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


                                 FORM 10-Q



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

             FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                       Commission File Number 1-8857


                             MAXXAM GROUP INC.
           (Exact name of Registrant as specified in its charter)



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



     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 /  /


   Number of shares of common stock outstanding at November 1, 1996: 100


     Registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.

                             MAXXAM GROUP INC.

                                   INDEX


PART I. - FINANCIAL INFORMATION                                     PAGE

     Item 1.   Financial Statements

          Consolidated Balance Sheet at September 30, 1996
               and December 31, 1995                                  3
          Consolidated Statement of Operations for the
               three and nine months ended September 30, 1996 
               and 1995                                               4
          Consolidated Statement of Cash Flows for the
               nine months ended September 30, 1996 and 1995          5
          Condensed Notes to Consolidated Financial Statements        6

     Item 2.   Management's Discussion and Analysis of
                    Financial Condition and Results of Operations     10

PART II. - OTHER INFORMATION

     Item 1.   Legal Proceedings                                      14
     Item 6.   Exhibits and Reports on Form 8-K                       15
     Signatures                                                       S-1

                     MAXXAM GROUP INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
                         (IN THOUSANDS OF DOLLARS)

<TABLE>

<CAPTION>

                                                   SEPTEMBER 30,  DECEMBER 31,
                                                        1996          1995     
                                                   ------------  ------------
                                                    (UNAUDITED)
<S>                                                <C>           <C>
                      ASSETS

Current assets:
     Cash and cash equivalents                     $     53,122  $     48,396 
     Marketable securities                               31,852        36,568 
     Receivables:
          Trade                                          11,466        20,576 
          Other                                           2,429         1,624 
     Inventories                                         74,836        77,904 
     Prepaid expenses and other current assets            5,612         7,101 
                                                   ------------  ------------
          Total current assets                          179,317       192,169 
Timber and timberlands, net of depletion of
     $217,507 and $204,856 at September 30,
     1996 and December 31, 1995, respectively           326,486       337,390 
Property, plant and equipment, net of accumulated
     depreciation of $74,321 and $67,732 at
     September 30, 1996 and December 31, 1995,
     respectively                                       100,422       100,142 
Deferred financing costs, net                            24,996        27,288 
Deferred income taxes                                    56,747        58,485 
Restricted cash                                          30,453        31,367 
Other assets                                              5,843         5,542 
                                                   ------------  ------------
                                                   $    724,264  $    752,383 
                                                   ============  ============

       LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
     Accounts payable                              $      5,436  $      4,166 
     Accrued compensation and related benefits            9,791         9,611 
     Accrued interest                                     9,217        25,354 
     Deferred income taxes                               10,244        10,244 
     Other accrued liabilities                            3,828         4,435 
     Long-term debt, current maturities                  16,258        14,195 
                                                   ------------  ------------
          Total current liabilities                      54,774        68,005 
Long-term debt, less current maturities                 756,619       764,310 
Other noncurrent liabilities                             26,518        33,813 
                                                   ------------  ------------
          Total liabilities                             837,911       866,128 
                                                   ------------  ------------

Contingencies

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                               (194,934)     (195,032)
                                                   ------------  ------------
          Total stockholder's deficit                  (113,647)     (113,745)
                                                   ------------  ------------
                                                   $    724,264  $    752,383 
                                                   ============  ============


   The accompanying notes are an integral part of these financial statements.

</TABLE>

                     MAXXAM GROUP INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF OPERATIONS
                                (UNAUDITED)
                         (IN THOUSANDS OF DOLLARS)

<TABLE>

<CAPTION>

                                                        THREE MONTHS ENDED          NINE MONTHS ENDED
                                                          SEPTEMBER 30,               SEPTEMBER 30,       
                                                   --------------------------  --------------------------
                                                        1996          1995          1996          1995     
                                                   ------------  ------------  ------------  ------------
<S>                                                <C>           <C>           <C>           <C>
Net sales:
     Lumber and logs                               $     62,717  $     54,482  $    183,913  $    161,151 
     Other                                                5,756         8,818        15,667        19,761 
                                                   ------------  ------------  ------------  ------------
                                                         68,473        63,300       199,580       180,912 
                                                   ------------  ------------  ------------  ------------

