<PAGE>
[LOGO] OCTOBER 31, 1998
ANNUAL REPORT
CRABBE HUSON FUNDS
THE CRABBE HUSON
SPECIAL FUND, INC.
CRABBE HUSON
SMALL CAP FUND
CRABBE HUSON [LOGO]
MANAGED INCOME
& EQUITY FUND
CRABBE HUSON
EQUITY FUND
CRABBE HUSON
REAL ESTATE
INVESTMENT FUND
CRABBE HUSON
OREGON TAX-FREE FUND
CRABBE HUSON
CONTRARIAN INCOME FUND
<PAGE>
OCTOBER 31, 1998
----------------
A N N U A L R E P O R T
Cover image copyright -C- 1999 PhotoDisc, Inc.
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[LOGO]
CRABBE HUSON
December 11, 1998
To Fund Shareholders:
In September 1998, Liberty Financial Companies completed a successful
acquisition of The Crabbe Huson Group, Inc. As part of the reorganization,
Richard Huson retired from active involvement in the firm he co-founded with
James Crabbe in 1980. All of us at Liberty Financial salute Mr. Huson for his
good work on behalf of Crabbe Huson Funds shareholders and wish him well. As
president of the funds, I am pleased to present your annual report for the
fiscal year ended October 31, 1998.
The past 12 months were characterized by changing investment conditions and
greater market volatility. Initially, investors were concerned with the Asian
economic crisis and its potential worldwide impact. Then, last summer, serious
economic problems in Russia and Latin America renewed concerns of a global
economic slowdown. Stock markets around the world declined as investors sought
"safe havens" in strong currencies and relatively stable investments. In the
domestic stock market, investment capital was also highly concentrated in a
narrow list of large, liquid stocks.
Late in the fiscal year, the Federal Reserve Board announced two successive
interest-rate cuts, sending U.S. stock and bond prices higher as investors
generally concluded that lower rates would stimulate the world's economies.
Markets were further encouraged by the Group of Seven industrial nations and by
the International Monetary Fund's proposal to establish a precautionary line of
credit to stimulate the world's economies and help prevent financial panic.
1
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The economic crises abroad and the resulting fear on the part of domestic
investors seriously limited the great majority of publicly traded issues,
particularly in the small-cap arena. Value and contrarian stocks faced a
difficult environment all year. Contrarian fixed-income strategies fared better,
benefiting from a concentration on high quality.
The following report will provide you with more specific information on your
funds' performance. Thank you for the opportunity to help you meet your
financial goals. We hope to continue serving you in the years to come.
Sincerely,
[/S/ STEPHEN E. GIBSON]
Stephen E. Gibson
President
2
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------------------------------------------
CRABBE HUSON'S
CONTRARIAN INVESTMENT
PHILOSOPHY
----------------------------------
THE ART OF CONTRARIAN INVESTING
In the investment world, the term "contrarian" often is misused or
misunderstood. In our view, contrarian investing represents a mindset that
requires unique perspective and disciplined thinking.
One of Crabbe Huson's unique strengths is its developed and well-defined
investment philosophy. Crabbe Huson is a contrarian firm that follows a strict
price-driven investment discipline. This approach looks for fundamentally strong
companies that are currently out of favor due to industry conditions, company
shortfalls, or prevailing market preferences, but which possess a catalyst that
can subsequently change investors' perceptions of the value of the stock.
Most investors typically look favorably upon stocks rising in price. The danger
with this style, however, is that the recognition and success of these stocks
may indicate that the most significant portion of their upside potential has
passed. Investing in rapidly appreciating stocks may appear to be relatively
safe and prudent, but it is at this point that a stock's downside risk may be
greatest: when it becomes over analyzed, over-owned, and overvalued.
By focusing on buying sound companies during periods of price weakness, Crabbe
Huson's approach reduces inherent market risk, since each company has already
undergone a period of price adjustment prior to consideration for purchase.
A low tolerance for risk, or an emphasis on capital preservation, is the most
important element of Crabbe Huson's contrarian philosophy. This is reflected in
our team's
- - investment universe, which consists of solid companies that afford market
liquidity and financial staying power; and
- - method of purchasing securities: We set tight price parameters when
purchasing a security, carefully focusing on the risk/reward ratio when
making a commitment to a stock.
THE IMPORTANCE OF TEAMWORK
The bedrock of Crabbe Huson's effort is the team-based approach to portfolio
management. We strongly believe in the importance of more than one perspective
and in the value of collective ability.
3
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THE IMPORTANCE OF TEAMWORK (CONTINUED)
Crabbe Huson's contrarian investment process is institutionalized through this
team approach. This is not to be confused with a "group" or "committee" process
- -- each manager is allocated a segment of a central portfolio and has full
discretion to make investment decisions within that segment. Individual effort
is backed with insight and support from Crabbe Huson's investment-management
team. This structure allows latitude for the research, analysis, and discussion
necessary for making effective portfolio decisions.
WHAT IT MEANS FOR INVESTORS
Because the nature of our approach prompts us to see opportunities outside Wall
Street's mainstream of thought, investors will at times notice strategies or
holdings that seem incongruent with current investment trends. However, in the
final analysis, long-term Crabbe Huson shareholders have benefited from a
common-sense, risk-averse investment style that has provided historically
competitive long-term results with less relative market risk.
With experience, teamwork, and dedication to service, we have committed to our
style of contrarian investing with all the skill, care, and diligence we can
bring to bear. We believe it's an approach that is worthy of your trust.
4
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------------------------------------------------------
INVESTMENT REVIEW AND
DISCUSSION
----------------------------------
Investment results for Crabbe Huson Funds for the fiscal year ending October 31,
1998, continued to be good on the fixed income front but disappointing in the
equity markets, particularly in small-cap portfolios. Much has been documented
about the full-fledged bear market in the small-cap sector; many in the industry
had a hard time escaping the bear trap, Crabbe Huson included. The Asian crisis
scared a great many institutional investors back into what some perceive as
"safe" stocks -- namely, the largest, most liquid, and most heavily traded
issues. Yet again, value-oriented stocks found it hard to participate.
Russell 2000 Top 200 & Bottom 1,800 Performers
Relative to the Total Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOP 200 BOTTOM 1,800 TOTAL INDEX
<S> <C> <C> <C>
6/18/93 100 100 100
6/25/93 100.6926835 99.88340202 100
7/2/93 100.2118785 99.81433976 100
7/9/93 99.92861721 99.7578793 100
7/16/93 100.5162498 99.84562971 100
7/23/93 100.6822149 99.87393039 100
7/30/93 100.8839129 100.0197958 100
8/6/93 100.8685303 100.0272467 100
8/13/93 101.1231117 99.79438389 100
8/20/93 101.4359059 99.90042612 100
8/27/93 101.8180902 99.79247006 100
9/3/93 101.2914545 100.1508325 100
9/10/93 101.5793873 100.0337356 100
9/17/93 102.0372091 100.0577113 100
9/24/93 101.653654 100.0826272 100
10/1/93 101.3392925 100.084863 100
10/8/93 100.9856414 100.1477955 100
10/15/93 101.1121548 100.2013366 100
10/22/93 101.1954586 100.3659142 100
10/29/93 100.5010321 100.5300754 100
11/5/93 100.5037484 100.7277716 100
11/12/93 100.0986959 100.6005151 100
11/19/93 97.60999611 100.8994454 100
11/26/93 98.36744247 100.8088268 100
12/3/93 97.54865263 100.7664289 100
12/10/93 96.19080722 101.1846229 100
12/17/93 96.53717799 100.9678825 100
12/24/93 96.90293406 100.8161169 100
12/31/93 96.69206623 100.7171436 100
1/7/94 95.74590149 100.8951426 100
1/14/94 95.54544584 101.0770773 100
1/21/94 95.35891894 101.1730081 100
1/28/94 95.44746935 101.4724735 100
2/4/94 95.45002543 101.4984952 100
2/11/94 95.47991152 101.4846475 100
2/18/94 94.78159497 101.4737458 100
2/25/94 94.6998746 101.4190541 100
3/4/94 94.52376768 101.3049934 100
3/11/94 94.84889666 101.3017423 100
3/18/94 94.80275486 101.290649 100
3/25/94 95.57662243 101.2106688 100
4/1/94 94.61060748 101.3147537 100
4/8/94 94.88159683 101.0270321 100
4/15/94 94.76475535 101.2664193 100
4/22/94 95.47177066 101.0593393 100
4/29/94 95.24281115 100.9465536 100
5/6/94 95.8527492 101.3090056 100
5/13/94 95.37866784 101.3931187 100
5/20/94 95.36620528 101.2557389 100
5/27/94 95.88562609 101.2451426 100
6/3/94 95.77191371 101.0847989 100
6/10/94 96.30625393 101.0800044 100
6/17/94 97.04406756 101.0331017 100
6/24/94 97.39239355 101.1930295 100
7/1/94 96.59466964 101.0599563 100
7/8/94 96.75681585 100.7141496 100
7/15/94 97.16944718 100.4352879 100
7/22/94 97.64549931 100.2163518 100
7/29/94 97.44709882 100.3522889 100
8/5/94 96.86637794 99.95623833 100
8/12/94 96.73306782 100.2293433 100
8/19/94 96.69892707 100.3162276 100
8/26/94 97.76222454 100.1943495 100
9/2/94 97.22811872 100.4471897 100
9/9/94 97.00684819 100.5178479 100
9/16/94 96.75631617 100.7848106 100
9/23/94 96.14281681 100.9953487 100
9/30/94 96.41815033 100.9983724 100
10/7/94 96.70288784 101.1626055 100
10/14/94 96.96527213 100.900911 100
10/21/94 96.82108832 101.1009017 100
10/28/94 97.02057861 101.3934523 100
11/4/94 96.80734568 101.6180978 100
11/11/94 96.32580034 101.7352796 100
11/18/94 96.31972911 101.7765496 100
11/25/94 96.26338629 101.7878304 100
12/2/94 95.65663006 101.9504559 100
12/9/94 95.1075087 101.9175764 100
12/16/94 95.44119306 101.8971949 100
12/23/94 95.54379045 102.0571117 100
12/30/94 95.31699191 102.2155323 100
1/6/95 95.77193468 102.0642892 100
1/13/95 95.73188956 101.9366035 100
1/20/95 96.04401059 101.7980479 100
1/27/95 96.25493731 101.7079869 100
2/3/95 96.75315863 101.8263985 100
2/10/95 97.09883751 101.7647576 100
2/17/95 96.31445043 101.9254479 100
2/24/95 96.19218668 101.9708356 100
3/3/95 96.38609042 102.0576331 100
3/10/95 96.35207262 102.0209822 100
3/17/95 96.83466484 102.2108525 100
3/24/95 97.13755602 102.1884765 100
3/31/95 96.73715228 102.1267181 100
4/7/95 96.88602963 101.8798846 100
4/14/95 96.92354006 101.9685232 100
4/21/95 96.34298998 102.1639693 100
4/28/95 97.03870033 102.2719173 100
5/5/95 96.21656261 102.436324 100
5/12/95 96.64313586 102.2479 100
5/19/95 95.92733449 102.1258787 100
5/26/95 96.8824888 102.0887104 100
6/2/95 97.26202218 101.9155942 100
6/9/95 97.30867346 101.9514769 100
6/16/95 97.8990267 101.9455665 100
6/23/95 97.39623613 102.0509879 100
6/30/95 97.02172516 102.2342243 100
7/7/95 96.73252062 102.4669151 100
7/14/95 96.80866703 102.7361282 100
7/21/95 97.49274422 103.0137509 100
7/28/95 97.75193087 103.149377 100
8/4/95 97.89102435 102.8348318 100
8/11/95 97.97832658 103.1585709 100
8/18/95 98.01397688 103.3472109 100
8/25/95 98.68204082 103.2875094 100
9/1/95 99.41254172 103.1916107 100
9/8/95 99.49489801 103.0751718 100
9/15/95 100.0222427 103.0418826 100
9/22/95 100.1383629 102.9894006 100
9/29/95 99.96485109 102.6811228 100
10/6/95 100.1220226 102.3930837 100
10/13/95 100.4466199 102.2755323 100
10/20/95 100.6888751 102.4148719 100
10/27/95 100.0979266 102.07084 100
11/3/95 99.83556501 102.0963431 100
11/10/95 100.0353274 102.7379304 100
11/17/95 99.27288112 102.7535119 100
11/24/95 99.25848808 102.5520618 100
12/1/95 99.99686139 102.5557847 100
12/8/95 100.4360599 102.2902812 100
12/15/95 100.4117952 102.2770907 100
12/22/95 100.0124332 102.5379599 100
12/29/95 99.77256006 102.4048303 100
1/5/96 99.64352067 102.4760297 100
1/12/96 99.08897854 102.5035008 100
1/19/96 99.7613831 102.2707704 100
1/26/96 99.37474658 102.5777755 100
2/2/96 99.78399017 102.4930084 100
2/9/96 99.68941297 102.1959463 100
2/16/96 100.448885 102.2180951 100
2/23/96 99.95934245 102.0219028 100
3/1/96 100.511812 102.2727613 100
3/8/96 100.6257332 101.9898559 100
3/15/96 100.3521171 102.1658128 100
3/22/96 100.5228597 102.444126 100
3/29/96 100.8040375 102.5096336 100
4/5/96 100.8610632 102.774186 100
4/12/96 101.059717 102.9191619 100
4/19/96 100.9635596 103.1380002 100
4/26/96 100.803596 103.3825216 100
5/3/96 101.06117 103.7631617 100
5/10/96 101.6636573 103.8032332 100
5/17/96 101.1344446 104.0120202 100
5/24/96 101.1339301 104.0492477 100
5/31/96 100.9592473 104.1225188 100
6/7/96 100.9607824 104.2953025 100
6/14/96 101.7951618 104.0940009 100
6/21/96 102.2375344 103.6691753 100
6/28/96 102.714804 103.7460652 100
7/5/96 102.2073334 103.661862 100
7/12/96 102.9859796 103.2375355 100
7/19/96 103.1549216 103.2981305 100
7/26/96 103.4354387 102.6989142 100
8/2/96 103.8748775 102.5751432 100
8/9/96 103.636789 102.72792 100
8/16/96 103.6826189 102.8066274 100
8/23/96 103.7598938 102.7050376 100
8/30/96 103.6739086 102.941694 100
9/6/96 103.7346531 103.0541142 100
9/13/96 104.2673064 103.0769463 100
9/20/96 104.7025349 102.8895565 100
9/27/96 105.1228256 102.7183181 100
10/4/96 106.0253725 102.5578392 100
10/11/96 106.3448128 102.7574436 100
10/18/96 106.7301664 102.5344628 100
10/25/96 107.3425505 102.2702051 100
11/1/96 107.5657023 101.9619102 100
11/8/96 107.6021981 101.9314304 100
11/15/96 106.8184317 102.1967436 100
11/22/96 106.7333359 102.1336837 100
11/29/96 105.8432243 102.0252498 100
12/6/96 105.6465151 102.2846217 100
12/13/96 105.3388556 102.6986885 100
12/20/96 105.6167165 102.9079774 100
12/27/96 105.7380071 102.8082156 100
1/3/97 105.6170749 102.9399873 100
1/10/97 105.2938784 103.0363625 100
1/17/97 105.2516787 103.0808953 100
1/24/97 105.7296503 103.1908484 100
1/31/97 105.0380973 103.4583067 100
2/7/97 105.2309031 103.1734902 100
2/14/97 105.7914209 102.8248189 100
2/21/97 106.1634127 102.6858428 100
2/28/97 106.3825686 102.3074243 100
3/7/97 106.9483076 102.1961961 100
3/14/97 106.5026813 101.8183174 100
3/21/97 107.0925661 101.5019436 100
3/28/97 107.0566555 101.5112563 100
4/4/97 106.9319276 101.5238353 100
4/11/97 106.8218139 101.816401 100
4/18/97 107.6416114 101.5152643 100
4/25/97 107.8115029 101.0078578 100
5/2/97 108.2662004 100.8463339 100
5/9/97 108.2547321 101.0290926 100
5/16/97 107.6773747 101.1169418 100
5/23/97 107.8784682 101.2085086 100
5/30/97 107.5132609 101.4241398 100
6/6/97 108.0131387 101.3537002 100
6/13/97 108.2151409 100.8224445 100
6/20/97 108.6552559 100.7882605 100
6/27/97 109.1849564 101.0206403 100
7/4/97 109.5490113 100.8559493 100
7/11/97 109.5560153 100.5460345 100
7/18/97 109.9270801 99.98831166 100
7/25/97 110.9334404 99.72726651 100
8/1/97 111.4999728 99.64874111 100
8/8/97 110.9181029 99.83312776 100
8/15/97 110.5055743 99.92238017 100
8/22/97 110.5532873 99.87086768 100
8/29/97 110.1106531 100.1777836 100
9/5/97 110.5065877 100.0485675 100
9/12/97 110.9148801 99.96746518 100
9/19/97 111.5327323 99.6666118 100
9/26/97 112.3575883 99.62209282 100
10/3/97 113.0626727 99.20415918 100
10/10/97 113.3727526 99.32130571 100
10/17/97 113.488037 98.90854447 100
10/24/97 115.1065506 98.54450623 100
10/31/97 115.7955539 98.45368422 100
11/7/97 116.4649231 98.34494704 100
11/14/97 117.4389788 98.00198115 100
11/21/97 117.8932204 97.70038185 100
11/28/97 118.5876432 97.63202376 100
12/5/97 120.6864243 97.40983844 100
12/12/97 121.7062857 96.82115634 100
12/19/97 122.8107093 96.38295136 100
12/26/97 122.8757547 96.30733731 100
1/2/98 122.7387464 96.32064717 100
1/9/98 122.1205919 96.21594216 100
1/16/98 123.1354394 95.91397112 100
1/23/98 122.8452735 95.70070628 100
1/30/98 123.3285191 95.26980511 100
2/6/98 124.6976433 94.96035804 100
2/13/98 125.6675675 94.71741338 100
2/20/98 125.6506454 94.7037311 100
2/27/98 127.7123274 94.22938439 100
3/6/98 128.2810876 93.83801552 100
3/13/98 129.3345272 93.41348893 100
3/20/98 130.3084871 92.95471093 100
3/27/98 130.0211979 92.96365611 100
4/3/98 130.3438541 92.48084501 100
4/10/98 130.2882184 92.20150778 100
4/17/98 130.2884352 91.69211209 100
4/24/98 130.2127482 92.01696555 100
5/1/98 130.7744234 91.94851815 100
5/8/98 130.8147757 91.80689666 100
5/15/98 131.1282007 91.72261984 100
5/22/98 132.0722523 91.56991799 100
5/29/98 132.3047297 91.49926123 100
6/5/98 133.1594296 90.77205984 100
6/12/98 135.2673053 89.99682781 100
6/19/98 134.4925347 89.14160528 100
6/26/98 135.9203871 88.6093 100
7/3/98 137.2536934 87.59187402 100
7/10/98 137.722818 87.24473642 100
7/17/98 138.4269101 86.56847966 100
7/24/98 139.2732987 85.85775659 100
7/31/98 140.1664859 85.30997256 100
8/7/98 140.7138567 84.4022902 100
8/14/98 141.6416672 83.93343594 100
8/21/98 142.6187261 83.2176153 100
8/28/98 142.2133339 83.03833787 100
9/4/98 141.2330249 82.673226 100
9/11/98 141.8093026 82.06769092 100
9/18/98 141.7799443 81.85804248 100
9/25/98 141.853899 80.62527048 100
10/2/98 139.9398858 81.07008164 100
10/9/98 139.5827754 80.36842048 100
10/16/98 140.1790207 79.47045851 100
10/23/98 139.1155168 80.01066002 100
10/30/98 139.3482254 79.73053737 100
Source: StockVal, 10/30/98
Return data represented by Russell 2000 constituents at 6/98 and
7/98.
</TABLE>
Figure 1
How exacting has this market become? Though there was some rebound late in the
fiscal year, the indices' returns camouflage the bear that has ravaged the
broader market following the onset of the Asian economic crisis in 1997. For
example, for September 26, 1997 through September 30, 1998, the largest 10% of
the Russell 2000 stocks gained 12.2%. The smaller 1,800 Russell stocks fell by
- -26.9%. (See Figure 1.) This differential between the large, relatively liquid
stocks in the index and its smaller components is unprecedented.
In the third calendar quarter of 1998 alone, the damage was telling: The S&P 500
fell by 9.92% while the Russell 2000 lost 20.15%. The average U.S. stock fund
lost 15.02% in the quarter; small capitalization funds fared especially poorly,
dropping by an average of 21.52% (the majority of the decline came in the month
of August).
5
<PAGE>
The market picture is even more clearly focused by a look at capitalization
weightings. The largest 10% of U.S. stocks account for nearly 80% of the
market's capitalization. The other 90% make up only 20% of the market's
capitalization, and those stocks already have plunged an average of 40% from
their 52-week highs.
Obviously, the hunting grounds are wide open. However, money managers continue
to gravitate toward the top of indices, so that's where the action is. You've
heard it from us before, but yet again, we think it bears repeating: Crabbe
Huson's management team will avoid what it believes represents excessive risk
(overvalued index leaders) and will embrace issues that hold a more reasonable
place on the risk/reward spectrum. We're working very hard to produce good
performance. but it's important to understand the context of the market in which
we operate. Though we're always working to stay ahead of the market, our efforts
may continue to be held somewhat in check until preferences begin to shift.
Here is our team's review of the markets:
EQUITY MARKET
Much has transpired since the Dow hit its peak of 9,337 in mid-July. Russia
devalued its currency and, for all intents and purposes, defaulted on its
sovereign debt. The International Monetary Fund (IMF) has thrown money at
struggling nations in hopes of repairing governmental balance sheets.
International trade has slowed sharply as creeping deflation damages export
markets. Corporate earnings in the previously immune U.S. and European economies
have, for the first time in years, underwhelmed shareholders rather than
exceeded expectations.
The global market volatility continued into October of this year. At times,
investor confidence was restored through a promise of a G7 (coordinated global)
resolution or a U.S. interest rate reduction. Moments later, the market was hit
with the shrapnel from the near collapse of a hedge fund, Long Term Capital
Management, or from the "acute capital crisis" faced by Japan's nineteen largest
banks. The global economy appears to be digesting a significant decline in
demand from Asia, which represents approximately one third of worldwide GDP. The
fact is that global capacity now exceeds demand in virtually every category of
manufacturing and service.
Inventories are building, prices of goods and services continue to fall, and
pressures on corporate profits are accelerating. Too much supply is chasing too
little demand, and the jury is still out on whether the world's leaders have
acknowledged and are willing to address their addition to growth
6
<PAGE>
The eventual result of this global dysfunction, if it is not attended to, could
be a worldwide recession. The good news is that the world is well into the
realignment of global supply and demand. Basic industrial and energy companies
appear to be much further along than other industries in the process of aligning
supply and demand, thereby supporting the price of their products and improving
profitability.
This is precisely why we at Crabbe Huson have been increasing our mid- to
large-cap weightings in energy stocks and, to a lesser extent, in commodity
stocks, in the past several months. We believe that global economies are in for
a rough ride, at least through year-end, as credit excesses and overproduction
are purged. Our feeling is that the next several quarters could bring Purgatory
to world markets but the Armageddon is not in the offing. The U.S. economy has
been rattled by events abroad, but we believe it is essentially sound:
- - The federal government's balance sheet is in better shape than it has been in
for years, showing an anticipated budget surplus of $75 billion in 1999.
- - Unemployment is at a 30-year low, real income growth is positive, and
consumer confidence remains high.
