UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM 10-K

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


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995   COMMISSION FILE NUMBER 1-8857


                             MAXXAM GROUP INC.
           (Exact name of Registrant as Specified in its Charter)

          DELAWARE                             13-1310680
      (State or other                       (I.R.S. Employer
        jurisdiction                     Identification Number)
     of incorporation or
       organization)

5847 SAN FELIPE, SUITE 2600                      77057
       HOUSTON, TEXAS                          (Zip Code)
   (Address of Principal
     Executive Offices)

     Registrant's telephone number, including area code: (713) 975-7600

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


        Securities registered pursuant to Section 12(b) of the Act:

                                   None.


        Securities registered pursuant to Section 12(g) of the Act:

                                   None.

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


     Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/   No / /

    All of the Registrant's voting stock is held by an affiliate of the
                                Registrant.

    Number of shares of Common Stock outstanding at March 15, 1996:  100
     REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(J)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.

                    DOCUMENTS INCORPORATED BY REFERENCE:

     The consolidated financial statements and notes thereto of Kaiser
    Aluminum Corporation and The Pacific Lumber Company are incorporated
  herein by reference under Part IV and included as Exhibits 99.1 and 99.2
                           hereto, respectively.

                                   PART I


ITEM 1.        BUSINESS

     GENERAL

          MAXXAM Group Inc. and its wholly owned subsidiaries are
collectively referred to herein as the "Company" or "MGI" unless otherwise
indicated or the context indicates otherwise.  The Company is a wholly
owned subsidiary of MAXXAM Inc. ("MAXXAM").  The Company engages in forest
products operations through its wholly owned subsidiaries, The Pacific
Lumber Company and its wholly owned subsidiaries (collectively referred to
herein as "Pacific Lumber," unless the context indicates otherwise), and
Britt Lumber Co., Inc. ("Britt").  Pacific Lumber, which has been in
continuous operation for over 125 years, engages in several principal
aspects of the lumber industry--the growing and harvesting of redwood and
Douglas-fir timber, the milling of logs into lumber products and the
manufacturing of lumber into a variety of value-added finished products. 
Britt manufactures redwood and cedar fencing and decking products from
small diameter logs, a substantial portion of which Britt acquires from
Pacific Lumber (which cannot efficiently process them in its own mills).

     PACIFIC LUMBER OPERATIONS

          Timberlands
          Pacific Lumber owns and manages approximately 192,000 acres of
commercial timberlands.  These timberlands are located in Humboldt County
along the northern California coast which has very favorable soil and
climate conditions.  These timberlands contain approximately three-quarters
redwood and one-quarter Douglas-fir timber.  Pacific Lumber's acreage is
virtually contiguous, is located in close proximity to its sawmills and
contains an extensive (1,100 mile) network of roads.  These factors
greatly facilitate Pacific Lumber's operations and forest management
techniques.  The extensive roads throughout Pacific Lumber's timberlands
facilitate log hauling, serve as fire breaks and allow Pacific Lumber's
foresters access to employ forest stewardship techniques which protect the
trees from forest fires, erosion, insects and other damage.

          Approximately 179,000 acres of Pacific Lumber's timberlands are
owned by Scotia Pacific Holding Company (the "Scotia Pacific Timberlands"),
a special purpose Delaware corporation and wholly owned subsidiary of
Pacific Lumber ("Scotia Pacific").  Pacific Lumber has the exclusive right
to harvest (the "Pacific Lumber Harvest Rights") approximately 8,000 non-
contiguous acres of the Scotia Pacific Timberlands consisting substantially
of virgin old growth redwood and virgin old growth Douglas-fir timber
located on numerous small parcels throughout the Scotia Pacific
Timberlands.  Substantially all of Scotia Pacific's assets, including the
Scotia Pacific Timberlands and the GIS (defined below), are pledged as
security for Scotia Pacific's 7.95% Timber Collateralized Notes due 2015
(the "Timber Notes").  Pacific Lumber harvests and purchases from Scotia
Pacific all of the logs harvested from the Scotia Pacific Timberlands.  See
"--Relationships With Scotia Pacific and Britt" for a description of this
and other relationships among Pacific Lumber, Scotia Pacific and Britt.

          The forest products industry grades lumber in various
classifications according to quality.  The two broad categories within
which all grades fall, based on the absence or presence of knots, are
called "upper" and "common" grades, respectively.  "Old growth" trees,
often defined as trees which have been growing for approximately 200 years
or longer, have a higher percentage of upper grade lumber than "young
growth" trees (those which have been growing for less than 200 years). 
"Virgin" old growth trees are located in timber stands that have not
previously been harvested.  "Residual" old growth trees are located in
timber stands which have been partially harvested in the past.

          Pacific Lumber has engaged in extensive efforts to
supplement the natural regeneration of timber and increase the amount of
timber on its timberlands.  Pacific Lumber is required to comply
with California forestry regulations regarding reforestation, which
generally require that an area be reforested to specified standards
within an established period of time.  Pacific Lumber also actively engages
in efforts to establish timberlands from open areas such as pasture land. 
During 1995, Pacific Lumber planted approximately 676,000 redwood and
Douglas-fir seedlings.  Regeneration of redwood timber generally is
accomplished through the natural growth of new redwood sprouts from the
stump remaining after a redwood tree is harvested.  Such new redwood
sprouts grow quickly, thriving on existing mature root systems.  In
addition, Pacific Lumber supplements natural redwood regeneration by
planting redwood seedlings.  Douglas-fir timber grown on Pacific Lumber's
timberlands is regenerated almost entirely by planting seedlings.

     HARVESTING PRACTICES

          The ability of Pacific Lumber to sell logs or lumber products
will depend, in part, upon its ability to obtain regulatory approval of
timber harvesting plans ("THPs").  THPs are required to be developed by
registered professional foresters and must be filed with, and approved by,
the California Department of Forestry ("CDF") prior to the harvesting of
timber.  Each THP is designed to comply with applicable environmental laws
and regulations.  The CDF's evaluation of proposed THPs incorporates review
and analysis of such THPs by several California and federal agencies and
public comments received with respect to such THPs.  An approved THP is
applicable to specific acreage and specifies the harvesting method and
other conditions relating to the harvesting of the timber covered by such
THP.  See "--Regulatory and Environmental Factors" for information
regarding proposed critical habitat designation, sustained yield
regulations and related matters.  Pacific Lumber maintains a detailed
geographical information system covering its timberlands (the "GIS").  The
GIS covers numerous aspects of Pacific Lumber's properties, including
timber type, tree class, wildlife data, roads, rivers and streams.  By
carefully monitoring and updating this data base and conducting field
studies, Pacific Lumber's foresters are able to develop detailed THPs
addressing the various regulatory requirements.  Pacific Lumber also
utilizes a Global Positioning System ("GPS") which allows precise location
of geographic features through satellite positioning.  Use of the GPS
greatly enhances the quality and efficiency of GIS data.

          Pacific Lumber employs a variety of well-accepted methods of
selecting trees for harvest.  These methods, which are designed to achieve
optimal regeneration, are referred to as "silvicultural systems" in the
forestry profession.  Silvicultural systems range from very light thinnings
aimed at enhancing the growth rate of retained trees to clear cutting which
results in the harvest of all trees in an area and replacement with a new
forest stand.  In between are a number of varying levels of partial
harvests which can be employed.  Pacific Lumber's foresters select the
appropriate silvicultural system for any given site based upon the specific
conditions of that site.  Pacific Lumber customarily employs silvicultural
systems that involve thinnings followed by a variety of partial cuttings to
achieve a high degree of natural regeneration.  Partial harvesting allows
the remaining trees to obtain more light, nutrients and water, thereby
promoting faster growth rates.  Pacific Lumber uses a variety of factors,
including the size and density of the remaining trees, to determine when to
again submit a THP with respect to a given area.  Clear cutting is only
used under specific circumstances where it is advisable due to specific
site conditions (such as undesirable tree species composition for natural
regeneration, topographic difficulties which preclude partial cuttings or
the need to create more diverse wildlife habitats within watersheds as
recommended by Pacific Lumber's wildlife biologists).  Due to the magnitude
of its timberlands and conservative application of silvicultural systems
that retain substantial numbers of trees on areas that are harvested,
Pacific Lumber has historically conducted harvesting operations on
approximately 5% of its timberlands in any given year.

     PRODUCTION FACILITIES

          Pacific Lumber owns four highly mechanized sawmills and related
facilities located in Scotia, Fortuna and Carlotta, California.  The
sawmills historically have been supplied almost entirely from timber
harvested from Pacific Lumber's timberlands.  Since 1986, Pacific Lumber
has implemented numerous technological advances which have increased the
operating efficiency of its production facilities and the recovery of
finished products from its timber.  Over the past three years, Pacific
Lumber's annual lumber production has averaged approximately 268 million
board feet, with approximately 290, 286, and 228 million board feet
produced in 1995, 1994 and 1993, respectively.  The Fortuna sawmill, built
by Pacific Lumber in 1972, produces primarily common grade lumber.  During
1995, the Fortuna mill produced approximately 94 million board feet of
lumber.  The Carlotta sawmill was acquired in 1986 and produces both common
and upper grade redwood lumber.  During 1995, the Carlotta mill produced
approximately 67 million board feet of lumber.  Sawmill "A," located in
Scotia, was remodeled in 1983 and processes Douglas-fir logs while Sawmill
"B," also located in Scotia, primarily processes large diameter redwood
logs.   During 1995, Sawmills "A" and "B" produced 79 and 51 million board
feet of lumber, respectively.

          Pacific Lumber operates a finishing plant which processes rough
lumber into a variety of finished products such as trim, fascia, siding and
paneling.  These finished products include the industry's largest variety
of customized trim and fascia patterns.  Pacific Lumber also enhances the
value of some grades of common grade lumber by assembling knot-free pieces
of narrower and shorter lumber into wider or longer pieces in its
state-of-the-art end and edge glue plant.  The result is a standard sized
upper grade product which can be sold at a significant premium over common
grade products.

          Pacific Lumber dries the majority of its upper grade lumber
before it is sold.  Upper grades of redwood lumber are generally air-dried
for six to eighteen months and then kiln-dried for seven to twenty-four
days to produce a dimensionally stable and high quality product which
generally commands higher prices than "green" lumber (which is lumber sold
before it has been dried).  Upper grade Douglas-fir lumber is generally
kiln-dried immediately after it is cut.  Pacific Lumber owns and operates
34 kilns, having an annual capacity of approximately 95 million board feet,
to dry its upper grades of lumber efficiently in order to produce a
quality, premium product.  Pacific Lumber also maintains several large
enclosed storage sheds which hold approximately 25 million board feet of
lumber.

          In addition, Pacific Lumber owns and operates a modern
25-megawatt cogeneration power plant which is fueled almost entirely by the
wood residue from Pacific Lumber's milling and finishing operations.  This
power plant generates substantially all of the energy requirements of
Scotia, California, the town adjacent to Pacific Lumber's timberlands where
several of its manufacturing facilities are located.  Pacific Lumber sells
surplus power to Pacific Gas and Electric Company.  In 1995, the sale of
surplus power accounted for approximately 1% of Pacific Lumber's total
revenues.

     PRODUCTS

          The following table sets forth the distribution of Pacific
Lumber's lumber production (on a net board foot basis) and revenues by
product line:

<TABLE>

<CAPTION>


                            Year Ended December 31, 1995            Year Ended December 31, 1994    
                        ------------------------------------    ------------------------------------
                        % of Total                              % of Total
                          Lumber     % of Total                   Lumber     % of Total
                        Production     Lumber      % of Total   Production     Lumber     % of Total
                          Volume      Revenues      Revenues      Volume      Revenues     Revenues 
       Product          ----------   ----------    ----------   ----------   ----------   ----------
<S>                     <C>          <C>           <C>          <C>          <C>          <C>
Upper grade redwood
     lumber                    17%           38%          31%          17%          41%          33%
Common grade redwood
     lumber                    54%           40%          32%          58%          36%          30%
                        ----------   -----------   ----------   ----------   ----------   ----------
     Total redwood
          lumber               71%           78%          63%          75%          77%          63%
                        ----------   -----------   ----------   ----------   ----------   ----------
Upper grade Douglas-
     fir lumber                 3%            5%           4%           3%           7%           5%
Common grade
     Douglas-fir
     lumber                    23%           14%          11%          20%          13%          10%
                        ----------   -----------   ----------   ----------   ----------   ----------
     Total Douglas-
          fir lumber           26%           19%          15%          23%          20%          15%
                        ----------   -----------   ----------   ----------   ----------   ----------
Other grades of
     lumber                     3%            3%           4%           2%           3%           4%
                        ----------   -----------   ----------   ----------   ----------   ----------
     Total lumber             100%          100%          82%         100%         100%          82%
                        ==========   ===========   ==========   =========    ==========   ==========
Logs                                                       7%                                     9%
                                                   ==========                             ==========
Hardwood chips                                             4%                                     4%
Softwood chips                                             5%                                     4%
                                                   ----------                             ----------
     Total wood
          chips                                            9%                                     8%
                                                   ==========                             ==========<PAGE>

</TABLE>

          Lumber
          Pacific Lumber primarily produces and markets lumber.  In 1995,
Pacific Lumber sold approximately 277 million board feet of lumber, which
accounted for approximately 82% of Pacific Lumber's total revenues.  Lumber
products vary greatly by the species and quality of the timber from which
it is produced.  Lumber is sold not only by grade (such as "upper" grade
versus "common" grade), but also by board size and the drying process
associated with the lumber.

          Redwood lumber is Pacific Lumber's largest product category. 
Redwood is commercially grown only along the northern coast of California
and possesses certain unique characteristics which permit it to be sold at
a premium to many other wood products.  Such characteristics include its
natural beauty, superior ability to retain paint and other finishes,
dimensional stability and innate resistance to decay, insects and
chemicals.  Typical applications include exterior siding, trim and fascia
for both residential and commercial construction, outdoor furniture, decks,
planters, retaining walls and other specialty applications.  Redwood also
has a variety of industrial applications because of its chemical resistance
and because it does not impart any taste or odor to liquids or solids.

          Upper grade redwood lumber, which is derived primarily from old
growth trees and is characterized by an absence of knots and other defects
and a very fine grain, is used primarily in more costly and distinctive
interior and exterior applications.  The overall supply of upper grade
lumber has been diminishing due to increasing environmental and
regulatory restrictions and other factors.  While Pacific Lumber's
competitive position with respect to upper grade lumber has been
improving due to the quality of its timberlands, Pacific Lumber's
supply of upper grade lumber has decreased in some premium product
categories.  See Item 7.  "Management's Discussion and Analysis of
Financial Condition and Results of Operations."  Common grade redwood lumber,
Pacific Lumber's largest volume product, has many of the same aesthetic and
structural qualities of redwood uppers, but has some knots, sapwood and a
coarser grain.  Such lumber is commonly used for construction purposes,
including outdoor structures such as decks, hot tubs and fencing.

          Douglas-fir lumber is used primarily for new construction and
some decorative purposes and is widely recognized for its strength, hard
surface and attractive appearance.  Douglas-fir is grown commercially along
the west coast of North America and in Chile and New Zealand.  Upper grade
Douglas-fir lumber is derived primarily from old growth Douglas-fir timber
and is used principally in finished carpentry applications.  Common grade
Douglas-fir lumber is used for a variety of general construction purposes
and is largely interchangeable with common grades of other whitewood
lumber.

          Logs
          Pacific Lumber currently sells certain logs that, due to their
size or quality, cannot be efficiently processed by its mills into lumber. 
The purchasers of these logs are largely Britt, and surrounding mills which
do not own sufficient timberlands to support their mill operations.  See "-
-Relationships With Scotia Pacific and Britt" below.  Except for the
agreement with Britt described below, Pacific Lumber does not have any
significant contractual relationships with any third parties relating to
the purchase of logs.  Pacific Lumber has historically not purchased
significant quantities of logs from third parties; however, Pacific Lumber
may from time to time purchase logs from third parties for processing in
its mills or for resale to third parties if, in the opinion of management,
economic factors are advantageous to Pacific Lumber.

          Wood Chips
          Pacific Lumber uses a whole-log chipper to produce wood chips
from hardwood trees which would otherwise be left as waste.  These chips
are sold to third parties primarily for the production of facsimile and
other specialty papers.  Pacific Lumber also produces softwood chips from
the wood residue and waste from its milling and finishing operations. 
These chips are sold to third parties for the production of wood pulp and
paper products.

     BACKLOG AND SEASONALITY

          Pacific Lumber's backlog of sales orders at December 31, 1995 and
1994 was approximately $11.5 million and $11.9 million, respectively, the
substantial portion of which was delivered in the first quarter of the next
fiscal year.  Pacific Lumber has historically experienced lower first
quarter sales due largely to the general decline in construction-related
activity during the winter months.  As a result, Pacific Lumber's results
in any one quarter are not necessarily indicative of results to be expected
for the full year.

     MARKETING

          The housing, construction and remodeling markets are the primary
markets for Pacific Lumber's lumber products.  Pacific Lumber's policy is
to maintain a wide distribution of its products both geographically and in
terms of the number of customers.  Pacific Lumber sells its lumber products
throughout the country to a variety of accounts, the large majority of
which are wholesalers, followed by retailers, industrial users, exporters
and manufacturers.  Upper grades of redwood and Douglas-fir lumber are sold
throughout the entire United States, as well as to export markets.  Common
grades of redwood lumber are sold principally west of the Mississippi
River, with California accounting for approximately 63% of these sales in
1995.  Common grades of Douglas-fir lumber are sold primarily in
California.  In 1995, no single customer accounted for more than 4% of
Pacific Lumber's total revenues.  Exports of lumber accounted for
approximately 4% of Pacific Lumber's total revenues in 1995.  Pacific
Lumber markets its products through its own sales staff which focuses
primarily on domestic sales.

          Pacific Lumber actively follows trends in the housing,
construction and remodeling markets in order to maintain an appropriate
level of inventory and assortment of products.  Due to its high quality
products, large inventory, competitive prices and long history, Pacific
Lumber believes that it has a strong degree of customer loyalty.