Operating expenses:
     Costs of goods sold (exclusive of
          depletion and depreciation)                    40,122        33,493       114,617        95,997 
     Selling, general and administrative expenses         4,114         4,626        11,344        12,243 
     Depletion and depreciation                           7,053         6,484        21,008        19,785 
                                                   ------------  ------------  ------------  ------------
                                                         51,289        44,603       146,969       128,025 
                                                   ------------  ------------  ------------  ------------

Operating income                                         17,184        18,697        52,611        52,887 
Other income (expense):
     Investment, interest and other income                2,329         2,588         8,377         6,835 
     Interest expense                                   (19,396)      (19,298)      (58,388)      (58,228)
                                                   ------------  ------------  ------------  ------------
     Income (loss) before income taxes                      117         1,987         2,600         1,494 

Credit (provision) in lieu of income taxes                 (152)         (839)        1,398          (466)
                                                   ------------  ------------  ------------  ------------

Net income (loss)                                  $        (35) $      1,148  $      3,998  $      1,028 
                                                   ============  ============  ============  ============


   The accompanying notes are an integral part of these financial statements.

</TABLE>

                     MAXXAM GROUP INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                                (UNAUDITED)
                         (IN THOUSANDS OF DOLLARS)

<TABLE>

<CAPTION>

                                                           NINE MONTHS ENDED
                                                             SEPTEMBER 30,       
                                                      --------------------------
                                                           1996          1995     
                                                      ------------  ------------
<S>                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                       $      3,998  $      1,028 
     Adjustments to reconcile net income to net
          cash provided by operating activities:
          Depletion and depreciation                        21,008        19,785 
          Amortization of deferred financing costs
               and discounts on long-term debt              10,815         9,772 
          Decrease in receivables                           11,478        12,683 
          Net sales (purchases) of marketable
               securities                                    8,351       (10,542)
          Decrease (increase) in inventories,
               net of depletion                              1,588        (6,067)
          Increase in accounts payable                       1,270           853 
          Decrease (increase) in prepaid expenses
               and other current assets                      1,188        (1,132)
          Decrease in accrued interest                     (16,137)      (16,330)
          Increase (decrease) in other liabilities          (8,729)        9,618 
          Net gains on marketable securities                (3,635)       (2,362)
          Decrease (increase) in accrued and
               deferred income taxes                          (428)          256 
          Other                                                (28)          465 
                                                      ------------  ------------
               Net cash provided by operating
                    activities                              30,739        18,027 
                                                      ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Payment of note receivable from affiliate                   -         2,500 
     Net proceeds from sale of assets                          110             9 
     Capital expenditures                                   (8,986)       (6,624)
                                                      ------------  ------------
               Net cash used for investing
                    activities                              (8,876)       (4,115)
                                                      ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Restricted cash withdrawals, net                          914           563 
     Repurchase of and principal payments on long-
          term debt                                        (14,151)      (14,256)
     Dividends paid                                         (3,900)       (4,800)
                                                      ------------  ------------
               Net cash used for financing
                    activities                             (17,137)      (18,493)
                                                      ------------  ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         4,726        (4,581)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD            48,396        48,575 
                                                      ------------  ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $     53,122  $     43,994 
                                                      ============  ============

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
     FINANCING ACTIVITIES:
     Net repayments of margin borrowings for
          marketable securities                       $          -  $      6,648 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid, net of capitalized interest       $     63,710  $     64,786 
     Tax allocation payments to (receipts from)
          MAXXAM Inc., net                                     167             - 
     Income taxes paid (refunded)                           (1,549)       (5,461)


   The accompanying notes are an integral part of these financial statements.


</TABLE>

                    MAXXAM GROUP INC. AND SUBSIDIARIES
            CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         (IN THOUSANDS OF DOLLARS)


1.        GENERAL

          The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by MAXXAM Group
Inc. with the Securities and Exchange Commission for the fiscal year ended
December 31, 1995 (the "Form 10-K").  Any capitalized terms used but not
defined in the following Condensed Notes to Consolidated Financial
Statements have the same meaning given to them in the Form 10-K.  All
references to the "Company" include MAXXAM Group Inc. and its subsidiary
companies unless otherwise noted or the context indicates otherwise. 
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end.  The results of operations for the
interim periods presented are not necessarily indicative of the results to
be expected for the entire year.

