON STOCKS -- 70.0% (Cost $82,192,255) $ 118,115,783
--------------
SHORT-TERM INVESTMENTS -- 24.9% (Cost $42,098,518)
Short-term Corporate Notes:
General Electric Capital Corporation -- 0.75% 1/02/04 $ 7,791,000 $ 7,790,838
International Lease Finance Corporation -- 1.04% 1/05/04 6,917,000 6,916,201
ChevronTexaco Funding Corporation -- 1.02% 1/06/04 6,000,000 5,999,150
Federal National Mortgage Association -- 1.03% 1/12/04 6,615,000 6,612,918
General Electric Capital Services Corporation -- 1.07% 1/14/04 4,077,000 4,075,425
Federal Home Loan Bank -- 1.01% 1/16/04 4,000,000 3,998,316
Toyota Motor Credit Corporation -- 0.92% 1/21/04 2,511,000 2,509,716
Federal Home Loan Mortgage -- 1.02% 2/04/04 4,200,000 4,195,954
--------------
TOTAL SHORT-TERM INVESTMENTS $ 42,098,518
--------------
TOTAL INVESTMENTS -- 94.9% (Cost $124,290,773) $ 160,214,301
Other assets less liabilities -- 5.1% 8,665,716
--------------
TOTAL NET ASSETS -- 100% $ 168,880,017
==============
</Table>
*Non-income producing security
See notes to financial statements.
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS
Investments at value:
Investment securities -- at market value
(identified cost $82,192,255) $ 118,115,783
Short-term investments -- at cost plus interest earned
(maturities 60 days or less) 42,098,518 $ 160,214,301
--------------
Cash 288
Receivable for:
Capital stock sold $ 14,366,709
Dividends and accrued interest 28,580 14,395,289
-------------- --------------
$ 174,609,878
LIABILITIES
Payable for:
Investment securities purchased $ 5,267,911
Capital stock repurchased 347,911
Advisory fees and financial services 99,226
Accrued expenses 14,813 5,729,861
-------------- --------------
NET ASSETS $ 168,880,017
==============
SUMMARY OF SHAREHOLDERS' EQUITY
Capital Stock -- par value $0.01 per share; authorized
25,000,000 shares; outstanding 6,243,918 shares $ 62,439
Additional Paid-in Capital 133,278,792
Distributions in excess of net realized gain on investments (384,742)
Unrealized appreciation of investments 35,923,528
--------------
Net assets at December 31, 2003 $ 168,880,017
==============
NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE
Net asset value and redemption price per share
(net assets divided by shares outstanding) $ 27.05
==============
Maximum offering price per share
(100/94.75 of per share net asset value) $ 28.55
==============
</Table>
See notes to financial statements.
7
<Page>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
<Table>
INVESTMENT INCOME
Interest $ 235,912
Dividends 537,813
--------------
$ 773,725
EXPENSES -- Note 3:
Advisory fees $ 754,011
Transfer agent fees and expenses 173,361
Financial services 108,309
Reports to shareholders 30,066
Custodian fees 28,396
Audit fees 27,000
Directors' fees and expenses 20,251
Registration fees 20,025
Legal fees 2,379
Other expenses 8,323 1,172,121
-------------- --------------
Net investment loss $ (398,396)
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments:
Proceeds from sales of investment securities (excluding
short-term investments with maturities 60 days or less) $ 19,809,935
Cost of investment securities sold 13,868,549
--------------
Net realized gain on investments $ 5,941,386
Unrealized appreciation of investments:
Unrealized appreciation at beginning of year $ 6,530,275
Unrealized appreciation at end of year 35,923,528
--------------
Increase in unrealized appreciation of investments 29,393,253
--------------
Net realized and unrealized gain on investments $ 35,334,639
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 34,936,243
==============
</Table>
See notes to financial statements.
8
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002
-------------------------------- --------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (398,396) $ (181,987)
Net realized gain (loss) on investments 5,941,386 (68,221)
Net unrealized appreciation
(depreciation) of investments 29,393,253 (9,313,191)
-------------- --------------
Increase (decrease) in net assets resulting
from operations $ 34,936,243 $ (9,563,399)
Distributions to shareholders from net
realized capital gains (5,800,940) (1,036,773)
Capital Stock transactions:
Proceeds from Capital Stock sold $ 68,468,148 $ 86,075,280
Proceeds from shares issued to
shareholders upon reinvestment
of dividends and distributions 4,829,693 868,514
Cost of Capital Stock repurchased (25,331,757) 47,966,085 (36,540,287) 50,403,507
-------------- -------------- -------------- --------------
Total increase in net assets $ 77,101,388 $ 39,803,335
NET ASSETS
Beginning of year 91,778,629 51,975,294
-------------- --------------
End of year $ 168,880,017 $ 91,778,629
============== ==============
CHANGE IN CAPITAL STOCK OUTSTANDING
Shares of Capital Stock sold 2,726,602 3,789,069
Shares issued to shareholders
upon reinvestment of dividends
and distributions 182,321 39,676
Shares of Capital Stock repurchased (1,162,599) (1,576,575)
-------------- --------------
Increase in Capital Stock outstanding 1,746,324 2,252,170
============== ==============
</Table>
See notes to financial statements.