     COMPETITION

          Pacific Lumber's lumber is sold in highly competitive markets. 
Competition is generally based upon a combination of price, service,
product availability and product quality.  Pacific Lumber's products
compete not only with other wood products but with metals, masonry, plastic
and other construction materials made from non-renewable resources.  The
level of demand for Pacific Lumber's products is dependent on such broad
factors as overall economic conditions, interest rates and demographic
trends.  In addition, competitive considerations, such as total industry
production and competitors' pricing, as well as the price of other
construction products, affect the sales prices for Pacific Lumber's lumber
products.  Pacific Lumber currently enjoys a competitive advantage in the
upper grade redwood lumber market due to the quality of its timber holdings
and relatively low cost production operations.  Competition in the common
grade redwood and Douglas-fir lumber market is more intense, and Pacific
Lumber competes with numerous large and small lumber producers.

     EMPLOYEES

          As of March 1, 1996, Pacific Lumber had approximately 1,600
employees, none of whom are covered by a collective bargaining agreement.

     RELATIONSHIPS WITH SCOTIA PACIFIC AND BRITT

          In March 1993, Pacific Lumber consummated its offering of $235
million of 10-1/2% Senior Notes due 2003 (the "Pacific Lumber Senior
Notes") and Scotia Pacific consummated its offering of $385 million of
Timber Notes.  Upon the closing of such offerings, Pacific Lumber, Scotia
Pacific and Britt entered into a variety of agreements.  Pacific Lumber and
Scotia Pacific entered into a Services Agreement (the "Services Agreement")
and an Additional Services Agreement (the "Additional Services Agreement"). 
Pursuant to the Services Agreement, Pacific Lumber provides operational,
management and related services with respect to the Scotia Pacific
Timberlands containing timber of Scotia Pacific ("Scotia Pacific Timber")
not performed by Scotia Pacific's own employees.  Such services include the
furnishing of all equipment, personnel and expertise not within Scotia
Pacific's possession and reasonably necessary for the operation and
maintenance of the Scotia Pacific Timberlands containing Scotia Pacific
Timber.  In particular, Pacific Lumber is required to regenerate Scotia
Pacific Timber, prevent and control loss of Scotia Pacific Timber by fires,
maintain a system of roads throughout the Scotia Pacific Timberlands, take
measures to control the spread of disease and insect infestation affecting
Scotia Pacific Timber and comply with environmental laws and regulations,
including measures with respect to waterways, habitat, hatcheries and
endangered species.  Pacific Lumber is also required (to the extent
necessary) to assist Scotia Pacific personnel in updating the GIS and to
prepare and file, on Scotia Pacific's behalf, all pleadings and motions and
otherwise diligently pursue appeals of any denial of any THP and related
matters.  As compensation for these and the other services to be provided
by Pacific Lumber, Scotia Pacific pays a fee which is adjusted on January 1
of each year based on a specified government index relating to wood
products.  The fee was approximately $115,100 per month in 1995 and is
expected to be approximately $112,100 per month in 1996.  Pursuant to the
Additional Services Agreement, Scotia Pacific provides Pacific Lumber with
a variety of services, including (a) assisting Pacific Lumber to operate,
maintain and harvest its own timber properties, (b) updating and providing
access to the GIS with respect to information concerning Pacific Lumber's
own timber properties, and (c) assisting Pacific Lumber with its statutory
and regulatory compliance.  Pacific Lumber pays Scotia Pacific a fee for
such services equal to the actual cost of providing such services, as
determined in accordance with generally accepted accounting principles.

          Pacific Lumber and Scotia Pacific also entered into a Master
Purchase Agreement (the "Master Purchase Agreement").  The Master Purchase
Agreement governs all purchases of logs by Pacific Lumber from Scotia
Pacific.  Each purchase of logs by Pacific Lumber  from Scotia Pacific is
made pursuant to a separate log purchase agreement (which incorporates the
terms of the Master Purchase Agreement) for the Scotia Pacific Timber
covered by an approved THP.  Each log purchase agreement generally
constitutes an exclusive agreement with respect to the timber covered
thereby, subject to certain limited exceptions.  The purchase price must be
at least equal to the SBE Price (as defined below).  The Master Purchase
Agreement provides that if the purchase price equals or exceeds (i) the
price for such species and category thereof set forth on the structuring
schedule applicable to the Timber Notes and (ii) the SBE Price, then such
price shall be deemed to be the fair market value of such logs.  The Master
Purchase Agreement defines the "SBE Price," for any species and category of
timber, as the stumpage price for such species and category as set forth in
the most recent "Harvest Value Schedule" published by the California State
Board of Equalization ("SBE") applicable to the timber sold during the
period covered by such Harvest Value Schedule.  Such Harvest Value
Schedules are published for purposes of computing yield taxes and generally
are released every six months.  As Pacific Lumber purchases logs from
Scotia Pacific pursuant to the Master Purchase Agreement, Pacific Lumber is
responsible, at its own expense, for harvesting and removing the standing
Scotia Pacific Timber covered by approved THPs and, thus, the purchase
price thereof is based upon "stumpage prices."  Title to the harvested logs
does not pass to Pacific Lumber until the logs are transported to Pacific
Lumber's log decks and measured.  Substantially all of Scotia Pacific's
revenues are derived from the sale of logs to Pacific Lumber under the
Master Purchase Agreement.

          Pacific Lumber, Scotia Pacific and Salmon Creek Corporation
("Salmon Creek," a wholly owned subsidiary of Pacific Lumber) also entered
into a Reciprocal Rights Agreement granting to each other certain
reciprocal rights of egress and ingress through their respective properties
in connection with the operation and maintenance of such properties and
their respective businesses.  In addition, Pacific Lumber entered into an
Environmental Indemnification Agreement with Scotia Pacific pursuant to
which Pacific Lumber agreed to indemnify Scotia Pacific from and against
certain present and future liabilities arising with respect to hazardous
materials, hazardous materials contamination or disposal sites, or under
environmental laws with respect to the Scotia Pacific Timberlands.

          Pacific Lumber entered into an agreement with Britt (the "Britt
Agreement") which governs the sale of logs by Pacific Lumber and Britt to
each other, the sale of hog fuel (wood residue) by Britt to Pacific Lumber
for use in Pacific Lumber's cogeneration plant, the sale of lumber by
Pacific Lumber and Britt to each other, and the provision by Pacific Lumber
of certain administrative services to Britt (including accounting,
purchasing, data processing, safety and human resources services).  The
logs which Pacific Lumber sells to Britt and which are used in Britt's
manufacturing operations are sold at approximately 75% of applicable SBE
prices (to reflect the lower quality of these logs).  Logs which either
Pacific Lumber or Britt purchases from third parties and which are then
sold to each other are transferred at the actual cost of such logs.  Hog
fuel is sold at applicable market prices, and administrative services are
provided by Pacific Lumber based on Pacific Lumber's actual costs and an
allocable share of Pacific Lumber's overhead expenses consistent with past
practice.

     BRITT LUMBER OPERATIONS

          Business
          Britt is located in Arcata, California, approximately 45 miles
north of Pacific Lumber's headquarters.  Britt's primary business is the
processing of small diameter redwood logs into wood fencing products for
sale to retail and wholesale customers.  Britt was incorporated in 1965 and
operated as an independent manufacturer of fence products until July 1990,
when it was purchased by a subsidiary of the Company.  Britt purchases
small diameter (6 to 11 inch) and short length (6 to 12 feet) redwood logs
from Pacific Lumber and a variety of different diameter and different
length logs from various timberland owners.  Britt processes logs at its
mill into a variety of different fencing products, including "dog-eared" 1"
x 6" fence stock in six and eight foot lengths, 4" x 4" fence posts in 6
through 12 foot lengths, and other fencing products in 6 through 12 foot
lengths.  Britt's purchases of logs from third parties are generally
consummated pursuant to short-term contracts of twelve months or less.  See
"--Pacific Lumber Operations--Relationships With Scotia Pacific and Britt"
for a description of Britt's log purchases from Pacific Lumber.

          Marketing
          In 1995, Britt sold approximately 78 million board feet of lumber
products to approximately 100 different  customers.  Over one-half of its
lumber sales were in northern California.  The remainder of its 1995 sales
were in southern California and ten other western states.  The largest and
top five of such customers accounted for approximately 33% and 72%,
respectively, of such 1995 sales.  Britt markets its products to a variety
of customers, including distribution centers, industrial remanufacturers,
wholesalers and retailers and is expanding its market eastward.

          Britt's backlog of sales orders at December 31, 1995 and 1994 was
approximately $3.2 million and $3.6 million, respectively, the substantial
portion of which was delivered in the first quarter of the next fiscal
year.

          Facilities and Employees
          Britt's manufacturing operations are conducted on 12 acres of
land, 10 acres of which are leased on a long-term fixed-price basis from an
unrelated third party.  Fence production is conducted in a 46,000 square
foot mill.  An 18 acre log sorting and storage yard is located one quarter
of a mile away.  The mill was constructed in 1980, and capital expenditures
to enhance its output and efficiency are made periodically.  Britt's
(single shift) mill capacity, assuming 40 production hours per week, is
estimated at 35.5 million board feet of fencing products per year.  As of
March 1, 1996, Britt employed approximately 110 people, none of whom are
covered by a collective bargaining agreement.

          Competition
          Management estimates that Britt accounted for approximately one-
third of the redwood fence market in 1995 in competition with the northern
California mills of Louisiana Pacific, Georgia Pacific and Eel River.

     REGULATORY AND ENVIRONMENTAL FACTORS

          Regulatory and environmental issues play a significant role in
Pacific Lumber's forest products operations.  Pacific Lumber's forest
products operations are subject to a variety of California and federal laws
and regulations dealing with timber harvesting, endangered species and
critical habitat, and air and water quality.  These laws include the
California Forest Practice Act (the "Forest Practice Act"), which requires
that timber harvesting operations be conducted in accordance with detailed
requirements set forth in the Forest Practice Act and in the regulations
promulgated thereunder by the California Board of Forestry (the "BOF"). 
The federal Endangered Species Act (the "ESA") and California Endangered
Species Act (the "CESA") provide in general for the protection and
conservation of specifically listed fish, wildlife and plants which have
been declared to be endangered or threatened.  The California Environmental
Quality Act ("CEQA") provides, in general, for protection of the
environment of the state, including protection of air and water quality and
of fish and wildlife.  In addition, the California Water Quality Act
requires, in part, that Pacific Lumber's operations be conducted so as to
reasonably protect the water quality of nearby rivers and streams.  The
Company does not expect that compliance with such existing laws and
regulations will have a material adverse effect on its future liquidity,
consolidated operating results or financial position; however, these laws
and regulations are modified from time to time and there can be no
assurance that certain pending or future legislation, governmental
regulations or judicial or administrative decisions would not materially
adversely affect the Company (see below).

          In 1994, the BOF adopted certain regulations regarding compliance
with long-term sustained yield objectives.  These regulations require
timber companies to project the average annual growth they will have on
their timberlands during the last decade of a 100-year planning period
("Projected Annual Growth").  During any rolling ten-year period, the
average annual harvest over such ten-year period may not exceed Projected
Annual Growth.  The first ten-year period began in May 1994.  Pacific
Lumber is required to submit, by October 1996, a plan setting forth, among
other things, its Projected Annual Growth.  Pacific Lumber has not
completed its analysis of the projected productivity of its timberlands and
is therefore unable to predict the impact that these regulations will have
on its future timber harvesting practices; however, the final results of
this analysis could require Pacific Lumber to reduce (or permit it to
increase) its timber harvest in future years from the average annual
harvest that it has experienced in recent years.  Pacific Lumber believes
that it would be able to mitigate the effect of any required reduction in
harvest level by acquisitions of additional timberlands and by increasing
the productivity of its timberlands.

          In March 1992, the marbled murrelet was approved for listing as
endangered under the CESA.  In October 1992, the United States Fish and
Wildlife Service ("USFWS") issued its final rule listing the marbled
murrelet as a threatened species under the ESA in the tri-state area of
Washington, Oregon and California.  Pacific Lumber has incorporated, and
will continue to incorporate as required, mitigation measures into its THPs
to protect and maintain habitat for the marbled murrelet on its
timberlands.  The BOF requires Pacific Lumber to conduct pre-harvest
marbled murrelet surveys to provide certain site specific mitigations in
connection with THPs covering virgin old growth timber and unusually dense
stands of residual old growth timber.  Such surveys can only be conducted
during a portion of the murrelet's nesting and breeding season, which
extends from April through mid-September.  Accordingly, such surveys are
expected to delay the review and approval process with respect to certain
of the THPs filed by Pacific Lumber.  The results of such surveys to date
(based upon current survey protocols) have indicated that Pacific Lumber
has approximately 6,000 acres of occupied marbled murrelet habitat.  A
substantial portion of this land contains virgin and residual old growth
timber and the bulk of it falls within the areas proposed to be designated
as critical habitat for the marbled murrelet (see below).  Pacific Lumber
is unable to predict when or if it will be able to harvest this acreage.

          In January 1994, the USFWS proposed designation of critical
habitat for the marbled murrelet under the ESA (which proposed designation
did not include any of Pacific Lumber's timberlands).  In July 1995, in a
case entitled Marbled Murrelet v. Babbitt (Case No. C-91-522R), a U.S.
District Court in Seattle ordered the USFWS to make its final designation
of critical habitat for the marbled murrelet by January 29, 1996 and to
issue its proposed final designation of critical habitat by August 1, 1995. 
On August 10, 1995, the USFWS published its proposed final designation of
critical habitat for the marbled murrelet (the "Proposed Designation"),
seeking to designate over four million acres as critical habitat for the
marbled murrelet, including approximately 33,000 acres of Pacific Lumber's
timberlands.  The Proposed Designation was subject to a 60-day comment
period and Pacific Lumber filed comments vigorously opposing the Proposed
Designation.  In February 1996, the Court extended until May 15, 1996 the
deadline for final designation of critical habitat for the marbled
murrelet.  The USFWS has not yet published its final designation of
critical habitat for the marbled murrelet.  Pacific Lumber is unable to
predict when or if it would be able to harvest on any acreage finally
designated as critical habitat.  Furthermore, it is impossible to determine
the future adverse impact of such designation on Pacific Lumber's
liquidity, consolidated financial position or results of operations until
such time as the Proposed Designation is finalized and related regulatory
and legal issues are fully resolved.  However, if Pacific Lumber is unable
to harvest, or is severely limited in harvesting, on timberlands designated
as marbled murrelet critical habitat, such restrictions could have a
material adverse effect on its liquidity, consolidated financial condition
and results of operations.  If Pacific Lumber is unable to harvest or is
severely limited in harvesting, it intends to seek full compensation from
the appropriate governmental agencies on the grounds that such restrictions
constitute a taking.

          Pacific Lumber's wildlife biologists are conducting research
concerning the marbled murrelet on its timberlands and are currently
developing a habitat conservation plan for the marbled murrelet (the
"Murrelet HCP").  The Murrelet HCP, which is designed to mitigate the
impact of the Proposed Designation, has been submitted to the USFWS. 
Pacific Lumber is working with the USFWS and other government agencies on
the Murrelet HCP.  It is uncertain when the Murrelet HCP review process
will be completed or what the outcome will be of the review process or its
effect upon Pacific Lumber's liquidity, consolidated financial position or
results of operations.

          There also continue to be other regulatory actions and lawsuits
seeking to have various other species listed as threatened or endangered
under the ESA and/or the CESA and to designate critical habitat for such
species.  It is uncertain what effect any such other listings and/or
designations of critical habitat would have on liquidity, Pacific Lumber's
consolidated financial position or results of operations.

          Various groups and individuals have filed objections with the CDF
and the BOF regarding the CDF's and the BOF's actions and rulings with
respect to certain of Pacific Lumber's THPs, and Pacific Lumber expects
that such groups and individuals will continue to file objections to
certain of Pacific Lumber's THPs.  In addition, lawsuits are pending which
seek to prevent Pacific Lumber from implementing certain of its approved
THPs and other harvesting operations.  These challenges have severely
restricted Pacific Lumber's ability to harvest virgin old growth timber on
its property (and to a lesser extent, its residual old growth timber).  To
date, challenges with respect to Pacific Lumber's THPs relating to young
growth and residual old growth timber have been limited; however, no
assurance can be given as to the extent of such challenges in the future. 
Pacific Lumber believes that environmentally focused challenges to its THPs
are likely to occur in the future, particularly with respect to virgin and
residual old growth timber.  Although such challenges have delayed or
prevented Pacific Lumber from conducting a portion of its operations, to
date such challenges have not had a material adverse effect on the
Company's liquidity, consolidated financial position or results of
operations.  It is, however, impossible to predict the future nature or
degree of such challenges or their ultimate impact on the liquidity,
consolidated results of operations or financial position of the Company. 
See also Item 3. "Legal Proceedings--Timber Harvesting Litigation" for a
description of the pending Marbled Murrelet action.

          In June 1990, the USFWS designated the northern spotted owl as
threatened under the ESA.  The owl's range includes all of Pacific Lumber's
timberlands.  The ESA and its implementing regulations (and related
California regulations) generally prohibit harvesting operations in which
individual owls might be killed, displaced or injured or which result in
significant habitat modification that could impair the survival of
individual owls or the species as a whole.  Since 1988, biologists have
conducted inventory and habitat utilization studies of northern spotted
owls on Pacific Lumber's timberlands.  Pacific Lumber has developed and the
USFWS has given its full concurrence to a comprehensive wildlife management
plan for the northern spotted owl (the "Owl Plan").  The Owl Plan was
recently updated through 1999 and the USFWS agreed that operations
consistent with the Owl Plan would not result in the take of any owls.  By
incorporating the Owl Plan into each THP filed with the CDF, Pacific Lumber
is able to expedite the approval time with respect to its THPs.  Both
federal and state agencies continue to review and consider possible
additional regulations regarding the northern spotted owl.  It is uncertain
if such additional regulations will become effective or their ultimate
content.  The plaintiffs in the Marbled Murrelet action have requested
injunctive relief with respect to the Owl Plan.  See Item 3. "Legal
Proceedings--Timber Harvesting Litigation."