- - Fed Chairman Alan Greenspan and Treasury Secretary Robert Rubin have solved
problems effectively in the past. These two key players have enormous
knowledge of and credibility in the highly complex global marketplace.
- - 70 percent of the world's population is in less-developed countries. These
people will continue to seek a higher standard of living through a
technology- and productivity-driven, profit-based system. Technology is not
merely filling demand in emerging markets -- it is also creating demand. A
whole new array of products and services is, and will continue to be,
available to the common man. Although supply and demand are currently out of
alignment, the imbalance is being resolved, both economically and
politically.
RISKS ARE EVER PRESENT
We would, however, like to discuss two potential risks to the continuation of a
healthy economy and the upward trend in the financial markets worldwide:
First, DERIVATIVES (which include a vast array of swaps, forwards, futures,
options, caps, collars, and other exotic variations on a theme) are risky
instruments that have been around for a long time. What seems to distinguish
this new era of derivative exposure from the past era are (a) the widespread use
of these instruments across a board spectrum of end users and (b) the
unprecedented amount of leverage accompanying these "investments." As a
7
<PAGE>
result, we hold no bank or brokerage stocks in your portfolios. Despite the
average 50-60% decline in many financial-services stocks since the market peak
on July 17, we believe that the short-term risk of further nasty surprises is
high, and the stocks have more downside potential.
Second, there is a potential for slowdown in CAPITAL SPENDING. The imbalance of
supply and demand is putting tremendous downward pressure on prices and,
consequently, on incremental profit growth. Statistics from the banking sector
seem to support a peak in the lending cycle, as banks have recently tightened
lending standards and have slowed credit growth.
We believe that a restoration of global equilibrium has been in the works for
some months now. The realignment of global supply and demand and the eradication
of excesses, be they financial or otherwise, are painful processes in the short
term but quite healthy in the long run. Once we pass through the rings of fire,
the opportunities for restored growth are excellent.
SMALL-CAP CHALLENGES
A word about the small-cap sector: There is no arguing now that we have been in
a bear market for some time on the small-cap side. The past twelve months have
driven relative valuations down to levels we have never seen, in comparison to
their large-cap compatriots. Although September was a stronger month for the
Special and Small Cap Funds, its improvement was outweighted by the free fall of
small-cap stocks in July and August.
In a review of your portfolios for the third quarter, attribution analysis
reveals that overweighted positions in the technology, energy, health care, and
basic materials sections were the main contributors to underperformance. We
built strong positions in these undervalued areas after they had declined
substantially, only to see the stocks experience further sell-offs. For example,
virtually all commodity-producing companies (energy, steel, metals, technology
components, ET AL.) had sold off by mid-year 1997 to 0.65 times sales, a
valuation level seen only a handful of times in the past half century. However,
as worries over Asia intensified, these stocks sold off even more dramatically
to levels below those seen just before the United States entered its post-World
War II recession, in 1973 and 1974. While the slide in prices in these sectors
has gone beyond what anyone anticipated, we continue to believe that the
companies held in your portfolio have characteristics of businesses that can
prosper over the coming years and currently offer the best buys in today's
market.
LOOKING AHEAD
The United States has not experienced a sustained period of deflation since the
1930s. The Great Depression was characterized by a notable lack of
8
<PAGE>
Federal Reserve liquidity, which, in effect, exacerbated the credit crunch and
lengthened the duration of poor economic growth and of human suffering. The Fed
failed to be the "lender of last resort." One possible solution to the world's
current crises is to learn from the past.
The Federal Reserve is very likely to counter the growing credit crunch by
increasing the liquidity in the financial system. The Fed can increase the money
supply, lower interest rates, or print money. In short, the Fed can "reflate."
And reflation may be necessary to salvage a substantial number of emerging
economies whose primary GDP contributor is the exportation of commodities.
The effort of even a small amount of reflation on your Crabbe Huson Funds
portfolios could be profound. The modest increase of commodity prices, on the
margin, in the month of September greatly benefited the performance of our
equity funds (see Table 1):
September 1998 Performance
S&P 500 6.38%
Russell 2000 7.83%
Crabbe Huson Small Cap Fund (Class A, formerly known as "Primary
Class") 10.88%
Crabbe Huson Special Fund (Class A, formerly known as "Primary Class") 10.04%
Crabbe Huson Equity Fund (Class A, formerly known as "Primary Class") 7.25%
Table 1
Stomach-turning market volatility is likely to continue over the next several
months as the capital markets reflect the uncertainty of the future. We at
Crabbe Huson have positioned your portfolios to capitalize on the anticipation
of a more perilous world and, by inference, a more problematic stock market.
Recent additions to portfolios include aerospace and defense stocks, which
should benefit from a belief that we now live in a less-stable world
politically, socially, and economically than we did just a short time ago. This
sector should also benefit from what we believe is a sea change in the the size
of the federal defense budget.
We have created portfolios that reflect several investment themes. The first
theme is an emphasis on companies that have strong and relatively recession-
resistant cash flow growth. Second, the recent portfolio additions include
stocks, most notably energy stocks, that are selling at about 25-year low
valuations and are discounting a forthcoming global recession/depression.
We have avoided financial stocks and the high-expectation "Nifty Fifty" stocks,
such as Gillette, Coke, and Lucent, whose valuations are still in the heavens.
9
<PAGE>
The "Nifty Fifty" still sell at 31.9 times 1999 estimated earning (as of October
31, 1998). Their valuations are assailable to a greater degree than those of
stocks that are selling at historic lows.
BOND MARKET
Crabbe Huson's bond team has produced superb result for your bond investments
for the past fiscal year, mainly by being on the right side of this market with
long-duration, high-quality, and virtually junk-bond-free investing.
30-Year Bond Yields
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
10/30/98 5.16%
10/23/98 5.18%
10/16/98 4.98%
10/9/98 5.12%
10/2/98 4.84%
9/25/98 5.11%
9/18/98 5.15%
9/11/98 5.23%
9/4/98 5.29%
8/28/98 5.34%
8/21/98 5.43%
8/14/98 5.54%
8/7/98 5.63%
7/31/98 5.71%
7/24/98 5.69%
7/17/98 5.75%
7/10/98 5.63%
7/3/98 5.60%
6/26/98 5.63%
6/19/98 5.67%
6/12/98 5.66%
6/5/98 5.79%
5/29/98 5.80%
5/22/98 5.90%
5/15/98 5.97%
5/8/98 5.98%
5/1/98 5.93%
4/24/98 5.95%
4/17/98 5.88%
4/10/98 5.88%
4/3/98 5.80%
3/27/98 5.96%
3/20/98 5.89%
3/13/98 5.89%
3/6/98 6.02%
2/27/98 5.92%
2/20/98 5.87%
2/13/98 5.85%
2/6/98 5.92%
1/30/98 5.80%
1/23/98 5.97%
1/16/98 5.81%
1/9/98 5.73%
1/2/98 5.84%
12/26/97 5.90%
12/19/97 5.92%
12/12/97 5.93%
12/5/97 6.09%
11/28/97 6.06%
11/21/97 6.03%
11/14/97 6.11%
11/7/97 6.16%
10/31/97 6.15%
10/24/97 6.27%
10/17/97 6.44%
10/10/97 6.43%
10/3/97 6.30%
9/26/97 6.37%
9/19/97 6.38%
9/12/97 6.59%
9/5/97 6.64%
8/29/97 6.61%
8/22/97 6.65%
8/15/97 6.55%
8/8/97 6.64%
8/1/97 6.46%
7/25/97 6.46%
7/18/97 6.53%
7/11/97 6.53%
7/4/97 6.63%
6/27/97 6.74%
6/20/97 6.66%
6/13/97 6.73%
6/6/97 6.78%
5/30/97 6.91%
5/23/97 6.99%
5/16/97 6.90%
5/9/97 6.89%
5/2/97 6.88%
4/25/97 7.15%
4/18/97 7.06%
4/11/97 7.17%
4/4/97 7.13%
3/28/97 7.09%
3/21/97 6.97%
3/14/97 6.94%
3/7/97 6.82%
2/28/97 6.81%
2/21/97 6.65%
2/14/97 6.53%
2/7/97 6.71%
1/31/97 6.79%
1/24/97 6.89%
1/17/97 6.83%
1/10/97 6.85%
1/3/97 6.73%
12/27/96 6.56%
12/20/96 6.61%
12/13/96 6.57%
12/6/96 6.51%
11/29/96 6.35%
11/22/96 6.44%
11/15/96 6.46%
11/8/96 6.51%
11/1/96 6.68%
Source: Bloomberg
October 30, 1998
</TABLE>
Figure 2
After loitering in the 5.8% to 6.1% range for nearly seven months ending July
1998, long-term U.S. Treasuries rallied decisively for nine consecutive weeks
and currently stand at 4.75%. Yields stood at 5.9% at year-end 1997 and 6.6% at
the end of 1996. (See Figure 2.)
Unlike the fundamentally driven bond rally of the past 15 years, the rally of
the past two months was driven by the fear that global economic weakness would
infiltrate the U.S. economy. Fear drove the equity and fixed-income investors
out of emerging-market paper and below-investment-grade bonds and into U.S.
Treasuries. Bond bears finally capitulated, as they appear to be losing a key
ally: the robust U.S. economy.
As the U.S. equity market began to slide in July 1998, bond credit spreads began
to widen dramatically. Single "B" rated bonds have seen risk premiums over U.S.
Treasuries widen from a skinny 310 basis points in the spring of 1997 (prior to
the Asian fallout) to about 640 basis points currently. The junk market is
forecasting tougher times.
10
<PAGE>
As you may be aware, Crabbe Huson has had a bias for high credit quality and
longer maturity since the end of 1996. We are contrarian managers. While many
other managers were taking junk-bond (credit) risk with a narrow spread reward
and were avoiding longer maturity U.S. Treasuries as the Fed hiked interest
rates in early 1997, we did just the opposite. It has taken a while, but this
strategy turned out to be the correct one for the last fiscal year. The impact
on Crabbe Huson fixed-income assets has been extremely favorable.
Going forward, the monetary policy endgame will be debated. This one is for all
the marbles. When will the Fed reflate and attempt to liquify the global
monetary system? When will it be time to modify our current high-quality bias?
As contrarians, we will be watching the markets carefully.
REAL ESTATE INVESTMENT TRUST MARKET
The Real Estate Investment Trust (REIT) market has seen and extended period of
lackluster performance. After starting the fiscal year with a mild (less than
1%) decline, the market steadily slipped before turning in a very poor third
calendar quarter. As the industry analysts point out, there are plenty of
explanations why REITs have not done well, including the exit on momentum
investors early in 1998 plus concerns over overbuilding in some sectors and
overpaying for some properties. Add concern over real estate company performance
during a recession in 1999 or 2000 and you're talking about a difficult market.
After leading its benchmark for the first six months of the year, the Crabbe
Huson Real Estate Investment Fund finished the fiscal year a fraction behind the
index. This was not the result we hoped for, but the REIT market seemed
determined to confound us and our REIT fund colleagues. According to REALTY
STOCK REVIEW, an industry publication, the average real estate fund was down by
16.7% as of the end of the third quarter of 1998 -- only one fund finished the
nine-month period in the black, and that one barely managed to post a positive
return. This is not an excuse for the disappointing performance -- merely an
explanation of the type of market in which our management team is operating.
Looking forward, many analysts think the worst may be over REIT securities,
though none is trumpeting a return to salad days. REIT investing still is fairly
new in the investment landscape, and managers, including Crabbe Huson, are
working carefully to ensure that their efforts provide the diversification and
long-term performance benefits they believe the sector can offer.
11
<PAGE>
CLOSING THOUGHT
We live in increasing uncertain times. Economic growth and corporate earnings
appear vulnerable to the turmoil abroad. The ideal of low inflation and healthy
economic growth, AD INFINITUM, is currently being challenged. It is, at once, an
interesting and very challenging time for all investors.
Crabbe Huson portfolios will continue to focus on quality companies at discount
prices. This is why you hired us to manage a portion of your portfolio. Crabbe
Huson's contrarian method is an important piece of the diversification puzzle --
one that we believe has been historically proven as valuable and competitive and
we believe can continue to play a positive role in contributing to your
investment success over the long term.
12
<PAGE>
THE CRABBE HUSON SPECIAL FUND, INC. (CHSPX)
INVESTMENT OBJECTIVE: TO PROVIDE SIGNIFICANT LONG-TERM CAPITAL APPRECIATION
THROUGH A FLEXIBLE POLICY OF INVESTING IN A DIVERSIFIED PORTFOLIO OF CAREFULLY
SELECTED STOCKS THAT REPRESENT MORE AGGRESSIVE INVESTMENTS THAN THE MARKET AS A
WHOLE. THE FUND MAY INVEST AS MUCH AS 100% OF ITS ASSETS IN STOCKS AND MAY HOLD
UP TO 25% OF ITS ASSETS IN SHORT POSITIONS.(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON SEPCIAL FUND AND THE RUSSELL 2000
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Special Fund (A) Pre-Load Special Fund (A) Post-Load Russell 2000
Apr-87 $10,000 $9,425 $10,000
Dec-87 $8,100 $7,634 $7,109
Dec-88 $9,690 $9,133 $9,045
Dec-89 $11,500 $10,839 $10,457
Dec-90 $10,247 $9,657 $7,604
Dec-91 $15,327 $14,446 $12,063
Dec-92 $16,570 $15,617 $13,208
Dec-93 $23,428 $22,081 $17,488
Dec-94 $28,676 $27,027 $17,427
Dec-95 $29,187 $27,508 $20,625
Dec-96 $30,655 $28,892 $24,049
Dec-97 $38,815 $36,583 $31,102
Dec-98 $21,371 $20,143 $27,420
Fund Inception: 4/9/87
ANNUALIZED TOTAL RETURNS
PRE-LOAD POST-LOAD
1 Year: -44.94% -48.10%
5 Years: -1.82% -2.98%
10 Years: 8.23% 7.59%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. RETURNS AND VALUE OF AN
INVESTMENT WILL VARY, RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING
CHART COMPARES THE PERFORMANCE OF THE SPECIAL FUND WITH THE RUSSELL 2000 INDEX,
A BROAD-BASE INDEX OF STOCKS; THE SPECIAL FUND IS A PROFESSIONALLY MANAGED
MUTUAL FUND. THE INDEX PRESENTED HERE IS NOT MANAGED, DOES NOT INCUR EXPENSES,
AND IS NOT AVAILABLE FOR DIRECT INVESTMENT. HAD THE INDEX INCURRED TYPICAL
OPERATING EXPENSES, ITS PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 5.75%.
In our mid-year report, we noted that the Special Fund was navigating in very
stormy waters. Following the sell-off in small-cap stocks at the end of fiscal
1997, investors once again ran straight back to the index leadership,
concentrating activity there. That trend remained in place, and in fact became
even more pronounced, as the Asian economic and market crises unfolded
throughout the last half of the reporting period. It has not been a good time
for small-cap investors at any level.
As a contrarian portfolio, the Special Fund was in the throes of the gyrations
in the small- and mid-cap sectors. Turning in the first fiscal year of negative
performance in its history, the fund was down by -44.94% on a pre-load basis for
the year. This figure trailed well behind the Russell 2000 return of -11.84%.
- ---------------------
(1) Selling short is a hedging technique whereby stocks are borrowed, sold at
current market value, then purchased at a later date. This strategy is followed
when it is believed a security's price will decline. If it does decline, the
security may be purchased at a lower price, resulting in a gain. If the price
rises, the security may be purchased at a higher price, resulting in a loss.
13
<PAGE>
Frustrated as we are by a negative return, it's vital that we make clear the
nature of the market in which we're operating as contrarians -- it simply is not
favorable to any manager, save for those who invest in a very few select growth
issues. We wonder sometimes whether we're the only investors around who find
such an overconcentration unhealthy. It's a moot issue to some degree, because
even if we are, we'll remain true to our contrarian stripes by staying active in
more reasonably valued stocks.
Through the middle of the reporting period, we owned some very good stocks that
contributed positively to long-term performance, specifically in the trucking
and trailer-manufacturing areas. Our positions in the health care sector (HMOs,
biotech, long-term care facilities) were gaining broader recognition as we moved
into the summer months, as were selected names in the technology sector.
All the while, the small-cap bear was gaining strength. When quality names in
technology, energy, health care, and basic materials became available at a
discount, we took overweighted positions, only to see the stocks sell off
further. For example, virtually all commodity-producing companies (energy,
steel, metals, technology components, ET AL.) had sold off by mid-year 1997 to
0.65 times sales, a valuation level seen only a handful of times in the past
half century. However, as worries over Asia intensified, these stocks sold off
even more dramatically to levels below those seen just before we entered our
worst post-World War II recession, in 1973 and 1974. Our attribution analysis
shows that the vast majority of the fund's underperformance is due to
concentration in these sectors.
That said, it's fair to also say that the continued slide in prices in these
sectors has been beyond what anyone anticipated. We continually reexamine the
Special Fund's portfolio content, and we believe that the companies now held
therein have the characteristics of businesses that have the potential to
prosper over the years to come and that offer the best buys in today's market.
As to short positions, the portfolio is currently approximately 5% short. During
the market decline, we covered over half of our short positions in Citigroup and
United Airlines, profiting on both. Though we're neutral about shorting for now
(as the market appears to be in a recovery phase), we hold reduced short
positions in each of those two stocks. In the case of Citigroup, we believe that
earnings expectations for the banking side of the business are still too high.
Further, the company is in the process of sorting out leadership issues. We
shorted United Airlines because expectations were too high, particularly in the
face of declining business travel and overcapacity on some of the airline's
routes.
Looking ahead, we believe that an activist approach toward the Asian crises will
benefit the domestic market as a whole and should restore confidence in
14
<PAGE>
the huge section of the market that has not seen participation for such an
extended period. Our belief is that our contrarian positioning is right for the
market ahead.
/s/ James E. Crabbe /s/ John W. Johnson, CFA
James E. Crabbe John W. Johnson, CFA
/s/ Peter Belton, CFA
Peter Belton, CFA
15
<PAGE>
THE CRABBE HUSON SPECIAL FUND, INC.
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ---------------- -------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS - 104.8%
- -----------------------------------------------------------------------------------
BASIC MATERIALS - 14.1%
206,900 Century Aluminum Co.............................. $ 2,043,137
57,600 Huntco Inc. - Class A............................ 284,400
372,000 *Ispat International NV(a)(b)..................... 2,766,750
488,600 Longview Fibre Co.(c)............................ 5,863,200
7,527,400 *Lytton Minerals, Ltd.(a)(d)...................... 1,268,389
207,300 Oregon Steel Mills, Inc.(c)...................... 2,539,425
-------------
14,765,301
-------------
CONSUMER CYCLICALS - 13.6%
217,500 *Bombay Company, Inc.............................. 1,087,500
663,400 *Oakley, Inc.(b)(c)............................... 5,846,213
786,000 Phillips-Van Heusen(b)(c)........................ 7,221,375
-------------
14,155,088
-------------
CONSUMER STAPLES - 3.8%
387,000 Fleming Companies(c)............................. 3,942,562
-------------
ENERGY - 15.8%
492,500 *Forest Oil Corp.(b).............................. 5,017,344
924,900 *Grey Wolf, Inc................................... 1,098,319
133,200 *Input/Output, Inc................................ 1,182,150
60,000 KCS Energy, Inc.................................. 303,750
124,900 *Marine Drilling Co., Inc......................... 1,397,319
112,200 *Nuevo Energy Co.(b).............................. 2,377,237
326,300 Snyder Oil Corp.(b).............................. 5,200,406
-------------
16,576,525
-------------
FINANCIAL - 8.0%
854,900 *Arcadia Financial Ltd............................ 3,579,894
231,200 *Pico Holdings, Inc............................... 841,713
189,700 *Risk Capital Holdings, Inc.(c)................... 3,936,275
-------------
8,357,882
-------------
HEALTHCARE - 18.1%
685,800 *Coventry Health Care, Inc........................ 6,643,687
43,400 *Idexx Labs, Inc.................................. 990,062
73,200 Integrated Health Services(b)(c)................. 1,184,925
261,500 *Interneuron Pharmaceuticals...................... 915,250
727,300 *Mid Atlantic Medical Services.................... 5,682,031
62,800 *Phymatrix Corp................................... 235,500
558,600 *Sun Healthcare Group, Inc.(b).................... 3,281,775
-------------
18,933,230
-------------
INDUSTRIALS - 8.7%
832,900 Battle Mountain Gold Co.......................... 4,528,894
</TABLE>
16
<PAGE>
THE CRABBE HUSON SPECIAL FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ---------------- -------------------------------------------------- -------------
COMMON STOCKS - (CONTINUED)
- -----------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIALS - (CONTINUED)
255,800 Wabash National Corp.(b)......................... $ 4,540,450
-------------
9,069,344
-------------
SERVICES - 4.8%
1,647,600 *Safety-Kleen Corp................................ 5,045,775
-------------
TECHNOLOGY - 9.9%
80,000 *Actel Corp....................................... 1,025,000
122,600 *Checkpoint Systems, Inc.(c)...................... 1,455,875
225,300 *HMT Technology Corp.............................. 1,943,213
116,500 *Mentor Graphics Corp............................. 939,281
284,800 *Picturetel Corp.................................. 2,100,400
167,000 Sensormatic Electronics.......................... 939,375
196,400 *Sequent Computer Systems, Inc.................... 1,939,450
-------------
10,342,594
-------------
TRANSPORTATION - 8.0%
139,300 Hunt (JB) Transportation Services, Inc........... 2,333,275
375,300 Yellow Corp.(b).................................. 6,028,256
-------------
8,361,531
-------------
Total Investments 109,549,832
-------------
(Cost $162,038,085)**
SECURITIES SOLD SHORT - (5.0%)
- -----------------------------------------------------------------------------------
COMMON STOCKS FINANCIAL - (2.7%)
59,500 Citigroup, Inc................................... (2,800,219)
-------------
TRANSPORTATION - (2.3%)
37,200 *UAL, Inc......................................... (2,415,675)
-------------
Total Securities Sold Short (5,215,894)
-------------
(Proceeds $6,457,686)(e)
Other Assets and Liabilities, Net - 0.2% 169,752
-------------
TOTAL NET ASSETS - 100.0% $104,503,690
-------------
-------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $162,504,931.
Aggregate gross unrealized appreciation is $4,686,838 and the
aggregate gross unrealized depreciation is $57,641,937, resulting in
net unrealized depreciation of $52,955,099.
(a) American Depository Receipt
(b) These securities, or a portion thereof, with a total market value of
$7,456,786 are being used to collateralize short sales. (See Note 1)
(c) Security segregated to collateralize borrowing. (See Note 1)
(d) Investment represents 5% or more of the outstanding voting securities
of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940 at or during the year ended October 31,
1998. The number of shares held as of October 31, 1997 was 4,927,400,
2,600,000 additional shares were purchased during the year ended
October 31, 1998. No dividends, realized gains or losses were
recognized throughout the year.
(e) The aggregate proceeds for federal income tax purposes is identical.
Aggregate gross unrealized appreciation is $1,241,792 and the
aggregate gross unrealized depreciation is $0, resulting in net
unrealized appreciation of $1,241,792.
See accompanying notes to financial statements.