9
<Page>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per share operating performance:
Net asset value at beginning of year $ 20.41 $ 23.15 $ 20.59 $ 20.45 $ 20.15
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) $ (0.06) $ (0.04) $ (0.02) -- $ (0.03)
Net realized and unrealized gain (loss)
on investment securities 7.77 (2.39) 4.65 $ 1.95 4.89
----------- ----------- ----------- ----------- -----------
Total from investment operations $ 7.71 $ (2.43) $ 4.63 $ 1.95 $ 4.86
----------- ----------- ----------- ----------- -----------
Less distributions from net realized capital gains $ (1.07) $ (0.31) $ (2.07) $ (1.81) $ (4.56)
----------- ----------- ----------- ----------- -----------
Net asset value at end of year $ 27.05 $ 20.41 $ 23.15 $ 20.59 $ 20.45
=========== =========== =========== =========== ===========
Total investment return* 37.89% (10.59)% 22.73% 10.16% 25.31%
Ratios/supplemental data:
Net assets at end of year (in thousands) $ 168,880 $ 91,779 $ 51,975 $ 40,170 $ 43,116
Ratio of expenses to average net assets 1.05% 1.15% 1.24% 1.24% 1.30%
Ratio of net investment income (loss) to
average net assets (0.36)% (0.25)% (0.11)% 0.02% (0.15)%
Portfolio turnover rate 23% 6% 25% 16% 16%
</Table>
* Return is based on net asset value per share, adjusted for reinvestment of
distributions, and does not reflect deduction of the sales charge.
See notes to financial statements.
10
<Page>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
FPA Perennial Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end, management investment company.
The Fund's primary investment objective is long-term growth of capital. Current
income is a secondary consideration. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Security Valuation
Securities listed or traded on a national securities exchange are
valued at the last sale price. Securities traded on the NASDAQ National
Market System are valued at the NASDAQ Official Closing Price. If there was
not a sale that day, these securities are valued at the last bid price.
Securities which are unlisted are valued at the most recent bid price.
Short-term investments with maturities of 60 days or less are valued at
cost plus interest earned which approximates market value.
B. Federal Income Tax
No provision for federal income tax is required because the Fund has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification and to distribute
each year to its shareholders, in accordance with the minimum distribution
requirements of the Code, all of its taxable net investment income and
taxable net realized gains on investments.
C. Securities Transactions and Related Investment Income
Securities transactions are accounted for on the date the securities
are purchased or sold. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income and expenses are
recorded on an accrual basis.
D. Use of Estimates
The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported. Actual results could differ from those estimates.
E. Reclassification of Capital Accounts
As of December 31, 2003, $580,393 of accumulated net losses were
reclassified to additional paid-in capital and undistributed net realized
gains on investments in order to adjust for differences between income tax
regulations and accounting principles generally accepted in the United
States.
NOTE 2 -- PURCHASES, SALES AND TAX DIFFERENCES
The cost of purchases of investment securities (excluding short-term
investments with maturities of 60 days or less) aggregated $31,191,402 for the
year ended December 31, 2003. Realized gains or losses are based on the
specific-certificate identification method.
All of the amounts reported in the financial statements at December 31,
2003 were the same for federal income tax and financial reporting purposes.
Gross unrealized appreciation and depreciation for all investments at December
31, 2003 for federal income tax and financial reporting purposes was $37,329,151
and $1,405,623, respectively.
NOTE 3 -- ADVISORY FEES AND OTHER AFFILIATED TRANSACTIONS
Pursuant to an Investment Advisory Agreement, advisory fees were paid by
the Fund to First Pacific Advisors, Inc. (the "Adviser"). Under the terms of
this Agreement, the Fund pays the Adviser a monthly fee calculated at the annual
rate of 0.75% of the first $50 million of the Fund's average daily net assets
and 0.65% of the average daily net assets in excess of $50 million. In addition,
the Fund pays the Adviser an amount equal to 0.10% of the average daily net
assets for each fiscal year in reimbursement for the provision of financial
services to the Fund. The Agreement obligates the Adviser to reduce its fee to
the extent
11
<Page>
necessary to reimburse the Fund for any annual expenses (exclusive of interest,
taxes, the cost of any supplemental statistical and research information, and
extraordinary expenses such as litigation) in excess of 12% of the first $30
million and 1% of the remaining average net assets of the Fund for the year.