          Laws and regulations dealing with Pacific Lumber's operations are
subject to change and new laws and regulations are frequently introduced
concerning the California timber industry.  From time to time, bills are
introduced in the California legislature and the U.S. Congress which relate
to the business of Pacific Lumber, including the protection and acquisition
of old growth and other timberlands, endangered species, environmental
protection, air and water quality, and the restriction, regulation and
administration of timber harvesting practices.  For example, a bill has
been introduced in the California legislature which would, among other
things, initiate negotiations by the California Resources Agency for the
public acquisition of approximately 4,700 acres of Pacific Lumber's
timberlands, 3,000 acres of which is a contiguous block of virgin old
growth redwood forest often referred to as the "Headwaters Forest." In
addition, the U.S. Congressman from the congressional district in which
Pacific Lumber is located has introduced a bill which would, among other
things, authorize public acquisition of the Headwaters Forest and up to
1,700 contiguous acres.  The bill would authorize the Secretary of the
Interior to exchange government-owned timberlands and other property for
the appraised fair market value of the Headwaters Forest and any contiguous
acreage to be acquired.  Because such bills are subject to amendment, it is
premature to assess the ultimate content of these bills, the likelihood of
any of the bills passing or the impact of any of these bills on the future
liquidity, consolidated financial position or operating results of the
Company.  Furthermore, any bills which are passed are subject to executive
veto and court challenge.  In addition to existing and possible new or
modified statutory enactments, regulatory requirements and administrative
and legal actions, the California timber industry remains subject to
potential California or local ballot initiatives and evolving federal and
California case law which could affect timber harvesting practices.  It is,
however, impossible to assess the effect of such matters on the future
liquidity, consolidated financial position or operating results of the
Company.

ITEM 2.        PROPERTIES

          A description of the Company's properties is included under Item
1 above.

ITEM 3.        LEGAL PROCEEDINGS

     MERGER LITIGATION

          In September 1989, seven past and present employees of Pacific
Lumber brought an action against the Company, Pacific Lumber, MAXXAM and
certain current and former directors and officers of the Company, Pacific
Lumber and MAXXAM, in the United States District Court, Northern District
of California, entitled Kayes, et al. v. Pacific Lumber Company, et al.
(No. C89-3500) (the "Kayes action").  Plaintiffs purport to be participants
in or beneficiaries of Pacific Lumber's former Retirement Plan (the
"Retirement Plan") for whom a group annuity contract was purchased from
Executive Life Insurance Company ("Executive Life") in 1986 after
termination of the Retirement Plan.  The Kayes action alleges that the
Company, Pacific Lumber and MAXXAM defendants breached their fiduciary
duties under the Employee Retirement Income Security Act of 1974 ("ERISA")
to participants and beneficiaries of the Retirement Plan by purchasing the
group annuity contract from Executive Life and selecting Executive Life to
administer the annuity payments.  Plaintiffs seek, among other things, a
new group annuity contract on behalf of the Retirement Plan participants
and beneficiaries.  This case was dismissed on April 14, 1993 and was
refiled as Jack Miller, et al. v. Pacific Lumber Company, et al. (No. C-89-
3500-SBA) (the "Miller action") on April 26, 1993.  The Miller action was
dismissed on May 14, 1993.  On October 22, 1994, the President signed the
Pension Annuitants' Protection Act of 1994, intended in part, to overturn
the U.S. District Court's dismissal of the Miller action and to make
available certain remedies not previously provided under ERISA.  On April
10, 1995, the U.S. Ninth Circuit Court of Appeals reversed the dismissal of
the Miller action.  On August 7, 1995, the defendants requested the U.S.
Supreme Court to review the case by filing a petition for writ of
certiorari.  The U.S. Supreme Court denied defendants' petition for writ of
certiorari.

          In June 1991, the U.S. Department of Labor filed a civil action
entitled Lynn Martin, Secretary of the U.S. Department of Labor v. The
Pacific Lumber Company, et al. (No. 91-1812-RHS) ("DOL civil action") in
the United States District Court, Northern District of California, against
the Company, Pacific Lumber, MAXXAM and certain of their current and former
officers and directors.  The allegations in the DOL civil action are
substantially similar to that in the Kayes action.

          On December 8, 1995, the parties in the Kayes/Miller action and
DOL civil action reached an agreement in principle to settle these matters. 
The proposed settlement is subject to execution of a definitive agreement
and other contingencies.  A status conference is scheduled for April 12,
1996 in the Kayes/Miller action and the DOL civil action.  A special
committee of the Board of Directors of MAXXAM has been appointed to review
the proposed settlement and a related derivative action.

          Management is of the opinion that the outcome of the foregoing
litigation and proposed settlement should not have a material adverse
effect on the Company's liquidity, consolidated financial position or
results of operations.

     TIMBER HARVESTING LITIGATION

          Various actions, similar to each other, have been filed against
the Company, Pacific Lumber and its subsidiaries, MAXXAM, various state
officials and others, alleging, among other things, violations of the
Forest Practice Act, the CEQA, ESA, CESA, and/or related regulations. 
These actions seek to prevent Pacific Lumber and its subsidiaries from
harvesting certain of their THPs and conducting certain other timber
operations.

          The Sierra Club and EPIC v. The California Department of
Forestry, Scotia Pacific Holding Co., et al. (No. 95 DR 0072) action (the
"Sierra Club action") in the Superior Court of Humboldt County, filed on
March 10, 1995 by the Sierra Club and the Environmental Protection
Information Center ("EPIC"), relates to exemptions for forest health which
Pacific Lumber and its subsidiaries had previously filed covering their
entire timberlands.  The plaintiffs allege, among other things, that the
defendants have violated the CEQA, the CESA and the Forest Practice Act and
seek, among other things, to stay all operations authorized by the
exemptions.  In May 1995, the Court denied plaintiffs' request for a
preliminary injunction and dismissed the case on its merits.  On May 19,
1995, plaintiffs appealed the Court's decision and requested an emergency
stay of harvesting.  On June 6, 1995, the Court of Appeal denied the
plaintiffs' request for a stay of timber harvesting operations; however,
plaintiffs continued their appeal of the trial court's decision.  In July
1995, the USFWS and the California Department of Fish and Game (the "CDFG")
inspected Pacific Lumber's property and determined that certain areas
(which Pacific Lumber estimates to be approximately 6,000 acres) are
suitable marbled murrelet habitat and have prohibited harvesting on these
timberlands from April 1 through September 15 (the marbled murrelet
breeding and nesting season).  These agencies have also imposed certain
other restrictions to assure that there is no adverse impact on the marbled
murrelet.

          On September 1, 1995, Pacific Lumber and its subsidiaries
notified the CDF that they intended to commence operations under the forest
health exemptions shortly after September 15, 1995, the end of the marbled
murrelet breeding season.  In connection with the Sierra Club action, on
February 23, 1996, the Court of Appeal affirmed the trial court's decision
in favor of Pacific Lumber, finding that harvesting of dead, dying or
diseased trees is exempt from the environmental review requirements of CEQA
and the Forest Practice Act.  It is uncertain if plaintiffs will seek
review of this decision from the California Supreme Court.  Pacific Lumber
is still prohibited from harvesting under certain portions of the
exemptions as a result of the Marbled Murrelet action described below.

          On September 15, 1995, EPIC filed another lawsuit with respect to
the forest health exemptions; that case is entitled Marbled Murrelet, et
al. v. Bruce Babbitt, et al. (No. C-95-3261) (the "Marbled Murrelet
action") and was filed in the U.S. District Court for the Northern District
of California.  As amended, the complaint alleges, among other things,
violations of the ESA, the National Environmental Protection Act ("NEPA")
and the Administrative Procedures Act ("APA").  Plaintiffs claim, among
other things, that the timber harvesting operations pursuant to the forest
health exemptions will contribute to the destruction of habitat for the
marbled murrelet and the northern spotted owl.  Following a hearing on
September 28, 1995, the Court dissolved a temporary restraining order
("TRO") and issued a preliminary injunction enjoining Pacific Lumber and
its subsidiaries from conducting timber harvesting operations under
portions of the forest health exemptions until a trial on the merits of the
case.  The majority of the timberlands which are subject to the injunction
are timberlands which have been proposed as critical habitat for the
marbled murrelet.  In October 1995, Pacific Lumber appealed the issuance of
the preliminary injunction to the U.S. Ninth Circuit Court of Appeals; oral
argument in the appeal was held March 14, 1996.  On March 6, 1996, the
plaintiffs asked for leave to amend their pleadings to add additional
claims and seek additional injunctive relief concerning, among other
things, Pacific Lumber's Owl Plan and up to eight other THPs (only two of
which are presently approved).  The eight THPs cover approximately 1,360
acres of the Company's timberlands and represent a substantial portion of
the volume Pacific Lumber and its subsidiaries are planning to utilize in
their operations for 1996.  On March 15, 1996, the Court granted
plaintiffs' motion to file an amended complaint and issued a TRO enjoining
Pacific Lumber and its subsidiaries from harvesting pursuant to the eight
THPs. On March 20, 1996, the Court held a hearing on plaintiffs' motion for
a preliminary injunction and extended the TRO for ten additional days while
it considers the motion.

          The EPIC, et al. v. California State Board of Forestry, et al.
(No. 91CP244) action in the Superior Court of Humboldt County, filed by the
Sierra Club and EPIC in 1991, relates to a THP for approximately 237 acres
of virgin old growth timber.  After the Superior Court reversed the BOF's
approval of this THP, certain modifications were made to the THP, which was
then unanimously approved by the BOF.  The Superior Court later issued
judgment in favor of Pacific Lumber.  On appeal, the Court of Appeal in
October 1993 affirmed the trial court's judgment approving harvesting under
this THP.  In April 1993, EPIC filed another action with respect to this
THP entitled EPIC, Marbled Murrelet, et al. v. Bruce Babbitt, Secretary,
Department of Interior, et al. (No. C93-1400) (the "EPIC action") in the
U.S. District Court for the Northern District of California, alleging an
unlawful "taking" of the marbled murrelet under the ESA.  The Court
dismissed the federal and state agency defendants and limited plaintiffs'
claims against Pacific Lumber.  Harvesting was stayed pending outcome of a
trial which commenced in August 1994 and concluded in September 1994.  On
February 24, 1995, the judge ruled that the area covered by the THP is
occupied by the marbled murrelet and permanently enjoined implementation of
the THP in order to protect the marbled murrelet.  Pacific Lumber appealed
the Court's decision to the U.S. Ninth Circuit Court of Appeals; oral
argument on the appeal was held March 14, 1996.

          The Lost Coast League v. The California Department of Forestry,
et al. (No. 94DR0046) action in Superior Court of Humboldt County, filed in
February 1994, relates to a THP for approximately 121 acres of primarily
virgin old growth timber.  The Court issued an injunction staying timber
harvesting pending trial.  On July 14, 1994, after a trial on the merits,
the Court issued its decision setting aside CDF's approval of the THP and
remanding the THP to CDF for further review and consideration.  In October
1994, Pacific Lumber submitted a revised THP, which was subsequently
approved.  The Court is expected to establish a briefing and trial schedule
with respect to plaintiff's objections to the reapproval of the revised
THP.

          In view of the recent developments in the Marbled Murrelet
action, the Company is uncertain whether or not the matters described above
will have a material adverse effect on the Company's liquidity,
consolidated financial position or results of operations.  See Item 1.
"Business--Regulatory and Environmental Factors" above for a description of
regulatory and similar matters which could affect Pacific Lumber's timber
harvesting practices and future operating results.

     ZERO COUPON NOTE LITIGATION

          In April 1989, an action was filed against the Company, MAXXAM,
MAXXAM Properties Inc. ("MPI," a wholly owned subsidiary of the Company)
and certain of MAXXAM's directors in the Court of Chancery of the State of
Delaware, entitled Progressive United Corporation v. MAXXAM Inc., et al.,
Civil Action No. 10785.  Plaintiff purports to bring this action as a
stockholder of MAXXAM derivatively on behalf of MAXXAM and MPI.  In May
1989, a second action containing substantially similar allegations was
filed in the Court of Chancery of the State of Delaware, entitled Wolf v.
Hurwitz, et al. (No. 10846) and the two cases were consolidated
(collectively, the "Zero Coupon Note actions").  The Zero Coupon Note
actions relate to a Put and Call Agreement between MPI and Mr. Charles
Hurwitz (Chairman of the Board of the Company, MAXXAM and MPI), as well as
a predecessor agreement (the "Prior Agreement").  Among other things, the
Put and Call Agreement provided that Mr. Hurwitz had the option (the
"Call") to purchase from MPI certain notes (or the common stock of MAXXAM
into which they were converted) for $10.3 million.  In July 1989, Mr.
Hurwitz exercised the Call and acquired 990,400 shares of MAXXAM's common
stock.  The Zero Coupon Note actions generally allege that in entering into
the Prior Agreement Mr. Hurwitz usurped a corporate opportunity belonging
to MAXXAM, that the Put and Call Agreement constituted an alleged waste of
corporate assets of MAXXAM and MPI, and that the defendant directors
breached their fiduciary duties in connection with these matters. 
Plaintiffs seek to have the Put and Call Agreement declared null and void,
among other remedies.

     USAT MATTER

          In January 1995, an action entitled U.S., ex rel., Martel v.
Hurwitz, et al. was filed in the U.S. District Court for the Northern
District of California (No. C950322) (the "Martel action") against the
Company, MAXXAM and others.  This action is purportedly brought by
plaintiff on behalf of the U.S. government; however, the U.S. government
has declined to participate in the suit.  Plaintiff alleges, among other
things, that defendants used the federally insured assets of United Savings
Association of Texas ("USAT") to acquire junk bonds from Michael Milken and
Drexel, Burnham, Lambert Inc. ("Drexel") and that, in exchange, Mr. Milken
and Drexel arranged financing for defendants' various business ventures,
including the acquisition of the Company.  Plaintiff alleges that USAT
became insolvent in 1988 and that defendants should be required to pay $1.6
billion (subject to trebling) to cover USAT's losses.  Plaintiff seeks,
among other things, that the Court impose a constructive trust upon the
fruits of the alleged improper use of USAT funds.  On March 22, 1996, the
Court granted defendant's motion to have this case transferred to the U.S.
District Court for the Southern District of Texas.  Management is of the
opinion that the outcome of the foregoing litigation should not have a
material adverse effect on the Company's liquidity, consolidated financial
position or results of operations.

     OTHER LITIGATION MATTERS

          The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters.  While
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect on
the Company's liquidity, consolidated financial position or results of
operations.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Not applicable.

                                  PART II


ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS

          The Company's common stock is held entirely by MAXXAM. 
Accordingly, the Company's common stock is not traded on any stock exchange
and has no established public trading market.  The Company declared and
paid cash dividends on its common stock of $4.8 million in 1995.  No
dividends were declared or paid in 1994.  As of December 31, 1995,
approximately $1.9 million of dividends could be paid by the Company, of
which $1.6 million was paid in January 1996.  See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition and Investing and Financing Activities" and Note 5 to
the Consolidated Financial Statements appearing in Item 8.

          The 11-1/4% Senior Secured Notes due 2003 (the "MGI Senior
Notes") and the 12-1/4% Senior Secured Discount Notes due 2003 (the "MGI
Discount Notes," which, together with the MGI Senior Notes, are referred to
collectively as the "MGI Notes") are secured by the Company's pledge of
100% of the common stock of Pacific Lumber, Britt and MPI, and by a pledge
of 28 million common shares of Kaiser Aluminum Corporation ("Kaiser") that
are owned by MAXXAM.  See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition and
Investing and Financing Activities" and Note 5 to the Consolidated
Financial Statements appearing in Item 8.

ITEM 6.        SELECTED FINANCIAL DATA

          Not applicable.

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS



RESULTS OF OPERATIONS

          The following should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing in Item
8.  The following table presents selected operational and financial
information for the years ended December 31, 1995 and 1994.



<TABLE>

<CAPTION>

                                                               Years Ended
                                                               December 31,      
                                                         -----------------------
                                                            1995         1994   
                                                         ----------   ----------
                                                             (In millions of
                                                                 dollars,
                                                             except shipments
                                                               and prices)
<S>                                                      <C>          <C>
Shipments:
     Lumber: (1)
          Redwood upper grades                                 46.5         52.9
          Redwood common grades                               216.7        218.4
          Douglas-fir upper grades                              7.4          8.6
          Douglas-fir common grades and other                  76.0         66.3
                                                         ----------   ----------
          Total lumber                                        346.6        346.2
                                                         ==========   ==========
     Logs (2)                                                  12.6         17.7
                                                         ==========   ==========
     Wood chips (3)                                           214.0        210.3
                                                         ==========   ==========
Average sales price:
     Lumber: (4)
          Redwood upper grades                           $    1,495   $    1,443
          Redwood common grades                                 477          460
          Douglas-fir upper grades                            1,301        1,420
          Douglas-fir common grades                             392          444
     Logs (4)                                                   440          615
     Wood chips (5)                                             102           83

Net sales:
     Lumber, net of discount                             $    211.3   $    216.5
     Logs                                                       5.6         10.9
     Wood chips                                                21.7         17.4
     Cogeneration power                                         2.5          3.5
     Other                                                      1.5          1.3
                                                         ----------   ----------
          Total net sales                                $    242.6   $    249.6
                                                         ==========   ==========
Operating income                                         $     73.2   $     77.8
                                                         ==========   ==========
Operating cash flow (6)                                  $     99.6   $    103.8
                                                         ==========   ==========
Income before income taxes and extraordinary item        $      4.7   $     14.8
                                                         ==========   ==========
Net income                                               $      3.5   $      3.6
                                                         ==========   ==========

<FN>

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

          (1)  Lumber shipments are expressed in millions of board feet.
          (2)  Log shipments are expressed in millions of feet, net Scribner scale.
          (3)  Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
          (4)  Dollars per thousand board feet.
          (5)  Dollars per bone dry unit.
          (6)  Operating income before depletion and depreciation, also referred to as "EBITDA."

</TABLE>

          Shipments
          Lumber shipments to third parties in 1995 were essentially
unchanged from 1994.  Increased shipments of common grade Douglas-fir
lumber were mostly offset by decreased shipments of both upper and common
grades of redwood lumber.  Log shipments in 1995 were 12.6 million feet
(net Scribner scale), a decrease of 5.1 million feet from 1994 shipments.