17
<PAGE>
CRABBE HUSON SMALL CAP FUND (CHSCX)
INVESTMENT OBJECTIVE: PROVIDE LONG-TERM CAPITAL APPRECIATION THROUGH A
DIVERSIFIED PORTFOLIO OF CAREFULLY SELECTED STOCKS WITH SMALL MARKET
CAPITALIZATIONS. THE FUND MAY HOLD UP TO 100% OF ITS ASSETS IN EQUITY
SECURITIES.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON SMALL CAP FUND AND THE RUSSELL 2000
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Small Cap Fund (A) Pre-Load Small Cap Fund (A) Post-Load Russell 2000
Feb-96 $10,000 $9,425 $10,000
Dec-96 $11,020 $10,386 $10,720
Dec-97 $15,690 $14,788 $13,864
Dec-98 $9,628 $9,074 $12,223
Fund Inception: 2/16/96
ANNUALIZED TOTAL RETURNS
PRE-LOAD POST-LOAD
1 Year: -38.64% -42.17%
Life of Fund: -1.39% -3.53%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. THE INSTITUTIONAL CLASS
OF SHARES RETURNED -38.37% FOR THE FISCAL YEAR AND -6.09% ON AN ANNUALIZED BASIS
SINCE INCEPTION ON 10/10/96. RETURNS AND VALUE OF AN INVESTMENT WILL VARY,
RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING CHART COMPARES THE
PERFORMANCE OF THE SMALL CAP FUND WITH THE RUSSELL 2000 INDEX, A BROAD-BASE
INDEX OF STOCKS; THE SMALL CAP FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND. THE
INDEX PRESENTED HERE IS NOT MANAGED, DOES NOT INCUR EXPENSES, AND IS NOT
AVAILABLE FOR DIRECT INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING
EXPENSES, ITS PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 5.75%.
At this time last year, we had very good news to report about the Crabbe Huson
Small Cap Fund, which had outperformed both the Russell 2000 and the NASDAQ
Composite by more than 10 percent each. The fund remains a good long-term
performer, but the brutal 1997-98 small-cap market halted the fund in its tracks
for the fiscal year.
For the year ended October 31, 1998, the Small Cap Fund posted a pre-load return
of -38.64%, the institutional class of shares showing a loss of -38.37%. The
fund's Russell 2000 benchmark returned -11.84% for the fiscal year.
The market for this year was a challenge right out of the gate, and it certainly
didn't get any easier as the year progressed. Volatile swings in the market have
been building in amplitude since the October 1997 sell-off, reflecting the
spread of the "Asian contagion" to virtually all the developing-world economies.
This spread caused steep recessions affecting more than one third of the world's
gross domestic product. Public sentiment demands that mutual fund managers
eschew cash, driving new assets into the largest stocks in the Russell 2000. The
concentration of activity in these issues, which was essentially not a
contrarian idea, severely limited participation by our stocks.
18
<PAGE>
The fund also suffered from premature buying in certain sectors. We were
overweighted in technology, energy, health care, and basic materials stocks, all
of which underperformed the Russell 2000. We built positions in these
undervalued areas after they had declined substantially, only to see further
sell-offs.
As contrarians, we are committed to investing in stocks trading below their
private value. Often, after an initial decline in price, additional selling in a
stock is absorbed by contrarian buyers (in good times, even growth managers and
value managers tend to reserve assets for good contrarian ideas) and
knowledgeable private investors. However, in such an uncertain environment, few
want to own contrarian stocks, and we found that our private valuation
buy-points were premature. In the past, such periods of neglect have been
short-lived; once confidence has been restored in the business climate, we
believe that our stocks can attract their traditional buying interest.
We think a plan to get working capital back into developing countries is the
catalyst for new confidence in the broader market, and our research tells us
that a plan is under way by the G-7 nations. This will be of major benefit to a
large body of companies whose sales have been hurt by oversupply -- companies
heavily represented in the fund.
A secondary effect of a restoration of confidence should be a revival in
contrarian investments. The pent-up demand is enormous for new investments to
replace or diversify the large, highly liquid, and overpriced growth stocks with
more reasonably priced, lesser-known small- and mid-cap stocks.
The fund's investments are now under-owned by institutional investors and
represent outstanding values. We believe that the prospects are very good for an
effective redress of the Asian economic problem's impact on the U.S. markets,
and we are optimistic about the long-term growth potential of the stocks we own
in your portfolio.
/s/ James F. Crabbe /s/ John W. Johnson, CFA
James E. Crabbe John W. Johnson, CFA
/s/ Peter Belton, CFA
Peter Belton, CFA
19
<PAGE>
CRABBE HUSON SMALL CAP FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS - 100.4%
- -----------------------------------------------------------------------------
BASIC MATERIALS - 8.4%
191,800 *Century Aluminum Co.............................. $ 1,894,025
223,000 Huntco Inc. - Class A............................ 1,101,062
205,000 Ispat International NV (a)....................... 1,524,687
37,100 Longview Fibre Co................................ 445,200
2,533,200 *Lytton Minerals, Ltd. (a)........................ 426,852
87,200 Oregon Steel Mills, Inc.......................... 1,068,200
------------
6,460,026
------------
CONSUMER CYCLICALS - 12.3%
295,100 *Bombay Company, Inc.............................. 1,475,500
161,900 Cato Corp. - Class A............................. 2,155,294
337,400 *Oakley, Inc...................................... 2,973,337
315,000 Phillips-Van Heusen Corp......................... 2,894,062
------------
9,498,193
------------
CONSUMER STAPLES - 10.7%
497,900 *Boston Chicken, Inc.............................. 497,900
218,100 *Checkpoint Systems, Inc.......................... 2,589,938
252,600 Fleming Companies ............................... 2,573,362
199,500 *Precision Response Corp. ........................ 1,371,563
218,200 Sensormatic Electronics Corp..................... 1,227,375
------------
8,260,138
------------
ENERGY - 9.5%
205,100 *Forest Oil Corp.................................. 2,089,456
399,800 *Grey Wolf, Inc................................... 474,762
96,700 *Input/Output, Inc................................ 858,213
168,900 KCS Energy, Inc.................................. 855,056
41,500 *Marine Drilling Co., Inc......................... 464,281
73,300 *Nuevo Energy Co.................................. 1,553,044
124,388 Western Gas Resources, Inc....................... 1,018,427
------------
7,313,239
------------
FINANCIAL - 6.4%
561,500 *Arcadia Financial Ltd. (a)....................... 2,351,281
119,700 *CCC Information Services ........................ 1,331,663
61,400 *Risk Capital Holdings, Inc....................... 1,274,050
------------
4,956,994
------------
HEALTHCARE - 16.1%
206,000 *Coventry Healthcare, Inc......................... 1,995,625
153,700 *Idexx Laboratories, Inc.......................... 3,506,281
43,000 Integrated Health Services....................... 696,063
292,700 *Interneuron Pharmaceuticals...................... 1,024,450
355,100 *Mid Atlantic Medical Services.................... 2,774,219
222,700 *Phymatrix Corp................................... 835,125
115,600 *Sun Healthcare Group, Inc........................ 679,150
172,000 *Vysis, Inc....................................... 903,000
------------
12,413,913
------------
</TABLE>
20
<PAGE>
CRABBE HUSON SMALL CAP FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
- -----------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIALS - 8.9%
523,800 Battle Mountain Gold............................. $ 2,848,163
409,200 *Flanders Corp.................................... 1,534,500
136,800 Wabash National Corp............................. 2,428,200
------------
6,810,863
------------
SERVICES - 4.1%
1,037,738 *Safety - Kleen Corp.............................. 3,178,073
------------
TECHNOLOGY - 19.5%
240,900 *Actel Corp....................................... 3,086,531
255,300 *Auspex Systems, Inc.............................. 718,031
238,100 *HMT Technology Corp.............................. 2,053,613
349,700 *Mentor Graphics Corp............................. 2,819,456
284,400 *Mylex Corp....................................... 1,653,075
351,600 *Picturetel Corporation........................... 2,593,050
31,300 *PRI Automation, Inc.............................. 541,881
154,000 *Sequent Computer Systems, Inc.................... 1,520,750
------------
14,986,387
------------
TRANSPORTATION - 4.5%
74,600 Hunt (JB) Transportation Services, Inc........... 1,249,550
136,900 *Yellow Corp...................................... 2,198,956
------------
3,448,506
------------
Total Common Stocks 77,326,332
------------
(Cost $120,853,803)
SHORT TERM INVESTMENTS - 22.3%
- -----------------------------------------------------------------------------
OTHER INVESTMENTS - 22.3%
17,191,987 Navigator Securities Lending Trust-Prime Portfolio
5.320% (b) **................................... 17,191,987
------------
Total Investments - 122.7% 94,518,319
(Cost $138,045,790)***
Other Assets and Liabilities, Net - (22.7%) (17,517,255)
------------
TOTAL NET ASSETS - 100.0% $77,001,064
------------
------------
</TABLE>
* Non-income producing security.
** Rate reflects 7 day yield as of October 31, 1998.
*** The aggregate cost for federal income tax purposes is $138,166,971.
Aggregate gross unrealized appreciation is $3,189,617 and the
aggregate gross unrealized depreciation is $46,838,269 resulting in
net unrealized depreciation of $43,648,652.
(a) American Depository Receipt
(b) Investment of collateral received for securities loaned in Navigator
Securities Lending Trust-Prime Portfolio. As of October 31, 1998, the
market value of the securities on loan is $13,453,626.
See accompanying notes to financial statements.
21
<PAGE>
CRABBE HUSON MANAGED INCOME & EQUITY (CHAAX)
INVESTMENT OBJECTIVE: PRESERVATION OF CAPITAL, CAPITAL APPRECIATION, AND INCOME
THROUGH A PORTFOLIO OF STOCKS, FIXED-INCOME SECURITIES, CASH, AND CASH
EQUIVALENTS. THE FUND CAN HOLD AS MUCH AS 75% OR AS LITTLE AS 20% OF ITS ASSETS
IN COMMON STOCKS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON MANAGED INCOME & EQUITY FUND, THE S&P 500,
AND THE LEHMAN BROTHERS GOVT/CORP BOND INDEX (LBGC)
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Managed Income & Equity Fund (A) Pre-Load
Jan-89 $10,000
Dec-89 $10,690
Dec-90 $10,004
Dec-91 $12,460
Dec-92 $13,861
Dec-93 $16,761
Dec-94 $17,204
Dec-95 $19,438
Dec-96 $21,172
Dec-97 $25,534
Dec-98 $25,358
Fund Inception: 1/31/89
ANNUALIZED TOTAL RETURNS
PRE-LOAD
1 Year: -0.69%
5 Years: 8.63%
Life of Fund: 10.00%
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON MANAGED INCOME & EQUITY FUND, THE S&P 500,
AND THE LEHMAN BROTHERS GOVT/CORP BOND INDEX (LBGC)
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Managed Income & Equity Fund (A) Post-Load S&P 500 LBGC
Jan-89 $9,525 $10,000 $10,000
Dec-89 $10,182 $11,754 $11,156
Dec-90 $9,529 $10,872 $11,763
Dec-91 $11,868 $14,514 $13,578
Dec-92 $13,203 $15,956 $15,006
Dec-93 $15,965 $18,334 $17,052
Dec-94 $16,386 $19,038 $16,240
Dec-95 $18,515 $24,062 $18,889
Dec-96 $20,167 $29,856 $19,907
Dec-97 $24,321 $39,434 $21,661
Dec-98 $24,153 $48,097 $23,887
Fund Inception: 1/31/89
ANNUALIZED TOTAL RETURNS
POST-LOAD
1 Year: -5.41%
5 Years: 7.58%
Life of Fund: 9.45%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. THE INSTITUTIONAL CLASS
OF SHARES RETURNED -0.44% FOR THE FISCAL YEAR AND 9.78% ON AN ANNUALIZED BASIS
SINCE INCEPTION ON 10/28/96. RETURNS AND VALUE OF AN INVESTMENT WILL VARY,
RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING CHART COMPARES THE
PERFORMANCE OF THE MANAGED INCOME & EQUITY FUND WITH THE S&P 500 AND LEHMAN
BROTHERS GOVERNMENT/CORPORATE BOND INDICES, BROAD-BASE INDICES OF STOCKS AND
BONDS; THE MANAGED INCOME & EQUITY FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND.
THE INDICES PRESENTED HERE ARE NOT MANAGED, DO NOT INCUR EXPENSES, AND ARE NOT
AVAILABLE FOR DIRECT INVESTMENT. HAD THE INDICES INCURRED TYPICAL OPERATING
EXPENSES, THEIR PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 4.75%.
For the fiscal year 1998, the Crabbe Huson Managed Income & Equity Fund returned
- -0.69% (pre-load). Its benchmarks, the S&P 500 Index and the Lehman Brothers
Government/Corporate Bond Index, returned 21.97% and 10.28% respectively. The
fund's institutional class of shares showed a -0.44% return.
The stock and bond markets have been experiencing the fallout of not just one
world economic crisis but two, this year. As initial problems in Asia spread to
Russia and Latin America, American investors are showing a fear similar to that
of past market crashes. As a result, investors dumped their assets into big-name
companies. However, unlike in the past, investors aren't returning to the
increased values in the stock market. In fact, as of September 30, 99% of the
5.96% gain for the S&P 500 was due to the performance of only 14 stocks. This is
clearly not a contrarian environment.
22
<PAGE>
At the end of the reporting period, the fund maintained 55.5% of its
investments, exclusive of collateral received for security lending, in stocks,
36% in bonds, and 8.5% in cash. In this challenging time for contrarians, we
have maintained a lower percentage of equity stocks in the fund's portfolio and
have maintained better performance against our competitors with positive bond
performance.
Though the past year has provided a tough market environment relative to the
index, we are encouraged about the fund's future. The once-stable, top-heavy
stock market appears to have crumbled a little, to the contrarian's advantage.
The average S&P 500 Index stock generates about 47% of its revenues through
foreign sources. Most of the foreign sales are concentrated in the largest
capitalization S&P companies. Currently and, we believe, going into the new
year, the foreign environment is less stable. As a result, investors could see
more volatility in 1999, offering better stock selection to our contrarian
managers.
With increased support from our global financial leaders who have taken
aggressive and proactive action toward economic issues affecting the market, we
think the market will broaden, providing the fund with an opportunity for
positive performance into the next fiscal year.
<TABLE>
<S> <C>
/s/ James E. Crabbe /s/ John E. Maack Jr., CFA
James E. Crabbe John E. Maack Jr., CFA
/s/ Marian L. Kessler /s/ Robert E. Anton
Marian L. Kessler Robert E. Anton
/s/ Grath R. Nisbet, CFA
Garth R. Nisbet, CFA
</TABLE>
23
<PAGE>
CRABBE HUSON MANAGED INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- -------------
<C> <S> <C>
FIXED INCOME SECURITIES - 37.3%
- ------------------------------------------------------------------------------
AGENCIES - 5.6%
$ 900,000 Federal National Mortgage Association 6.080%
9/25/00........................................ $ 919,548
1,200,000 Federal National Mortgage Association 8.250%
12/18/00....................................... 1,283,628
925,000 Federal National Mortgage Association 5.875%
2/02/06........................................ 970,094
1,000,000 Federal Home Loan Bank 5.850% 2/21/06............ 1,046,720
800,000 Interamerican Development Bank 6.125% 3/08/06.... 844,000
550,000 Tennessee Valley Authority 6.125% 7/15/03........ 562,452
-------------
5,626,442
-------------
ASSET-BACKED - 0.5%
500,000 Green Tree Financial 6.540% 7/15/19.............. 507,700
-------------
CORPORATE BONDS - 15.8%
500,000 GMAC 8.000% 10/01/99............................. 512,200
450,000 Upjohn Co. 5.875% 4/15/00........................ 457,263
675,000 Household Finance Corp. 6.000% 5/08/00........... 679,327
600,000 Pepsico, Inc. 5.875% 6/01/00..................... 612,786
400,000 American Express Credit 6.500% 8/01/00........... 411,300
700,000 Ford Motor Credit 6.250% 11/08/00................ 712,341
600,000 WMX Technologies 6.700% 5/01/01.................. 613,428
500,000 Merrill Lynch & Co. 6.020% 5/11/01............... 505,690
540,000 IBM Corp. 5.945% 5/14/01......................... 552,215
655,000 GMAC 9.000% 10/15/02............................. 735,657
600,000 IBM Corp. 7.250% 11/01/02........................ 649,776
550,000 JP Morgan & Co. 7.625% 9/15/04................... 593,323
550,000 SBC Communications 6.250% 3/01/05................ 572,765
650,000 CBS Corp. 7.150% 5/20/05......................... 657,241
550,000 Anheuser Busch 7.000% 9/01/05.................... 583,797
660,000 US West Communications 6.625% 9/15/05............ 705,032
550,000 Bear Stearns Co. 6.875% 10/01/05................. 562,061
550,000 Snap-On, Inc. 6.625% 10/01/05.................... 585,948
975,000 Walt Disney Co. 6.750% 3/30/06................... 1,063,111
550,000 Eli Lilly 8.375% 12/01/06........................ 654,335
500,000 AT&T Corp. 7.750% 3/01/07........................ 573,730
550,000 GTE South 6.000% 2/15/08......................... 565,081
550,000 Lincoln National Corp. 6.500% 3/15/08............ 555,109
700,000 Pacificorp 6.375% 5/15/08........................ 733,551
650,000 Owens-Illinois, Inc. 7.350% 5/15/08.............. 649,298
550,000 Kroger Co. 7.000% 5/01/18........................ 533,808
-------------
16,030,173
-------------
MORTGAGE PASS-THROUGH SECURITIES - 8.1%
57,301 Federal Home Loan Mortgage Corp Pool #281037
9.250% 11/01/16................................ 60,811
513,120 Federal Home Loan Mortgage Corp Pool #303033
9.000% 4/01/17................................. 544,384
</TABLE>
24
<PAGE>
CRABBE HUSON MANAGED INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- -------------
FIXED INCOME SECURITIES - (CONTINUED)
- ------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE PASS-THROUGH SECURITIES - (CONTINUED)
$ 867,241 Federal Home Loan Mortgage Corp Pool #C80344
7.500% 9/01/25................................. $ 899,485
1,093,696 Federal Home Loan Mortgage Corp Pool #D65456
7.000% 11/01/25................................ 1,130,608
1,209,166 Federal Home Loan Mortgage Corp Pool #C80409
8.000% 6/01/26................................. 1,265,090
1,532,923 Federal Home Loan Mortgage Corp Pool #C00495
7.000% 1/01/27................................. 1,584,659
1,147,623 Government National Mortgage Association Pool
#780651 7.000% 10/15/27........................ 1,174,879
897,595 Government National Mortgage Association Pool
#158759 7.000% 6/15/28......................... 918,913
675,000 Government National Mortgage Association Pool
#476714 6.500% 11/15/28........................ 682,378
-------------
8,261,207
-------------
U.S. GOVERNMENT BONDS - 7.3%
990,000 U.S. Treasury Note 5.125% 8/31/00................ 1,004,385
1,690,000 U.S. Treasury Note 4.500% 9/30/00................ 1,698,974
55,000 U.S. Treasury Note 5.625% 12/31/02............... 57,570
1,860,000 U.S. Treasury Bond 6.750% 8/15/26................ 2,230,252
530,000 U.S. Treasury Bond 6.500% 11/15/26............... 616,872
565,000 U.S. Treasury Bond 6.625% 2/15/27................ 668,994
915,000 U.S. Treasury Bond 6.375% 8/15/27................ 1,054,391
60,000 U.S. Treasury Bond 5.500% 8/15/28................ 63,140
-------------
7,394,578
-------------
Total Fixed Income Securities 37,820,100
-------------
(Cost $35,952,195)
COMMON STOCKS - 58.0%
- ------------------------------------------------------------------------------
BASIC MATERIALS - 4.0%
12,400 Aluminum Company of America...................... 982,700
24,100 EI Dupont De Nemours & Co. Inc................... 1,385,750
28,900 Phelps Dodge Corp................................ 1,665,363
-------------
4,033,813
-------------
CAPITAL GOODS - 4.8%
15,000 Lockheed Martin Corp............................. 1,670,625
57,200 McDermott International, Inc..................... 1,676,675
19,500 Northrop Grumman Corp............................ 1,555,125
-------------
4,902,425
-------------
CONSUMER CYCLICALS - 4.1%
127,600 *General Nutrition Companies...................... 1,858,175
32,600 *MGM Grand, Inc................................... 851,675
</TABLE>
25
<PAGE>
CRABBE HUSON MANAGED INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- -------------
COMMON STOCKS - (CONTINUED)
- ------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER CYCLICALS - (CONTINUED)
90,000 Pep Boys-Manny Moe & Jack........................ $ 1,406,250
-------------
4,116,100
-------------
CONSUMER STAPLES - 9.5%
33,700 Avon Products, Inc............................... 1,337,469
68,100 Deluxe Corp...................................... 2,204,738
47,350 *MediaOne Group, Inc.............................. 2,003,497
13,100 *Outback Steakhouse, Inc.......................... 453,587
18,400 Pepsico, Inc..................................... 621,000
32,400 Philip Morris Co., Inc........................... 1,656,450
30,000 *Suiza Foods Corp................................. 978,750
14,500 Tyson Foods, Inc. Class A........................ 333,500
-------------
9,588,991
-------------
ENERGY - 9.5%
20,100 *AES Corp......................................... 822,844
28,700 Atlantic Richfield Co............................ 1,976,712
31,000 Burlington Resources, Inc........................ 1,276,812
21,800 Enron Oil & Gas.................................. 363,787
19,900 Halliburton Co................................... 715,156
75,000 *Nabors Industries, Inc........................... 1,387,500
23,900 Schlumberger, Ltd................................ 1,254,750
35,700 Smith International, Inc......................... 1,282,969
45,000 Union Pacific Resources Group.................... 585,000
-------------
9,665,530
-------------
FINANCIAL - 2.3%
40,300 Equity Office Properties Trust................... 967,200
31,900 Safeco Corp...................................... 1,381,669
-------------
2,348,869
-------------
HEALTHCARE - 3.2%
27,500 Amgen, Inc....................................... 2,160,469
24,300 United Healthcare Corp........................... 1,058,569
-------------
3,219,038
-------------
TECHNOLOGY - 15.4%
21,900 Adobe Systems, Inc............................... 813,037
44,200 *Altera Corporation............................... 1,839,825
17,500 Electronic Data Systems Corp..................... 712,031
40,700 First Data Corp.................................. 1,078,550
30,100 Hewlett-Packard Co............................... 1,811,644
52,500 Micron Technology, Inc........................... 1,995,000
91,800 *National Semiconductor Corp...................... 1,164,712
59,500 *Seagate Technology, Inc.......................... 1,569,313
208,100 *Silicon Graphics................................. 2,341,125
</TABLE>
26
<PAGE>
CRABBE HUSON MANAGED INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- -------------
COMMON STOCKS - (CONTINUED)
- ------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY - (CONTINUED)
65,200 *3COM Corp........................................ $ 2,351,275
-------------
15,676,512
-------------
TRANSPORTATION - 2.2%
21,800 *AMR Corp......................................... 1,460,600
16,700 Union Pacific Corp............................... 795,337
-------------
2,255,937
-------------
UTILITIES - 3.0%
102,600 Pacificorp....................................... 1,955,812
34,400 Sonat, Inc....................................... 1,042,750
-------------
2,998,562
-------------
Total Common Stocks 58,805,777
-------------
(Cost $54,985,002)
SHORT TERM INVESTMENTS - 25.8%
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.1%
8,259,000 ABN AMRO Chicago Corp.** 5.380% 11/02/98.......... 8,259,000
-------------
OTHER INVESTMENTS - 17.7%
17,905,192 Navigator Securities Lending Trust-Prime
Portfolio 5.320%(a)***......................... 17,905,192
-------------
Total Short Term Investments 26,164,192
-------------
(Cost $26,164,192)
Total Investments - 121.1% 122,790,069
(Cost $117,101,389)****
Other Assets and Liabilities, Net - (21.1%) (21,386,106)
-------------
TOTAL NET ASSETS - 100.0% $101,403,963
-------------
-------------
</TABLE>
* Non-income producing security.