          The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at September 30, 1996,
the consolidated results of operations for the three and nine months ended
September 30, 1996 and 1995 and consolidated cash flows for the nine months
ended September 30, 1996 and 1995.  Certain reclassifications of prior
period information have been made to conform to the current presentation. 
The Company is a wholly owned subsidiary of MAXXAM Inc. ("MAXXAM").

2.        RESTRICTED CASH

          Restricted cash represents the amount deposited into an account
held by the Trustee under the indenture governing the Timber Notes of the
Company's indirect wholly owned subsidiary, Scotia Pacific Holding Company
("Scotia Pacific").

          At September 30, 1996 and December 31, 1995, cash and cash
equivalents also includes $5,676 and $19,742, respectively, which is
restricted for debt service payments on the succeeding note payment date
for the Timber Notes.

3.        INVENTORIES

          Inventories consist of the following:

<TABLE>

<CAPTION>

                                               SEPTEMBER 30,  DECEMBER 31,
                                                    1996          1995     
                                               ------------  ------------
<S>                                            <C>           <C>
LUMBER                                         $     52,824  $     59,563 
Logs                                                 22,012        18,341 
                                               ------------  ------------
                                               $     74,836  $     77,904 
                                               ============  ============


</TABLE>

4.        LONG-TERM DEBT

          Long-term debt consists of the following:

<TABLE>

<CAPTION>

                                                             September 30,  December 31,
                                                                  1996          1995     
                                                             ------------  ------------
<S>                                                          <C>           <C>
7.95% Scotia Pacific Timber Collateralized Notes due
     July 20, 2015                                           $    336,130  $    350,233 
10-1/2% Pacific Lumber Senior Notes due March 1, 2003             235,000       235,000 
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                              101,021        92,498 
Other                                                                 726           774 
                                                             ------------  ------------
                                                                  772,877       778,505 
Less: current maturities                                          (16,258)      (14,195)
                                                             ------------  ------------
                                                             $    756,619  $    764,310 
                                                             ============  ============


</TABLE>

5.        CREDIT (PROVISION) IN LIEU OF INCOME TAXES

          The credit in lieu of income taxes for the nine months ended
September 30, 1996 includes a benefit of $2,620 relating to the refund of
taxes previously paid in connection with a settlement of certain federal
income tax matters in June 1996.  The Company received the cash refund in
August 1996.

6.        CONTINGENCIES  

          The Company's forest products operations are primarily conducted
by The Pacific Lumber Company ("Pacific Lumber") and 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.  While the Company does not expect that Pacific Lumber's
compliance with such existing laws and regulations will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity, Pacific Lumber is subject to certain pending
matters described below, including the resolution of issues relating to the
final designation of critical habitat for the marbled murrelet, which could
have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.  Moreover, the laws and
regulations relating to the Company's forest products operations are
modified from time to time and are subject to judicial and administrative
interpretation.  There can be no assurance that certain pending or future
governmental regulations, legislation or judicial or administrative
decisions would not materially and adversely affect Pacific Lumber or its
ability to harvest timber.

          In May 1996, the U.S. Fish and Wildlife Service (the "USFWS")
published its final designation of critical habitat for the marbled
murrelet ("Final Designation"), designating over four million acres as
critical habitat for the marbled murrelet.  Although nearly all of the
designated habitat is public land, approximately 33,000 acres of the
Company's timberlands are included in the Final Designation, the
substantial portion of such 33,000 acres being young growth timber. 
Pacific Lumber's wildlife surveys to date (based upon current survey
protocols) have indicated that Pacific Lumber has approximately 6,600 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 area  covered by the Final Designation.  In order to mitigate
the impact of the Final Designation, particularly with respect to
timberlands occupied by the marbled murrelet, Pacific Lumber over the last
few years has attempted to develop a habitat conservation plan for the
marbled murrelet (the "Murrelet HCP").  Due to, among  other things, the
unfavorable response of the USFWS to Pacific Lumber's initial Murrelet HCP
efforts, Pacific Lumber and its subsidiaries filed two actions (the
"Takings Litigation") alleging that certain portions of its timberlands
have been "taken" and seeking just compensation (see Part II, Item 1,
"Legal Proceedings--Timber Harvesting Litigation" for a description of the
Takings Litigation).  Pursuant to the Headwaters Agreement described in
Note 7 below (the "Headwaters Agreement"), the Takings Litigation has been
stayed by the court at the request of the parties.