          Old growth trees constitute Pacific Lumber's principal source of
upper grade redwood lumber.  Due to the severe restrictions on Pacific
Lumber's ability to harvest old growth timber (large diameter) on its
property (see "--Trends"), Pacific Lumber's supply of upper grade lumber
has decreased in some premium product categories.  Pacific Lumber has been
able to lessen the impact of these decreases by augmenting its production
facilities to increase its recovery of upper grade lumber from smaller
diameter logs and increasing production capacity for manufactured upper
grade lumber products through its end and edge glue facility (which was
expanded during 1994).  However, unless Pacific Lumber is able to sustain
the harvest level of old growth trees it has experienced in prior years,
Pacific Lumber expects that its production of premium upper grade lumber
products will decline from current levels and that its manufactured lumber
products will constitute a higher percentage of its shipments of upper
grade lumber products.

          Net sales
          Revenues from net sales of lumber and logs for 1995 decreased as
compared to 1994.  Decreased shipments of upper  grade redwood lumber,
lower average realized prices for common and upper grade Douglas-fir lumber
and logs, and decreased shipments of logs and redwood common lumber were
largely offset by increased shipments of common grade Douglas-fir lumber
and higher average realized prices for both common and upper grades of
redwood lumber.  The increase in other sales for 1995 as compared to 1994
was due to higher average realized prices for wood chips, partially offset
by lower sales of electrical power.

          Operating income
          Operating income for 1995 decreased as compared to 1994.  This
decrease was primarily due to lower sales of lumber, higher cost of lumber
sales and lower sales of logs and electrical power, partially offset by
increased sales of wood chips and higher gross margins on wood chip sales. 
Cost of lumber sales for 1995 was unfavorably impacted by higher purchases
of logs from third parties, partially offset by improved sawmill
productivity.  Cost of goods sold for 1995 was reduced by $1.5 million of
business interruption insurance proceeds for the settlement of claims
related to an April 1992 earthquake.

          Logging costs have increased primarily due to the harvest of
smaller diameter logs and, to a lesser extent, compliance with
environmental regulations relating to the harvesting of timber and
litigation costs incurred in connection with certain THPs filed by Pacific
Lumber.  See "--Trends."  During the past few years, Pacific Lumber has
significantly increased its production capacity for manufactured lumber
products by assembling knot-free pieces of narrower and shorter lumber into
wider or longer pieces in its end and edge glue plant.  This manufactured
lumber results in a significant increase in lumber recovery and produces a
standard size upper grade product which is sold at a premium price compared
to common grade products of similar dimensions.  Pacific Lumber has
instituted a number of measures at its sawmills during the past several
years designed to enhance the efficiency of its operations, such as
expansion of its manufactured lumber facilities and other improvements in
lumber recovery, automated lumber handling and the modification of its
production scheduling to maximize cogeneration power revenues.

          Income before income taxes and extraordinary item
          Income before income taxes and extraordinary item decreased for
1995 as compared to 1994.  This decrease was primarily due to lower
investment, interest and other income and the decrease in operating income. 
Investment, interest and other income for 1995 includes net gains on
marketable securities of $4.2 million.  Investment, interest and other
income for 1994 includes the receipt of a franchise tax refund of $7.2
million (as described in Note 10 to the Consolidated Financial Statements)
and net gains on marketable securities of $1.7 million.

          Credit (provision) in lieu of income taxes
          The credit in lieu of income taxes for 1994 includes a credit
relating to reserves the Company no longer believes are necessary.

          Extraordinary item
          The litigation settlement in the second quarter of 1994 (as
described in Note 9 to the Consolidated Financial Statements) resulted in
an extraordinary loss of $14.9 million, net of related income taxes of $6.3
million.  The extraordinary loss consists of Pacific Lumber's $14.8 million
cash payment to the settlement fund, a $2.0 million accrual for additional
contingent claims and $4.4 million of related legal fees.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

          The Company conducts its operations primarily through its
subsidiaries, Pacific Lumber and Britt.  Creditors of the Company's
subsidiaries have priority with respect to the assets, cash flows and
earnings of such subsidiaries over the claims of the creditors of the
Company, including the holders of the MGI Notes.  As of December 31, 1995,
the indebtedness of the subsidiaries reflected on the Company's
Consolidated Balance Sheet was $586.0 million.  The indentures governing
the Pacific Lumber Senior Notes and the Timber Notes (the "Timber Note
Indenture") and Pacific Lumber's revolving credit agreement (as amended and
restated, the "Revolving Credit Agreement") contain various covenants
which, among other things, restrict transactions between Pacific Lumber and
its affiliates and the payment of dividends.  Pacific Lumber can pay
dividends in an amount that is generally equal to 50% of Pacific Lumber's
consolidated net income plus depletion and cash dividends received from
Scotia Pacific, exclusive of the net income and depletion of Scotia Pacific
as long as any Timber Notes are outstanding.  As of December 31, 1995,
under the most restrictive of these covenants, approximately $15.7 million
of dividends could be paid by Pacific Lumber.  Pacific Lumber paid an
aggregate of $22.0 million and $24.5 million of dividends in 1995 and 1994,
respectively.

          In March 1995, Britt paid dividends consisting of $6.0 million of
receivables from its parent, MPI.  These receivables represented prior cash
advances from Britt to MPI.

          Substantially all of the Company's consolidated assets are owned
by Pacific Lumber and a significant portion of Pacific Lumber's
consolidated assets are owned by Scotia Pacific.  The Company expects that
Pacific Lumber will provide a major portion of its future operating cash
flow.  Pacific Lumber is dependent upon Scotia Pacific for a significant
portion of its timber requirements from which it generates the substantial
portion of its operating cash flow.  The holders of the Timber Notes have
priority over the claims of creditors of Pacific Lumber with respect to the
assets and cash flows of Scotia Pacific and the holders of the Pacific
Lumber Senior Notes have priority over the claims of creditors of the
Company with respect to the assets and cash flows of Pacific Lumber.

          Under the terms of the Timber Note Indenture, Scotia Pacific will
not have available cash for distribution to Pacific Lumber unless Scotia
Pacific's cash flow from operations exceeds the amounts required by the
Timber Note Indenture to be reserved for the payment of current debt
service (including interest, principal and premiums) on the Timber Notes,
capital expenditures and certain other operating expenses.  The Timber Note
Indenture prohibits Scotia Pacific from incurring any additional
indebtedness for borrowed money and limits the business activities of
Scotia Pacific to the ownership and operation of its timber and timberlands
and actions reasonably incidental thereto.  The Timber Notes are structured
to link, to the extent of cash available, the deemed depletion of Scotia
Pacific's timber (through the harvest and sale of logs) to required
amortization of the Timber Notes.  The required amount of amortization due
on any Timber Note payment date is determined by various mathematical
formulas set forth in the Timber Note Indenture.  The minimum amount of
principal which Scotia Pacific must pay (on a cumulative basis) through any
Timber Note payment date in order to avoid an Event of Default (as defined
in the Timber Note Indenture) is referred to as Rated Amortization.  If all
payments of principal are made in accordance with Rated Amortization, the
payment date on which Scotia Pacific will pay the final installment of
principal is July 20, 2015.  The amount of principal which Scotia Pacific
must pay through each Timber Note payment date in order to avoid payment of
prepayment or deficiency premiums is Scheduled Amortization.  If all
payments of principal are made in accordance with Scheduled Amortization,
the payment date on which Scotia Pacific will pay the final installment of
principal is July 20, 2009.

          The following table presents the amortization of the Timber Notes
based on Rated Amortization and Scheduled Amortization:

<TABLE>

<CAPTION>


                                                         Rated           Scheduled
                                                      Amortization      Amortization  
                                                    ---------------   ---------------
                                                         (In millions of dollars)
<S>                                                 <C>               <C>
Years Ending December 31:
     1996                                           $           8.3   $          14.1
     1997                                                       8.5              16.2
     1998                                                       8.7              19.3
     1999                                                      10.2              21.6
     2000                                                      12.6              24.0
     Thereafter                                               301.9             255.0
                                                    ---------------   ---------------
                                                    $         350.2   $         350.2
                                                    ===============   ===============

</TABLE>


          During 1994, 1995 and January 1996, Scotia Pacific repaid
approximately $13.1 million, $13.6 million and $8.5 million, respectively,
of the aggregate principal amount outstanding on the Timber Notes in
accordance with Scheduled Amortization.

          Once appropriate provision is made for current debt service on
the Timber Notes and expenditures for operating and capital costs, and in
the absence of certain Trapping Events (as defined in the Timber Note
Indenture) or outstanding judgments, the Timber Note Indenture does not
limit monthly distributions of available cash from Scotia Pacific to
Pacific Lumber.  Accordingly, the Company expects that once Scotia
Pacific's debt service, operating and capital expenditure requirements have
been met, substantially all of Scotia Pacific's available cash will be
periodically distributed to Pacific Lumber.  Scotia Pacific paid $59.0
million and $88.9 million of dividends to Pacific Lumber during the years
ended December 31, 1995 and 1994, respectively.  In the event Scotia
Pacific's cash flows are not sufficient to generate distributable funds to
Pacific Lumber, Pacific Lumber's ability to pay interest on the Pacific
Lumber Senior Notes and to service its other indebtedness would be
materially impaired, accordingly it would be precluded from distributing
funds to the Company, therefore the Company's ability to pay interest on
the MGI Notes and its other indebtedness would also be materially impaired.

          During the years ended December 31, 1995 and 1994, Pacific
Lumber's operating income before depletion and depreciation ("operating
cash flow") amounted to $90.5 million and $95.9 million, respectively,
which exceeded interest incurred on all of its indebtedness in those years
by $35.0 million and $39.8 million, respectively.  The Company believes
that Pacific Lumber's level of operating cash flow and other available
sources of financing will be sufficient to meet debt service, working
capital and capital expenditure requirements for the next year.  With
respect to long-term liquidity, Pacific Lumber believes that its ability to
generate sufficient levels of  cash flow from operations, and its ability
to obtain both short and long-term financing should provide sufficient
funds to meet debt service, long-term working capital and capital
expenditure requirements.

          As of December 31, 1995, the Company (excluding Pacific Lumber
and its subsidiary companies) had cash and marketable securities of
approximately $58.4 million.  The Company believes, although there can be
no assurance, that the aggregate dividends which will be available to it
from Pacific Lumber and Britt, during the period in which cash interest
will not be payable on the MGI Discount Notes, will exceed the Company's
cash interest payments on the MGI Senior Notes.  When cash interest
payments on the MGI Discount Notes commence on February 1, 1999, the
Company believes that it should be able to make such cash interest payments
out of its then existing cash resources and from cash expected to be
available to it from Pacific Lumber and Britt.

          The indenture governing the MGI Notes, among other things,
restricts the ability of the Company to incur additional indebtedness,
engage in transactions with affiliates, pay dividends and make investments. 
As of December 31, 1995, under the most restrictive of these covenants,
approximately $1.9 million of dividends could be paid by the Company, of
which $1.6 was paid in January 1996.  On September 29, 1995, the Company
paid dividends of $4.8 million.  The MGI Notes are senior indebtedness of
the Company; however, they are effectively subordinate to the liabilities
of the Company's subsidiaries, which include the Timber Notes and the
Pacific Lumber Senior Notes.

          Pacific Lumber's Revolving Credit Agreement with a bank expires
on May 31, 1998.  Borrowings under the Revolving Credit Agreement are
secured by Pacific Lumber's trade receivables and inventories, with
interest computed at the bank's reference rate plus 1-1/4% or the bank's
offshore rate plus 2-1/4%.  The Revolving Credit Agreement provides for
borrowings of up to $60.0 million, of which $15.0 million may be used for
standby letters of credit and $30.0 million is restricted to acquisition of
timberlands.  Borrowings made pursuant to the portion of the credit
facility restricted to timberland acquisitions would also be secured by the
purchased timberlands.  As of December 31, 1995, $48.1 million of
borrowings was available under the Revolving Credit Agreement, of which
$3.1 million was available for letters of credit and $30.0 million was
restricted to timberland acquisitions.  No borrowings were outstanding as
of December 31, 1995, and letters of credit outstanding amounted to $11.9
million.  The Revolving Credit Agreement contains covenants substantially
similar to those contained in the indenture governing the Pacific Lumber
Senior Notes.

          Capital expenditures for Pacific Lumber and Britt were made to
improve production efficiency, reduce operating costs and, to a lesser
degree, acquire additional timberlands.  Capital expenditures of the
Company's subsidiaries were $9.9 million and $11.3 million for the years
ended December 31, 1995 and 1994, respectively.  Capital expenditures for
1996 are expected to be $12.5 million and for the 1997 - 1998 period are
estimated to be between $10.0 million and $15.0 million per year.  Pacific
Lumber may purchase additional timberlands from time to time as appropriate
opportunities arise.  Moreover, such purchases could exceed historical
levels.  Capital expenditures attributable to the reconstruction of Pacific
Lumber's commercial facilities destroyed by an earthquake in April 1992
were $1.9 million for 1993 and $2.6 million for 1994, when construction was
completed.

          As of December 31, 1995, the Company had consolidated working
capital of $124.2 million and long-term debt of $732.9 million (net of
current maturities and restricted cash deposited in a liquidity account for
the benefit of the holders of the Timber Notes) as compared to $102.5
million and $736.4 million, respectively, at December 31, 1994.  The
decrease in long-term debt was primarily due to principal payments on the
Timber Notes.  The Company and its subsidiaries anticipate that cash flow
from operations, together with existing cash, marketable securities and
available sources of financing, will be sufficient to fund their working
capital and capital expenditure requirements for the next year.  With
respect to their long-term liquidity, the Company and its subsidiaries
believe that their existing cash and cash equivalents, together with their
ability to generate sufficient levels of cash flow from operations and
their ability to obtain both short and long-term financing, should provide
sufficient funds to meet their working capital and capital expenditure
requirements.  However, due to their highly leveraged condition, the
Company and its subsidiaries are more sensitive than less leveraged
companies to factors affecting their operations, including litigation and
governmental regulation affecting timber harvesting practices, increased
competition from other lumber producers or alternative building products
and general economic conditions.

TRENDS

          The Company's forest products operations are primarily conducted
by Pacific Lumber and are subject to a variety of California and federal
laws and regulations dealing with timber harvesting, endangered species and
critical habitat, water quality and air and water pollution.  The Company
does not expect that compliance with such existing laws and regulations
will have a material adverse effect on its future consolidated financial
position, operating results or liquidity; however, these laws and
regulations are modified from time to time, and there can be no assurance
that certain pending or future governmental regulations, legislation or
judicial or administrative decisions would not adversely affect the Company
or its ability to sell lumber, logs or timber.  See "Business--Regulatory
and Environmental Factors" and Note 9 to the Consolidated Financial
Statements for information regarding sustained yield regulations, the
proposed final designation of approximately 33,000 acres of Pacific
Lumber's timberlands as critical habitat for the marbled murrelet, and
other information regarding regulatory and environmental factors affecting
the Company's operations.

          Judicial or regulatory actions adverse to Pacific Lumber,
increased regulatory delays and inclement weather in northern California,
independently or collectively, could impair Pacific Lumber's ability to
maintain adequate log inventories and force Pacific Lumber to temporarily
idle or curtail operations at certain lumber mills from time to time.

RECENT ACCOUNTING PRONOUNCEMENTS

          In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121").  SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  If the sum of the
estimated future cash flows expected to result from the use and eventual
disposition of an asset is less than the carrying amount of the asset, an
impairment loss is recognized.  Measurement of an impairment loss is based
on the fair value of the asset.  SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value, less cost to sell.  SFAS 121 is
effective for financial statements for fiscal years beginning after
December 31, 1995.  The Company does not expect that the adoption of SFAS
121 will have a material impact on the Company's consolidated financial
statements.

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholder and Board of Directors of MAXXAM Group Inc.:

          We have audited the accompanying consolidated balance sheets of
MAXXAM Group Inc. (a Delaware corporation and a wholly owned subsidiary of
MAXXAM Inc.) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, cash flows and stockholder's
equity (deficit) for each of the three years in the period ended December
31, 1995.  These financial statements and the schedule referred to below
are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on 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
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
MAXXAM Group Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

          Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole.  The schedule
listed in Item 14(a)(2) of this Form 10-K is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements.  This schedule has
been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.

     As explained in Notes 6 and 7 to the financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes and postretirement benefits other than pensions.