** Repurchase agreement with ABN AMRO dated 10/30/98 due 11/02/98 at
5.380% collateralized by U.S. Treasury Note maturing 03/31/03, with a
market value of $8,637,552 (repurchase proceeds $8,262,703).
*** Rate reflects 7 day yield as of October 31, 1998.
**** The aggregate cost for federal income tax purposes is $117,703,766.
Aggregate gross unrealized appreciation is $9,117,919 and the
aggregate gross unrealized depreciation is $4,031,616 resulting in net
unrealized appreciation of $5,086,303.
(a) Investment of collateral received for securities loaned in Navigator
Securities Lending Trust-Prime Portfolio. As of October 31, 1998, the
market value of the securities on loan is $17,465,088.
See accompanying notes to financial statements.
27
<PAGE>
CRABBE HUSON EQUITY FUND (CHEYX)
INVESTMENT OBJECTIVE: PROVIDE LONG-TERM CAPITAL APPRECIATION THROUGH A
DIVERSIFIED PORTFOLIO OF WIDELY AND ACTIVELY TRADED COMMON STOCKS WITH MEDIUM TO
LARGE MARKET CAPITALIZATIONS. THE FUND MAY HAVE UP TO 100% OF ITS ASSETS
INVESTED IN COMMON STOCKS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON EQUITY FUND AND THE S&P 500
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Equity Fund (A) Pre-Load Equity Fund (A) Post-Load S&P 500
Jan-89 $10,000 $9,425 $10,000
Dec-89 $10,500 $9,896 $11,754
Dec-90 $8,927 $8,414 $10,872
Dec-91 $13,607 $12,824 $14,514
Dec-92 $15,303 $14,423 $15,956
Dec-93 $19,878 $18,735 $18,334
Dec-94 $21,446 $20,213 $19,038
Dec-95 $24,313 $22,915 $24,062
Dec-96 $27,661 $26,071 $29,856
Dec-97 $35,924 $33,858 $39,434
Dec-98 $32,303 $30,445 $48,097
Fund Inception: 1/31/89
ANNUALIZED TOTAL RETURNS
PRE-LOAD POST-LOAD
1 Year: -10.08% -15.25%
5 Years: 10.20% 8.90%
Life of Fund: 12.77% 12.09%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. THE INSTITUTIONAL CLASS
OF SHARES RETURNED -9.72% FOR THE FISCAL YEAR AND 7.36% ON AN ANNUALIZED BASIS
SINCE INCEPTION ON 10/3/96. RETURNS AND VALUE OF AN INVESTMENT WILL VARY,
RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING CHART COMPARES THE
PERFORMANCE OF THE EQUITY FUND WITH THE S&P 500 INDEX, A BROAD-BASE INDEX OF
STOCKS; THE EQUITY FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND. THE INDEX
PRESENTED HERE IS NOT MANAGED, DOES NOT INCUR EXPENSES, AND IS NOT AVAILABLE FOR
DIRECT INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING EXPENSES, ITS
PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 5.75%.
The Crabbe Huson Equity Fund posted a pre-load return of -10.08% for the fiscal
year ended October 31, 1998, lagging the S&P 500 Index return of 21.97%. The
fund's institutional class of shares returned -9.72% for the same period.
In our previous report, we noted that during the first half of the fiscal year,
the fund was very active: we sold positions in telecommunications and cable
stocks, after achieving price targets, and replaced them with energy and basic
materials issues. We used the August and September market correction to add to
the portfolio and buy a few good companies that were out of favor at the time.
Though the fund didn't keep pace with the index for the first six months of the
fiscal year, we were content with its positioning, as our new issues rebounded
nicely from industry difficulties.
While performance for the fund was good in early 1998, as it appeared the Asian
crisis might be contained, a second round of global problems surfaced, affecting
Russia and potentially Latin America and creating even more fear
28
<PAGE>
and uncertainty. In addition, Japan's very public failure to stimulate its
economy and solve its banking crisis further aggravated the situation, creating
an even wider gap in valuations between the top 50 stocks and the rest of the
market. Portfolio managers, in general, sold off all stocks with any sort of
question mark around them, including the value and contrarian names. This
created a two tiered market with the large capitalization, so called "new nifty
fifty," outpacing the average stock in the S&P 500 by a significant amount.
A number of stocks in the Equity Fund portfolio were purchased at value levels
last seen during the past two recessions, in 1990 and 1981-82. Stocks that have
fallen significantly in value usually provide our investors some measure of
protection against a general market decline.
This is a difficult market, yes, but also opportunity. Market volatility has
increased to more normal levels in the past few months, favoring stock-pickers.
And, for the last two months of the fiscal year, the fund outperformed the S&P
500. Given the low valuations accorded our stocks and the belief that many are
indeed discounting a global recession, we believe that investors are starting to
comb through the wreckage to find stocks that still have value. In addition,
some stocks in the large-cap upper tier are reporting slowing growth or
disappointing earnings, as they discover they are not immune to problems around
the globe. As we look ahead to 1999, we believe that the portfolio is well
positioned for good performance.
<TABLE>
<S> <C>
/s/ James E. Crabbe /s/ John E. Maack Jr., CFA
James E. Crabbe John E. Maack Jr., CFA
/s/ Marian L. Kessler /s/ Marian L. Kessler
Marian L. Kessler Robert E. Anton
</TABLE>
29
<PAGE>
CRABBE HUSON EQUITY FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- --------------- ------------------------------------------------------------ --------------
<C> <S> <C>
COMMON STOCKS - 90.1%
- ---------------------------------------------------------------------------------------------
BASIC MATERIALS - 7.1%
56,700 Aluminum Company of America................................ $ 4,493,475
123,800 EI Du Pont De Nemours & Co., Inc........................... 7,118,500
110,000 Phelps Dodge Corp.......................................... 6,338,750
--------------
17,950,725
--------------
CAPITAL GOODS - 6.3%
37,200 Lockheed Martin Corp....................................... 4,143,150
224,400 McDermott International, Inc............................... 6,577,725
66,700 Northrop Grumman Corp...................................... 5,319,325
--------------
16,040,200
--------------
CONSUMER CYCLICALS - 6.9%
479,100 *General Nutrition Companies................................ 6,976,894
158,900 *MGM Grand, Inc............................................. 4,151,262
404,000 Pep Boys-Manny Moe & Jack.................................. 6,312,500
--------------
17,440,656
--------------
CONSUMER STAPLES - 14.2%
128,300 Avon Products, Inc......................................... 5,091,906
274,800 Deluxe Corp................................................ 8,896,650
188,500 *MediaOne Group, Inc........................................ 7,975,906
47,500 *Outback Steakhouse, Inc.................................... 1,644,688
70,900 Pepsico, Inc............................................... 2,392,875
104,200 Philip Morris Co., Inc..................................... 5,327,225
110,300 *Suiza Foods Corp........................................... 3,598,538
56,000 Tyson Foods, Inc. - Class A................................ 1,288,000
--------------
36,215,788
--------------
ENERGY - 14.9%
73,400 *AES Corp................................................... 3,004,812
95,700 Atlantic Richfield Co...................................... 6,591,337
120,700 Burlington Resources, Inc.................................. 4,971,331
84,900 Enron Oil & Gas............................................ 1,416,769
73,700 Halliburton Co............................................. 2,648,594
347,200 *Nabors Industries, Inc..................................... 6,423,200
100,400 Schlumberger, Ltd.......................................... 5,271,000
150,200 Smith International, Inc................................... 5,397,813
171,800 Union Pacific Resources Group, Inc......................... 2,233,400
--------------
37,958,256
--------------
FINANCIAL - 3.4%
155,700 Equity Office Properties................................... 3,736,800
115,400 Safeco Corp................................................ 4,998,263
--------------
8,735,063
--------------
HEALTHCARE - 5.4%
121,300 Amgen, Inc................................................. 9,529,631
95,000 United Healthcare Corp..................................... 4,138,438
--------------
13,668,069
--------------
TECHNOLOGY - 24.0%
80,400 Adobe Systems, Inc......................................... 2,984,850
159,800 *Altera Corp................................................ 6,651,675
</TABLE>
30
<PAGE>
CRABBE HUSON EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- --------------- ------------------------------------------------------------ --------------
COMMON STOCKS - (CONTINUED)
- ---------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY - (CONTINUED)
72,700 Electronic Data Systems Corp............................... $ 2,957,981
164,300 First Data Corp............................................ 4,353,950
116,600 Hewlett-Packard Co......................................... 7,017,862
189,900 Micron Technology, Inc..................................... 7,216,200
337,900 *National Semiconductor Corp................................ 4,287,106
275,500 *Seagate Technology, Inc.................................... 7,266,313
842,500 *Silicon Graphics........................................... 9,478,125
244,400 *3COM Corp.................................................. 8,813,675
--------------
61,027,737
--------------
TRANSPORTATION - 3.3%
78,200 *AMR Corp................................................... 5,239,400
65,800 Union Pacific Corp......................................... 3,133,725
--------------
8,373,125
--------------
UTILITIES - 4.6%
400,900 Pacificorp................................................. 7,642,156
130,500 Sonat, Inc................................................. 3,955,781
--------------
11,597,937
--------------
Total Common Stocks 229,007,556
--------------
(Cost $216,355,529)
SHORT TERM INVESTMENTS - 19.8%
- ---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 9.6%
24,496,000 ABN AMRO Chicago Corp.** 5.380% 11/02/98.................... 24,496,000
--------------
OTHER INVESTMENTS - 10.2%
25,885,688 Navigator Securities Lending Trust-Prime Portfolio
5.320%(a)***............................................. 25,885,688
--------------
Total Short Term Investments 50,381,688
--------------
(Cost $50,381,688)
Total Investments - 109.9% 279,389,244
(Cost $266,737,217)****
Other Assets and Liabilities, Net - (9.9%) (25,089,149)
--------------
TOTAL NET ASSETS - 100.0% $ 254,300,095
--------------
--------------
</TABLE>
* Non-income producing security.
** Repurchase agreement with ABN AMRO dated 10/30/98 due 11/02/98 at
5.380% collateralized by U.S. Treasury Note maturing 03/31/03, with a
market value of $25,618,776 (repurchase proceeds $24,506,982).
*** Rate reflects 7 day yield as of October 31, 1998.
**** The aggregate cost for federal income tax purposes is $271,383,833.
Aggregate gross unrealized appreciation is $28,787,921 and the
aggregate gross unrealized depreciation is $20,782,510, resulting in
net unrealized appreciation of $8,005,411.
(a) Investment of collateral received for securities loaned in Navigator
Securities Lending Trust-Prime Portfolio. As of October 31, 1998, the
market value of the securities on loan is $25,284,763.
See accompanying notes to financial statements.
31
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND (CHREX)
INVESTMENT OBJECTIVE: TO PROVIDE GROWTH OF CAPITAL AND CURRENT INCOME THROUGH
EQUITY SECURITIES OF REAL ESTATE INVESTMENT TRUSTS (REITS) AND OTHER REAL ESTATE
INDUSTRY COMPANIES. UNDER NORMAL CIRCUMSTANCES, AT LEAST 75% OF THE FUND WILL BE
INVESTED IN SUCH SECURITIES.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON REAL ESTATE INVESTMENT FUND (REIT) AND
THE MORGAN STANLEY REIT INDEX
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
REIT Fund (A) Pre-Load REIT Fund (A) Post-Load Morgan Stanley
Apr-94 $10,000 $9,425 $10,000
Dec-94 $9,700 $9,142 $9,515
Dec-95 $10,506 $9,902 $10,550
Dec-96 $13,176 $12,418 $13,226
Dec-97 $17,202 $16,213 $17,654
Dec-98 $14,899 $14,042 $15,262
Fund Inception: 4/1/94
ANNUALIZED TOTAL RETURNS
PRE-LOAD POST-LOAD
1 Year: -13.39% -18.37%
Life of Fund: -9.08% 7.68%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. RETURNS AND VALUE OF AN
INVESTMENT WILL VARY, RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING
CHART COMPARES THE PERFORMANCE OF THE REAL ESTATE INVESTMENT FUND WITH THE
MORGAN STANLEY REIT INDEX, A BROAD-BASE INDEX OF REAL ESTATE INVESTMENT TRUST
SECURITIES; THE REAL ESTATE INVESTMENT FUND IS A PROFESSIONALLY MANAGED MUTUAL
FUND. THE INDEX PRESENTED HERE IS NOT MANAGED, DOES NOT INCUR EXPENSES, AND IS
NOT AVAILABLE FOR DIRECT INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING
EXPENSES, ITS PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 5.75%.
In a challenging market environment for contrarian funds, the Crabbe Huson Real
Estate Investment Fund positioned itself ahead of its benchmark with a -13.39%
pre-load return for the fiscal year 1998. The Morgan Stanley REIT Index returned
- -13.55% for the same period.
Unlike that of 1997's fiscal year, this year's REIT market behavior has clearly
lagged the stock market. Though REITs are also affected by stock market investor
fears, many managers believe that the lag could mean the end of a three-year
recovery stage. Growth and value managers who tend to stray from their style
have somewhat ignored REITs and focused on the top-heavy stock market, unveiling
decreased value in the current real estate market.
In an effort to preserve our contrarian focus, we have chosen to maintain a
significant portion of the fund's positions throughout this year. As recent
performance has improved, our long-term focus has allowed us to be competitive
in this fairly new investment environment. We also continue to monitor
32
<PAGE>
the popular REITs, like Equity Office and Public Storage. As popular companies
are faced with a potential market decline this year, we believe there may be an
opportunity to buy these types of companies at attractive prices. Currently, the
fund's top sector holdings are office and apartments.
Looking into the next fiscal year, managers are somewhat tentative over
expectations of a market comeback. Having concerns about overdevelopment and
fear of a possible recessionary period in the back of their minds, investors
aren't jumping into the broader market, providing REITs with little room for
recovery. However, as recent economic wounds are treated by the Fed's
reflationary efforts and big-name stocks lose strength, we think the worst is
over. Based on the fund's recent positive performance and impressive returns
made for the past four years, we're confident the portfolio will offer a
competitive edge to your diversified portfolio in the future.
/s/ John E. Maack Jr., CFA /s/ Michael B. Stockes
John E. Maack Jr., CFA Michael B. Stokes
33
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS - 92.1%
- -----------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 92.1%
APARTMENT - 17.2%
6,700 Apartment Inventory & Management Co.............. $ 234,081
21,900 Archstone Communities Trust...................... 440,738
19,217 Camden Property Trust............................ 516,457
16,400 Equity Residential Properties Trust.............. 688,800
13,575 Post Properties, Inc............................. 525,183
20,000 Summit Properties, Inc........................... 352,500
10,000 Walden Residential Properties, Inc............... 230,625
------------
2,988,384
------------
APPAREL MANUFACTURERS - 2.1%
21,000 Jones Apparel Group, Inc......................... 362,250
------------
DIVERSIFIED - 8.2%
15,000 AMB Property Corp................................ 345,000
20,000 *Catellus Development Corp........................ 275,000
15,600 Cousins Properties, Inc.......................... 446,550
545 *Vornado Operating Inc............................ 3,406
10,700 Vornado Realty Trust............................. 360,456
------------
1,430,412
------------
FINANCE - 1.4%
34,700 Amresco, Inc..................................... 240,731
------------
HEALTHCARE - 3.6%
7,325 Healthcare Realty Trust, Inc..................... 171,680
25,000 *Brookdale Living Communities..................... 456,250
------------
627,930
------------
LODGING - 4.2%
27,000 Host Marriot Corp................................ 391,500
37,800 Patriot American Hospitality, Inc................ 335,475
------------
726,975
------------
MANUFACTURED HOMES - 4.8%
18,000 Asset Investors Corp............................. 250,875
40,800 Commercial Assets, Inc........................... 226,950
14,700 Manufactured Home Communities.................... 366,581
------------
844,406
------------
NET LEASE - 2.4%
30,000 Capital Automotive REIT.......................... 423,750
------------
OFFICE/INDUSTRIAL - 25.7%
27,000 Arden Realty, Inc................................ 583,875
29,300 Brandywine Realty Trust.......................... 523,738
48,900 Equity Office Properties Trust................... 1,173,600
13,800 First Industrial Realty Trust.................... 353,625
19,200 Liberty Property Trust........................... 441,600
20,900 Prentiss Properties.............................. 431,063
26,800 Tower Realty Trust............................... 542,700
14,700 Weeks Corp....................................... 427,219
------------
4,477,420
------------
PRIVATE CORRECTIONS - 3.1%
28,500 Corrections Corp................................. 548,625
------------
</TABLE>
34
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
- -----------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUST - (CONTINUED)
REGIONAL MALLS - 6.1%
21,550 Glimcher Realty Trust............................ $ 348,841
16,140 Simon DeBartolo Property Group, Inc.............. 483,191
17,250 Taubman Centers, Inc............................. 236,109
------------
1,068,141
------------
SHOPPING CENTER - 6.5%
33,400 IRT Property Co.................................. 342,350
23,200 Kranzco Realty Trust............................. 345,100
30,000 Philips International Realty..................... 444,375
------------
1,131,825
------------
STORAGE - 6.8%
25,700 Public Storage, Inc.............................. 685,869
7,200 Shurgard Storage................................. 193,950
13,500 Storage Trust Realty............................. 302,906
------------
1,182,725
------------
Total Common Stocks 16,053,574
------------
(Cost $16,421,878)
SHORT TERM INVESTMENTS - 19.2%
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 9.6%
1,667,000 ABN AMRO Chicago Corp.** 5.380% 11/02/98.......... 1,667,000
------------
OTHER INVESTMENTS - 9.6%
1,670,425 Navigator Securities Lending Trust-Prime
Portfolio 5.320%(a)***......................... 1,670,425
------------
Total Short Term Investments 3,337,425
------------
(Cost $3,337,425)
Total Investments - 111.3% 19,390,999
(Cost $19,759,303)(b)
Other Assets and Liabilities, Net - (11.3%) (1,967,506)
------------
TOTAL NET ASSETS - 100.0% $17,423,493
------------
------------
</TABLE>
* Non-income producing security.
** Repurchase agreement with ABN AMRO., dated 10/30/98, due 11/02/98, at
5.380% collateralized by U.S. Treasury Note maturing 03/31/03, with a
market value of $1,743,407 (repurchase proceeds $1,677,747).
*** Rate reflects 7 day yield as of October 31, 1998.
**** The aggregate cost for federal income tax purposes is $19,791,956.
Aggregate gross unrealized appreciation is $576,771 and the aggregate
gross unrealized depreciation is $977,728 resulting in net unrealized
depreciation of $400,957.
(a) Investment of collateral received for securities loaned in Navigator
Securities Lending Trust-Prime Portfolio. As of October 31, 1998, the
market value of the securities on loan is $1,597,161.
See accompanying notes to financial statements.
35
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND (ORBFX)
INVESTMENT OBJECTIVE: TO PROVIDE A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL AND OREGON INCOME TAXES AS IS CONSISTENT WITH PRUDENT MANAGEMENT AND
PRESERVATION OF CAPITAL. TYPICALLY, THE ONLY TAXABLE INCOME EARNED BY THE FUND
IS FROM OVERNIGHT INTEREST ON TEMPORARY CASH. SHARES OF THE FUND ARE AVAILABLE
ONLY TO RESIDENTS OF THE STATE OF OREGON.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON OREGON TAX-FREE FUND AND THE
MUNICIPAL BOND INDEX
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C>
OR Tax-Free Fund (A) Pre-Load OR Tax-Free Fund (A) Post-Load
Oct-84 $10,000 $9,525
Dec-84 $10,150 $9,668
Dec-85 $11,452 $10,908
Dec-86 $14,018 $13,352
Dec-87 $13,744 $13,091
Dec-88 $15,396 $14,665
Dec-89 $16,408 $15,628
Dec-90 $17,392 $16,566
Dec-91 $19,104 $18,196
Dec-92 $20,347 $19,381
Dec-93 $22,524 $21,455
Dec-94 $22,060 $21,013
Dec-95 $24,410 $23,250
Dec-96 $25,247 $24,048
Dec-97 $26,931 $25,652
Dec-98 $28,652 $27,291
Fund Inception: 10/4/84
ANNUALIZED TOTAL RETURNS
PRE-LOAD POST-LOAD
1 Year: 6.39% 1.34%
5 Years: 4.93% 3.92%
10 Years: 6.41% 5.89%
Life of Fund: 7.76% 7.39%
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE
CRABBE HUSON OREGON TAX-FREE FUND AND THE
MUNICIPAL BOND INDEX
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C>
Municipal Bond Index
Oct-84 $10,000
Dec-84 $10,339
Dec-85 $12,161
Dec-86 $14,575
Dec-87 $14,515
Dec-88 $16,046
Dec-89 $17,298
Dec-90 $18,682
Dec-91 $20,974
Dec-92 $22,146
Dec-93 $25,183
Dec-94 $24,414
Dec-95 $27,354
Dec-96 $29,077
Dec-97 $31,441
Dec-98 $34,104
Fund Inception: 10/4/84
ANNUALIZED TOTAL RETURNS
1 Year:
5 Years:
10 Years:
Life of Fund:
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. RETURNS AND VALUE OF AN
INVESTMENT WILL VARY, RESULTING IN A GAIN OR LOSS ON SALE. THE ACCOMPANYING
CHART COMPARES THE PERFORMANCE OF THE OREGON TAX-FREE FUND WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, A BROAD-BASE INDEX OF BONDS; THE CONTRARIAN
INCOME FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND. THE INDEX PRESENTED HERE IS
NOT MANAGED, DOES NOT INCUR EXPENSES, AND IS NOT AVAILABLE FOR DIRECT
INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING EXPENSES, ITS PERFORMANCE
WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 4.75%.
The Crabbe Huson Oregon Tax-Free(1) Fund's pre-load return for fiscal year 1998
was 6.39%. This compares to the 8.47% return of the Merrill Lynch 7-Year to
12-Year Municipal Index.
The fund's comparison to the index is useful for context; however, it's not an
entirely accurate gauge because the index is a composite of municipal bonds from
every state, not just from Oregon. Further, the index often includes bonds of
lower quality, while the Oregon Tax Free Fund owns only investment-grade issues.
Our content focuses on quality: 66% of our bonds are rated AAA or are pre-funded
in U.S. Treasury obligations.
Currently, the fund's weighted average maturity is 14.4 years (most municipal
bond funds maintain an average maturity in the 10- to 15-year range). The
- ---------------------
(1) Shareholders may be subject to capital gains, ordinary income, and
alternative minimum taxes. Consult your tax advisor.
36
<PAGE>
fund's maturity has extended significantly over the past couple of years to
capture the incremental yield provided by longer maturity bonds and to pursue
any potential capital appreciation from interest rate declines. Considering the
continued increase in returns year over year, we think the change has been
worthwhile.
To a large degree, the Oregon municipal market has been immune from the recent
volatility in the taxable bond and equity market. Practical opportunities have
been driven more by the increased supply of new Oregon issues, rather than
credit concerns or interest rate volatility. We have taken advantage of this
surge of supply in recent months.
Looking forward, average maturity and portfolio yield will continue to drive
relative performance. We feel comfortable currently with an average maturity of
about 14 years and will continue to add incremental yield to the portfolio as
trading opportunities arise.