          It is impossible for the Company to determine the potential
adverse effect of the Final Designation on the Company's consolidated
financial position, results of operations or liquidity until such time as
all of the material regulatory and legal issues are resolved; however, if
Pacific Lumber is unable to harvest, or is severely limited in harvesting,
on timberlands designated as critical habitat for the marbled murrelet,
such effect could be material.  If Pacific Lumber is unable to harvest or
is severely limited in harvesting, it intends to seek just compensation
from the appropriate governmental agencies on the grounds that such
restrictions constitute a governmental 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
("ESA") and/or the California Endangered Species Act and to designate
critical habitat for such species.  For example, the National Marine
Fisheries Service ("NMFS") recently announced that by April 25, 1997, it
would make a final determination concerning whether to list the coho salmon
under the ESA in northern California, including, potentially, lands owned
by Pacific Lumber.  It is uncertain what impact, if any, such listings
and/or designations of critical habitat would have on the Company's
consolidated financial position, results of operations or liquidity.  See
Note 7 below for a description of certain terms of the Headwaters Agreement
relating to processing and approval of a multi-species habitat conservation
plan (the "Multi-Species HCP") covering Pacific Lumber's timberlands. 

          In 1994, the California Board of Forestry ("BOF") adopted certain
regulations regarding compliance with long-term sustained yield objectives. 
These regulations require the projected harvest by timber companies, over
time, be capable of sustaining the average annual yield achieved during the
last decade of the planning horizon, which is currently 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 regulatory deadline for Pacific Lumber to
submit a proposed sustained yield plan ("SYP") setting forth, among other
things, its Projected Annual Growth is November 15, 1996.  However, the BOF
has adopted and sent to the Office of Administrative Law for its
consideration a regulation to extend the deadline to November 15, 1997. 
This review is expected to be completed in the near future.  Pacific Lumber
has not completed its analysis of the projected productivity of its
timberlands (including enhancements to productivity which could be achieved
by a variety of methods).  Until an SYP is submitted, reviewed and fully
approved, Pacific Lumber is unable to predict the impact that these
regulations will have on its future timber harvesting practices; however,
it is possible that the final results of this analysis could require
Pacific Lumber to reduce its timber harvest in future years from the
average annual harvest that it has experienced in recent years. Pacific
Lumber believes it would be able to mitigate the effect of any required
reduction in harvest level by acquisitions of additional timberlands,
although there can be no assurance that it would be able to do so.  The
Company is unable to predict the ultimate impact the sustained yield
regulations will have on its future financial position, results of
operations or liquidity.  See Note 7 below for a description of certain
terms of the Headwaters Agreement relating to the SYP.

          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 other timber harvesting operations,
and the Company expects that such groups and individuals will continue to
file such objections to certain of the Company's THPs and other timber
harvesting operations.  In addition, lawsuits are pending and/or threatened
which seek to prevent the Company from implementing certain of its approved
THPs and/or which challenge other operations by the Company. These
challenges have severely restricted Pacific Lumber's ability to harvest old
growth timber on its property.  To date, challenges with respect to the
Company's THPs relating  to young growth timber 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 timber harvesting operations 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, they have not had a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.  Nevertheless, it is impossible to predict the
future nature or degree of such challenges or their ultimate impact on the
Company's consolidated financial position, results of operations or
liquidity.

          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 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.

7.        HEADWATERS AGREEMENT

          On September 28, 1996,  MAXXAM and Pacific Lumber (the "Pacific
Lumber Parties") entered into an agreement (the "Headwaters Agreement")
which provides the framework for the acquisition by the United States and
California of approximately 5,600 acres of Pacific Lumber's timberlands
commonly referred to as the Headwaters Forest and the Elk Head Springs
Forest (the "Headwaters Timberlands").  The Headwaters Timberlands would be
transferred in exchange for (a) property and consideration (including cash)
from the United States and California having an aggregate fair market value
of $300 million and (b) approximately 7,775 acres of adjacent timberlands
to be acquired by the United States and California (the "Elk River
Timberlands").  The Pacific Lumber Parties have agreed not to conduct
logging operations (including salvage logging) on the Headwaters
Timberlands while the Headwaters Agreement is in effect.  The continuing
effectiveness of the Headwaters Agreement is predicated on the satisfaction
of various conditions, including completion within ten months of specified
closing items.