                                                        ARTHUR ANDERSEN LLP


San Francisco, California
January 19, 1996

                         CONSOLIDATED BALANCE SHEET


<TABLE>

<CAPTION>

                                                                                   December 31,      
                                                                             -----------------------
                                                                                1995         1994   
                                                                             ----------   ----------
                                                                                 (In thousands of
                                                                                     dollars)
<S>                                                                          <C>          <C>
                                  ASSETS

Current assets:
     Cash and cash equivalents                                               $  48,396    $  48,575 
     Marketable securities                                                      36,568       19,514 
     Receivables:
          Trade                                                                 20,576       23,170 
          Other                                                                  1,624        7,435 
     Inventories                                                                77,904       70,098 
     Prepaid expenses and other current assets                                    7,101       3,717 
                                                                             ----------   ----------
               Total current assets                                            192,169      172,509 
Timber and timberlands, net of depletion of $204,856 and $188,003 at
     December 31, 1995 and 1994, respectively                                  337,390      350,871 
Property, plant and equipment, net                                             100,142      103,183 
Deferred financing costs, net                                                   27,288       30,096 
Deferred income taxes                                                           58,485       61,498 
Restricted cash                                                                 31,367       32,402 
Other assets                                                                     5,542        6,122 
                                                                             ----------   ----------
                                                                             $ 752,383    $ 756,681 
                                                                             ==========   ==========

                  LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
     Accounts payable                                                        $   4,166    $   3,703 
     Accrued interest                                                           25,354       25,765 
     Accrued compensation and related benefits                                   9,611       10,622 
     Deferred income taxes                                                      10,244       12,986 
     Other accrued liabilities                                                   4,435        3,266
     Long-term debt, current maturities                                         14,195       13,670 
                                                                             ----------   ----------
               Total current liabilities                                        68,005       70,012 
Long-term debt, less current maturities                                        764,310      768,786 
Other noncurrent liabilities                                                    33,813       30,365 
                                                                             ----------   ----------
               Total liabilities                                               866,128      869,163 
                                                                             ----------   ----------

Contingencies

Stockholder's deficit:
     Common stock, $.08-1/3 par value; 1000 shares authorized; 100
     shares issued                                                                   -            - 
     Additional capital                                                         81,287       81,287 
     Accumulated deficit                                                      (195,032)    (193,769)
                                                                             ----------   ----------
               Total stockholder's deficit                                    (113,745)    (112,482)
                                                                             ----------   ----------
                                                                             $ 752,383    $ 756,681 
                                                                             ==========   ==========

</TABLE>



                    CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
                                                                      (In thousands of dollars)
<S>                                                             <C>          <C>          <C>
Net sales:
     Lumber and logs                                            $ 216,898    $ 227,430    $ 215,743 
     Other                                                         25,694       22,199       17,696 
                                                                ----------   ----------   ----------
                                                                  242,592      249,629      233,439 
                                                                ----------   ----------   ----------

Operating expenses:
     Cost of goods sold (exclusive of depletion and               127,124      129,598      134,563 
     depreciation)
     Selling, general and administrative                           15,884       16,250       20,108 
     Depletion and depreciation                                    26,405       25,946       25,811 
                                                                ----------   ----------   ----------
                                                                  169,413      171,794      180,482 
                                                                ----------   ----------   ----------

Operating income                                                   73,179       77,835       52,957 

Other income (expense):
     Investment, interest and other income                          9,393       14,367        9,718 
     Interest expense                                             (77,824)     (77,383)     (80,339)
                                                                ----------   ----------   ----------
Income (loss) from continuing operations before income
     taxes, extraordinary items and cumulative effect of
     changes in accounting principles                               4,748       14,819      (17,664)
Credit (provision) in lieu of income taxes                         (1,211)       3,616        3,355 
                                                                ----------   ----------   ----------
Income (loss) from continuing operations before
     extraordinary items and cumulative effect of changes
     in accounting principles                                       3,537       18,435      (14,309)
Loss from net assets transferred to MAXXAM, net of
     minority interests and related income taxes                        -            -     (512,970)
                                                                ----------   ----------   ----------
Income (loss) before extraordinary items and cumulative
     effect of changes in accounting principles                     3,537       18,435     (527,279)
Extraordinary items:
     Loss on litigation settlement, net of related credit
          in lieu of income taxes of $6,312                             -      (14,866)           - 
     Loss on early extinguishment of debt, net of related
          credit in lieu of income taxes of $8,856                      -            -      (17,189)
Cumulative effect of changes in accounting principles:
     Postretirement benefits other than pensions, net of
          related credit in lieu of income taxes of $1,566              -            -       (2,348)
     Accounting for income taxes                                        -            -       14,916 
                                                                ----------   ----------   ----------
Net income (loss)                                               $   3,537    $   3,569    $(531,900)
                                                                ==========   ==========   ==========

</TABLE>
                     CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
                                                                      (In thousands of dollars)
<S>                                                             <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                          $   3,537    $   3,569    $(531,900)
     Adjustments to reconcile net income (loss) to net cash
          provided by operating activities:
          Depletion and depreciation                               26,405       25,946       25,811 
          Amortization of deferred financing costs and
               discounts on long-term debt                         13,328       12,127        7,435 
          Net (purchases) sales of marketable securities          (19,533)       5,321       12,389 
          Net losses (gains) on marketable securities              (4,175)      (1,669)      (6,414)
          Loss (income) from net assets transferred to
               MAXXAM, net                                              -            -      512,970 
          Extraordinary loss on early extinguishment of
               debt, net                                                -            -       17,189 
          Cumulative effect of changes in accounting
               principles, net                                          -            -      (12,568)
          Decrease (increase) in inventories, net of
               depletion                                           (7,695)       3,634       (2,077)
          Increase (decrease) in accounts payable                     463          832          471 
          Decrease (increase) in receivables                        5,778       (7,660)       7,558 
          Decrease (increase) in prepaids and other assets         (3,384)        (528)         212 
          Increase in accrued and deferred income taxes             2,303       (3,815)      (5,123)
          Decrease in other liabilities                             7,734       (2,283)        (185)
          Decrease in accrued interest                               (411)        (451)      (7,284)
          Other                                                     1,020          (86)         848 
                                                                ----------   ----------   ----------
               Net cash provided by operating activities           25,370       34,937       19,332 
                                                                ----------   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Payment of note receivable from affiliate                      2,500            -            - 
     Net proceeds from sale of assets                                  18        1,149          256 
     Capital expenditures                                          (9,852)     (11,322)     (11,120)
     Increase in net assets transferred to MAXXAM                       -            -      (11,770)
                                                                ----------   ----------   ----------
               Net cash used for investing activities              (7,334)     (10,173)     (22,634)
                                                                ----------   ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Redemptions, repurchase of and principal payments on
          long-term debt                                          (14,300)     (13,237)    (716,551)
     Net borrowings (payments) under revolving credit
          agreements                                                    -       (2,900)       2,900 
     Incurrence of financing costs                                   (150)        (213)     (34,738)
     Proceeds from issuance of long-term debt                           -            -      790,000 
     Restricted cash deposits, net                                  1,035        1,160      (33,562)
     Dividends paid                                                (4,800)           -      (20,000)
                                                                ----------   ----------   ----------
               Net cash used for financing activities             (18,215)     (15,190)     (11,951)
                                                                ----------   ----------   ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 (179)       9,574      (15,253)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                     48,575       39,001       54,254 
                                                                ----------   ----------   ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                        $  48,396    $  48,575    $  39,001 
                                                                ==========   ==========   ==========

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
     ACTIVITIES:
     Net margin borrowings (payments) for marketable
          securities                                            $  (6,648)   $   5,628    $   1,020 
     Timber and timberlands acquired subject to loan from
          seller                                                      615          910            - 
     Net assets transferred to MAXXAM                                   -            -       30,531 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid, net of capitalized interest                 $  64,907    $  65,707    $  80,188 
     Income taxes paid (refunded)                                  (5,190)       1,170           46 
     Tax allocation payments to MAXXAM                                  -          397        1,722 


</TABLE>

                   CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)




<TABLE>

<CAPTION>


                                                     Common
                                                      Stock                   Retained
                                                    ($.08-1/3   Additional    Earnings
                                                      Par)        Capital     (Deficit)      Total   
                                                   ----------   ----------   ----------   ----------
                                                               (In thousands of dollars)
<S>                                                <C>          <C>          <C>          <C>
Balance, January 1, 1993                           $        -   $  81,257    $ 385,093    $ 466,350 

     Net loss                                               -           -     (531,900)    (531,900)

     Dividend                                               -           -      (20,000)     (20,000)

     Gain from issuance of Kaiser Aluminum
          Corporation common stock                          -          30            -           30 

     Net assets transferred to MAXXAM                       -           -      (30,531)     (30,531)
                                                   ----------   ----------   ----------   ----------

Balance, December 31, 1993                                  -      81,287     (197,338)    (116,051)

     Net income                                             -           -        3,569        3,569 
                                                   ----------   ----------   ----------   ----------

Balance, December 31, 1994                                  -      81,287     (193,769)    (112,482)

     Net income                                             -           -        3,537        3,537 

     Dividend                                               -           -       (4,800)      (4,800)
                                                   ----------   ----------   ----------   ----------

Balance, December 31, 1995                         $        -   $  81,287    $(195,032)   $(113,745)
                                                   ==========   ==========   ==========   ==========

</TABLE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)


1.        BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
               POLICIES

     BASIS OF PRESENTATION

          The consolidated financial statements include the accounts of
MAXXAM Group Inc. ("MGI") and its subsidiaries, collectively referred to
herein as the "Company."  MGI is a wholly owned subsidiary of MAXXAM Inc.
("MAXXAM").  Intercompany balances and transactions have been eliminated. 
Certain reclassifications have been made to prior years' financial
statements to be consistent with the current year's presentation.

          The Company conducts its business primarily through the
operations of its subsidiaries.  Prior to the Forest Products Group
Formation (as defined below), the Company operated in three industries:
aluminum, through its majority owned subsidiary, Kaiser Aluminum
Corporation ("Kaiser"), a fully integrated aluminum producer; forest
products, through The Pacific Lumber Company ("Pacific Lumber") and Britt
Lumber Co., Inc. ("Britt"), each a wholly owned subsidiary; and real estate
management and development, through the Palmas del Mar development located
in Puerto Rico ("Palmas") which was owned by the Company's subsidiary,
MAXXAM Properties Inc. ("MPI").  On August 4, 1993, contemporaneously with
the consummation of the sale of the MGI Notes (as defined in Note 5), the
Company (i) transferred to MAXXAM 50 million common shares of Kaiser held
by a subsidiary of the Company, representing the Company's (and MAXXAM's)
entire interest in Kaiser's common stock, (ii) transferred to MAXXAM 60,075
shares of MAXXAM common stock held by a subsidiary of the Company, (iii)
transferred to MAXXAM certain notes receivable, long-term investments, and
other assets, each net of related liabilities, collectively having a
carrying value to the Company of approximately $1,100, and (iv) exchanged
with MAXXAM 2,132,950 Depositary Shares, acquired from Kaiser on June 30,
1993 for $15,000, such exchange being in satisfaction of a $15,000
promissory note evidencing a cash loan made by MAXXAM to the Company in
January 1993.  On the same day, MAXXAM assumed approximately $17,500 of
certain liabilities of the Company that were unrelated to the Company's
forest products operations or were related to operations which have been
disposed of by the Company.  Additionally, on September 28, 1993, the
Company transferred to MAXXAM its interest in Palmas.  The foregoing
transactions are collectively referred to as the "Forest Products Group
Formation."  The Company presented the loss from net assets transferred to
MAXXAM pursuant to the Forest Products Group Formation (including certain
allocated costs from MAXXAM for general and administrative expenses
unrelated to the Company's forest products operations) in a manner similar
to that which would have been presented if the Company had discontinued the
operations relating to such net assets.  See Note 2.

          As a result of the Forest Products Group Formation, the Company
is engaged in forest products operations conducted through its wholly owned
subsidiaries, Pacific Lumber and Britt.  Pacific Lumber is engaged in
several principal aspects of the lumber industry, including the growing and
harvesting of redwood and Douglas-fir timber, the milling of logs into
lumber and the manufacture of lumber into a variety of finished products.
Britt manufactures redwood and cedar fencing and decking products from
small diameter logs, a substantial portion of which is obtained from
Pacific Lumber.  Housing, construction and remodeling are the principal
markets for the Company's lumber products.  Export sales generally
constitute less than 4% of forest product sales.  A significant portion of
forest product sales are made to third parties located west of the
Mississippi river.

          The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities,
(ii) disclosure of contingent assets and liabilities known to exist as of
the date the financial statements are published, and (iii) the reported
amount of revenues and expenses recognized during each period presented. 
The Company reviews all significant estimates affecting its consolidated
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their publication.  Adjustments made with
respect to the use of estimates often relate to improved information not
previously available.  Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the subsequent
resolution of any one of the contingent matters described in Note 9 could
differ materially from current estimates. The results of an adverse
resolution of such uncertainties could have a material effect on the
reported amounts of the Company's consolidated assets and liabilities.

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Cash Equivalents
          Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less.

          Marketable Securities
          Marketable securities are carried at fair value.  Prior to
December 31, 1993, marketable securities portfolios were carried at the
lower of cost or market at the balance sheet date.  The cost of the
securities sold is determined using the first-in, first-out method. 
Included in investment, interest and other income for each of the three
years ended December 31, 1995 were: 1995 - net unrealized holding gains of
$1,666 and net realized gains of $2,509; 1994 - net unrealized holding
losses of $1,094 and net realized gains of $2,763; and 1993 - net realized
gains of $3,510, the recovery of $2,063 of net unrealized losses and net
unrealized gains of $841.  Net unrealized losses represent the amount
required to reduce the short-term marketable securities portfolios from
cost to market value prior to December 31, 1993.

          Inventories
          Inventories are stated at the lower of cost or market.  Cost is
primarily determined using the last-in, first-out ("LIFO") method.

          Timber and Timberlands
          Timber and timberlands are stated at cost, net of accumulated
depletion.  Depletion is computed utilizing the unit-of-production method
based upon estimates of timber values and quantities.

          Property, Plant and Equipment
          Property, plant and equipment, including capitalized interest, is
stated at cost, net of accumulated depreciation.  Depreciation is computed
utilizing the straight-line method at rates based upon the estimated useful
lives of the various classes of assets.

          Deferred Financing Costs
          Costs incurred to obtain financing are deferred and amortized
over the estimated term of the related borrowing.

          Restricted Cash and Concentrations of Credit Risk  
          Restricted cash represents the amount initially deposited into an
account (the "Liquidity Account") held by the trustee under the indenture
governing the 7.95% Timber Collateralized Notes due 2015 (the "Timber
Notes") of Scotia Pacific Holding Company ("Scotia Pacific"), a wholly
owned subsidiary of Pacific Lumber.  See Note 5.  The Liquidity Account is
not available, except under certain limited circumstances, for Scotia
Pacific's working capital purposes; however, it is available to pay the
Rated Amortization (as defined in Note 5) and interest on the Timber Notes
if and to the extent that cash flows are insufficient to make such
payments.  The required Liquidity Account balance will generally decline as
principal payments are made on the Timber Notes.  Investment, interest and
other income for the years ended December 31, 1995, 1994 and 1993 includes
interest of approximately $2,560, $2,638 and $2,101, respectively,
attributable to an investment rate agreement (at 7.95% per annum) with the
financial institution which holds the Liquidity Account.

          At December 31, 1995 and 1994, cash and cash equivalents include
$19,742 and $19,439, respectively, (the "Payment Account") which is
reserved for debt service payments on the Timber Notes (see Note 5).  The
Payment Account and the Liquidity Account are each held by a different
financial institution.  In the event of nonperformance by such financial
institutions, the Company's exposure to credit loss is represented by the
amounts deposited plus any unpaid accrued interest thereon.  The Company
mitigates its concentrations of credit risk with respect to these
restricted cash deposits by maintaining them at high credit quality
financial institutions and monitoring the credit ratings of these
institutions.

          Stockholder's Equity (Deficit)
          The adjustment to the Company's additional capital for the year
ended December 31, 1993 resulted from a transaction relating to Kaiser's
common stock prior to the Forest Products Group Formation.  Pursuant to the
terms of an amended compensation plan, Kaiser issued 4,228 shares to
certain members of its management in 1993.  As a result of this
transaction, the Company's equity in Kaiser's net assets differed from the
Company's historical cost.  The Company accounted for this difference as an
adjustment to additional capital.

          Fair Value of Financial Instruments
          The carrying amounts of cash and cash equivalents and restricted
cash approximate fair value.  The fair value of marketable securities is
determined based on quoted market prices.  The estimated fair value of
long-term debt is determined based on the quoted market prices for the
Timber Notes, the 10-1/2% Senior Notes due 2003 (the "Pacific Lumber Senior
Notes"), the 11-1/4% Senior Secured Notes due 2003 (the "MGI Senior Notes")
and the 12-1/4% Senior Secured Discount Notes due 2003 (the "MGI Discount
Notes"), and on the current rates offered for borrowings similar to the
other debt.  The Timber Notes, the Pacific Lumber Senior Notes, the MGI
Senior Notes and the MGI Discount Notes are thinly traded financial
instruments; accordingly, their market prices at any balance sheet date may
not be representative of the prices which would be derived from a more
active market.

          The estimated fair values of the Company's financial instruments,
along with the carrying amounts of the related assets (liabilities), are as
follows:

<TABLE>

<CAPTION>

                                                      December 31, 1995         December 31, 1994   
                                                   -----------------------   -----------------------
                                                    Carrying       Fair       Carrying       Fair
                                                     Amount        Value       Amount        Value   
                                                   ----------   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>          <C>
Cash and cash equivalents                          $  48,396    $  48,396    $  48,575    $  48,575 
Marketable securities (held for trading
     purposes)                                        36,568       36,568       19,514       19,514 
Restricted cash                                       31,367       31,367       32,402       32,402 
Long-term debt                                      (778,505)    (772,841)    (782,456)    (725,031)

</TABLE>

2.        NET ASSETS TRANSFERRED TO MAXXAM

          As a result of the Forest Products Group Formation (as described
in Note 1), the Company transferred all of its interest in Kaiser's common
stock, the assets and related liabilities of Palmas, and certain other net
assets that were unrelated to the Company's forest products operations, to
MAXXAM.  The Company did not incur any gain or loss relating to the
transfer of such assets and liabilities to MAXXAM.

          The net loss from net assets transferred to MAXXAM is as follows:

<TABLE>

<CAPTION>

                                                                                             Seven
                                                                                             Months
                                                                                             Ended
                                                                                            July 31,
                                                                                              1993    
                                                                                          -----------
<S>                                                                                       <C>
Net sales:
     Aluminum operations                                                                  $1,016,966 
     Real estate and other                                                                    19,654 
                                                                                          ----------
                                                                                           1,036,620 
                                                                                          -----------
Costs and expenses:
     Aluminum operations                                                                   1,091,353 
     Real estate and other                                                                    28,132 
                                                                                          -----------
                                                                                           1,119,485 
                                                                                          -----------
Loss before income taxes, minority interests, extraordinary item and cumulative effect
     of changes in accounting principles                                                     (82,865)
Credit for income taxes                                                                       31,050 
Minority interests                                                                             3,641 
                                                                                          -----------
Loss before extraordinary item and cumulative effect of changes in accounting
     principles                                                                              (48,174)
Extraordinary item:
     Loss on redemption of debt, net of related benefits for income taxes and minority
          interests of $11,249 and $2,791, respectively                                      (19,045)
Cumulative effect of changes in accounting principles:
     Postretirement and postemployment benefits, net of related benefits for income
          taxes and minority interests of $237,682 and $64,554, respectively                (440,519)
     Accounting for income taxes                                                              (5,232)
                                                                                          -----------
Loss from net assets transferred to MAXXAM                                                $ (512,970)
                                                                                          ===========

</TABLE>

   Net assets transferred to MAXXAM are as follows as of the date of transfer:

<TABLE>

<CAPTION>

<S>                                                                                  <C>
Current assets:
     Aluminum operations                                                             $  780,791
     Real estate and other                                                               16,480
                                                                                     ----------
                                                                                        797,271
                                                                                     ----------
Current liabilities:
     Aluminum operations                                                                477,805
     Real estate and other                                                               28,853
                                                                                     ----------
                                                                                        506,658
                                                                                     ----------
Net current assets                                                                      290,613
                                                                                     ----------
Non-current assets:
     Aluminum operations                                                              1,722,362
     Real estate and other                                                               56,422
                                                                                     ----------
                                                                                      1,778,784
                                                                                     ----------
Non-current liabilities:
     Aluminum operations                                                              1,790,946
     Minority interests in aluminum operations                                          221,907
     Real estate and other                                                               26,013
                                                                                     ----------
                                                                                      2,038,866
                                                                                     ----------
Net assets transferred to MAXXAM                                                     $   30,531
                                                                                     ==========


</TABLE>



3.        INVENTORIES

          Inventories consist of the following:
<TABLE>

<CAPTION>

                                                                         December 31,      
                                                                   -----------------------
                                                                      1995         1994   
                                                                   ----------   ----------
<S>                                                                <C>          <C>
Lumber                                                             $   59,563   $   55,310
Logs                                                                   18,341       14,788
                                                                   ----------   ----------
                                                                   $   77,904   $   70,098
                                                                   ==========   ==========

</TABLE>

          During 1993, Pacific Lumber's inventory quantities were reduced.
This reduction resulted in the liquidation of Pacific Lumber's LIFO inventory
quantities carried at prevailing costs from prior years which were higher
than the current cost of inventory.  The effect of this inventory liquidation
increased cost of goods sold by approximately $222 for the year ended 
December 31, 1993.