/s/ Garth R. Nisbetm, CFA /s/ Paul C. Rocheleau
Garth R. Nisbet, CFA Paul C. Rocheleau
37
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------------------------------------- ------------
<C> <S> <C>
FIXED INCOME SECURITIES - 98.3%
- -----------------------------------------------------------------------------------------------------------
EDUCATION - 23.9%
$ 15,000 Washington & Clackamas School District 5.000% 1/01/05.......................... $ 15,866
160,000 Marion County Oregon School District 6.000% 11/01/05 (FGIC).................... 180,000
435,000 Multnomah County School District 5.000% 3/01/07................................ 451,608
335,000 Jackson County Oregon School District 5.200% 6/01/07 (FSA)..................... 357,461
450,000 Josephine County Oregon School District 5.750% 6/01/07 (FGIC).................. 505,692
950,000 Multnomah County Oregon School District 5.600% 12/01/07 (FGIC)................. 1,041,105
300,000 Yamhill County S.D. #40 6.000% 06/01/08 (FGIC)................................. 343,515
240,000 Lane County Area Education District 4.850% 6/01/08............................. 253,167
160,000 Marion County Oregon School District 4.850% 6/01/08 (AMBAC).................... 168,497
295,000 Umatilla County School District 4.750% 6/15/10 (AMBAC)......................... 310,591
100,000 Washington County School District #885 6.100% 6/01/12 (FSA).................... 112,051
900,000 Washington, Multnomah, & Yamhill School Dist #1J 5.000% 11/1/14................ 936,315
1,000,000 Marion County Oregon School District #103 5.000% 11/1/15....................... 1,032,480
400,000 Washington County School District #48J 5.000% 8/1/17........................... 403,352
------------
6,111,700
------------
HEALTH & HOSPITAL - 6.9%
258,000 St. Charles Memorial Hospital 6.75% 1/01/06.................................... 282,056
1,000,000 Medford Hospital Facility Authority Revenue 5.125% 08/15/28.................... 994,620
500,000 Benton County Oregon Hospital Facility 5.125% 10/01/28......................... 492,080
------------
1,768,756
------------
MISCELLANEOUS - 9.3%
100,000 State of Oregon G.O. 9.000% 4/01/03............................................ 121,194
175,000 State of Oregon G.O. 7.200% 7/01/04............................................ 204,670
205,000 State of Oregon G.O. 8.200% 7/01/04............................................ 249,991
110,000 State of Oregon G.O. 6.000% 8/01/04............................................ 120,365
355,000 State of Oregon G.O. 6.750% 5/01/05............................................ 412,396
250,000 State of Oregon G.O. (Veterans) 7.250% 7/01/06................................. 303,503
200,000 State of Oregon G.O. 7.250% 1/01/07............................................ 244,388
200,000 State of Oregon G.O. (Veterans) 8.250% 1/01/07................................. 258,028
100,000 State of Oregon G.O. (Alt Energy) 6.400% 1/01/08............................... 100,523
180,000 State of Oregon G.O. 9.200% 4/01/08............................................ 250,333
</TABLE>
38
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------------------------------------- ------------
FIXED INCOME SECURITIES - (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C>
MISCELLANEOUS - (CONTINUED)
$ 100,000 Oregon State Veterans Welfare 5.550% 4/01/09................................... $ 110,731
------------
2,376,122
------------
OTHER REVENUE BOND - 26.8%
765,000 Salem Educational Facility (Revenue) 6.000% 4/01/10............................ 831,769
665,000 Oregon State Dept. Admin. Svcs Lottery Rev 4.750% 4/1/13 (FSA)................. 670,227
300,000 Oregon State Housing & Community SVCS. Dept.Mtg 5.150% 7/1/13.................. 307,911
500,000 Puerto Rico Commonwealth Infrastructure 5.000% 7/1/13 (AMBAC).................. 518,615
300,000 Puerto Rico Public Buildings Authority Revenue 5.000% 7/1/13 (MBIA)............ 310,779
1,000,000 Multnomah County OR Education Facilities Rev 5.150% 4/1/14 (AMBAC)............. 1,039,620
500,000 Puerto Rico Electric Power Authority Revenue 5.250% 7/1/14 (MBIA).............. 526,750
500,000 Clackamas Oregon Community College 5.400% 06/01/15 (MBIA)...................... 534,895
110,000 Oregon State Housing & Community SVCS. Dept.Mtg 5.150% 7/01/15................. 112,023
500,000 Molalla Oregon Water Revenue 5.200% 8/1/17 (FSA)............................... 524,025
1,000,000 Portland Housing Authority Revenue 5.000% 01/1/19.............................. 987,420
500,000 Puerto Rico Electric Power Authority Revenue 5.250% 7/1/21 (MBIA).............. 489,100
------------
6,853,134
------------
PUBLIC IMPROVEMENTS - 17.1%
300,000 Salem Oregon Series A 5.875% 01/1/07........................................... 315,528
400,000 Metro Oregon Open Spaces Program 4.900% 9/01/07................................ 421,324
160,000 Portland Oregon Building Service 4.750% 4/01/08................................ 164,355
150,000 Metro Oregon Regional Center 5.000% 8/1/10..................................... 155,228
135,000 Bend County Oregon Library Service District 5.375% 6/1/11 (AMBAC).............. 145,664
250,000 Oregon Deschutes County 4.750% 12/01/12........................................ 254,405
750,000 Salem-Keizer Oregon School District #24J 4.875% 6/1/14......................... 758,850
1,000,000 Tualatin Hills Park & Recreationa District 5.750% 03/1/15...................... 1,116,310
1,000,000 Northern Oregon Corrections 5.400% 9/15/16 (AMBAC)............................. 1,048,340
------------
4,380,004
------------
REFUNDING BONDS - 8.3%
400,000 Oregon State Department General Services 6.100% 9/01/06........................ 434,752
350,000 Washington County Oregon United Sewer 5.900% 10/1/06........................... 386,471
$ 265,000 Canby Oregon Sewer Revenue 5.1500% 12/01/14 (FSA).............................. $ 279,845
</TABLE>
39
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------------------------------------- ------------
FIXED INCOME SECURITIES - (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C>
REFUNDING BONDS - (CONTINUED)
500,000 Clackamas & Washington Counties School District #003 5.150% 6/1/14............. 516,690
485,000 Oregon City Oregon Sewer 5.200% 10/01/15 (FGIC)................................ 512,325
------------
2,130,083
------------
SEWER AND WATER - 3.4%
140,000 McMinnville Sewer System 4.700% 2/01/07 (FGIC)................................. 145,841
100,000 Portland Oregon Sewer System Revenue 5.100% 8/01/08............................ 105,125
100,000 Portland Oregon Sewer System Revenue 5.150% 3/01/08............................ 103,845
500,000 McMinnville Sewer System 5.000% 2/01/14 (FGIC)................................. 509,400
------------
864,211
------------
TRANSPORTATION - 2.6%
300,000 PR Puerto Rico Commonwealth 5.5000% 7/1/12..................................... 333,282
310,000 PR Puerto Rico Commonwealth 5.5000% 7/1/14..................................... 341,620
------------
674,902
------------
Total Fixed Income Securities 25,158,912
------------
(Cost $23,800,544)
SHORT TERM INVESTMENT - 0.7%
- -----------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY - 0.7%
177,312 DreyfusTax-Exempt Cash Management Fund 3.100%*................................. 177,312
------------
Total Investments - 99.0% 25,336,224
(Cost $23,977,856)**
Other Assets and Liabilities, Net - 1.0% 255,165
------------
TOTAL NET ASSETS - 100.0% $25,591,389
------------
------------
</TABLE>
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Corp.
FSA - Financial Security Assurance
G.O. - General Obligation
MBIA - Municipal Bond Insurance Assoc.
* Rate reflects 7 day yield as of October 31, 1998.
** The aggregate cost for federal income tax purposes is identical.
Aggregate gross unrealized appreciation is $1,360,944 and the
aggregate gross unrealized depreciation is $2,576, resulting in net
unrealized appreciation of $1,358,368.
See accompanying notes to financial statements.
40
<PAGE>
CRABBE HUSON CONTRARIAN INCOME FUND (CHINX)
INVESTMENT OBJECTIVE: TO PROVIDE CAPITAL PRESERVATION AND A HIGH LEVEL OF
CURRENT INCOME THROUGH A DIVERSIFIED PORTFOLIO OF FIXED-INCOME SECURITIES,
INCLUDING CONVERTIBLE BONDS AND DEBENTURES.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN THE CRABBE HUSON CONTRARIAN INCOME FUND
AND THE LEHMAN BROTHERS GOVT/CORP BOND INDEX (LBGC)
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C> <C>
Income Fund (A) Pre-Load Income Fund (A) Post-Load LBGC
Jan-89 $10,000 $9,525 $10,000
Dec-89 $10,772 $10,260 $11,156
Dec-90 $11,249 $10,715 $11,763
Dec-91 $12,769 $12,162 $13,578
Dec-92 $14,014 $13,348 $15,006
Dec-93 $15,094 $14,377 $17,052
Dec-94 $14,684 $13,986 $16,240
Dec-95 $16,434 $15,654 $18,889
Dec-96 $17,246 $16,427 $19,907
Dec-97 $19,014 $18,111 $21,661
Dec-98 $21,145 $20,141 $23,887
Fund Inception: 1/31/89
Annualized Total Returns
PRE-LOAD POST-LOAD
1 Year: 11.21% 5.92%
5 Years: 8.97% 5.94%
Life of Fund: 7.99% 7.44%
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. THE INSTITUTIONAL CLASS
OF SHARES RETURNED -0.45% SINCE ITS INCEPTION DATE OF 10/19/98. RETURNS AND
VALUE OF AN INVESTMENT WILL VARY, RESULTING IN A GAIN OR LOSS ON SALE. THE
ACCOMPANYING CHART COMPARES THE PERFORMANCE OF THE CONTRARIAN INCOME FUND WITH
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX, A BROAD-BASE INDEX OF
BONDS; THE CONTRARIAN INCOME FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND. THE
INDEX PRESENTED HERE IS NOT MANAGED, DOES NOT INCUR EXPENSES, AND IS NOT
AVAILABLE FOR DIRECT INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING
EXPENSES, ITS PERFORMANCE WOULD HAVE BEEN LOWER.
PRE-LOAD RETURNS AND INSTITUTIONAL RETURNS DO NOT INCUDE SALES CHARGES OR
CONTINGENT DEFERRED SALES CHARGES. POST-LOAD (CLASS A) RETURNS INCLUDE THE
MAXIMUM SALES CHARGE OF 5.75%.
The Crabbe Huson Contrarian Income Fund's return for fiscal year 1998 was 11.21%
(pre-load), outpacing the Lehman Brothers Government/Corporate Bond Index, which
returned 10.28%.
The Crabbe Huson Contrarian Income Fund has posted excellent performance numbers
this year. In fact, returns of 14.84% and 10.05% one-year and year-to-date (as
of September 30, 1998), respectively, have classified it as one of the most
attractive bond funds nationwide. Morningstar, tracking the fund's performance
since its inception in January 1989, recently added another star to its current
three-year rating, giving us four stars, and has kept the fund first on its list
for the past two quarters.(1) Also, the fund has been a "Top 15 Fund" monthly in
the WALL STREET JOURNAL (Lipper "A-Rated" bond funds list) since November 1997.
- -------------------
(1) Current Morningstar percentile rankings* and proprietary ratings** for the
Crabbe Huson Contrarian Income Fund are: 1-year, 1st percentile, no rating
available; 3-year, 2nd percentile, 4 stars; 5-year, 8th percentile, 3 stars;
overall rating is 3 stars.
41
<PAGE>
Signs of lower inflation were visible to us in late 1996 as the price of gold
was declining in the face of rising (and restrictive) interest rates. As
contrarians, we purchased longer maturity bonds in an environment when the bond
market was anticipating higher rates and the Fed was raising short-term rates.
Similarly, we avoided lower quality bonds during an environment when risk
spreads were very narrow and unattractive.
Interestingly, the reverse is now true. Most observers believe that interest
rates will fall and that inflation will decline. The Fed is lowering (easing)
interest rates. Credit spreads have widened to levels not seen in ten years. As
contrarians, we have neutralized our maturity versus the index (the fund's
average maturity now stands at 8.7 years, down from 14.7 six months ago), and we
have begun to add lower quality, higher yielding bonds to the portfolio.
We believe this strategy will add incremental value over time, and we will
continue to monitor the current macroeconomic battle between the mighty forces
of disinflation and the governmental policies of monetary ease.
/s/ Garth R. Nisbet, CFA /s/ Paul C. Rocheleau
Garth R. Nisbet, CFA Paul C. Rocheleau
- ------------------------
* Morningstar's intermediate-term corporate bond rankings for the Crabbe Huson
Contrarian Income Fund for the period ending 9/30/98 are as follows: 5-year, 28
out of 214 funds; 3-year, 9 out of 350 funds; 1-year, 2 out of 469 funds; and
YTD, 4 out of 492 funds.
** Morningstar proprietary ratings reflect historical risk-adjusted performance
as of the most recent month-end shown. The ratings are subject to change every
month. Past performance is no guarantee of future results.
42
<PAGE>
CRABBE HUSON CONTRARIAN INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
<C> <S> <C>
FIXED INCOME SECURITIES - 97.7%
- -----------------------------------------------------------------------------
AGENCY - 5.3%
$ 50,000 Interamerican Development Bank 6.125% 3/08/06.... $ 52,750
100,000 Federal National Mortgage Association 6.580%
5/14/08........................................ 102,578
300,000 Federal National Mortgage Association 6.000%
5/15/08........................................ 318,000
------------
473,328
------------
ASSET-BACKED - 0.3%
30,000 Green Tree Financial 6.540% 7/15/19.............. 30,462
------------
CORPORATE BONDS - 34.3%
100,000 Travelers Group, Inc. 7.125% 8/01/99............. 100,925
100,000 Upjohn Co. 5.875% 4/15/00........................ 101,614
100,000 Household Finance Corp. 6.000% 5/08/00........... 100,641
100,000 Pepsico, Inc. 5.875% 6/01/00..................... 102,131
100,000 American Express Credit 6.500% 8/01/00........... 102,825
100,000 Ford Motor Credit Co. 6.250% 11/08/00............ 101,763
100,000 WMX Technologies 6.700% 5/01/01.................. 102,238
100,000 Merrill Lynch & Co. 6.020% 5/11/01............... 101,138
50,000 IBM Corp. 5.945% 5/14/01......................... 51,131
100,000 GMAC 9.000% 10/15/02............................. 112,314
50,000 IBM Corp. 7.250% 11/01/02........................ 54,148
100,000 Sears Roebuck Acceptance Corp. 6.930% 11/15/02... 104,970
100,000 American General Finance Corp. 6.200% 3/15/03.... 102,247
100,000 JP Morgan & Co. 7.625% 9/15/04................... 107,877
50,000 SBC Communications 6.250% 3/01/05................ 52,070
100,000 Ryder System, Inc. 6.500% 5/15/05................ 102,313
75,000 CBS Corp. 7.150% 5/20/05......................... 75,836
100,000 Anheuser Busch 7.000% 9/01/05.................... 106,140
100,000 US West Communications 6.625% 9/15/05............ 106,823
50,000 Bear Stearns Co. 6.875% 10/01/05................. 51,097
50,000 Snap-on, Inc. 6.625% 10/01/05.................... 53,268
50,000 Walt Disney Co. 6.750% 3/30/06................... 54,519
50,000 Sysco Corp. 7.000% 5/01/06....................... 54,909
100,000 EI Du Pont De Nemours & Co., Inc. 8.250%
9/15/06........................................ 118,127
50,000 Wal-Mart Stores 8.000% 9/15/06................... 58,692
100,000 Campbell Soup Company 6.900% 10/15/06............ 110,675
50,000 Eli Lilly 8.375% 12/01/06........................ 59,485
100,000 AT&T Corp. 7.750% 3/01/07........................ 114,746
50,000 GTE South 6.000% 2/15/08......................... 51,371
50,000 Lincoln National Corp. 6.500% 3/15/08............ 50,465
100,000 Cooper Industries, Inc. 6.375% 5/08/08........... 102,572
100,000 Hertz Corp. 6.625% 5/15/08....................... 101,830
75,000 Owens-Illinois, Inc. 7.350% 5/15/08.............. 74,919
100,000 Pacificorp 6.375% 5/15/08........................ 104,793
100,000 Kroger Co. 7.000% 5/01/18........................ 97,056
------------
3,047,668
------------
</TABLE>
43
<PAGE>
CRABBE HUSON CONTRARIAN INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
FIXED INCOME SECURITIES - (CONTINUED)
- -----------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE PASS-THROUGH SECURITIES - 18.4%
$ 68,027 Federal National Mortgage Association Pool
#030333 9.250% 9/01/16......................... $ 71,854
65,692 Federal Home Loan Mortgage Corp Pool #302029
9.500% 10/01/16................................ 70,552
87,995 Federal Home Loan Mortgage Corp Pool #303033
9.000% 4/01/17................................. 93,357
85,448 Federal Home Loan Mortgage Corp Pool #301538
10.000% 7/01/17................................ 92,804
92,534 Federal Home Loan Mortgage Corp Pool #C80344
7.500% 09/01/25................................ 95,975
117,182 Federal Home Loan Mortgage Corp Pool #D65456
7.000% 11/01/25................................ 121,137
129,554 Federal Home Loan Mortgage Corp Pool #C80409
8.000% 06/01/26................................ 135,545
239,088 Government National Mortgage Association Pool
#780651 7.000% 10/15/27........................ 244,767
299,198 Government National Mortgage Association Pool
#158759 7.000% 6/15/28......................... 306,304
400,000 Government National Mortgage Association Pool
#476714 6.500% 11/15/28........................ 404,372
------------
1,636,667
------------
U.S. GOVERNMENT BONDS - 39.4%
20,000 U.S. Treasury Note 5.625% 4/30/00................ 20,362
10,000 U.S. Treasury Note 5.500% 5/31/00................ 10,173
725,000 U.S. Treasury Note 5.375% 7/31/00................ 737,804
1,175,000 U.S. Treasury Note 5.125% 8/31/00................ 1,192,073
205,000 U.S. Treasury Note 4.500% 9/30/00................ 206,089
300,000 U.S. Treasury Bond 6.500% 11/15/26............... 349,173
100,000 U.S. Treasury Bond 6.625% 2/15/27................ 118,406
445,000 U.S. Treasury Bond 6.125% 11/15/27............... 500,763
355,000 U.S. Treasury Bond 5.500% 8/15/28................ 373,581
------------
3,508,424
------------
Total Fixed Income Securities 8,696,549
------------
(Cost $8,447,597)
</TABLE>
44
<PAGE>
CRABBE HUSON CONTRARIAN INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 1998
<TABLE>
<CAPTION>
SHARES OR
FACE VALUE SECURITIES DESCRIPTION MARKET VALUE
- ----------- -------------------------------------------------- ------------
SHORT TERM INVESTMENTS - 19.7%
- -----------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 6.3%
$ 558,000 ABN AMRO Chicago Corp.* 5.380% 11/02/98........... $ 558,000
------------
OTHER INVESTMENTS - 13.4%
1,194,996 Navigator Securities Lending Trust-Prime
Portfolio 5.320% (a)**......................... 1,194,996
------------
Total Short Term Investments 1,752,996
------------
(Cost $1,752,996)
Total Investments - 117.4% 10,449,545
(Cost $10,200,593)***
Other Assets and Liabilities, Net - (17.4%) (1,550,884)
------------
TOTAL NET ASSETS - 100.0% $ 8,898,661
------------
------------
</TABLE>
* Repurchase agreement with ABN AMRO dated 10/30/98 due 11/02/98 at
5.380%, collateralized by U.S. Treasury Note maturing 3/31/03, with a
market value of $583,576 (repurchase proceeds $558,250).
** Rate reflects 7 day yield as of October 31, 1998.
*** The aggregate cost for federal income tax purposes is identical.
Aggregate gross unrealized appreciation is $268,435 and the aggregate
gross unrealized depreciation is $19,483, resulting in net unrealized
appreciation of $248,952.
(a) Investment of collateral received for securities loaned in Navigator
Securities Lending Trust-Prime Portfolio. As of October 31, 1998, the
market value of the securities on loan is $1,166,613.
See accompanying notes to financial statements.
