AT 1236 THE FLT DEPARTED KETCHIKAN SEAPLANE BASE WITH A SPECIAL VFR CLEARANCE & AT 1240 REPORTED CLEAR OF THE CONTROL ZONE. THE NEXT & LAST TRANSMISSION BY THE PLT WAS MADE TO THE COMPANY VIA FM RADIO AT ABOUT 1340. THIS REPORT WAS ISSUEDIN THE VICINITY OF HAPPY HARBOR (PASSING OVER KASAAN ISLAND) & WAS THE APPROXIMATE MID-POINT OF THE FLT TO CRAIG. WITNESSES REPORTED SEEING THE ACFT FLYING SW OVER TWELVEMILE ARM TOWARD HOLLIS. UPON REACHING HOLLIS THE FLT WOULD BE EXPECTED TO TURN WEST & CROSS INLAND OVER PRINCE OF WALES ISLAND UNTIL REACHING THE WEST SHORELINE & THENCE DIRECTLY TO CRAIG. THERE WAS A FOG BANK ABOUT 2 MI PRIOR TO HOLLIS IN TWELVEMILE ARM & THE ACFT WAS OBSERVED TO REVERSE COURSE AS THE WX WAS APPROACHED & PROCEED NORTH. THE ACFT WAS LOST FROM SIGHT DUE TO TREES & RAPIDLY UPSLOPING TERRAIN. AN INCREASE IN ENG SOUND WAS HEARD PRIOR TO THE CRASH. WITNESSES DESCRIBED THE CLOUDS AS ESSENTIALLY BROKEN WITH BASES AT ABOUT 1000 FT OVER THE WATER & OBSTRUCTING THE TOPS OF SOME OF THE HIGHER ISLANDS.