4.        PROPERTY, PLANT AND EQUIPMENT

          The major classes of property, plant and equipment are as follows:



<TABLE>

<CAPTION>

<S>                                                          <C>             <C>          <C>
                                                                                   December 31,      
                                                               Estimated     -----------------------
                                                                 Useful
                                                                 Lives          1995         1994   
                                                             -------------   ----------   ----------
Logging roads, land and improvements                              15 years   $   7,929    $   7,545 
Buildings                                                         33 years      29,661       28,209 
Machinery and equipment                                       5 - 15 years     129,764      126,480 
Construction in progress                                                           520           30 
                                                                             ----------   ----------
                                                                               167,874      162,264 
Less: accumulated depreciation                                                 (67,732)     (59,081)
                                                                             ----------   ----------
                                                                             $ 100,142    $ 103,183 
                                                                             ==========   ==========

</TABLE>

     Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $9,663, $9,269 and $8,670, respectively.

5.        LONG-TERM DEBT

          Long-term debt consists of the following:


<TABLE>

<CAPTION>

                                                                         December 31,      
                                                                   -----------------------
                                                                      1995         1994   
                                                                   ----------   ----------
<S>                                                                <C>          <C>
7.95% Scotia Pacific Timber Collateralized Notes due July 20,
     2015                                                          $ 350,233    $ 363,811 
11-1/4% MGI Senior Secured Notes due August 1, 2003                  100,000      100,000 
     12-1/4% MGI Senior Secured Discount Notes due August 1, 2003,
     net of discount                                                  92,498       82,779 
10-1/2% Pacific Lumber Senior Notes due March 1, 2003                235,000      235,000 
Other                                                                    774          866 
                                                                   ----------   ----------
                                                                     778,505      782,456 
Less: current maturities                                             (14,195)     (13,670)
                                                                   ----------   ----------
                                                                   $ 764,310    $ 768,786 
                                                                   ==========   ==========

</TABLE>

          On March 23, 1993, Pacific Lumber issued $235,000 of the Pacific
Lumber Senior Notes and Scotia Pacific, its newly-formed wholly owned
subsidiary, issued $385,000 of the Timber Notes.  Pacific Lumber and Scotia
Pacific used the net proceeds from the sale of the Pacific Lumber Senior
Notes and the Timber Notes, together with Pacific Lumber's cash and
marketable securities, to (i) retire (a) $163,784 aggregate principal
amount of Pacific Lumber's 12% Series A Senior Notes due July 1, 1996 (the
"Series A Notes"), (b) $299,725 aggregate principal amount of Pacific
Lumber's 12.2% Series B Senior Notes due July 1, 1996 (the "Series B
Notes"), and (c) $41,750 aggregate principal amount of Pacific Lumber's
12-1/2% Senior Subordinated Debentures due July 1, 1998 (the "Debentures;"
the Series A Notes, the Series B Notes and the Debentures are referred to
collectively as the "Old Pacific Lumber Securities"); (ii) pay accrued
interest on the Old Pacific Lumber Securities through the date of
redemption; (iii) pay the applicable redemption premiums on the Old Pacific
Lumber Securities; (iv) repay Pacific Lumber's $28,867 cogeneration
facility loan; (v) fund the initial deposit of $35,000 to the Liquidity
Account; and (vi) pay a $25,000 dividend to a subsidiary of the Company. 
These transactions resulted in a pre-tax extraordinary loss of $16,368,
consisting primarily of the payment of premiums and the write-off of
unamortized deferred financing costs on the Old Pacific Lumber Securities.

          The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits Scotia Pacific from incurring any additional
indebtedness for borrowed money and limits the business activities of
Scotia Pacific to the ownership and operation of its timber and
timberlands.  The Timber Notes are senior secured obligations of Scotia
Pacific and are not obligations of, or guaranteed by, Pacific Lumber or any
other person.  The Timber Notes are secured by a lien on (i) Scotia
Pacific's timber and timberlands (representing $179,364 of the Company's
consolidated balance at December 31, 1995), (ii) Scotia Pacific's contract
rights and certain other assets, (iii) the funds deposited in the Payment
Account and the Liquidity Account, and (iv) substantially all of Scotia
Pacific's other property and equipment.

          The Timber Notes are structured to link, to the extent of
available cash, the deemed depletion of Scotia Pacific's timber (through
the harvest and sale of logs) to required amortization of the Timber Notes. 
The required amount of amortization due on any Timber Note payment date is
determined by various mathematical formulas set forth in the Timber Note
Indenture.  The minimum amount of principal which Scotia Pacific must pay
(on a cumulative basis) through any Timber Note payment date in order to
avoid an Event of Default (as defined in the Timber Note Indenture) is
referred to as rated amortization ("Rated Amortization").  If all payments
of principal are made in accordance with Rated Amortization, the payment
date on which Scotia Pacific will pay the final installment of principal is
July 20, 2015.  The amount of principal which Scotia Pacific must pay
through each Timber Note payment date in order to avoid prepayment or
deficiency premiums is referred to as scheduled amortization ("Scheduled
Amortization").  If all payments of principal are made in accordance with
Scheduled Amortization, the payment date on which Scotia Pacific will pay
the final installment of principal is July 20, 2009.

          Substantially all of the Company's consolidated assets are owned
by Pacific Lumber and a significant portion of Pacific Lumber's assets are
owned by Scotia Pacific.  The Company expects that Pacific Lumber will
provide a major portion of the Company's future operating cash flow. 
Pacific Lumber is dependent upon Scotia Pacific for a significant portion
of its operating cash flow.  The holders of the Timber Notes have priority
over the claims of creditors of Pacific Lumber with respect to the assets
and cash flows of Scotia Pacific, and the holders of the Pacific Lumber
Senior Notes have priority over the claims and creditors of the Company
with respect to the assets and cash flows of Pacific Lumber.  Under the
terms of the Timber Note Indenture, Scotia Pacific will not have available
cash for distribution to Pacific Lumber unless Scotia Pacific's cash flow
from operations exceeds the amounts required by the Timber Note Indenture
to be reserved for the payment of current debt service (including interest,
principal and premiums) on the Timber Notes, capital expenditures and
certain other operating expenses.

          Principal and interest on the Timber Notes are payable semi-
annually on January 20 and July 20.  The Timber Notes are redeemable at the
option of Scotia Pacific, in whole but not in part, at any time.  The
redemption price of the Timber Notes is equal to the sum of the principal
amount, accrued interest and a prepayment premium calculated based upon the
yield of like-term Treasury securities plus 50 basis points.

          Interest on the Pacific Lumber Senior Notes is payable semi-
annually on March 1 and September 1.  The Pacific Lumber Senior Notes are
redeemable at the option of Pacific Lumber, in whole or in part, on or
after March 1, 1998 at a price of 103% of the principal amount plus accrued
interest.  The redemption price is reduced annually until March 1, 2000,
after which time the Pacific Lumber Senior Notes are redeemable at par.

          Pacific Lumber has a revolving credit agreement with a bank (as
amended and restated, the "Revolving Credit Agreement") which expires on
May 31, 1998.  Borrowings under the Revolving Credit Agreement are secured
by Pacific Lumber's trade receivables and inventories, with interest
computed at the bank's reference rate plus 1-1/4% or the bank's offshore
rate plus 2-1/4%.  The Revolving Credit Agreement provides for borrowings
of up to $60,000, of which $15,000 may be used for standby letters of
credit and $30,000 is restricted to timberland acquisitions.  Borrowings
made pursuant to the portion of the credit facility restricted to
timberland acquisitions would also be secured by the purchased timberlands. 
As of December 31, 1995, $48,090 of borrowings was available under the
Revolving Credit Agreement, of which $3,090 was available for letters of
credit and $30,000 was restricted to timberland acquisitions.  No
borrowings were outstanding as of December 31, 1995, and letters of credit
outstanding amounted to $11,910.  The Revolving Credit Agreement contains
covenants substantially similar to those contained in the indenture
governing the Pacific Lumber Senior Notes.

          The indentures governing the Pacific Lumber Senior Notes, the
Timber Notes and the Revolving Credit Agreement contain various covenants
which, among other things, limit the payment of dividends and restrict
transactions between Pacific Lumber and its affiliates.  As of December 31,
1995, under the most restrictive of these covenants, approximately $15,663
of dividends could be paid by Pacific Lumber.

          On August 4, 1993, the Company issued $100,000 aggregate
principal amount of the MGI Senior Notes and $126,720 aggregate principal
amount (approximately $70,000 net of original issue discount) of the MGI
Discount Notes, which, together with the MGI Senior Notes, are referred to
collectively as the "MGI Notes".  The MGI Notes are secured by the
Company's pledge of 100% of the common stock of Pacific Lumber, Britt and
MPI, and by MAXXAM's pledge of 28 million shares of Kaiser's common stock
it received as a result of the Forest Products Group Formation.  The
indenture governing the MGI Notes, among other things, restricts the
ability of the Company to incur additional indebtedness, engage in
transactions with affiliates, pay dividends and make investments.  As of
December 31, 1995, under the most restrictive of these covenants,
approximately $1,899 of dividends could be paid by the Company, of which
$1,600 was paid in January 1996.  The MGI Notes are senior indebtedness of
the Company; however, they are effectively subordinate to the liabilities
of the Company's subsidiaries, which include the Timber Notes and the
Pacific Lumber Senior Notes.  The MGI Discount Notes are net of discount of
$33,222 and $43,941 at December 31, 1995 and 1994, respectively.

          The MGI Senior Notes pay interest semi-annually on February 1 and
August 1 of each year.  The MGI Discount Notes will not pay any interest
until February 1, 1999, at which time semi-annual interest payments will
become due on each February 1 and August 1 thereafter.

          The Company used a portion of the net proceeds from the sale of
the MGI Notes to retire the entire outstanding balance of its 12-3/4% Notes
at 101% of their principal amount, plus accrued interest through November
14, 1993.  The Company used the remaining portion of the net proceeds from
the sale of the MGI Notes, together with a portion of its existing cash
resources, to pay a $20,000 dividend to MAXXAM.  MAXXAM used such proceeds
to redeem, on August 20, 1993, $20,000 aggregate principal amount of its
14% Senior Subordinated Reset Notes due 2000 at 100% of their principal
amount plus accrued interest thereon.

          The Company incurred a pre-tax extraordinary loss associated with
the early retirement of the 12-3/4% Notes of $9,677 consisting of net
interest cost of $3,763, the write-off of $3,472 of unamortized deferred
financing costs, a premium of $1,500 and the write-off of $942 of
unamortized original issue discount.

          Maturities
          The following table of scheduled maturities of long-term debt
outstanding at December 31, 1995 reflects Scheduled Amortization with
respect to the Timber Notes:


<TABLE>

<CAPTION>

                                                  Years Ending December 31,                          
                        ----------------------------------------------------------------------------
                           1996          1997         1998         1999         2000      Thereafter
                        ----------    ----------   ----------   ----------   ----------   ----------
<S>                     <C>           <C>          <C>          <C>          <C>          <C>

7.95% Scotia Pacific
     Timber
     Collateralized
     Notes              $    14,103   $   16,165   $   19,335   $   21,651   $   23,970   $  255,009
11-1/4% MGI Senior
     Secured Notes                -            -            -            -            -      100,000
12-1/4% MGI Senior
     Secured
     Discount Notes               -            -            -            -            -      125,720
10-1/2% Pacific
     Lumber
     Senior Notes                 -            -            -            -            -      235,000
Other                            92           93           94           94           95          306
                        -----------   ----------   ----------   ----------   ----------   ----------
                        $    14,195   $   16,258   $   19,429   $   21,745   $   24,065   $  716,035
                        ===========   ==========   ==========   ==========   ==========   ==========

</TABLE>

          Restricted Net Assets of Subsidiaries
          At December 31, 1995, certain debt instruments restricted the
ability of Pacific Lumber to transfer assets, make loans and advances and
pay dividends to the Company.  As of December 31, 1995, all of the assets
of Pacific Lumber and its subsidiaries are subject to such restrictions.

6.        CREDIT (PROVISION) IN LIEU OF INCOME TAXES

          The Company and its subsidiaries are members of MAXXAM's
consolidated return group for federal income tax purposes.  Prior to August
4, 1993, the Company and each of its subsidiaries computed their tax
liabilities or tax benefits on a separate company basis (except as
discussed in the following paragraph), in accordance with their respective
tax allocation agreements with MAXXAM.

          Effective on March 23, 1993, MAXXAM, Pacific Lumber, Scotia
Pacific and Salmon Creek Corporation ("Salmon Creek") entered into a tax
allocation agreement that, among other things, amended the tax calculations
with respect to Pacific Lumber (as amended, the "PL Tax Allocation
Agreement").  Under the terms of the PL Tax Allocation Agreement, Pacific
Lumber is liable to MAXXAM for the federal consolidated income tax
liability of Pacific Lumber, Scotia Pacific and certain other subsidiaries
of Pacific Lumber (but excluding Salmon Creek) (collectively, the "PL
Subgroup") computed as if the PL Subgroup was a separate affiliated group
of corporations which was never connected with MAXXAM.  The PL Tax
Allocation Agreement further provides that Salmon Creek is liable to MAXXAM
for its federal income tax liability computed on a separate company basis
as if it was never connected with MAXXAM.  The remaining subsidiaries of
MGI are each liable to MAXXAM for their respective income tax liabilities
computed on a separate company basis as if they were never connected with
MAXXAM, pursuant to their respective tax allocation agreements.

          MGI's tax allocation agreement with MAXXAM, (as amended on August
4, 1993, the "Tax Allocation Agreement"), provides that the Company's
federal income tax liability is computed as if MGI files a consolidated tax
return with all of its subsidiaries except Salmon Creek, and that such
corporations were never connected with MAXXAM (the "MGI Consolidated Tax
Liability").  The federal income tax liability of MGI is the difference
between (i) the MGI Consolidated Tax Liability and (ii) the sum of the
separate tax liabilities for the Company's subsidiaries (computed as
discussed above), but excluding Salmon Creek.  To the extent that the MGI
Consolidated Tax Liability is less than the aggregate amounts in (ii),
MAXXAM is obligated to pay the amount of such difference to MGI.

          The credit (provision) in lieu of income taxes on income (loss)
from continuing operations before income taxes, extraordinary items and
cumulative effect of changes in accounting principles consists of the
following:

<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
<S>                                                             <C>          <C>          <C>
Current:
     Federal credit (provision) in lieu of income taxes         $    (167)   $       -    $    (988)
     State and local                                                  (35)         (55)        (253)
                                                                ----------   ----------   ----------
                                                                     (202)         (55)      (1,241)
                                                                ----------   ----------   ----------
Deferred:
     Federal credit (provision) in lieu of income taxes               (33)       2,366        4,825 
     State and local                                                 (976)       1,305         (229)
                                                                ----------   ----------   ----------
                                                                   (1,009)       3,671        4,596 
                                                                ----------   ----------   ----------
                                                                $  (1,211)   $   3,616    $   3,355 
                                                                ==========   ==========   ==========

</TABLE>

          The 1994 deferred federal credit in lieu of income taxes of
$2,366 includes a credit relating to reserves the Company no longer
believes are necessary.  The 1993 deferred federal credit in lieu of income
taxes of $4,825 includes $2,601 for the benefit of operating loss
carryforwards generated in 1993 and includes an $850 benefit for increasing
net deferred income tax assets (liabilities) as of the date of enactment
(August 10, 1993) of the Omnibus Budget Reconciliation Act of 1993 which
retroactively increased the federal statutory income tax rate from 34% to
35% for periods beginning on or after January 1, 1993.

          A reconciliation between the credit (provision) in lieu of income
taxes and the amount computed by applying the federal statutory income tax
rate to income (loss) from continuing operations before income taxes,
extraordinary items and cumulative effect of changes in accounting
principles is as follows:


<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
<S>                                                             <C>          <C>          <C>
Income (loss) from continuing operations before income
     taxes, extraordinary items and cumulative effect of
     changes in accounting principles                           $   4,748    $  14,819    $ (17,664)
                                                                ==========   ==========   ==========

Amount of federal income tax based upon the statutory rate      $  (1,662)   $  (5,187)   $   6,182 
Revision of prior years' tax estimates and other changes in
     valuation allowances                                             907        7,739       (3,468)
Increase in net deferred income tax assets due to tax rate
     change                                                             -            -          850 
State and local taxes, net of federal tax benefit                    (657)         812         (313)
Other                                                                 201          252          104 
                                                                ----------   ----------   ----------
                                                                $  (1,211)   $   3,616    $   3,355 
                                                                ==========   ==========   ==========

</TABLE>


          As shown in the Consolidated Statement of Operations for the year
ended December 31, 1994, the Company recorded an extraordinary loss related
to the settlement of litigation in connection with the Company's
acquisition of Pacific Lumber (see Note 9).  The Company reported the loss
net of related deferred income taxes of $6,312 which is less than the
federal and state statutory income tax rates due to expenses for which no
tax benefit was recognized.