45
<PAGE>
- -----------------------------------------------------------------------------
CRABBE HUSON FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
THE CRABBE CRABBE HUSON
HUSON SPECIAL SMALL CAP
FUND, INC. FUND
----------------- -------------
<S> <C> <C>
ASSETS:
Investment securities, at market (Note
1) $ 108,281,443 $ 94,518,319
Investment in affiliate, at market (Note
1) 1,268,389 --
Deposits with brokers for securities
sold short (Note 1) 5,271,476 --
Cash -- --
Receivables:
Dividends and interest 5,223 43,873
Expense reimbursement due from Advisor 37,914 69,449
Fund shares sold -- 15,594
Investment securities sold -- --
Organization expenses (Note 1) -- 86,359
Other 9,675 4,343
----------------- -------------
$ 114,874,120 $ 94,737,937
----------------- -------------
LIABILITIES:
Securities sold short, at market
(proceeds of $6,457,686) (Note 1) 5,215,894 --
Payables:
Due to custodian bank -- --
Loan Payable 4,154,233 376,389
Investment securities purchased -- --
Fund shares redeemed 575,741 125,623
Deposits for securities loaned (Note
1) -- 17,191,987
Income dividend 8,071 --
Due to Broker - variation margin 169,306 --
Accrued expenses:
Due to Advisor 51,488 30,635
Due to Administrator 93,385 7,036
12b-1 fees 18,841 --
Other 83,471 5,203
----------------- -------------
10,370,430 17,736,873
----------------- -------------
NET ASSETS: $ 104,503,690 $ 77,001,064
----------------- -------------
----------------- -------------
NET ASSETS CONSIST OF:
Capital paid in 176,972,250 120,335,313
Undistributed (distributed in excess
of) net investment income (8,072) --
Undistributed net realized gain (loss)
on investments (21,214,027) 193,222
Net unrealized appreciation
(depreciation) on investments and
short sales (51,246,461) (43,527,471)
----------------- -------------
$ 104,503,690 $ 77,001,064
----------------- -------------
----------------- -------------
CLASS A
Net Assets $ 104,503,690 $ 14,461,877
Shares outstanding (Note 3) 12,908,712 1,672,006
----------------- -------------
----------------- -------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 8.10 $ 8.65
----------------- -------------
----------------- -------------
MAXIMUM OFFERING PRICE PER SHARE (NAV/
(1 - SALES LOAD)) $ 8.59 $ 9.18
----------------- -------------
----------------- -------------
CLASS I
Net Assets -- $ 62,539,187
Shares outstanding (Note 3) -- 7,207,509
----------------- -------------
----------------- -------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- $ 8.68
----------------- -------------
----------------- -------------
INVESTMENTS, AT COST (Note 4) $ 162,038,085 $138,045,790
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
CRABBE HUSON CRABBE HUSON CRABBE HUSON
MANAGED REAL ESTATE OREGON
INCOME & CRABBE HUSON INVESTMENT TAX-FREE
EQUITY FUND EQUITY FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment securities, at market (Note
1) $122,790,069 $279,389,244 $ 19,390,999 $ 25,336,224
Investment in affiliate, at market (Note
1) -- -- -- --
Deposits with brokers for securities
sold short (Note 1) -- -- --
Cash 26,102 79,774
Receivables:
Dividends and interest 548,023 141,709 21,455 353,070
Expense reimbursement due from Advisor 45,786 20,788 44,901 --
Fund shares sold 1,003 806,637 278 75
Investment securities sold 1,861,637 7,228,846 674,195 --
Organization expenses (Note 1) 3,844 2,494 14,318 --
Other 5,813 28,280 941 539
------------- ------------- ------------- -------------
$125,282,277 $287,697,772 $ 20,147,087 $ 25,689,908
------------- ------------- ------------- -------------
LIABILITIES:
Securities sold short, at market
(proceeds of $6,457,686) (Note 1) -- -- --
Payables:
Due to custodian bank -- -- 28,132 --
Loan Payable -- --
Investment securities purchased 1,193,695 6,545,343 993,005 --
Fund shares redeemed 4,711,410 808,825 10,209 49,306
Deposits for securities loaned (Note
1) 17,905,192 25,885,688 1,670,425 --
Income dividend -- -- -- 27,599
Due to Broker - variation margin -- -- -- 5,673
Accrued expenses:
Due to Advisor 42,437 95,781 7,240 5,315
Due to Administrator 12,218 37,736 6,401 4,996
12b-1 fees 5,825 19,861 3,636 2,224
Other 7,537 4,443 4,546 3,406
------------- ------------- ------------- -------------
23,878,314 33,397,677 2,723,594 98,519
------------- ------------- ------------- -------------
NET ASSETS: $101,403,963 $254,300,095 $ 17,423,493 $ 25,591,389
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS CONSIST OF:
Capital paid in 93,899,345 236,810,410 17,443,359 23,440,904
Undistributed (distributed in excess
of) net investment income 316,366 1,172,132 98,585 183,251
Undistributed net realized gain (loss)
on investments 1,499,572 3,665,526 249,853 608,866
Net unrealized appreciation
(depreciation) on investments and
short sales 5,688,680 12,652,027 (368,304) 1,358,368
------------- ------------- ------------- -------------
$101,403,963 $254,300,095 $ 17,423,493 $ 25,591,389
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CLASS A
Net Assets $ 67,680,842 $226,628,365 $ 17,423,493 $ 25,591,389
Shares outstanding (Note 3) 5,284,441 13,650,094 1,669,684 1,964,202
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 12.81 $ 16.60 $ 10.44 $ 13.03
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
MAXIMUM OFFERING PRICE PER SHARE (NAV/
(1 - SALES LOAD)) $ 13.45 $ 17.61 $ 11.08 $ 13.68
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CLASS I
Net Assets $ 33,723,121 $ 27,671,730 -- --
Shares outstanding (Note 3) 2,632,094 1,661,751 -- --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 12.81 $ 16.65 -- --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
INVESTMENTS, AT COST (Note 4) $117,101,389 $266,737,217 $ 19,759,303 $ 23,977,856
<CAPTION>
CRABBE HUSON
CONTRARIAN
INCOME
FUND
-------------
<S> <C>
ASSETS:
Investment securities, at market (Note
1) $ 10,449,545
Investment in affiliate, at market (Note
1) --
Deposits with brokers for securities
sold short (Note 1)
Cash
Receivables:
Dividends and interest 127,724
Expense reimbursement due from Advisor 24,641
Fund shares sold --
Investment securities sold 4,386
Organization expenses (Note 1) --
Other 83
-------------
$ 10,606,379
-------------
LIABILITIES:
Securities sold short, at market
(proceeds of $6,457,686) (Note 1)
Payables:
Due to custodian bank 74,129
Loan Payable
Investment securities purchased 406,478
Fund shares redeemed 21,638
Deposits for securities loaned (Note
1) 1,194,996
Income dividend --
Due to Broker - variation margin --
Accrued expenses:
Due to Advisor 2,817
Due to Administrator 3,206
12b-1 fees 787
Other 3,667
-------------
1,707,718
-------------
NET ASSETS: $ 8,898,661
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in 8,505,183
Undistributed (distributed in excess
of) net investment income 2,770
Undistributed net realized gain (loss)
on investments 141,756
Net unrealized appreciation
(depreciation) on investments and
short sales 248,952
-------------
$ 8,898,661
-------------
-------------
CLASS A
Net Assets $ 8,799,055
Shares outstanding (Note 3) 808,819
-------------
-------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 10.88
-------------
-------------
MAXIMUM OFFERING PRICE PER SHARE (NAV/
(1 - SALES LOAD)) $ 11.54
-------------
-------------
CLASS I
Net Assets $ 99,606
Shares outstanding (Note 3) 9,134
-------------
-------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 10.90
-------------
-------------
INVESTMENTS, AT COST (Note 4) $ 10,200,593
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
- -----------------------------------------------------------------------------
CRABBE HUSON FUNDS
STATEMENTS OF OPERATIONS
Year ended October 31, 1998
<TABLE>
<CAPTION>
THE CRABBE CRABBE HUSON
HUSON SPECIAL SMALL CAP
FUND, INC. FUND
----------------- ---------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 3,280,828 $ 410,666
Securities Lending 199,867 60,184
Dividends (net of foreign tax withheld
of none, none $7,373, $40,495, none,
none and none) 1,241,796 396,787
----------------- ---------------
4,722,491 867,637
----------------- ---------------
EXPENSES
Investment advisory fees (Note 2) 2,241,313 1,159,630
12b-1 fees - Class A (Note 2) 607,806 76,898
Bookkeeping fees (Note 2) 39,952 13,526
Transfer agent - Class A (Note 2) 593,051 63,367
Class I (Note 2) -- 27,865
Administration (Note 2) 113,728 63,899
Printing & Postage 152,117 11,990
Custody 143,359 58,348
Legal 7,351 3,703
Interest 481,658 6,329
Auditing 28,361 11,402
Insurance 16,744 4,263
Trustees fees (Note 2) 22,043 9,396
Registration fees 60,129 42,387
Amortization of organization expenses
- Class A -- 24,051
Short sale dividend 192,883 --
Miscellaneous 46,578 14,696
----------------- ---------------
4,747,073 1,591,750
Fees and expenses waived or borne by
Investment advisor/administrator
(Note 2) (833,939) (269,238)
Fees paid indirectly -- --
----------------- ---------------
NET EXPENSES 3,913,134 1,322,512
----------------- ---------------
NET INVESTMENT INCOME 809,357 (454,875)
----------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 41,061,041 311,050
Net realized loss on closed short
sales (59,279,457) --
Net change in unrealized appreciation
(depreciation) of investments and
short sales (102,586,857) (53,349,009)
----------------- ---------------
NET GAIN (LOSS) ON INVESTMENTS (120,805,273) (53,037,959)
----------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(119,995,916) $ (53,492,834)
----------------- ---------------
----------------- ---------------
</TABLE>
(a) Computes to less than $1.
See accompanying notes to financial statements.
48
<PAGE>
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
CRABBE HUSON CRABBE HUSON
MANAGED REAL ESTATE CRABBE HUSON
INCOME & CRABBE HUSON INVESTMENT OREGON TAX-FREE
EQUITY FUND EQUITY FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 3,226,783 $ 788,404 $ 70,010 $ 1,345,768
Securities Lending 86,892 271,871 20,939 --
Dividends (net of foreign tax withheld
of none, none $7,373, $40,495, none,
none and none) 1,064,902 5,509,575 1,300,856 --
--------------- --------------- --------------- ---------------
4,378,577 6,569,850 1,391,805 1,345,768
--------------- --------------- --------------- ---------------
EXPENSES
Investment advisory fees (Note 2) 1,185,212 3,300,790 267,032 131,687
12b-1 fees - Class A (Note 2) 176,242 849,175 68,694 45,080
Bookkeeping fees (Note 2) 16,207 41,156 5,179 4,165
Transfer agent - Class A (Note 2) 81,143 356,731 42,926 30,920
Class I (Note 2) 21,239 19,030 -- --
Administration (Note 2) 61,413 172,324 10,918 10,821
Printing & Postage 12,323 55,797 4,267 2,568
Custody 77,222 139,698 23,059 24,106
Legal 2,015 6,218 459 184
Interest 50 28,488 521 484
Auditing 9,179 23,983 2,389 2,062
Insurance 6,142 19,944 1,507 1,249
Trustees fees (Note 2) 8,487 25,994 2,292 1,881
Registration fees 56,908 59,907 50,195 1,832
Amortization of organization expenses
- Class A 1,230 2,529 31,983 --
Short sale dividend -- -- -- --
Miscellaneous 7,673 3,234 3,227 3,169
--------------- --------------- --------------- ---------------
1,722,685 5,104,998 514,648 260,208
Fees and expenses waived or borne by
Investment advisor/administrator
(Note 2) (223,872) (136,336) (113,637) (1,696)
Fees paid indirectly (1,001) (30,663) -- --
--------------- --------------- --------------- ---------------
NET EXPENSES 1,497,812 4,937,999 401,011 258,512
--------------- --------------- --------------- ---------------
NET INVESTMENT INCOME 2,880,765 1,631,851 990,794 1,087,256
--------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 1,965,514 8,001,428 296,927 675,948
Net realized loss on closed short
sales -- -- -- --
Net change in unrealized appreciation
(depreciation) of investments and
short sales (5,596,448) (44,543,545) (4,584,901) (80,976)
--------------- --------------- --------------- ---------------
NET GAIN (LOSS) ON INVESTMENTS (3,630,934) (36,542,117) (4,287,974) 594,972
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (750,169) $ (34,910,266) $ (3,297,180) $ 1,682,228
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
CRABBE HUSON
CONTRARIAN
INCOME
FUND
---------------
<S> <C>
INVESTMENT INCOME
Interest $ 333,237
Securities Lending 3,536
Dividends (net of foreign tax withheld
of none, none $7,373, $40,495, none,
none and none) --
---------------
336,773
---------------
EXPENSES
Investment advisory fees (Note 2) 40,875
12b-1 fees - Class A (Note 2) 13,192
Bookkeeping fees (Note 2) 2,524
Transfer agent - Class A (Note 2) 21,989
Class I (Note 2) (a)
Administration (Note 2) 2,347
Printing & Postage 878
Custody 14,597
Legal 85
Interest 49
Auditing 1,114
Insurance 176
Trustees fees (Note 2) 413
Registration fees 29,608
Amortization of organization expenses
- Class A --
Short sale dividend --
Miscellaneous 1,113
---------------
128,960
Fees and expenses waived or borne by
Investment advisor/administrator
(Note 2) (85,520)
Fees paid indirectly --
---------------
NET EXPENSES 43,440
---------------
NET INVESTMENT INCOME 293,333
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 221,484
Net realized loss on closed short
sales --
Net change in unrealized appreciation
(depreciation) of investments and
short sales 115,514
---------------
NET GAIN (LOSS) ON INVESTMENTS 336,998
---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 630,331
---------------
---------------
</TABLE>
(a) Computes to less than $1.
See accompanying notes to financial statements.
49
<PAGE>
- -----------------------------------------------------------------------------
CRABBE HUSON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THE CRABBE HUSON
SPECIAL FUND, INC.
---------------------------------------
YEAR ENDED
YEAR ENDED OCTOBER 31,
OCTOBER 31, 1998 1997
------------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 809,357 $ 3,511,023
Net realized gain (loss) on
investments 41,061,041 35,382,232
Net realized loss on closed short
sales (59,279,457) --
Net change in unrealized appreciation
or depreciation of investments and
short sales (102,586,857) 57,974,639
------------------- ---------------
Increase (Decrease) in net assets
resulting from operations (119,995,916) 96,867,894
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A (3,172,152) (4,324,808)
Return of capital-Class A (396,855) --
From net investment income-Class I -- --
From net realized gain on
investments-Class A (38,363,921) (9,866,077)
From net realized gain on
investments-Class I -- --
CAPITAL SHARE TRANSACTIONS, NET (Note 3) (129,902,716) (167,381,164)
------------------- ---------------
Total increase (decrease) in net
assets (291,831,560) (84,704,155)
FUND NET ASSETS, BEGINNING OF PERIOD 396,335,250 481,039,405
------------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 104,503,690 $ 396,335,250
------------------ ---------------
------------------ ---------------
**Including undistributed (distributions
in excess of)
net investment income of: $ (8,072) $ 2,158,210
------------------ ---------------
------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON
EQUITY FUND
------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,631,851 $ 1,260,833
Net realized gain on investments 8,001,428 80,765,002
Net change in unrealized appreciation
(depreciation) of investments (44,543,545) 22,494,641
--------------- ---------------
Increase (Decrease) in net assets
resulting from operations (34,910,266) 104,520,476
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A (804,289) (1,478,593)
From net investment income-Class I (150,978) (19,410)
From net realized gain on
investments-Class A (77,290,555) (33,083,445)
From net realized gain on
investments-Class I (4,893,327) (348,809)
CAPITAL SHARE TRANSACTIONS, NET (Note 3) (31,781,616) (106,452,034)
--------------- ---------------
Total increase (decrease) in net
assets (149,831,031) (36,861,815)
FUND NET ASSETS, BEGINNING OF PERIOD 404,131,126 440,992,941
--------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 254,300,095 $ 404,131,126
--------------- ---------------
--------------- ---------------
**Including undistributed net investment
income of: $ 1,172,132 $ 895,302
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
CRABBE HUSON
CRABBE HUSON MANAGED INCOME & EQUITY
SMALL CAP FUND FUND
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ (454,875) $ 218,832 $ 2,880,765 $ 2,795,398
Net realized gain (loss) on
investments 311,050 10,883,028 1,965,514 14,919,865
Net realized loss on closed short
sales
Net change in unrealized appreciation
or depreciation of investments and
short sales (53,349,009) 9,736,622 (5,596,448) 4,353,683
--------------- --------------- --------------- ---------------
Increase (Decrease) in net assets
resulting from operations (53,492,834) 20,838,482 (750,169) 22,068,946
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A -- (37,544) (1,566,627) (2,327,127)
Return of capital-Class A -- -- -- --
From net investment income-Class I (355,900) (21,320) (677,141) (458,657)
From net realized gain on
investments-Class A (3,251,640) (281,168) (11,232,637) (6,443,097)
From net realized gain on
investments-Class I (7,631,388) (99,170) (3,834,627) (189,266)
CAPITAL SHARE TRANSACTIONS, NET (Note 3) 27,514,550 73,149,261 (5,092,612) (15,636,696)
--------------- --------------- --------------- ---------------
Total increase (decrease) in net
assets (37,217,212) 93,548,541 (23,153,813) (2,985,897)
FUND NET ASSETS, BEGINNING OF PERIOD 114,218,276 20,669,735 124,557,776 127,543,673
--------------- --------------- --------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 77,001,064 $ 114,218,276 $ 101,403,963 $ 124,557,776
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
**Including undistributed (distributions
in excess of)
net investment income of: $ -- $ 239,000 $ 316,366 $ (20,757)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON
REAL ESTATE INVESTMENT FUND
------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 990,794 $ 912,374
Net realized gain on investments 296,927 3,694,705
Net change in unrealized appreciation
(depreciation) of investments (4,584,901) 2,968,799
--------------- ---------------
Increase (Decrease) in net assets
resulting from operations (3,297,180) 7,575,878
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A (776,460) (908,865)
From net investment income-Class I -- --
From net realized gain on
investments-Class A (3,695,066) (1,144,248)
From net realized gain on
investments-Class I -- --
CAPITAL SHARE TRANSACTIONS, NET (Note 3) (9,066,353) 8,086,847
--------------- ---------------
Total increase (decrease) in net
assets (16,835,059) 13,609,612
FUND NET ASSETS, BEGINNING OF PERIOD 34,258,552 20,648,940
--------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 17,423,493 $ 34,258,552
--------------- ---------------
--------------- ---------------
**Including undistributed net investment
income of: $ 98,585 $ 39,437
--------------- ---------------
--------------- ---------------
</TABLE>
51
<PAGE>
- ---------------------------------------------------------------------
CRABBE HUSON FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
CRABBE HUSON
OREGON TAX-FREE FUND
------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 1,087,256 $ 1,110,234
Net realized gain on investments 675,948 72,541
Net change in unrealized appreciation
(depreciation) of investments (80,976) 514,167
--------------- ---------------
Increase in net assets resulting from
operations 1,682,228 1,696,942
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A (1,086,789) (957,659)
From net investment income-Class I -- --
From net realized gain on
investments-Class A (71,383) (152,575)
CAPITAL SHARE TRANSACTIONS, NET (Note 3) (1,419,914) (234,482)
--------------- ---------------
Total increase (decrease) in net
assets (895,858) 352,226
FUND NET ASSETS, BEGINNING OF PERIOD 26,487,247 26,135,021
--------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 25,591,389 $ 26,487,247
--------------- ---------------
--------------- ---------------
**Including undistributed (distributions
in excess of)
net investment income of: $ 183,251 $ 169,838
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON
CONTRARIAN INCOME FUND
------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 293,333 $ 218,795
Net realized gain on investments 221,484 108,239
Net change in unrealized appreciation
(depreciation) of investments 115,513 21,295
--------------- ---------------
Increase in net assets resulting from
operations 630,330 348,329
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income-Class A (381,093) (222,046)
From net investment income-Class I (381) --
From net realized gain on
investments-Class A -- --
CAPITAL SHARE TRANSACTIONS, NET (Note 3) 5,401,653 (1,571,637)
--------------- ---------------
Total increase (decrease) in net
assets 5,650,509 (1,445,354)
FUND NET ASSETS, BEGINNING OF PERIOD 3,248,152 4,693,506
--------------- ---------------
FUND NET ASSETS, END OF PERIOD** $ 8,898,661 $ 3,248,152
--------------- ---------------
--------------- ---------------
**Including undistributed (distributions
in excess of)
net investment income of: $ 2,770 $ 90,911
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: The Crabbe Huson Special Fund, Inc. ("Special Fund"), Crabbe
Huson Small Cap Fund ("Small Cap Fund"), Crabbe Huson Managed Income and Equity
Fund ("Managed Fund") (formerly Crabbe Huson Asset Allocation Fund), Crabbe
Huson Equity Fund ("Equity Fund"), Crabbe Huson Real Estate Investment Fund
("Real Estate Fund"), Crabbe Huson Oregon Tax-Free Fund ("Oregon Tax-Free Fund")
and Crabbe Huson Contrarian Income Fund ("Income Fund") (formerly Crabbe Huson
Income Fund), are registered under the Investment Company Act of 1940, as
amended. All of the Funds (other than the Oregon Tax-Free Fund) are open-end
diversified investment companies. The Oregon Tax-Free Fund is registered under
the Investment Company Act of 1940, as amended, as an open-end non-diversified
investment company. On October 19, 1998 each of the Funds (other than the
Special Fund) became a separate series of Colonial Trust III, a Massachusetts
business trust offering an unlimited number of shares of beneficial interest
without par value. For the period November 1, 1997 through September 30, 1998
these Funds (other than the Special Fund) were a separate series of the Crabbe
Huson Funds, a Delaware business trust. The Special Fund is an Oregon
Corporation which currently is authorized to issue 100,000,000 shares of common
stock with $.001 par value. Effective October 19, 1998, all of the Funds Primary
shares were redesignated Class A shares. Class A shares are sold with a
front-end sales charge and a 1.00% contingent deferred sales charge on
redemptions made within eighteen months on an original purchase of $1 million to
$5 million. Shareholders of any predecessor Crabbe Huson Fund with an open
account on October 16, 1998, may purchase Class A shares at net asset value. The
Small Cap, Managed and Equity Funds also offer shares of the Institutional Class
which effective October 19, 1998, were redesignated Class I shares. Effective
October 19, 1998, Income Fund began offering Class I shares. The two classes of
shares differ principally in the distribution fees and shareholder servicing
fees. There are certain restrictions on the purchase of Class I shares, please
refer to a prospectus.
The following is a summary of significant accounting policies consistently
followed by the Funds in preparation of financial statements.
SECURITY VALUATION: Securities listed or traded on a registered securities
exchange, including over-the-counter securities, are valued at the last reported
sales price on the date of computation. Where last sale information is not
available, the last bid price is used. Securities and assets for which market
quotations are not readily available are valued at fair market value as
determined in good faith by or under the direction of the Board of
Trustees/Directors of the Funds.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES: Security transactions
are accounted for on the trade date. Interest income, consisting of interest
accrued plus the accretion of original issue discount and market discount minus
the amortization of
53
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
investment premium, is recorded daily on the accrual basis. Dividends are
recorded on the ex-dividend date. Dividends declared on short positions existing
on the record date are recorded on the ex-dividend date as an expense. Net
realized gains and losses on investments are computed on the first-in,
first-out, method. For Funds with more than one class, investment income and
realized and unrealized gains and losses are allocated to each class based upon
the relative daily net assets of each class of share. Expenses that are directly
attributable to a specific fund or class are charged only to that fund or class.
Expenses not directly attributable to a specific fund or class are allocated to
each fund or class based either on its relative daily net assets or evenly over
the Funds or classes.
DIVIDENDS AND DISTRIBUTIONS: The Oregon Tax-Free Fund declares dividends from
its net investment income each business day. The net investment income for
Saturdays, Sundays and holidays is declared as a dividend on the prior business
day. Declared dividends are accrued through the last business day of each month
and are distributed on that date. Net capital gains realized by the Fund, if
any, are declared and distributed on an annual basis, usually in December.
The Income Fund declares and distributes dividends from net investment income on
the last business day of each month. Net capital gains realized by the Fund, if
any, are declared and distributed on an annual basis, usually in December. The
Income Fund's dividends are determined on a class level and capital gains are
determined on a fund level.
The Managed Fund and Real Estate Fund declare and distribute dividends from net
investment income on the last business day of each fiscal quarter. Net capital
gains realized by the Funds, if any, are declared and distributed on an annual
basis, usually in December. The Managed Fund's dividends are determined on a
class level and capital gains are determined on a fund level.
The Special Fund, Small Cap Fund and Equity Fund declare and distribute to
shareholders in December substantially all of the net investment income and net
realized capital gains, if any. The Small Cap and Equity Funds' dividends are
determined on a class level and capital gains are determined on a fund level.
SHORT SALES: The Special Fund sold securities short during the period.
Outstanding short sales at October 31, 1998 are listed in the schedule of
investments. A short sale is effected when it is believed that the price of a
particular security will decline, and involves the sale of a security which the
Fund does not own in the hope of purchasing the same security at a later date at
a lower price. To make delivery to the buyer, the Fund must borrow the security.
The Fund is then obligated to return the security to the lender, and therefore
it must subsequently purchase the same security.
54
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
Proceeds from the sale of a borrowed security remain on deposit with the broker
loaning that security. Additional deposits may be required in the event that the
value of the securities sold short exceeds a percentage of the amount on deposit
with the broker. In addition, the borrowing fund is required to segregate cash,
U.S. Government securities or other liquid securities in an amount equal to the
market value of all borrowed securities less any amounts on deposit with
brokers. As a result of these activities, the borrowing fund will not be deemed
to create leverage merely by entering into a short selling transaction, except
to the extent that income is earned on amounts on deposit with the broker. The
amount on deposit with the broker plus the value of the segregated securities
may not exceed 25% of Net Assets.
OPTIONS: The Special, Small Cap, Real Estate, Equity, Managed, and Income Funds
may write call options on securities they own or have the right to acquire, and
may purchase put and call options on individual securities and indices written
by others. The purchase of any of these instruments can result in the entire
loss on the investment in that particular instrument or, in the case of writing
covered call options, can limit the opportunity to earn a profit on the
underlying security.