For the year ended December 31, 2003, the Fund paid aggregate fees of
$20,000 to all Directors who are not affiliated persons of the Adviser. Legal
fees were for services rendered by O'Melveny & Myers LLP, counsel for the Fund.
A Director of the Fund is of counsel to, and a retired partner of, that firm.
Certain officers of the Fund are also officers of the Adviser and FPA Fund
Distributors, Inc.
NOTE 4 -- DISTRIBUTOR
For the year ended December 31, 2003, FPA Fund Distributors, Inc.
("Distributor"), a wholly owned subsidiary of the Adviser, received $59,069 in
net Fund share sales commissions after reallowance to other dealers. The
Distributor pays its own overhead and general administrative expenses, the cost
of supplemental sales literature, promotion and advertising.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF FPA PERENNIAL FUND, INC.
We have audited the accompanying statement of assets and liabilities of FPA
Perennial Fund, Inc. (the "Fund"), including the portfolio of investments, as of
December 31, 2003, and the related statement of operations for the year then
ended, and the statements of changes in net assets and financial highlights for
each of the two 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. The financial highlights of FPA
Perennial Fund, Inc. for each of the three years in the period ended December
31, 2001 were audited by other auditors whose report, dated February 1, 2002,
expressed an unqualified opinion on those financial highlights.
We conducted our audits 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 brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 FPA
Perennial Fund, Inc. as of December 31, 2003, the results of its operations, for
the year then ended and the changes in its net assets and financial highlights
for each of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 30, 2004
12
<Page>
DIRECTOR AND OFFICER INFORMATION
(Unaudited)
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PORTFOLIOS IN
FUND COMPLEX
NAME, AGE & POSITION(S) TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER
ADDRESS WITH COMPANY YEARS SERVED DURING THE PAST 5 YEARS DIRECTOR DIRECTORSHIPS
- ------------------------------ ----------------- ------------------ ------------------------------- ------------- -------------
Willard H. Altman, Jr. - (68)* Director+ Years Served: 6 Retired. Formerly, until 1995, 6
11400 W. Olympic Blvd. Partner of Ernst & Young LLP, a
Suite 1200 public accounting firm.
Los Angeles, CA 90064
John P. Endicott - (85)* Director+ Years Served: 21 Independent Management 1
11400 W. Olympic Blvd. Consultant.
Suite 1200
Los Angeles, CA 90064
Leonard Mautner - (86)* Director+ Years Served: 21 President, Leonard Mautner 2
11400 W. Olympic Blvd. Associates; General Partner,
Suite 1200 Goodman & Mautner Ltd.
Los Angeles, CA 90064
Lawrence J. Sheehan - (71) Director+ Years Served: 13 Of counsel to, and partner 5
11400 W. Olympic Blvd. (1969 to 1994) of, the law firm
Suite 1200 of O'Melveny & Myers LLP, legal
Los Angeles, CA 90064 counsel to the Company.
Eric S. Ende - (59) Director+, Senior Vice President of the 3
11400 W. Olympic Blvd. President & Years Served: 4 Adviser.
Suite 1200 Portfolio Manager
Los Angeles, CA 90064
Steven R. Geist - (50) Executive Years Served: 8 Vice President of the
11400 W. Olympic Blvd. Vice President Adviser.
Suite 1200 & Portfolio
Los Angeles, CA 90064 Manager
J. Richard Atwood - (43) Treasurer Years Served: 7 Principal and Chief Operating First Pacific
11400 W. Olympic Blvd. Officer of the Adviser. Advisors,
Suite 1200 President of FPA Inc. and
Los Angeles, CA 90064 Fund Distributors, Inc. FPA Fund
Distributors,
Inc.
Sherry Sasaki - (49) Secretary Years Served: 21 Assistant Vice President and
11400 W. Olympic Blvd. Secretary of the Adviser and
Suite 1200 of FPA Fund Distributors,
Los Angeles, CA 90064 Inc.
Christopher H. Thomas - (46) Assistant Years Served: 9 Vice President and Controller FPA Fund
11400 W. Olympic Blvd. Treasurer of the Adviser and of FPA Distributors,
Suite 1200 Fund Distributors, Inc. Inc.
Los Angeles, CA 90064
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+ Directors serve until their resignation, removal or retirement.