          As shown in the Consolidated Statement of Operations for the year
ended December 31, 1993, the Company reported an extraordinary loss related
to the early extinguishment of debt.  The Company reported the loss net of
related deferred income taxes of $8,856 which approximated the federal
statutory income tax rate in effect on the dates the transactions occurred.

          Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109").  The adoption of SFAS 109 changed the Company's method of accounting
for income taxes to an asset and liability approach from the deferral
method prescribed by APB 11.  The asset and liability approach requires the
recognition of deferred income tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.  Under this method, deferred
income tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.  The cumulative effect of the change
in accounting principle, as of January 1, 1993, increased the Company's
results of operations by $14,916.  The implementation of SFAS 109 required
the Company to restate certain assets and liabilities to their pre-tax
amounts from their net-of-tax amounts originally recorded in connection
with the acquisitions of Pacific Lumber in 1986 and Britt in 1990.  As a
result of restating these assets and liabilities, the loss from continuing
operations before income taxes, extraordinary item and cumulative effect of
changes in accounting principles for the year ended December 31, 1993 was
decreased by $377.

          The components of the Company's net deferred income tax assets
(liabilities) are as follows:


<TABLE>

<CAPTION>

                                                                                   December 31,      
                                                                             -----------------------
                                                                                1995         1994   
                                                                             ----------   ----------
<S>                                                                          <C>          <C>

Deferred income tax assets:
     Loss and credit carryforwards                                           $  83,705    $  86,864 
     Timber and timberlands                                                     32,528       37,209 
     Other liabilities                                                          17,203       10,460 
     Postretirement benefits other than pensions                                 2,316        2,145 
     Other                                                                         327        1,818 
     Valuation allowances                                                      (51,595)     (52,060)
                                                                             ----------   ----------
          Total deferred income tax assets, net                                 84,484       86,436 
                                                                             ----------   ----------
Deferred income tax liabilities:
     Inventories                                                               (16,068)     (17,934)
     Property, plant and equipment                                             (16,560)     (16,563)
     Other                                                                      (3,615)      (3,427)
                                                                             ----------   ----------
          Total deferred income tax liabilities                                (36,243)     (37,924)
                                                                             ----------   ----------
Net deferred income tax assets                                               $  48,241    $  48,512 
                                                                             ==========   ==========

</TABLE>

          The valuation allowances listed above relate primarily to loss
and credit carryforwards.  As of December 31, 1995, approximately $32,528
of the net deferred income tax assets listed above relate to the excess of
the tax basis over financial statement basis with respect to timber and
timberlands.  The Company believes that it is more likely than not that
this net deferred income tax asset will be realized, based primarily upon
the estimated value of its timber and timberlands which is well in excess
of its tax basis.  Also included in net deferred income tax assets as of
December 31, 1995 is $32,110 which relates to the benefit of loss and
credit carryforwards, net of valuation allowances.  The Company evaluated
all appropriate factors to determine the proper valuation allowances for
loss and credit carryforwards.  These factors included any limitations
concerning use of the carryforwards, the year the carryforwards expire and
the levels of taxable income necessary for utilization.  The Company has
concluded that it will more likely than not generate sufficient taxable
income to realize the benefit attributable to the loss and credit
carryforwards for which valuation allowances were not provided.

          Included in the net deferred income tax assets listed above are
$43,731 and $44,351 at December 31, 1995 and 1994, respectively, which are
recorded pursuant to the tax allocation agreements with MAXXAM.

          The following table presents the estimated tax attributes for
federal income tax purposes for the Company and its subsidiaries as of
December 31, 1995, under the terms of the respective tax allocation
agreements.  The utilization of certain of these attributes is subject to
limitations.

<TABLE>

<CAPTION>

                                                                                           Expiring
                                                                                            Through  
                                                                                          ----------
<S>                                                                          <C>          <C>
Regular Tax Attribute Carryforwards:
     Net operating losses                                                    $  224,485      2010
     Net capital losses                                                           5,177      1997
     Minimum tax credit                                                             167        -

Alternative Minimum Tax Attribute Carryforwards:
     Net operating losses                                                    $  185,803      2010

</TABLE>

7.        EMPLOYEE BENEFIT PLANS

          The Company has a defined benefit plan which covers all employees
of Pacific Lumber.  Under the plan, employees are eligible for benefits at
age 65 or earlier, if certain provisions are met.  The benefits are
determined under a career average formula based on each year of service
with Pacific Lumber and the employee's compensation for that year.  Pacific
Lumber's funding policy is to contribute annually an amount at least equal
to the minimum cash contribution required by The Employee Retirement Income
Security Act of 1974, as amended.

          A summary of the components of net periodic pension cost is as
follows:

<TABLE>

<CAPTION>


                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
<S>                                                             <C>          <C>          <C>
Service cost - benefits earned during the year                  $   1,483    $   1,643    $   1,600 
Interest cost on projected benefit obligation                       1,693        1,263          918 
Actual loss (gain) on plan assets                                  (3,900)          10       (2,128)
Net amortization and deferral                                       2,460         (859)       1,359 
                                                                ----------   ----------   ----------
Net periodic pension cost                                       $   1,736    $   2,057    $   1,749 
                                                                ==========   ==========   ==========

</TABLE>


     The following table sets forth the funded status and amounts recognized
in the Consolidated Balance Sheet:

<TABLE>

<CAPTION>

                                                                                  December 31,       
                                                                           -------------------------
                                                                               1995          1994   
                                                                           -----------    ----------
<S>                                                                        <C>            <C>
Actuarial present value of accumulated plan benefits:
     Vested benefit obligation                                             $   16,910     $  11,809 
     Non-vested benefit obligation                                              1,214           779 
                                                                           -----------    ----------
          Total accumulated benefit obligation                             $   18,124     $  12,588 
                                                                           ===========    ==========

Projected benefit obligation                                               $   21,841     $  15,047 
Plan assets at fair value, primarily equity and debt securities               (18,363)      (13,184)
                                                                           -----------    ----------
Projected benefit obligation in excess of plan assets                           3,478         1,863 
Unrecognized net transition asset                                                  24            29 
Unrecognized net gain (loss)                                                      (27)        1,475 
Unrecognized prior service cost                                                   (45)          (50)
                                                                           -----------    ----------
          Accrued pension liability                                        $    3,430     $   3,317 
                                                                           ===========    ==========


</TABLE>

          The assumptions used in accounting for the defined benefit plan were
as follows:

<TABLE>

<CAPTION>

                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------

<S>                                                             <C>          <C>          <C>

Rate of increase in compensation levels                           5.0%          5.0%         5.0%
Discount rate                                                     7.25%         8.5%         7.5%
Expected long-term rate of return on assets                       8.0%          8.0%         8.0%

</TABLE>

          The Company has an unfunded defined benefit plan for certain
postretirement and other benefits which covers substantially all employees
of Pacific Lumber.  Participants of the plan are eligible for certain
health care benefits upon termination of employment and retirement and
commencement of pension benefits.  Participants make contributions for a
portion of the cost of their health care benefits.

          The Company adopted Statement of Financial Accounting Standards
No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions ("SFAS 106") as of January 1, 1993.  The costs of postretirement
benefits other than pensions are accrued over the period the employees
provide services to the date of their full eligibility for such benefits. 
Previously, such costs were expensed as actual claims were incurred.  The
cumulative effect of the change in accounting principle for the adoption of
SFAS 106 was recorded as a charge to results of operations of $2,348, net
of related income taxes of $1,566.  The deferred income tax benefit related
to the adoption of SFAS 106 was recorded at the federal and state statutory
rates in effect on the date SFAS 106 was adopted.

          A summary of the components of net periodic postretirement
benefit cost is as follows:

<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
<S>                                                             <C>          <C>          <C>
Service cost - benefits earned during the year                  $     228    $     216    $      153
Interest cost on accumulated postretirement benefit
     obligation                                                       317          294           315
Net amortization and deferral                                         (53)          (7)            -
                                                                ----------   ----------   ----------
Net periodic postretirement benefit cost                        $     492    $     503    $      468
                                                                ==========   ==========   ==========

</TABLE>

          The adoption of SFAS 106 increased the Company's loss from
continuing operations before extraordinary item and cumulative effect of
changes in accounting principles by $212 ($360 before tax) for the year
ended December 31, 1993.

          The postretirement benefit liability recognized in the Company's
Consolidated Balance Sheet is as follows:

<TABLE>

<CAPTION>

                                                                                   December 31,      
                                                                             -----------------------
                                                                                1995         1994   
                                                                             ----------   ----------
<S>                                                                          <C>          <C>
Retirees                                                                     $      634   $      860
Actives eligible for benefits                                                       726          656
Actives not eligible for benefits                                                 3,317        2,355
                                                                             ----------   ----------
     Accumulated postretirement benefit obligation                                4,677        3,871
Unrecognized net gain                                                               553          972
                                                                             ----------   ----------
     Postretirement benefit liability                                        $    5,230   $    4,843
                                                                             ==========   ==========

</TABLE>

          The annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 11.0% for 1996 and
is assumed to decrease gradually to 5.5% in 2008 and remain at that level
thereafter.  Each one percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by approximately $674 and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost by approximately $90.

          The discount rates used in determining the accumulated
postretirement benefit obligation were 7.25% and 8.5% at December 31, 1995
and 1994, respectively.

          Subsequent to December 31, 1993, Pacific Lumber's employees were
eligible to participate in a defined contribution savings plan sponsored by
MAXXAM.  This plan is designed to enhance the existing retirement programs
of participating employees.  Employees may elect to contribute up to 16% of
their compensation to the plan.  For those participants who have elected to
make voluntary contributions to the plan, Pacific Lumber's contributions
consist of a matching contribution of up to 4% of the compensation of
participants for each calendar quarter.  The cost to the Company of this
plan was $1,281 and $1,215 for the years ended December 31, 1995 and 1994,
respectively.

          Pacific Lumber is self-insured for workers' compensation
benefits.  Included in accrued compensation and related benefits and other
noncurrent liabilities are accruals for workers' compensation claims
amounting to $8,900 and $9,233 at December 31, 1995 and 1994, respectively. 
Workers' compensation expenses amounted to $3,579, $4,069 and $3,776 for
the years ended December 31, 1995, 1994 and 1993, respectively.

8.        RELATED PARTY TRANSACTIONS

          MAXXAM provides the Company and certain of the Company's
subsidiaries with accounting and data processing services.  In addition,
MAXXAM provides the Company with office space and various office personnel,
insurance, legal, operating, financial and certain other services. 
MAXXAM's expenses incurred on behalf of the Company are reimbursed by the
Company through payments consisting of (i) an allocation of the lease
expense for the office space utilized by or on behalf of the Company and
(ii) a reimbursement of actual out-of-pocket expenses incurred by MAXXAM,
including, but not limited to, labor costs of MAXXAM personnel rendering
services to the Company.  Charges by MAXXAM for such services were $1,994,
$2,254 and $3,347 for the years ended December 31, 1995, 1994 and 1993,
respectively.  The Company believes that the services being rendered are on
terms not less favorable to the Company than those which would be
obtainable from unaffiliated third parties.

          In 1994, in connection with the litigation settlement described
in Note 9, Pacific Lumber paid approximately $3,185 to a law firm in which
a director of Pacific Lumber is also a partner.  In 1993, Pacific Lumber
paid approximately $1,931 in connection with the offering of the Pacific
Lumber Senior Notes and the Timber Notes to this same law firm.

9.        LOSS ON LITIGATION SETTLEMENT AND CONTINGENCIES

          During 1994, MAXXAM, Pacific Lumber and others agreed to a
settlement, subsequently approved by the court, of class and related
individual claims brought by former stockholders of Pacific Lumber against
MAXXAM, the Company, Pacific Lumber, former directors of Pacific Lumber and
others concerning the Company's acquisition of Pacific Lumber.  Of the
$52,000 settlement, $33,000 was paid by insurance carriers of MAXXAM and
Pacific Lumber, $14,800 was paid by Pacific Lumber, and the balance was
paid by other defendants and through the assignment of certain claims.  In
1994, the Company recorded an extraordinary loss of $14,866 related to the
settlement and associated costs, including a $2,000 accrual for certain
contingent claims and $4,400 of related legal fees, net of benefits for
federal and state income taxes of $6,312.

          The Company's operations are subject to a variety of California
and federal laws and regulations dealing with timber harvesting, endangered
species and critical habitat, and air and water quality.  The Company does
not expect that compliance with such existing laws and regulations will
have a material adverse effect on its future consolidated operating
results, financial position or liquidity; however, these laws are modified
from time to time and there can be no assurance that certain pending or
future legislation, governmental regulations or judicial or administrative
decisions would not adversely affect the Company or its ability to sell
lumber, logs or timber.

          In 1995, the U.S. Fish and Wildlife Service (the "USFWS")
published its proposed final designation of critical habitat for the
marbled murrelet (the "Proposed Designation"), seeking to designate over
four million acres as critical habitat for the marbled murrelet, including
approximately 33,000 acres of Pacific Lumber's timberlands.  The Proposed
Designation was subject to a 60-day comment period and Pacific Lumber filed
comments vigorously opposing the Proposed Designation.  The USFWS has not
yet published its final designation of critical habitat for the marbled
murrelet.  Pacific Lumber is unable to predict when or if it would be able
to harvest on any acreage finally designated as critical habitat. 
Furthermore, it is impossible to determine the future adverse impact of
such designation on the Company's consolidated financial position, results
of operations or liquidity until such time as the Proposed Designation is
finalized and related regulatory and legal issues are fully resolved. 
However, if Pacific Lumber is unable to harvest, or is severely limited in
harvesting, on timberlands designated as marbled murrelet critical habitat,
such restrictions could have a material adverse effect on the Company's
liquidity, consolidated financial position and results of operations.  If
Pacific Lumber is unable to harvest or is severely limited in harvesting,
it intends to seek full compensation from the appropriate governmental
agencies on the grounds that such restrictions constitute a taking.

          There continue to be other regulatory actions and lawsuits
seeking to have various other species listed as threatened or endangered
under the federal Endangered Species Act and/or the California Endangered
Species Act and to designate critical habitat for such species.  It is
uncertain what impact, if any, such listings and/or designations of
critical habitat will have on the Company's consolidated financial
position, results of operations or liquidity.

          In 1994, the California Board of Forestry ("BOF") adopted certain
regulations regarding compliance with long-term sustained yield objectives. 
These regulations require timber companies to project the average annual
growth they will have on their timberlands during the last decade of a
100-year planning period ("Projected Annual Growth").  During any rolling
ten-year period, the average annual harvest over such ten-year period may
not exceed Projected Annual Growth.  The first ten-year period began in May
1994.  Pacific Lumber is required to submit, by October 1996, a plan
setting forth, among other things, its Projected Annual Growth.  Pacific
Lumber has not completed its analysis of the projected productivity of its
timberlands and is therefore unable to predict the impact that these
regulations will have on its future timber harvesting practices; however,
the final results of this analysis could require Pacific Lumber to reduce
(or permit it to increase) its timber harvest in future years from the
average annual harvest that it has experienced in recent years. Pacific
Lumber believes that it would be able to mitigate the effect of any
required reduction in harvest level by acquisitions of additional
timberlands and by increasing the productivity of its timberlands.  The
Company is unable to predict the ultimate impact the sustained yield
regulations will have on its future consolidated financial position,
results of operations or liquidity.

          Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") and the BOF regarding the CDF's
and the BOF's actions and rulings with respect to certain of the Company's
timber harvesting plans ("THPs"), and the Company expects that such groups
and individuals will continue to file objections to certain of the
Company's THPs.  In addition, lawsuits are pending which seek to prevent
the Company from implementing certain of its approved THPs and other timber
operations.  These challenges have severely restricted Pacific Lumber's
ability to harvest virgin old growth redwood timber on its property (and,
to a lesser extent, its residual old growth timber).  To date, challenges
with respect to the Company's THPs relating to young growth and residual
old growth have been limited; however, no assurance can be given as to the
extent of such challenges in the future.  The Company believes that
environmentally focused challenges to its THPs are likely to occur in the
future, particularly with respect to virgin and residual old growth timber. 
Although such challenges have delayed or prevented the Company from
conducting a portion of its operations, to date such challenges have not
had a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.  It is, however, impossible
to predict the future nature or degree of such challenges or their ultimate
impact on the consolidated financial position, results of operations or
liquidity of the Company.

          The Company is also involved in various claims, lawsuits and
proceedings relating to a wide variety of other matters.  While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes that the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.

10.  OTHER ITEMS

          Investment, Interest and Other Income
          In February 1994, Pacific Lumber received a franchise tax refund
of $7,243, the substantial portion of which represents interest, from the
State of California relating to tax years 1972 through 1985.  This amount
is included in investment, interest and other income for the year ended
December 31, 1994.

          Items Related to 1992 Earthquake
          In 1995 and 1993, Pacific Lumber recorded reductions in cost of
sales of $1,527 and $1,200, respectively, resulting from business
interruption insurance reimbursements for higher operating costs and the
related loss of revenues resulting from the April 1992 earthquake.  Other
receivables at December 31, 1994 included $1,684 related to earthquake
related insurance claims.

11.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

          Summary quarterly financial information for the years ended
December 31, 1995 and 1994 is as follows:


<TABLE>

<CAPTION>

                                                                Three Months Ended                  
                                              -------------------------------------------------------
                                               March 31      June 30    September 30     December 31 
                                              ----------   ----------   -------------   -------------
             <S>                              <C>          <C>          <C>             <C>
             1995:
                  Net sales                   $  51,968    $  65,644    $      63,300   $      61,680
                  Operating income               12,423       21,767           18,697          20,292
                  Net income (loss)              (3,292)       3,172            1,148           2,509

             1994:
                  Net sales                   $  56,713    $  62,976    $      60,699   $     69,241 
                  Operating income               13,206       22,644           19,362         22,623 
                  Income before
                       extraordinary item           964        3,146            8,263          6,062 
                  Extraordinary item, net             -      (14,866)               -              - 
                  Net income (loss)                 964      (11,720)           8,263          6,062 

</TABLE>

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
               AND FINANCIAL DISCLOSURE

          None.

                                  PART III

          Not applicable.