           The Headwaters Agreement also provides, among other things, for
expedited processing  by  the United States of an incidental take permit
("Permit") to be based upon the Multi-Species HCP which is to cover all of
Pacific Lumber's existing timber properties and any timber properties
acquired as a result of the Headwaters Agreement.  The agreement also
requires expedited processing by California of an SYP.  Closing of the
Headwaters Agreement is subject to various conditions, including (a)
acquisition by the government of the Elk River Timberlands from a third
party, (b) approval of an SYP and a Multi-Species HCP, and issuance of a
Permit, each in form and substance satisfactory to Pacific Lumber, (c) the
issuance by the Internal Revenue Service and the California Franchise Tax
Board of closing agreements in form and substance sought by and
satisfactory to the  Pacific Lumber Parties, (d) the absence of a judicial
decision in any litigation brought by third parties that any party
reasonably believes will significantly delay or impair the transactions
described in the Headwaters Agreement, and (e) the dismissal with prejudice
at closing of the Takings Litigation.


ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS

          The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K.  Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.

          This section contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995.  These statements appear in various places in this section
and include statements regarding the intent, belief or current expectations
of the Company, its directors or its officers primarily with respect to the
future operating performance of the Company.  Readers are cautioned that
any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results
may differ materially from those in the forward looking statements as a
result of various factors.  This section identifies important factors that
could cause such differences.

RESULTS OF OPERATIONS

          The Company's business is seasonal in that the Company generally
experiences lower first quarter sales due largely to the general decline in
construction-related activity during the winter months.  Accordingly, the
Company's results for any one quarter are not necessarily indicative of
results to be expected for the full year.  The following table presents
selected operational and financial information for the three and nine
months ended September 30, 1996 and 1995.

<TABLE>

<CAPTION>

                                                        THREE MONTHS ENDED          NINE MONTHS ENDED
                                                          SEPTEMBER 30,               SEPTEMBER 30,       
                                                   --------------------------  --------------------------
                                                        1996          1995          1996          1995     
                                                   ------------  ------------  ------------  ------------
                                                    (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)
<S>                                                <C>           <C>           <C>           <C>
Shipments:
     Lumber: (1) 
          Redwood upper grades                             12.8          11.5          36.1          35.0 
          Redwood common grades                            57.1          48.3         175.2         164.2 
          Douglas-fir upper grades                          2.8           1.8           7.8           5.0 
          Douglas-fir common grades                        18.8          19.2          56.7          43.7 
          Other                                             5.5           2.6          15.8           9.6 
                                                   ------------  ------------  ------------  ------------
               Total lumber                                97.0          83.4         291.6         257.5 
                                                   ============  ============  ============  ============
     Logs (2)                                               4.5           4.8          16.1           6.9 
                                                   ============  ============  ============  ============
     Wood chips (3)                                        55.8          67.1         157.2         166.8 
                                                   ============  ============  ============  ============

Average sales price:
     Lumber: (4)
          Redwood upper grades                     $      1,368  $      1,514  $      1,382  $      1,510 
          Redwood common grades                             518           499           509           476 
          Douglas-fir upper grades                        1,108         1,261         1,138         1,308 
          Douglas-fir common grades                         489           416           435           395 
     Logs (4)                                               478           453           498           462 
     Wood chips (5)                                          74           114            76           102 
                                                                                              
Net sales:                                                                                    
     Lumber, net of discount                       $       60.5  $       52.3  $      175.9  $      158.0 
     Logs                                                   2.2           2.2           8.0           3.2 
     Wood chips                                             4.1           7.6          11.9          17.0 
     Cogeneration power                                     1.1            .9           2.4           1.7 
     Other                                                   .6            .3           1.4           1.0 
                                                   ------------  ------------  ------------  ------------
               Total net sales                     $       68.5  $       63.3  $      199.6  $      180.9 
                                                   ============  ============  ============  ============
Operating income                                   $       17.2  $       18.7  $       52.6  $       52.9 
                                                   ============  ============  ============  ============
Operating cash flow (6)                            $       24.2  $       25.2  $       73.6  $       72.7 
                                                   ============  ============  ============  ============
Income before income taxes                         $         .1  $        2.0  $        2.6  $        1.5 
                                                   ============  ============  ============  ============
Net income (loss)                                  $          -  $        1.1  $        4.0  $        1.0 
                                                   ============  ============  ============  ============

<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 for the third quarter of 1996
increased from the third quarter of 1995 due primarily to increased
shipments of both common and upper grade redwood lumber and upper grade
Douglas-fir lumber.  Lumber shipments to third parties for the nine months
ended September 30, 1996 increased from the nine months ended September 30,
1995 due primarily to increased shipments of both common and upper grade
Douglas-fir and redwood lumber.  Log shipments for the nine months ended
September 30, 1996 were 16.1 million feet, an increase of 9.2 million feet
from the nine months ended September 30, 1995.