When an option is written (sold), an amount equal to the premium received is
recorded as a liability. The amount of liability is adjusted daily to reflect
the current market value of the option written. When an option written by the
Fund expires on its stipulated expiration date, the Fund realizes a gain equal
to the net premium received for the option. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss equal to the difference
between the cost of a closing purchase transaction and the premium received when
the call option was written. In the case of either expiration of a written
option or a closing purchase transaction, the liability related to such option
is extinguished.
Call or put options purchased are accounted for in the same manner as marketable
portfolio securities. When a call or put option is exercised, the proceeds from
the underlying securities bought or sold are decreased by the premium paid in
determining the gain or loss.
Options on stock indices differ from options on securities in that the exercise
of an option on a stock index is settled in cash and does not involve delivery
of the actual underlying security.
REPURCHASE AGREEMENTS: Each of the Funds may engage in repurchase agreement
transactions. Repurchase agreements are agreements under which a Fund purchases
a security and simultaneously commits to resell that security to the seller (a
commercial bank or recognized securities dealer) at an agreed upon price on an
agreed upon date within a number of days. The resale price reflects the purchase
price plus an agreed upon market rate of interest that is unrelated to the
coupon rate or maturity of the purchased security. All repurchase agreements are
fully collateralized and marked to
55
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
market daily, and may therefore be viewed by the SEC or the courts as loans
collateralized by the underlying security. There are some risks associated with
repurchase agreements. For instance, in the case of default by the seller, a
Fund could incur a loss or, if bankruptcy by the seller, a Fund could incur
costs and delays in realization of collateral.
LOANS OF PORTFOLIO SECURITIES: Each of the Funds may lend portfolio securities,
up to 20% (10% for Oregon Tax-Free Fund) of the value of a Fund's total assets.
The Funds receive total collateral in an amount at least equal to 100% of the
market value of the securities loaned at the inception of the loan. The value of
the portfolio securities loaned is marked to market on a daily basis and
additional collateral is received from the borrower, as necessary, to ensure
that its value is at least equal to 100% of the securities loaned at all times.
Cash collateral received is invested in a short-term instrument, Navigator
Securities Lending Trust-Prime Portfolio, a regulated investment company offered
by State Street Bank and Trust Company. Interest income earned on the investment
of the collateral plus reimbursement for management fees associated with such
investment, in excess of rebates to the borrower, is recorded on an accrual
basis. Income earned on non-cash collateral is based on a percentage of the
market value of the securities loaned and is recorded on an accrual basis. If
the borrower defaults and the value of the portfolio securities increases in
excess of the collateral received or if bankruptcy proceedings commence with
respect to the borrower of the security, realization of the value of the
securities loaned may be delayed or limited.
ORGANIZATION COSTS: Expenses incurred in connection with the original
organization of the Funds are amortized using the sum of the years digits
method. As of October 31, 1998 the initial organization costs for all Funds
except for Small Cap Fund and Real Estate Fund have been fully amortized. The
Crabbe Huson Group, Inc., the Fund's investment advisor, has agreed that, in the
event any of the initial shares are redeemed during the 60-month period for
amortizing the Fund's organization costs, the Fund will be reimbursed by the
investment advisor for the unamortized balances of such costs in the same
proportion as the number of shares reduced bears to the number of initial shares
outstanding at the time of redemption.
The expenses incurred in connection with the addition of the Institutional Class
are being amortized over a 60 month period.
LINE OF CREDIT: The Funds participate in a $40 million line of credit provided
by State Street Corporation, primarily for temporary or emergency purposes, $20
million of which is unsecured. Under the agreement, each of the Funds except
Special Fund, may borrow up to the lesser of 15% of each Fund's total assets or
the remaining unused balance of the $20 million unsecured line of credit.
Special Fund may borrow the lesser of $40 million or 33 1/3% of its total assets
on a secured basis. Interest is payable at the Overnight Federal Funds rate plus
0.75%, on an annualized basis. The Funds are
56
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
charged quarterly, a negotiated aggregate commitment fee on the daily unutilized
credit balance. At October 31, 1998, the Funds had $4,530,622 borrowings under
this line of credit.
When the Special Fund borrows it must put in a segregated account (with the
Fund's custodian) debt securities, domestic or foreign equities, or commercial
paper in an amount equal to at least 200% of the amount borrowed. The Fund must
daily maintain the segregated account to ensure that its value is at least equal
to 200% of the funds borrowed at all times. No single issuer, other than U.S.
Government and U.S. Government agencies, can comprise in excess of 10% of the
segregated account.
FEDERAL INCOME TAXES: It is each Fund's policy to distribute substantially all
of its taxable income to shareholders and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
Therefore, no provision has been made for Federal income or excise taxes. Due to
the timing of dividend distributions and the differences in accounting for
income and realized gains (losses) for financial statement and federal income
tax purposes, the fiscal year in which amounts are distributed may differ from
the year in which the income and realized gains (losses) are recorded by the
Funds. The differences between the income or gains distributed on a book versus
tax basis are shown as excess distributions of net investment income and net
realized gain on sales of investments on the Statements of Changes in Net
Assets.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, reclassification adjustments have been made, between the capital
paid in, undistributed net investment income and undistributed net realized gain
(loss) on investments.
CAPITAL LOSS CARRYFORWARDS: At October 31, 1998, Special Fund had capital loss
carryforwards available (to the extent provided in regulations) to offset future
realized gains of $20,747,000 which will expire in 2006, if not utilized.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
income and expenses at the date of the financial statements. Actual results
could differ from these estimates.
57
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
NOTE 2. INVESTMENT ADVISOR, OTHER TRANSACTIONS WITH
AFFILIATES, AND SERVICE PROVIDERS
INVESTMENT ADVISOR: The Funds have entered into an investment advisory
agreement with The Crabbe Huson Group, Inc. (the "Advisor"), an affiliated
company. The investment advisory fee of each Fund is accrued daily and paid
semi-monthly. The annual investment advisory fee for each Fund is described
below:
MANAGED FUND
SPECIAL FUND
SMALL CAP FUND
EQUITY FUND
REAL ESTATE FUND
1.05% of average daily net assets up to $100,000,000
.90 of 1% of average daily net assets between $100,000,000 and $500,000,000
.65 of 1% of average daily net assets over $500,000,000
From November 1, 1997 through October 18, 1998, the investment advisory fee was:
1.00% of average daily net assets up to $100,000,000
.85 of 1% of average daily net assets between $100,000,000 and $500,000,000
.60 of 1% of average daily net assets over $500,000,000
INCOME FUND
.80 of 1% of average daily net assets up to $100,000,000
.65 of 1% of average daily net assets between $100,000,000 and $500,000,000
.55 of 1% of average daily nets assets over $500,000,000
From November 1, 1997 through October 18, 1998, the investment advisory fee was:
.75 of 1% of average daily net assets up to $100,000,000
.60 of 1% of average daily net assets between $100,000,000 and $500,000,000
.50 of 1% of average daily nets assets over $500,000,000
OREGON TAX-FREE FUND
.55 of 1% of average daily net assets up to $100,000,000
.50 of 1% of average daily net assets between $100,000,000 and $500,000,000
.45 of 1% of average daily net assets over $500,000,000
From November 1, 1997 through October 18, 1998, the investment advisory fee was:
.50 of 1% of average daily net assets up to $100,000,000
.45 of 1% of average daily net assets between $100,000,000 and $500,000,000
.40 of 1% of average daily net assets over $500,000,000
58
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
ADMINISTRATOR: Under an administration agreement, State Street Bank and Trust
Company ("SSBT") provided administrative services to the Funds through September
30, 1998. Administration fees paid during the period November 1, 1997 through
September 30, 1998 amounted to $390,751. Effective October 1, 1998, Colonial
Management Associates, Inc. (the Administrator) became the Administrator of the
Funds furnishing accounting and other services and office facilities. The Funds'
Advisor delegates certain of its administrative duties to the Administrator.
BOOKKEEPING FEE: Under a custodian, recordkeeping and pricing agreement
Investors Fiduciary Trust Company ("IFTC") provided pricing and bookkeeping
services for the Fund through September 30, 1998. Fees paid during the period
November 1, 1997 through September 30, 1998 amounted to $91,760. Effective
October 1, 1998, the Administrator provides certain administrative, pricing and
bookkeeping services to the Funds for $27,000 per year per fund plus 0.035% of
each Funds' average daily net assets over $50 million.
TRANSFER AGENT: Under a service agreement, Boston Financial Data Services
(BFDS) provided transfer agency services to the Funds through October 16, 1998.
Transfer agent fees paid during the period November 1, 1997 through October 16,
1998 amounted to $1,136,114. Effective October 17, 1998, Liberty Funds Services,
Inc. (the Transfer Agent), an affiliate of the Administrator, provides
shareholder services to the Funds for a monthly fee at the annual rate of 0.236%
for the Small Cap Fund -- Class A, Special Fund, Equity Fund -- Class A and Real
Estate Fund, 0.17% for the Managed Fund -- Class A and Income Fund -- Class A,
0.13% for the Oregon Tax Free Fund and 0.0025% for the Small Cap Fund -- Class
I, Equity Fund -- Class I, Managed Fund -- Class I, Income Fund -- Class I, plus
certain out-of-pocket expenses.
DISTRIBUTOR: Effective October 19, 1998, the Funds entered into a distribution
agreement with Liberty Funds Distributor, Inc. (the Distributor) (a subsidiary
of the Administrator), which became each Fund's principal underwriter. During
the period October 19, 1998 through October 31, 1998, each Fund has been advised
that the Distributor retained no net underwriting discounts on sales of Special
Fund, Managed Fund, Oregon Tax Free Fund and Income Fund Class A shares. For the
Small Cap Fund, Equity Fund, and Real Estate Fund, the Distributor retained
$509, $2,184 and $86 net underwriting discounts, respectively, on sales of the
Funds' Class A shares.
Each Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan"). Under the Plan, each of the participating Funds' Class A
shares pay 0.25% annually on Class A net assets as of the 20th of each month to
the Distributor. For the period November 1, 1997 through October 16, 1998, the
Funds had a distribution agreement with Crabbe Huson Securities, Inc., an
affiliated company of the Advisor for which each Fund paid up to 0.25% annually
on Class A net assets to the
59
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
Distributor as reimbursement for its actual expenses incurred in the
distribution and promotion of such class's shares. Distribution fees paid during
that period amounted to $1,785,913. There is no distribution fee for the Class I
shares.
The fees received from the 12b-1 plan are used principally as repayment to the
Distibutor for amounts paid by the Distributor to dealers who sold such shares.
DIRECTORS/TRUSTEES FEES: Each of the disinterested trustees/directors are paid
an annual retainer of $17,000 and are reimbursed for expenses incurred in
attending meetings. Each Fund pays its pro rata share of such fees and expenses
based upon its relative asset amounts. For the year ended October 31, 1998, the
Funds incurred aggregate fees of $64,223.
The Funds pay no compensation to their officers, all of whom are employees of
the Advisor.
The Funds' Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Funds' assets.
FEES PAID INDIRECTLY: For the period November 1, 1997 through September 30,
1998, the Funds had a custodian, recordkeeping, and pricing agreement with IFTC.
IFTC's fees for these services were subject to reduction by credits earned by
each Fund, based on the cash balances of the Funds held by IFTC as Custodian.
For the period November 1, 1997 through September 30, 1998, credits earned were
$243, $1,273, $4,532, $2,931, $1,019, $5 and $72 for Oregon Tax-Free Fund,
Special Fund, Equity Fund, Small Cap Fund, Managed Fund, Contrarian Fund, and
Real Estate Fund, respectively. Effective October 1, 1998, the Funds entered
into a custodian agreement with State Street Bank and Trust Company. SSBT's fees
for this service are subject to reduction by credits earned by each Fund, based
on the cash balances of the Funds held by SSBT as Custodian. For the period
October 1, 1998 through October 31, 1998, credit earned was $19 for Equity Fund.
The Funds could have invested the assets used in connection with this agreement
in an income producing asset if it had not entered into such an agreement.
The Special Fund, Managed Fund, Equity Fund, and Real Estate Fund, have entered
into a directed brokerage agreement with State Street Brokerage Services,
Inc.("SSBSI"). Under this arrangement, SSBSI will pay the Funds a percentage of
commissions generated as credits used to offset all or a portion of certain
outside service providers fees incurred by the Funds. For the year ended October
31, 1998, $31,664 of credits were earned on Managed and Equity Fund.
EXPENSE LIMITS: Effective October 19, 1998 the Advisor/Administrator has
voluntarily agreed, until further notice, to waive fees and bear certain Fund
expenses to the extent
60
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
that total expenses (exclusive of 12b-1 fees) exceed 1.25% for the Small Cap
Fund -- Class A, Special Fund and Real Estate Fund, 1.17% for the Equity Fund --
Class A and Managed Fund -- Class A, 0.73% for the Oregon Fund and 0.55% for the
Income Fund -- Class A and 1.00% for the Small Cap Fund, Equity Fund and the
Managed Fund -- Class I and 0.38% for the Income Fund -- Class I. For the period
November 1, 1997 through October 16, 1998, the Advisor at times voluntarily
waived its advisory fees or reimbursed a Fund's expenses net of any expense
reduction realized through a directed brokerage agreement, but was under no
legal or contractual obligation to do so. The Advisor expected to waive its
Management Fee and/or reimburse the Fund's expenses to the extent Total Fund
Operating Expenses exceed 1.50% for the Special Fund, the Small Cap Fund --
Class A, the Real Estate Fund, the Equity Fund -- Class A and the Managed Fund
- -- Class A, 1.00% for the Small Cap Fund -- Class I, the Equity Fund -- Class I
and the Managed Fund -- Class I, 0.98% for the Oregon Tax-Free Fund, and 0.80%
for the Income Fund -- Class A.
61
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
NOTE 3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of the Funds were as follows:
<TABLE>
<CAPTION>
THE CRABBE HUSON CRABBE HUSON SMALL CAP FUND
SPECIAL FUND, INC. CLASS A
----------------------------------------------------------- ------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------- ------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998 1997 1998 1997
----------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 6,060,598 6,932,446 $ 70,050,093 $ 107,701,421 1,710,595 2,953,831 $ 21,327,758 $ 41,485,452
Shares
issued in
reinvestment
of
dividends 3,099,046 963,254 40,752,447 13,533,694 243,064 27,329 3,079,615 315,372
----------------------------------------------------------- ------------------------------------------------------
9,159,644 7,895,700 110,802,540 121,235,115 1,953,659 2,981,160 24,407,373 41,800,824
Shares
redeemed (19,847,978) (19,397,928) (240,705,256) (288,616,279) (3,031,548) (1,969,881) (35,197,213) (27,110,004)
----------------------------------------------------------- ------------------------------------------------------
Net increase
(decrease) (10,688,334) (11,502,228) $ (129,902,716) $ (167,381,164) (1,077,889) 1,011,279 $(10,789,840) $ 14,690,820
----------------------------------------------------------- ------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON SMALL CAP FUND
CLASS I
------------------------------------------------------
SHARES AMOUNT
------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 5,973,355 4,486,781 $ 76,871,733 $ 58,662,035
Shares
issued in
reinvestment
of
dividends 630,407 10,450 7,987,258 120,489
------------------------------------------------------
6,603,762 4,497,231 84,858,991 58,782,524
Shares
redeemed (4,008,863) (22,110) (46,554,601) (324,083)
------------------------------------------------------
Net increase
(decrease) 2,594,899 4,475,121 $ 38,304,390 $ 58,458,441
------------------------------------------------------
------------------------------------------------------
</TABLE>
62
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
Transactions in capital shares of the Funds were as follows:
<TABLE>
<CAPTION>
CRABBE HUSON CRABBE HUSON
OREGON TAX-FREE FUND CONTRARIAN INCOME FUND
CLASS A CLASS A
----------------------------------------------------------- ------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------- ------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998 1997 1998 1997
----------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 209,498 222,132 $ 2,685,236 $ 2,788,786 853,853 107,712 $ 9,017,282 $ 1,092,232
Shares
issued in
reinvestment
of
dividends 72,091 66,932 853,092 844,070 34,069 19,273 344,452 196,574
----------------------------------------------------------- ------------------------------------------------------
281,589 289,064 3,538,328 3,632,856 887,922 126,985 9,361,734 1,288,806
Shares
redeemed (390,338) (306,846) (4,958,242) (3,867,338) (386,073) (280,175) (4,060,463) (2,860,443)
----------------------------------------------------------- ------------------------------------------------------
Net increase
(decrease) (108,749) (17,782) $ (1,419,914) $ (234,482) 501,849 (153,190) $ 5,301,271 $ (1,571,637)
----------------------------------------------------------- ------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON CRABBE HUSON
REAL ESTATE INVESTMENT FUND CONTRARIAN INCOME FUND
CLASS A CLASS I
----------------------------------------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------- -------------------------
YEAR YEAR YEAR YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998(A) 1998
----------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 881,894 2,581,854 $ 10,975,706 $ 33,065,740 9,099 $ 100,000
Shares
issued in
reinvestment
of
dividends 359,412 149,238 4,237,480 1,860,225 35 382
----------------------------------------------------------- -------------------------
1,241,306 2,731,092 15,213,186 34,925,965 9,134 100,382
Shares
redeemed (2,002,564) (2,083,483) (24,279,539) (26,839,118) -- --
----------------------------------------------------------- -------------------------
Net increase
(decrease) (761,258) 647,609 $ (9,066,353) $ 8,086,847 9,134 $ 100,382
----------------------------------------------------------- -------------------------
----------------------------------------------------------- -------------------------
</TABLE>
(a) Class I shares were initially offered on October 19, 1998.
63
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
Transactions in capital shares of the Funds were as follows:
<TABLE>
<CAPTION>
CRABBE HUSON
MANAGED INCOME & EQUITY FUND CRABBE HUSON EQUITY FUND
CLASS A CLASS A
----------------------------------------------------------- ------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------- ------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998 1997 1998 1997
----------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 956,085 937,862 $ 13,003,112 $ 12,837,676 5,210,556 3,378,328 $ 97,527,486 $ 69,639,410
Shares
issued in
reinvestment
of
dividends 941,150 586,343 11,922,009 7,726,444 4,095,442 1,692,739 74,537,053 31,671,157
----------------------------------------------------------- ------------------------------------------------------
1,897,235 1,524,205 24,925,121 20,564,120 9,305,998 5,071,067 172,064,539 101,310,567
Shares
redeemed (3,036,182) (4,438,152) (39,765,833) (60,508,773) (11,954,302) (11,156,760) (216,438,529) (223,126,227)
----------------------------------------------------------- ------------------------------------------------------
Net increase
(decrease) (1,138,947) (2,913,947) $ (14,840,712) $ (39,944,653) (2,648,304) (6,085,693) $(44,373,990) $ (121,815,660)
----------------------------------------------------------- ------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON
MANAGED INCOME & EQUITY FUND CRABBE HUSON EQUITY FUND
CLASS I CLASS I
----------------------------------------------------------- ------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------- ------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997 1998 1997 1998 1997
----------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 2,089,941 2,050,335 $ 26,660,076 $ 28,620,172 996,398 1,162,016 $ 17,904,274 $ 22,817,326
Shares
issued in
reinvestment
of
dividends 356,384 47,267 4,511,764 653,385 277,311 19,670 5,044,293 368,216
----------------------------------------------------------- ------------------------------------------------------
2,446,325 2,097,602 31,171,840 29,273,557 1,273,709 1,181,686 22,948,567 23,185,542
Shares
redeemed (1,728,685) (371,870) (21,423,740) (4,965,600) (641,322) (378,595) (10,356,193) (7,821,916)
----------------------------------------------------------- ------------------------------------------------------
Net increase
(decrease) 717,640 1,725,732 $ 9,748,100 $ 24,307,957 632,387 803,091 $ 12,592,374 $ 15,363,626
----------------------------------------------------------- ------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------
</TABLE>
64
<PAGE>
CRABBE HUSON FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
NOTE 4. INVESTMENT TRANSACTIONS
The cost of investments purchased and proceeds from investments sold (including
maturities) excluding short-term investments for the year ended October 31,
1998, for the Funds were as follows:
<TABLE>
<CAPTION>
THE CRABBE CRABBE HUSON
HUSON SPECIAL CRABBE HUSON MANAGED GROWTH CRABBE HUSON
FUND, INC. SMALL CAP FUND & INCOME FUND EQUITY FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases: $ 54,129,964 $78,157,175 $133,072,882 $450,627,855
----------------------------------------------------------------------
----------------------------------------------------------------------
Sales and Maturities: 193,462,625 33,310,194 151,971,458 583,445,356
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CRABBE HUSON CRABBE HUSON CRABBE HUSON
REAL ESTATE OREGON TAX-FREE CONTRARIAN
INVESTMENT FUND FUND INCOME FUND
----------------------------------------------------
<S> <C> <C> <C> <C>
Purchases: $24,465,165 $11,632,326 $15,048,692
----------------------------------------------------
----------------------------------------------------
Sales and Maturities: 35,020,403 13,047,142 9,517,068
----------------------------------------------------
----------------------------------------------------
</TABLE>
Other: Oregon Tax Free Fund invests substantially all of its assets in debt
obligations of issuers located in the State of Oregon. The issuers' abilities to
meet their obligations may be affected by Oregon's economic or political
developments.
NOTE 5. MERGER INFORMATION (UNAUDITED)
On October 16, 1998, Crabbe Huson U.S. Government Income Fund merged into the
Colonial Short Duration U.S. Government Fund and Crabbe Huson U.S. Government
Money Market Fund merged into the Colonial Money Market Fund. These two funds
are not presented in the accompanying financial statements.
65
<PAGE>
THE CRABBE HUSON SPECIAL FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Annual Report. For
years or periods ended on or after 10/31/96, calculations are based on a share
outstanding during the period. For years or periods ended prior to 11/01/95,
calculations are based on the weighted average number of shares outstanding for
each period.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $16.80 $13.71 $13.80 $14.08 $11.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................... 0.07 0.15 0.14 0.27 0.05
Net Realized & Unrealized Gain (Loss) on Investments.... (6.92) 3.41 0.55 (0.29) 2.30
-----------------------------------------------------------------
Total from Investment Operations.................... (6.85) 3.56 0.69 (0.02) 2.35
LESS DISTRIBUTIONS
Distributions from Net Investment Income................ 0.14 0.14 0.21 0.02 0.00
Return of Capital....................................... 0.02 -- -- -- --
Distributions in excess of Net Investment Income........ 0.00 0.00 0.00 0.00 0.09
Distributions from Capital Gains........................ 1.69 0.33 0.57 0.24 0.00
-----------------------------------------------------------------
Total Distributions................................. 1.85 0.47 0.78 0.26 0.09
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $8.10 $16.80 $13.71 $13.80 $14.08
-----------------------------------------------------------------
-----------------------------------------------------------------
TOTAL RETURN............................................ (44.94)% 26.62% 5.03% 1.78% 22.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....................... $104,504 $396,335 $481,039 $878,560 $319,811
Ratio of Expenses to Average Net Assets(b).............. 1.50% 1.50% 1.37%(a) 1.40% 1.44%
Ratio of Net Investment Income to Average Net 0.40% 0.86% 0.72% 1.95% 0.39%
Assets(b).............................................
Portfolio Turnover Rate................................. 22.00% 32.76% 32.88% 122.97% 146.44%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(b).............. 1.84% 1.58% 1.37%(a) 1.40% 1.54%
Ratio of Net Investment Income to Average Net 0.06% 0.78% 0.72% 1.95% 0.29%
Assets(b).............................................
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(b).............. 1.50% 1.50% 1.37% -- --
Ratio of Net Investment Income to Average Net 0.40% 0.86% 0.72% -- --
Assets(b).............................................