                                  PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>

<CAPTION>

(A)  INDEX TO FINANCIAL STATEMENTS                                                                                            PAGE


1.        FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):

          <S>                                                                                          <C>
          Report of Independent Public Accountants                                                           23
          Consolidated balance sheet at December 31, 1995 and 1994                                           24
          Consolidated statement of operations for the years ended December 31, 1995,
            1994 and 1993                                                                                    25
          Consolidated statement of cash flows for the years ended December 31, 1995,
            1994 and 1993                                                                                    26
          Consolidated statement of stockholder's equity (deficit) for the years ended
            December 31, 1995, 1994 and 1993                                                                 27
          Notes to consolidated financial statements                                                         28

2.        FINANCIAL STATEMENT SCHEDULES:

          Schedule I  -  Condensed financial information of Registrant at December 31, 1995
            and 1994 and for the years ended December 31, 1995, 1994 and 1993                             46-48

</TABLE>

          The consolidated financial statements and notes thereto of Kaiser
          Aluminum Corporation and The Pacific Lumber Company are
          incorporated herein by reference and included as Exhibits 99.1
          and 99.2  hereto, respectively.

          All other schedules are inapplicable or the required information
          is included in the consolidated financial statements or the notes
          thereto.

(B)  REPORTS ON FORM 8-K

          None.

(C)  EXHIBITS

          Reference is made to the Index of Exhibits immediately preceding
the exhibits hereto (beginning on page 51), which index is incorporated
herein by reference.

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                           BALANCE SHEET (UNCONSOLIDATED)

<TABLE>

<CAPTION>

                                                                                   December 31,      
                                                                             -----------------------
                                                                                1995         1994   
                                                                             ----------   ----------
                                                                                 (In thousands of
                                                                                     dollars)
<S>                                                                          <C>          <C>
                                  ASSETS

Current assets:
     Cash and cash equivalents                                               $  21,862    $  24,214 
     Marketable securities                                                      36,568       19,514 
     Other current assets                                                        2,867        1,766 
                                                                             ----------   ----------
          Total current assets                                                  61,297       45,494 
Investments in and advances from subsidiaries                                      141       17,083 
Deferred financing costs and other assets                                        4,905        5,593 
Deferred income taxes                                                           17,671       13,609 
                                                                             ----------   ----------
                                                                             $  84,014    $  81,779 
                                                                             ==========   ==========

                  LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
     Accounts payable and accrued liabilities                                $     573    $     178 
     Accrued interest                                                            4,688        4,656 
     Margin borrowings for marketable securities                                     -        6,648 
                                                                             ----------   ----------
          Total current liabilities                                              5,261       11,482 
Long-term debt                                                                 192,498      182,779 
                                                                             ----------   ----------
          Total liabilities                                                    197,759      194,261 
                                                                             ----------   ----------

Stockholder's deficit:
     Common stock, $.08-1/3 par value; 1,000 shares authorized; 100
          shares issued                                                              -            - 
     Additional capital                                                         81,287       81,287 
     Accumulated deficit                                                      (195,032)    (193,769)
                                                                             ----------   ----------
          Total stockholder's deficit                                         (113,745)    (112,482)
                                                                             ----------   ----------
                                                                             $  84,014    $  81,779 
                                                                             ==========   ==========


</TABLE>

                       STATEMENT OF OPERATIONS (UNCONSOLIDATED)


<TABLE>

<CAPTION>

                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
                                                                      (In thousands of dollars)
<S>                                                             <C>          <C>          <C>

Investment, interest and other income (expense)                 $   1,341    $  (2,159)   $    (718)
Interest expense                                                  (22,341)     (21,180)     (20,917)
General and administrative expenses                                  (370)        (598)        (720)
Equity in earnings of subsidiaries                                 16,170       18,790        6,534 
                                                                ----------   ----------   ----------
Loss from continuing operations before income taxes,
     extraordinary item and cumulative effect of change in
     accounting principle                                          (5,200)      (5,147)     (15,821)
Credit in lieu of income taxes                                      8,737        8,716        3,334 
                                                                ----------   ----------   ----------
Income (loss) from continuing operations before
     extraordinary item and cumulative effect of change in
     accounting principle                                           3,537        3,569      (12,487)
Loss from net assets transferred to MAXXAM, net of
     minority interests and related income taxes                   -            -     (512,970)
                                                                ----------   ----------   ----------
Income (loss) before extraordinary item and cumulative
     effect of change in accounting principle                       3,537        3,569     (525,457)
Extraordinary item:
     Loss on early extinguishment of debt, net of related
          credit in lieu of income taxes of $3,290                      -            -       (6,387)
Cumulative effect of change in accounting principle for
          income taxes                                                  -            -          (56)
                                                                ----------   ----------   ----------
Net income (loss)                                               $   3,537    $   3,569    $(531,900)
                                                                ==========   ==========   ==========

</TABLE>

                          STATEMENT OF CASH FLOWS (UNCONSOLIDATED)

<TABLE>

<CAPTION>
                                                                      Years Ended December 31,      
                                                                ------------------------------------
                                                                   1995         1994         1993   
                                                                ----------   ----------   ----------
                                                                      (In thousands of dollars)
<S>                                                             <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                          $   3,537    $   3,569    $(531,900)
Adjustments to reconcile net income (loss) to net cash
     used for operating activities:
          Amortization of deferred financing costs and
               discounts on long-term debt                         11,059        9,930        4,855 
          Equity in earnings of subsidiaries                      (16,170)     (18,790)      (6,534)
          Net purchases of marketable securities                  (20,011)      (1,808)      (5,586)
          Net gains on marketable securities                       (3,697)        (731)      (2,551)
          Loss from net assets transferred to MAXXAM, net               -            -      512,970 
          Extraordinary loss on early extinguishment of
               debt, net                                                -            -        6,387 
          Cumulative effect of change in accounting
               principle                                                -            -           56 
          Decrease (increase) in receivables                          171           90         (380)
          Increase in accrued and deferred income taxes            (5,237)      (8,518)      (3,356)
          Increase (decrease) in accrued interest and other
               liabilities                                            330         (911)       3,272 
          Increase (decrease) in accounts payable                       -          (53)          53 
          Other                                                       (16)         232           62 
                                                                ----------   ----------   ----------
               Net cash used for operating activities             (30,034)     (16,990)     (22,652)
                                                                ----------   ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Net advances from subsidiaries                                33,112       41,112       35,695 
     Increase in net assets transferred to MAXXAM                       -            -      (11,770)
                                                                ----------   ----------   ----------
               Net cash provided by investing activities           33,112       41,112       23,925 
                                                                ----------   ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of long-term debt                           -            -      170,000 
     Redemptions of long-term debt                                   (630)           -     (155,263)
     Dividends paid                                                (4,800)           -      (20,000)
     Incurrence of financing costs                                      -            -       (6,503)
                                                                ----------   ----------   ----------
               Net cash used for financing activities              (5,430)           -      (11,766)
                                                                ----------   ----------   ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               (2,352)      24,122      (10,493)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                     24,214           92       10,585 
                                                                ----------   ----------   ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                        $  21,862    $  24,214    $      92 
                                                                ==========   ==========   ==========

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
     Net margin borrowings (payments) for marketable            $  (6,648)   $   5,628    $   1,020 
          securities
     Net assets transferred to MAXXAM                                   -            -       30,531 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid                                              $  11,250    $  11,156    $  13,975 
     Tax allocation payments to (refunds from) MAXXAM              (3,500)        (198)          22 

</TABLE>

                       NOTES TO FINANCIAL STATEMENTS


A.   BASIS OF PRESENTATION

          As described in Note 1 to the Company's Consolidated Financial
Statements (contained in Item 8), the Forest Products Group Formation
required the Company to present the loss from net assets transferred to
MAXXAM in a manner similar to that which would have been presented if the
Company had discontinued the operations relating to such net assets.

B.   LONG-TERM DEBT

          The  Forest Products Group Formation was done contemporaneously
with the issuance of the MGI Notes and the retirement of the 12-3/4% Notes
as described in Note 5 to the Consolidated Financial Statements.  The MGI
Notes are secured by the Company's pledge of 100% of the common stock of
Pacific Lumber, Britt and MPI and by MAXXAM's pledge of 28 million shares
of Kaiser's common stock it received as a result of the Forest Products
Group Formation. 

                                 SIGNATURES

          Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                       MAXXAM GROUP INC.


Date: March 28, 1996          By:      PAUL N. SCHWARTZ         
                                       Paul N. Schwartz
                              Vice President and Chief Financial
                                            Officer
                                 (Principal Financial Officer)


Date: March 28, 1996          By:        GARY L. CLARK           
                                         Gary L. Clark
                                        Vice President
                                (Principal Accounting Officer)


          Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.


Date: March 28, 1996          By:     CHARLES E. HURWITZ        
                                      Charles E. Hurwitz
                               Chairman of the Board, President
                                              and
                                    Chief Executive Officer


Date: March 28, 1996          By:      PAUL N. SCHWARTZ         
                                       Paul N. Schwartz
                                Vice President, Chief Financial
                                            Officer
                                         and Director


Date: March 28, 1996          By:      JOHN A. CAMPBELL         
                                       John A. Campbell
                                  Vice President and Director


Date: March 28, 1996          By:       JOHN T. LA DUC          
                                        John T. La Duc
                                  Vice President and Director


Date: March 28, 1996          By:      ANTHONY R. PIERNO         
                                       Anthony R. Pierno
                                Vice President, General Counsel
                                         and Director


Date: March 28, 1996          By:      WILLIAM S. RIEGEL         
                                       William S. Riegel
                                  Vice President and Director


                             MAXXAM GROUP INC.

                             INDEX OF EXHIBITS


 Exhibit
 Number                          Description                      

[S]        [C]

3.1        Certificate of Incorporation of MAXXAM Group Inc. (the
           "Company" or "MGI") (incorporated herein by reference
           to Exhibit 3.1E to the Company's definitive proxy
           statement dated October 24, 1984)

3.2        Certificate of Amendment of Certificate of
           Incorporation of the Company dated as of September 28,
           1988 (incorporated herein by reference to Exhibit 3(b)
           to the Company's Annual Report on Form 10-K for the
           fiscal year ended December 31, 1988)

3.3        Certificate of Amendment of Certificate of
           Incorporation of the Company dated as of June 1, 1989
           (incorporated herein by reference to Exhibit 3(c) to
           the Company's Annual Report on Form 10-K for the
           fiscal year ended December 31, 1989)

3.4        By-laws of the Company (incorporated herein by
           reference to Exhibit 3.2 to the Company's Current
           Report on Form 8-K dated July 10, 1986)

4.1        Indenture between the Company and Shawmut Bank, N.A.,
           Trustee, regarding the Company's 12-3/4% Senior Secured
           Discount Notes due 2003 and 11-1/4% Senior Secured
           Notes due 2003 (incorporated herein by reference to
           Exhibit 4.1 to the Company's Annual Report on Form 10-
           K for the fiscal year ended December 31, 1993)

4.2        Indenture between The Pacific Lumber Company ("Pacific
           Lumber") and State Street Bank and Trust Company (as
           successor trustee to the First National Bank of
           Boston) ("State Street"), regarding Pacific Lumber's
           10-1/2% Senior Notes due 2003 (incorporated herein by
           reference to Exhibit 4.1 to the Annual Report on Form
           10-K of Pacific Lumber for the fiscal year ended
           December 31, 1993, File No. 1-9204)

4.3        Indenture between Scotia Pacific Holding Company
           ("Scotia Pacific") and State Street, as Trustee,
           regarding Scotia Pacific's 7.95% Timber Collateralized
           Notes due 2015 (incorporated herein by reference to
           Exhibit 4.1 to Scotia Pacific's Annual Report on Form
           10-K for the fiscal year ended December 31, 1993, File
           No. 55538; the "Scotia Pacific 1993 Form 10-K")

4.4        Deed of Trust, Security Agreement, Financing
           Statement, Fixture Filing and Assignment among Scotia
           Pacific, State Street, as Trustee, and State Street,
           as Collateral Agent (incorporated herein by reference
           to Exhibit 4.2 to the Scotia Pacific 1993 Form 10-K)

4.5        Amended and Restated Credit Agreement dated as of
           November 10, 1995 between Pacific Lumber and Bank of
           America National Trust and Savings Association
           (incorporated herein by reference to Exhibit 4.1 to
           the Quarterly Report on Form 10-Q of Pacific Lumber
           for the quarter ended September 30, 1995; File No. 1-
           9204)

4.6        Form of Deed of Trust, Assignment of Rents, Grant of
           Easement and Fixture Filing (incorporated herein by
           reference to Exhibit 4.2 to the Quarterly Report on
           Form 10-Q of Pacific Lumber for the quarter ended
           September 30, 1995; File No. 1-9204)

           Note:  Pursuant to Regulation Section 229.601, Item 601
           (b)(4)(iii) of Regulation S-K, upon request of the
           Securities and Exchange Commission, the Company hereby
           agrees to furnish a copy of any unfiled instrument
           which defines the rights of holders of long-term debt
           of the Company and its consolidated subsidiaries (and
           for any of its unconsolidated subsidiaries for which
           financial statements are required to be filed) wherein
           the total amount of securities authorized thereunder
           does not exceed 10 percent of the total consolidated
           assets of the Company

10.1       Tax Allocation Agreement between the Company and
           MAXXAM Inc. dated August 4, 1993 (incorporated herein
           by reference to Exhibit 10.6 to the Amendment No. 3 to
           the Registration Statement on Form S-2 of the Company,
           Registration No. 33-64042; the "MGI Registration
           Statement")

10.2       Tax Allocation Agreement dated as of May 21, 1988
           among MAXXAM Inc., the Company, Pacific Lumber and the
           corporations signatory thereto (incorporated herein by
           reference to Exhibit 10.8 to Pacific Lumber's Annual
           Report on Form 10-K for the fiscal year ended December
           31, 1988, File No. 1-9204)

10.3       Tax Allocation Agreement among Pacific Lumber, Scotia
           Pacific, Salmon Creek Corporation and MAXXAM Inc.
           dated March 23, 1993 (incorporated herein by reference
           to Exhibit 10.1 to Amendment No. 3 to the Form S-1
           Registration Statement of Scotia Pacific, Registration
           No. 33-55538)

10.4       Tax Allocation Agreement between MAXXAM Inc. and Britt
           Lumber Co., Inc., dated as of July 3, 1990
           (incorporated herein by reference to Exhibit 10.4 to
           the Company's Annual Report on Form 10-K for the
           fiscal year ended December 31, 1993)

10.5       Agreement dated December 20, 1985 between Pacific
           Lumber and General Electric Company (incorporated
           herein by reference to Exhibit 10(m) to Pacific
           Lumber's Registration Statement on Form S-1,
           Registration No. 33-5549; the "1985 GE Agreement")

10.6       Amendment No. 1 to Agreement between Pacific Lumber
           and General Electric Company dated July 29, 1986
           relating to the 1985 GE Agreement (incorporated herein
           by reference to Exhibit 10.4 to Pacific Lumber's
           Annual Report on Form 10-K for the fiscal year ended
           December 31, 1988, File No. 1-9204)

10.7       Power Purchase Agreement dated January 17, 1986
           between Pacific Lumber and Pacific Gas and Electric
           Company (incorporated herein by reference to Exhibit
           10(n) to Pacific Lumber's Registration Statement on
           Form S-1, Registration No. 33-5549)

10.8       Master Purchase Agreement between Pacific Lumber and
           Scotia Pacific (incorporated herein by reference to
           Exhibit 10.1 to the Scotia Pacific 1993 Form 10-K)

10.9       Services Agreement between Pacific Lumber and Scotia
           Pacific (incorporated herein by reference to Exhibit
           10.2 to the Scotia Pacific 1993 Form 10-K)

10.10      Additional Services Agreement between Pacific Lumber
           and Scotia Pacific (incorporated herein by reference
           to Exhibit 10.3 to the Scotia Pacific 1993 Form 10-K)

10.11      Reciprocal Rights Agreement among Pacific Lumber,
           Scotia Pacific and Salmon Creek Corporation
           (incorporated herein by reference to Exhibit 10.4 to
           the Scotia Pacific 1993 Form 10-K)

10.12      Environmental Indemnification Agreement between
           Pacific Lumber and Scotia Pacific (incorporated herein
           by reference to Exhibit 10.5 to the Scotia Pacific
           1993 Form 10-K)

10.13      Purchase and Services Agreement between Pacific Lumber
           and Britt Lumber Co., Inc. (incorporated herein by
           reference to Exhibit 10.17 to Amendment No. 2 to the
           Form S-2 Registration Statement of Pacific Lumber;
           Registration Statement No. 33-56332)

10.14      Put and Call Agreement dated November 16, 1987 between
           Charles E. Hurwitz and MPI (incorporated herein by
           reference to Exhibit C to Schedule 13D dated November
           24, 1987, filed by the Company with respect to MAXXAM
           Inc.'s common stock; the "Put and Call Agreement")

10.15      Amendment to Put and Call Agreement, dated May 18,
           1988 (incorporated herein by reference to Exhibit D to
           the Final Amendment to Schedule 13D dated May 20,
           1988, filed by the Company relating to MAXXAM Inc.'s
           common stock)

10.16      Amendment to Put and Call Agreement, dated as of
           February 17, 1989 (incorporated herein by reference to
           Exhibit 10.35 to MAXXAM Inc.'s Annual Report on Form
           10-K for the fiscal year ended December 31, 1988, File
           No. 1-3924)

10.22      Investment Management Agreement, dated as of December
           1, 1991, by and among the Company, MAXXAM Inc. and
           certain related corporations (incorporated herein by
           reference to Exhibit 10.23 to Amendment No. 5 to the
           MGI Registration)

10.23      Undertaking, dated August 4, 1993, executed by MAXXAM
           in favor of the Company (incorporated herein by
           reference to Exhibit 10.24 to the Company's Annual
           Report on Form 10-K for the fiscal year ended December
           31, 1994)

*27        Financial Data Schedule

*99.1      The consolidated financial statements and notes
           thereto of Kaiser Aluminum Corporation for the fiscal
           year ended December 31, 1995

*99.2      The consolidated financial statements and notes
           thereto of The Pacific Lumber Company for the fiscal
           year ended December 31, 1995


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

* Included with this filing.