          Net sales
          Net sales for the third quarter of 1996 increased from the third
quarter of 1995.  This increase was principally due to higher shipments of
both common and upper grade redwood lumber and upper grade Douglas-fir
lumber and higher average realized prices for common grade redwood and
Douglas-fir lumber, partially offset by lower average realized prices for
upper grade redwood lumber and wood chips.

          Net sales for the nine months ended September 30, 1996 increased
from the nine months ended September 30, 1995.  This increase was
principally due to higher shipments of common and upper grade Douglas-fir
and redwood  lumber and increased log shipments and to higher average
realized prices for redwood and Douglas-fir common lumber.  These increases
were partially offset by lower average realized prices for upper grade
redwood and Douglas-fir lumber and wood chips.  Shipments of fencing and
other value-added common lumber products from the Company's new
remanufacturing facility were a contributing factor in the improved redwood
common lumber realizations.  See also "--Trends".

          Operating income
          Operating income for the third quarter of 1996 decreased from the
third quarter of 1995 principally due to lower margin common grade lumber
accounting for a larger percentage of total lumber shipments.  Operating
income for the nine months period, excluding a one time gain in 1995 of
$1.5 million related to business interruption proceeds for the settlement
of claims related to an April 1992 earthquake, increased in 1996 due to the
increase in net sales discussed above.

          Income (loss) before income taxes
          Income before income taxes for the third quarter of 1996
decreased from the third quarter of 1995 principally due to the decrease in
operating income discussed above.  Income before income taxes for the nine
months ended September 30, 1996 increased from the same period in 1995,
primarily as a result of the increase in investment, interest and other
income.

          Credit (provision) in lieu of income taxes
          The credit in lieu of income taxes for the nine month period
ended September 30, 1996 includes a benefit of $2.6 million relating to the
refund of taxes previously paid in connection with a settlement of certain
federal income tax matters in June 1996.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

          The Company conducts its operations through its principal
operating subsidiaries, Pacific Lumber and Britt Lumber Co., Inc..  The
indentures governing the Pacific Lumber Senior Notes and the Timber Notes
and Pacific Lumber's 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 September
30, 1996, under the most restrictive of these covenants, approximately
$15.4 million of dividends could be paid by Pacific Lumber.

          As of September 30, 1996, $45.4 million of borrowings was
available under Pacific Lumber's Revolving Credit Agreement, of which $4.7
million was available for letters of credit and $30.0 million for
timberland acquisitions.  No borrowings were outstanding as of September
30, 1996, and letters of credit outstanding amounted to $10.3 million.

          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. 
During the nine months ended September 30, 1996, the Company paid dividends
of $3.9 million.  As of September 30, 1996, under the most restrictive of
these covenants, no additional dividends could be paid by the Company.

          As of September 30, 1996, the Company had consolidated long-term
debt of $726.2 million (net of current maturities and restricted cash
deposited in the Liquidity Account) as compared to $732.9 million at
December 31, 1995.  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,
cash equivalents, 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 cash flow
from operations and 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 their 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, and air and water quality.  Compliance with such laws
and regulations together with the cost of litigation incurred in connection
with certain THPs filed by Pacific Lumber have increased the cost of logging
operations.  While the Company does not expect that Pacific Lumber's 
compliance with such existing laws and regulations will have a material 
adverse effect on the Company's consolidated financial position, results of 
operations or liquidity, Pacific Lumber is subject to certain pending 
matters, including the resolution of issues relating to the Final Designation
of critical habitat for the marbled murrelet, which could have a material 
adverse effect on the Company's consolidated financial position, results of 
operations or liquidity.  Moreover, the laws and regulations relating to the
Company's business are modified from time to time and are subject to judicial
and administrative interpretation.  There can be no assurance that certain
pending or future governmental regulations, legislation or judicial or
administrative decisions would not materially and adversely affect Pacific
Lumber or its ability to harvest timber.  See also Notes 6 and 7 of the
Condensed Notes to Financial Statements set forth in Part I, Item 1 and
Part II, Item 1. "Legal Proceedings--Timber Harvesting Litigation" for
further information, including a description of the Headwaters Agreement.