</TABLE>
- -------------------
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(b) 1998 expense and net investment income ratio information is net of
benefits derived from custody credits which had no impact.
66
<PAGE>
CRABBE HUSON SMALL CAP FUND - CLASS A
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
----------------------------------- ---------------
10/31/98 10/31/97 10/31/96(a)
-------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $15.48 $11.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)...................... (0.03) 0.00 0.03
Net Realized & Unrealized Gain (Loss) on (5.56) 4.62 0.99
Investments.....................................
-------------------------------------------------------
Total from Investment Operations.............. (5.59) 4.62 1.02
LESS DISTRIBUTIONS
Distributions from Net Investment Income.......... 0.00 0.02 0.00
Distributions from Capital Gains.................. 1.24 0.14 0.00
-------------------------------------------------------
Total Distributions........................... 1.24 0.16 0.00
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................... $8.65 $15.48 $11.02
-------------------------------------------------------
-------------------------------------------------------
TOTAL RETURN...................................... (38.64)% 42.38% 10.20%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................. $14,462 $42,563 $19,156
Ratio of Expenses to Average Net Assets(e)........ 1.37% 1.50%(c) 1.51%(c)(d)
Ratio of Net Investment Income to Average Net (0.65)% 0.03% 0.70%(d)
Assets(e).......................................
Portfolio Turnover Rate........................... 30.00% 65.11% 39.34%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(e)........ 1.62% 1.73%(c) 2.32%(c)(d)
Ratio of Net Investment Income to Average Net (0.90)% (0.20)% (0.11)%(d)
Assets(e).......................................
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(e)........ 1.37% 1.50% 1.50%(d)
Ratio of Net Investment Income to Average Net (0.65)% 0.03% 0.71%(d)
Assets(e).......................................
</TABLE>
- -------------------
(a) Commencement of operations -- 2/20/96.
(b) Not annualized.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(d) Annualized.
(e) 1998 expense and net investment income ratio information is net of
benefits derived from custody credits which had no impact.
67
<PAGE>
CRABBE HUSON SMALL CAP FUND - CLASS I
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
----------------------------------- ---------------
10/31/98 10/31/97 10/31/96(a)
-------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $15.53 $11.01 $11.05
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................. 0.03 0.07 0.00
Net Realized & Unrealized Gain (Loss) on (5.58) 4.62 (0.04)
Investments.....................................
-------------------------------------------------------
Total from Investment Operations.............. (5.55) 4.69 (0.04)
LESS DISTRIBUTIONS
Distributions from Net Investment Income.......... 0.01 0.03 0.00
Distributions in excess of Net Investment 0.05 0.00 0.00
Income..........................................
Distributions from Capital Gains.................. 1.24 0.14 0.00
-------------------------------------------------------
Total Distributions........................... 1.30 0.17 0.00
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................... $8.68 $15.53 $11.01
-------------------------------------------------------
-------------------------------------------------------
TOTAL RETURN...................................... (38.37)% 43.11% (0.36)%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................. $62,539 $71,655 $1,514
Ratio of Expenses to Average Net Assets(e)........ 1.00% 1.00%(c) 1.00%(c)(d)
Ratio of Net Investment Income to Average Net (0.28)% 0.60% (0.43)%(d)
Assets(e).......................................
Portfolio Turnover Rate........................... 30.00% 65.11% 39.34%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(e)........ 1.21% 1.28%(c) 3.55%(c)(d)
Ratio of Net Investment Income to Average Net (0.49)% 0.32% (2.98)%(d)
Assets(e).......................................
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(e)........ 1.00% 1.00% 1.00%(d)
Ratio of Net Investment Income to Average Net (0.28)% 0.60% (0.43)%(d)
Assets(e).......................................
</TABLE>
- -------------------
(a) Commencement of operations -- 10/10/96.
(b) Not annualized.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(d) Annualized.
(e) 1998 expense and net investment income ratio information is net of
benefits derived from custody credits which had no impact.
68
<PAGE>
CRABBE HUSON MANAGED INCOME & EQUITY FUND - CLASS A
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $14.94 $13.39 $13.64 $12.87 $13.52
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.29 0.32 0.30 0.34 0.30
Net Realized & Unrealized Gain (Loss) on Investments...... (0.37) 2.29 0.88 1.21 (0.08)
------------------------------------------------------------------
Total from Investment Operations...................... (0.08) 2.61 1.18 1.55 0.22
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................. 0.24 0.32 0.30 0.33 0.29
Distributions from Capital Gains.......................... 1.81 0.74 1.13 0.45 0.58
------------------------------------------------------------------
Total Distributions................................... 2.05 1.06 1.43 0.78 0.87
------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............................ $12.81 $14.94 $13.39 $13.64 $12.87
------------------------------------------------------------------
------------------------------------------------------------------
TOTAL RETURN.............................................. (0.69%) 20.60% 8.96% 13.00% 2.66%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)......................... $67,681 $95,960 $125,018 $136,530 $110,152
Ratio of Expenses to Average Net Assets................... 1.32%(a) 1.42%(a) 1.47%(a) 1.48% 1.44%
Ratio of Net Investment Income to Average Net Assets...... 2.27% 2.25% 2.22% 2.57% 2.30%
Portfolio Turnover Rate................................... 115.00% 118.65% 252.29% 225.70% 149.19%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................... 1.48%(a) 1.55%(a) 1.47%(a) 1.49% 1.52%
Ratio of Net Investment Income to Average Net Assets...... 2.11% 2.12% 2.22% 2.56% 2.22%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................... 1.31% 1.42% 1.46% -- --
Ratio of Net Investment Income to Average Net Assets...... 2.28% 2.25% 2.22% -- --
</TABLE>
- ---------------------------
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
69
<PAGE>
CRABBE HUSON MANAGED INCOME & EQUITY FUND - CLASS I
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
----------------------------- -----------------
10/31/98 10/31/97 10/31/96(a)
---------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $14.94 $13.39 $13.38
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.32 0.42 0.01
Net Realized & Unrealized Gain (Loss) on Investments........ (0.37) 2.24 0.08
---------------------------------------------------
Total from Investment Operations........................ (0.05) 2.66 0.09
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 0.27 0.37 0.08
Distributions from Capital Gains............................ 1.81 0.74 0.00
---------------------------------------------------
Total Distributions..................................... 2.08 1.11 0.08
---------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $12.81 $14.94 $13.39
---------------------------------------------------
---------------------------------------------------
TOTAL RETURN................................................ (0.44%) 21.18% 0.59%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $33,723 $28,598 $2,526
Ratio of Expenses to Average Net Assets..................... 1.01%(c) 1.00%(c) 1.00%(c)(d)
Ratio of Net Investment Income to Average Net Assets........ 2.58% 2.70% 2.87%(d)
Portfolio Turnover Rate..................................... 115.00% 118.65% 252.29%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets..................... 1.25%(c) 1.42%(c) 2.00%(c)(d)
Ratio of Net Investment Income to Average Net Assets........ 2.34% 2.28% 1.87%(d)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets..................... 1.00% 1.00% 1.00%(d)
Ratio of Net Investment Income to Average Net Assets........ 2.59% 2.70% 2.87%(d)
</TABLE>
- ---------------------------
(a) Commencement of operations -- 10/28/96.
(b) Not annualized.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(d) Annualized.
70
<PAGE>
CRABBE HUSON EQUITY FUND - CLASS A
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $23.32 $19.50 $18.17 $16.44 $16.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................... 0.07 0.07 0.11 0.22 0.19
Net Realized & Unrealized Gain (Loss) on Investments.... (2.00) 5.36 2.33 1.75 0.57
------------------------------------------------------------------------
Total from Investment Operations.................... (1.93) 5.43 2.44 1.97 0.76
LESS DISTRIBUTIONS
Distributions from Net Investment Income................ 0.05 0.07 0.17 0.09 0.04
Distributions from Capital Gains........................ 4.74 1.54 0.94 0.15 0.36
------------------------------------------------------------------------
Total Distributions................................. 4.79 1.61 1.11 0.24 0.40
------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $16.60 $23.32 $19.50 $18.17 $16.44
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN............................................ (10.08)% 29.87% 13.78% 13.37% 7.89%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....................... $226,628 $380,047 $436,578 $387,184 $153,105
Ratio of Expenses to Average Net Assets................. 1.39%(a) 1.42%(a) 1.38%(a) 1.40% 1.45%
Ratio of Net Investment Income to Average Net Assets.... 0.38% 0.29% 0.56% 1.30% 1.18%
Portfolio Turnover Rate................................. 1.27% 128.65% 117.00% 92.43% 106.49%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................. 1.42%(a) 1.44%(a) 1.38%(a) 1.30% 1.56%
Ratio of Net Investment Income to Average Net Assets.... 0.35% 0.27% 0.56% 1.28% 1.06%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................. 1.38% 1.42% 1.37% -- --
Ratio of Net Investment Income to Average Net Assets.... 0.39% 0.29% 0.57% -- --
</TABLE>
- -------------------
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
71
<PAGE>
CRABBE HUSON EQUITY FUND - CLASS I
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
--------------------- --------
10/31/98 10/31/97 10/31/96(a)
----------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $23.40 $19.51 $19.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................... 0.17 0.21 0.00
Net Realized & Unrealized Gain (Loss) on Investments.... (2.03) 5.31 (0.31)
----------------------------------
Total from Investment Operations.................... (1.86) 5.52 (0.31)
LESS DISTRIBUTIONS
Distributions from Net Investment Income................ 0.15 0.09 0.00
Distributions from Capital Gains........................ 4.74 1.54 0.00
----------------------------------
Total Distributions................................. 4.89 1.63 0.00
----------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $16.65 $23.40 $19.51
----------------------------------
----------------------------------
TOTAL RETURN............................................ (9.72)% 30.35% (1.56)%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....................... $27,672 $24,084 $4,415
Ratio of Expenses to Average Net Assets................. 1.01%(c) 1.00%(c) 1.00%(c)(d)
Ratio of Net Investment Income to Average Net Assets.... 0.76% 0.71% 0.15%(d)
Portfolio Turnover Rate................................. 1.27% 128.65% 117.00%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................. 1.13%(c) 1.23%(c) 1.58%(c)(d)
Ratio of Net Investment Income to Average Net Assets.... 0.64% 0.48% (0.43)%(d)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................. 1.00% 1.00% 1.00%(d)
Ratio of Net Investment Income to Average Net Assets.... 0.77% 0.71% 0.15%(d)
</TABLE>
- -------------------
(a) Commencement of operations -- 10/3/96.
(b) Not annualized.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(d) Annualized.
72
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
----------------------------------------------- --------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94(a)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $14.09 $11.58 $9.69 $9.50 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................... 0.40 0.38 0.38 0.44 0.37
Net Realized & Unrealized Gain (Loss) on Investments............ (2.00) 3.02 2.01 0.31 (0.64)
------------------------------------------------------------
Total from Investment Operations............................ (1.60) 3.40 2.39 0.75 (0.27)
LESS DISTRIBUTIONS
Distributions from Net Investment Income........................ 0.36 0.38 0.38 0.44 0.23
Distributions from Capital Gains................................ 1.69 0.51 0.12 0.12 0.00
------------------------------------------------------------
Total Distributions......................................... 2.05 0.89 0.50 0.56 0.23
------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.................................. $10.44 $14.09 $11.58 $9.69 $9.50
------------------------------------------------------------
------------------------------------------------------------
TOTAL RETURN.................................................... (13.39)% 30.56% 25.39% 8.31% (3.25)%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............................... $17,423 $34,259 $20,649 $18,986 $18,280
Ratio of Expenses to Average Net Assets(e)...................... 1.50% 1.50%(d) 1.50%(d) 1.50% 1.01%(c)
Ratio of Net Investment Income to Average Net Assets(e)......... 3.71% 2.93% 3.59% 4.59% 6.30%(c)
Portfolio Turnover Rate......................................... 97.00% 80.01% 120.19% 59.53% 43.30%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(e)...................... 1.92% 1.76%(d) 1.88%(d) 1.89% 2.03%(c)
Ratio of Net Investment Income to Average Net Assets(e)......... 3.29% 2.66% 3.21% 4.20% 5.28%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(e)...................... 1.50% 1.50% 1.50% -- --
Ratio of Net Investment Income to Average Net Assets(e)......... 3.71% 2.93% 3.59% -- --
</TABLE>
- ---------------------------
(a) Commencement of operations -- 4/4/94.
(b) Not annualized.
(c) Annualized.
(d) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(e) 1998 expense and net investment income ratio information is net of benefits
derived from custody credits which had no impact.
73
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $12.78 $12.50 $12.62 $11.99 $12.80
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................................... 0.28 0.54 0.54 0.55 0.54
Net Realized & Unrealized Gain (Loss) on Investments................ 0.27 0.28 (0.12) 0.70 (0.80)
------------------------------------------------------------
0.55 0.82 0.42 1.25 (0.26)
LESS DISTRIBUTIONS
Distributions from Net Investment Income............................ 0.27 0.47 0.54 0.55 0.54
Distributions from Capital Gains.................................... 0.03 0.07 0.00 0.07 0.01
------------------------------------------------------------
0.30 0.54 0.54 0.62 0.55
------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................................... $13.03 $12.78 $12.50 $12.62 $11.99
------------------------------------------------------------
------------------------------------------------------------
TOTAL RETURN........................................................ 6.39% 6.67% 3.43% 10.66% (2.06)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................................... $25,591 $26,487 $26,135 $28,070 $29,046
Ratio of Expenses to Average Net Assets(a).......................... 0.98% 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment Income to Average Net Assets(a)............. 4.12% 4.25% 4.33% 4.45% 4.37%
Portfolio Turnover Rate............................................. 44.00% 17.19% 15.64% 22.91% 20.58%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(a).......................... 0.98% 1.10% 1.04% 1.08% 1.08%
Ratio of Net Investment Income to Average Net Assets(a)............. 4.12% 4.13% 4.27% 4.35% 4.26%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(a).......................... 0.98% 0.98% 0.98% -- --
Ratio of Net Investment Income to Average Net Assets(a)............. 4.12% 4.25% 4.33% -- --
</TABLE>
- -------------------
(a) 1998 expense and net investment income ratio information is net of
benefits derived from custody credits which had no impact.
74
<PAGE>
CRABBE HUSON CONTRARIAN INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
---------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS I CLASS A CLASS A CLASS A CLASS A
(A)
NET ASSET VALUE, BEGINNING OF PERIOD...................... $10.58 $10.99 $10.20 $10.26 $9.71 $10.75
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income..................................... 0.50 0.02 0.62 0.54 0.53 0.50
Net Realized & Unrealized Gain (Loss) on Investments...... 0.59 (0.07) 0.38 (0.05) 0.58 (0.76)
-------------------------------------------------------------------------
Total from Investment Operations...................... 1.09 (0.05) 1.00 0.49 1.11 (0.26)
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................. 0.79 0.04 0.62 0.55 0.53 0.50
Distributions in excess of Net Investment Income.......... 0.00 0.00 0.00 0.00 0.03 0.01
Distributions from Capital Gains.......................... 0.00 0.00 0.00 0.00 0.00 0.27
-------------------------------------------------------------------------
Total Distributions................................... 0.79 0.04 0.62 0.55 0.56 0.78
-------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............................ $10.88 $10.90 $10.58 $10.20 $10.26 $9.71
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL RETURN.............................................. 11.21% (0.45)%(b) 10.25% 4.94% 11.92% (2.71)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)......................... $8,799 $100 $3,248 $4,694 $7,190 $5,273
Ratio of Expenses to Average Net Assets(d)................ 0.80% 0.38%(c) 0.80% 0.80% 0.80% 0.80%
Ratio of Net Investment Income to Average Net Assets(d)... 5.36% 5.88%(c) 5.96% 5.31% 5.47% 4.92%
Portfolio Turnover Rate................................... 158.00% 158.00% 56.37% 468.75% 543.15% 306.79%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets(d)................ 2.36% 5.00%(c) 2.78% 2.29% 1.95% 2.16%
Ratio of Net Investment Income to Average Net Assets(d)... 3.80% 1.26%(c) 3.98% 3.82% 4.32% 3.56%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets(d)................ 0.80% 0.38%(c) 0.80% 0.80% -- --
Ratio of Net Investment Income to Average Net Assets(d)... 5.36% 5.88%(c) 5.96% 5.31% -- --
</TABLE>
- -------------------
(a) Class I shares were initially offered on October 19, 1998.
(b) Not annualized.
(c) Annualized.
(d) 1998 expense and net investment income ratio information is net of
benefits derived from custody credits which had no impact.
75
<PAGE>
------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------------
The Shareholders and Board of Directors
The Crabbe Huson Special Fund, Inc.
The Shareholders and Board of Trustees of Colonial Trust III:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of The Crabbe Huson Special Fund, Inc. and Crabbe
Huson Funds of Colonial Trust III (comprised of Crabbe Huson Small Cap Fund,
Crabbe Huson Managed Income and Equity Fund (formerly Crabbe Huson Asset
Allocation Fund), Crabbe Huson Equity Fund, Crabbe Huson Real Estate Investment
Fund, Crabbe Huson Oregon Tax-Free Fund and Crabbe Huson Contrarian Income Fund
(formerly Crabbe Huson Income Fund) as of October 31, 1998, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two year period then ended, and the
financial highlights for each of the years or periods indicated herein. These
financial statements and financial highlights are the responsibility of the
management of The Crabbe Huson Special Fund, Inc. and Colonial Trust III. Our
responsibility is to express an opinion on these financial statements and
financial highlights based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 1998 by correspondence with
the custodian and brokers. 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 The
Crabbe Huson Special Fund, Inc. and each of the aforementioned Crabbe Huson
Funds of Colonial Trust III as of October 31, 1998, the results of their
operations, the changes in their net assets and their financial highlights for
the periods indicated herein, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
December 4, 1998
76
<PAGE>
CRABBE HUSON FUNDS
PROXY VOTING RESULTS (UNAUDITED)
CRABBE HUSON OREGON TAX-FREE FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
2,056,277 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan
of Reorganization for the Fund. 1,145,849 28,848 144,057
</TABLE>
CRABBE HUSON ASSET ALLOCATION FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
8,640,191 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan
of Reorganization for the Fund. 4,772,763 25,620 364,096
</TABLE>
CRABBE HUSON EQUITY FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
18,480,913 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan
of Reorganization for the Fund. 9,200,415 258,489 613,980
</TABLE>
77
<PAGE>
CRABBE HUSON FUNDS
CRABBE HUSON SMALL CAP FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
10,059,260 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan
of Reorganization for the Fund. 5,165,955 575,890 280,954
</TABLE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
2,046,344 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan of
Reorganization for the Fund. 1,138,117 22,325 64,359
</TABLE>
CRABBE HUSON INCOME FUND
On October 16, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following item as described in the Proxy Statement for the Meeting.
On August 4, 1998, the record date for the Meeting, the Fund had outstanding
522,160 shares of beneficial interest. The votes cast at the Meeting were as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- --------- ---------
<S> <C> <C> <C>
1. To approve or disapprove an Agreement and Plan
of Reorganization for the Fund. 294,354 10,686 12,966
</TABLE>
78
<PAGE>
CRABBE HUSON FUNDS
DISTRIBUTIONS TO SHAREHOLDERS (UNAUDITED)
OREGON TAX-FREE FUND Of the Fund's distributions paid to shareholders from net
investment income during the fiscal year ended October 31, 1998, 98.7% was
attributable to investments in municipal bonds issued by the State of Oregon and
its political subdivisions, agencies, authorities and instumentalities and other
municipal securities.
CORPORATE DIVIDENDS RECEIVED DEDUCTION For the fiscal year ended October 31,
1998 0.0% of the dividends distributed by the Special Fund, 0.0% of the
dividends distributed by the Small Cap Fund, 24.5% of the dividends distributed
from the Managed Fund and 100.0% of the dividends distributed by the Equity
Fund, qualify for the dividends received deduction for corporate shareholders.
LONG-TERM CAPITAL GAIN DISTRIBUTIONS During the fiscal year ended October 31,
1998, the following long term capital gain amounts were paid in December of
1997. The long term gains earned during the year ended October 31, 1998 are also
designated below.
<TABLE>
<CAPTION>
FUND PAID EARNED
<S> <C> <C>
- ----------------------------------------------------------------------------------
Special $ 38,363,921 --
Small Cap $ 465,251 $ 423,325
Managed $ 7,072,655 $ 2,392,964
Equity $ 44,135,152 $ 11,107,636
Real Estate $ 1,821,714 $ 329,218
Oregon Tax-Free $ 66,774 $ 659,481
Income -- $ 67,256
</TABLE>
INCOME DERIVED FROM U.S. GOVERNMENT OBLIGATIONS Of each Fund's net investment
income earned during the fiscal year ended October 31, 1998, listed below are
the percentages attributable to investments in direct or indirect debt
obligations of the United States Government, or its agencies or
instrumentalities.
<TABLE>
<CAPTION>
OTHER
STUDENT INDIRECT TOTAL
U.S. LOAN U.S. U.S.
TREASURY MARKETING GOVERNMENT GOVERNMENT
FUND OBLIGATIONS ASSOCIATION OBLIGATIONS OBLIGATIONS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special 0.0% 0.0% 0.0% 0.0%
Small Cap 0.0 0.0 0.0 0.0
Managed 25.3 0.4 5.1 30.8
Equity 0.0 0.0 7.4 7.4
Real Estate 0.0 0.0 3.7 3.7
Oregon Tax-Free 0.0 0.0 0.0 0.0
Income 30.7 0.0 3.2 33.9
</TABLE>
79
<PAGE>
This page is left blank intentionally.
80
<PAGE>
[LOGO] L I B E R T Y
COLONIAL . CRABBE HUSON . NEWPORT . STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. -C- 1998
One Financial Center, Boston, MA 02111-2621
1-800-426-3750
Visit us at www.libertyfunds.com
TRUSTEES
ROBERT J. BIRNBAUM
TOM BLEASDALE
JOHN V. CARBERRY
LORA S. COLLINS
JAMES E. GRINNELL
RICHARD W. LOWRY
SALVATORE MACERA
WILLIAM E. MAYER
JAMES L. MOODY, JR.
JOHN J. NEUHAUSER
THOMAS E. STITZEL
ROBERT L. SULLIVAN
ANNE-LEE VERVILLE
AS OF THE DATE OF THIS REPORT, THE FUND DIRECTORS FOR
THE CRABBE HUSON SPECIAL FUND, INC. ARE:
WILLIAM W. WYATT, JR.
LOUIS SCHERZER
RICHARD P. WOLLENBERG
BOB L. SMITH
GARY L. CAPPS
RICHARD S. HUSON
JAMES E. CRABBE
CRAIG P. STUVLAND
CH-02/376G-1098 (1298) 98/1363
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
THE TRANSFER AGENT FOR
THE CRABBE HUSON FUNDS IS:
LIBERTY FUNDS SERVICES, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
1-800-345-6611
CRABBE HUSON FUNDS MAILS ONE SHAREHOLDER REPORT
TO EACH SHAREHOLDER ADDRESS. IF YOU WOULD LIKE
MORE THAN ONE REPORT, PLEASE CALL 1-800-426-3750
AND ADDITIONAL REPORTS WILL BE SENT TO YOU.
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS OF
THE CRABBE HUSON FUNDS. THIS REPORT MAY ALSO BE USED
AS SALES LITERATURE WHEN PRECEDED OR ACCOMPANIED BY
THE CURRENT PROSPECTUS WHICH PROVIDES DETAILS ABOUT
SALES CHARGES, INVESTMENT OBJECTIVES AND OPERATING
POLICIES OF THE FUNDS.