* Audit Committee Member
13
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FPA PERENNIAL FUND, INC.
INVESTMENT ADVISER
First Pacific Advisors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 8115
Boston, Massachusetts 02266-8115
(800) 638-3060
(617) 483-5000
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
Boston, Massachusetts
TICKER SYMBOL: FPPFX
CUSIP: 302548102
DISTRIBUTOR
FPA Fund Distributors, Inc.
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
COUNSEL
O'Melveny & Myers LLP
Los Angeles, California
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Los Angeles, California
This report has been prepared for the information of shareholders of FPA
Perennial Fund, Inc., and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
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Item 2. (a) The registrant has adopted a code of ethics that applies to the
registrant's senior executive and financial officers. A copy of the
code of ethics is filed as an exhibit to this Form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The registrant's board of directors has determined that Willard H.
Altman, Jr., a member of the registrant's audit committee and board of
directors, is an "audit committee financial expert" and is
"independent," as those terms are defined in this Item. This
designation will not increase the designee's duties, obligations or
liability as compared to his duties, obligations and liability as a
member of the audit committee and of the board of directors.
Item 4. Principal Accountant Fees and Services.
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<Caption>
2002 2003
(a) Audit Fees $ 25,200 $ 22,000
(b) Audit Related Fees -0- -0-
(c) Tax Fees $ 3,200 $ 5,000
(d) All Other Fees -0- -0-
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(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 shall pre-approve all audit and permissible
non-audit services that the committee considers compatible with
maintaining the independent auditors' independence. The pre-approval
requirement will extend to all non-audit services provided to the
registrant, the adviser, and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing
services to the registrant, if the engagement relates directly to the
operations and financial reporting of the registrant; provided,
however, that an engagement of the registrant's independent auditors
to perform attest services for the registrant, the adviser or its
affiliates required by generally accepted auditing standards to
complete the examination of the registrant's financial statements
(such as an examination conducted in accordance with Statement on
Auditing Standards Number 70 issued by the American Institute of
Certified Public Accountants), will be deem pre-approved if: (i) the
registrant's independent auditors inform the audit committee of the
engagement, (ii) the registrant's independent auditors advise the
audit committee at least annually that the performance of this
engagement will not impair the independent auditor's independence
with respect to the registrant, and (iii) the audit committee
receives a copy of the independent auditor's report prepared in
connection with such services. The committee may delegate to one or
more committee members the authority to review and pre-approve audit
and permissible non-audit services. Actions taken under any such
delegation will be reported to the full committee at its next
meeting.
(2) Disclose the percentage of services described in each of
paragraphs (b) - (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. 100% of the services provided to the registrant
described in paragraphs (b) - (d) of this Item were pre-approved by
the audit committee pursuant to paragraphs (e)(1) of this Item. There
were no services provided to the investment adviser or any entity
controlling, controlled by or under common control with the adviser
described in paragraphs (b) - (d) of this Item that were required to
be pre-approved by the audit committee.
(f) If greater than 50%, disclose 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. All services performed
on the engagement to audit the registrant's financial statements for
the most recent fiscal year end were performed by the principal
accountant's full-time, permanent employees.
(g) Disclose 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. None
(h) Disclose whether 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.
N/A
Item 5. Audit Committee of Listed Registrants. N/A. Item is only applicable
for annual reports for the year ending on or after January 15, 2004.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A.
Item 8. Reserved.
Item 9. Controls and Procedures.
(a) The Principal Executive Officer and Principal Financial Officer of FPA
Perennial Fund, Inc. ("Fund") have concluded that the Fund's
Disclosure Controls and Procedures (as defined in Rule 30a-2(c) under
the Investment Company Act of 1940) are effective based on their
evaluation of the Disclosure Controls and Procedures as of a date
within 90 days of the filing date of this report.
(b) There have been no significant changes in the Fund's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
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Item 10. Exhibits.
(a) Code of ethics as applies to the registrant's officers and directors,
as required to be disclosed under Item 2 of Form N-CSR. Attached
hereto as Ex. 99.CODE ETH.
(b) Separate certification for the registrant's principal executive
officer and principal financial officer, as required by Rule 30a-2
under the Investment Company Act of 1940. Attached hereto.
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SIGNATURES
Pursuant to 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.
FPA PERENNIAL FUND, INC.
By: /s/ ERIC S. ENDE
--------------------------------
Eric S. Ende, President
Date: March 8, 2004
Pursuant to 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.
FPA PERENNIAL FUND, INC.
By: /s/ J. RICHARD ATWOOD
--------------------------------
J. Richard Atwood, Treasurer
Date: March 8, 2004