          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 of its lumber mills from time to
time.

                       PART II.     OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

          Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Report on Form 10-Q for the quarterly periods
ended March 31, 1996 and June 30, 1996 (the "Forms 10-Q") for information
concerning material legal proceedings with respect to the Company.  The
following material developments have occurred with respect to such legal
proceedings.

          In connection with the Kayes/Miller action and the DOL civil
action, the previously announced settlement became final on August 28,
1996.

TIMBER HARVESTING LITIGATION

          In connection with the Marbled Murrelet action, on August 23,
1996, plaintiffs filed a renewed motion for preliminary injunction to
prevent harvesting of dead, dying or diseased trees ("exempt harvesting
operations") in Pacific Lumber's old growth timberlands.  In addition, on
September 12, 1996, plaintiffs requested an emergency TRO with respect to
such harvesting operations.  The court denied both of these motions.  On
October 9, 1996, Pacific Lumber was cited for accidentally downing a
hemlock tree and ordered to stop exempt harvesting operations in its old
growth timberlands for 24 hours.  Plaintiffs sought a TRO and preliminary
injunction based on this citation and related events.  After hearing
plaintiffs' motions, the court denied the plaintiffs' requests.  The CDF
has withdrawn the citation and asked that it be dismissed.

          In related matters, in August, 1996, the Sierra Club, EPIC and
others petitioned the BOF to adopt emergency regulations preventing Pacific
Lumber from undertaking exempt harvesting operations in its old growth
timberlands.  On September 9, 1996, the BOF rejected such proposals and
petitions.  In September and October, the BOF was formally asked to
reconsider its September 9, 1996 decision.  The BOF reconsidered this
matter and, ultimately, enacted no emergency regulation to prevent or
further restrict Pacific Lumber's exempt harvesting operations in its old
growth timberlands.

          On November 4, 1996, the U.S. Ninth Circuit Court of Appeals
heard oral argument concerning defendants' appeal of the preliminary
injunction issued on April 3, 1996 preventing harvesting on eight THPs to
the extent each relies on the Owl Plan; the court has not yet rendered a
decision in this matter.  In that regard, Pacific Lumber has obtained
regulatory reapproval of seven of the enjoined eight THPs without reliance
on the Owl Plan and has, to date, confirmed with the court that four of
those THPs are not subject to the preliminary injunction.

          In connection with the EPIC action, on September 24, 1996,
Pacific Lumber filed its petition for writ of certiorari requesting that
the U. S. Supreme Court consider its appeal of the permanent injunction
concerning harvesting operations in connection with a THP for approximately
237 acres of primarily virgin old growth timber (THP 90-237). 

          In connection with the Headwaters Agreement  (see Notes 6 and 7
of the Condensed Notes to Financial Statements set forth in Part I, Item
1), the two actions entitled The Pacific Lumber Company, et
al. v. The United States of America and Salmon Creek Corporation v.
California State Board of Forestry, et al. have been stayed by the court
at the request of the parties.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

     A.   EXHIBITS:

          10   Agreement dated September 28, 1996 between MAXXAM Inc., The
               Pacific Lumber Company (on behalf of itself, its
               subsidiaries and its affiliates) the United States of
               America and the State of California (incorporated herein by
               reference to Exhibit 10.1 to the Company's Form 8-K dated
               September 28, 1996)

          27   Financial Data Schedule

     B.   REPORTS ON FORM 8-K:

          On October 3, 1996, the Company filed a Current Report on
          Form 8-K, dated September 28, 1996, concerning the Headwaters
          Agreement.

                                 SIGNATURES


          Pursuant to the requirements 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, who has signed this report on
behalf of the Registrant and as the principal accounting officer of the
Registrant.


                                MAXXAM GROUP INC.




Date: November 12, 1996           By: /s/  GARY L. CLARK
                                     ----------------------------
                                          Gary L. Clark
                                         Vice President