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, 1997

                       Commission File Number 1-3924


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



           DELAWARE                          95-2078752
 (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
                        October 31, 1997:  8,277,847

<PAGE>

                                MAXXAM INC.

                                   INDEX



PART I. - FINANCIAL INFORMATION                                       PAGE

     Item 1.   Financial Statements

          Consolidated Balance Sheet at September 30, 1997 and
               December 31, 1996                                         3
          Consolidated Statement of Operations for the three and
               nine months ended September 30, 1997 and 1996             4
          Consolidated Statement of Cash Flows for the nine months
               ended September 30, 1997 and 1996                         5
          Condensed Notes to Consolidated Financial Statements           6

     Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations                      15

PART II. - OTHER INFORMATION

     Item 1.   Legal Proceedings                                        26
     Item 6.   Exhibits and Reports on Form 8-K                         28
     Signature                                                         S-1

<PAGE>

                        MAXXAM INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                 SEPTEMBER 30,  DECEMBER 31,
                                                      1997          1996
                                                 ------------- -------------
                                                  (UNAUDITED)
                    ASSETS
<S>                                              <C>           <C>
Current assets:
     Cash and cash equivalents                   $      197.6  $      336.6 
     Marketable securities                               59.2          50.3 
     Receivables:                                             
          Trade, net of allowance for doubtful
               accounts of $4.8 and $5.2,
               respectively                             265.2         200.7 
          Other                                          68.0          85.9 
     Inventories                                        625.7         634.8 
     Prepaid expenses and other current assets          163.8         169.1 
                                                 ------------- -------------
               Total current assets                   1,379.5       1,477.4 
Property, plant and equipment, net of
     accumulated depreciation of $830.7 and
     $769.5, respectively                             1,307.7       1,297.9 
Timber and timberlands, net of accumulated
     depletion of $166.7 and $154.6,
     respectively                                       298.8         301.8 
Investments in and advances to unconsolidated
     affiliates                                         169.4         179.5 
Deferred income taxes                                   445.7         419.7 
Long-term receivables and other assets                  447.2         439.4 
                                                 ------------- -------------
                                                 $    4,048.3  $    4,115.7 
                                                 ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
     Accounts payable                            $      171.1  $      201.5 
     Accrued interest                                    36.6          61.5 
     Accrued compensation and related benefits           93.2         158.7 
     Other accrued liabilities                          207.1         154.1 
     Payable to affiliates                               91.4          98.1 
     Long-term debt, current maturities                  23.9          69.6 
                                                 ------------- -------------
               Total current liabilities                623.3         743.5 
Long-term debt, less current maturities               1,880.6       1,881.9 
Accrued postretirement medical benefits                 724.3         731.9 
Other noncurrent liabilities                            610.5         589.4 
                                                 ------------- -------------
               Total liabilities                      3,838.7       3,946.7 
                                                 ------------- -------------
Commitments and contingencies
Minority interests                                      161.5         219.8 
Stockholders' equity (deficit):
     Preferred stock, $.50 par value;
          12,500,000 shares authorized; Class
          A $.05 Non-Cumulative Participating
          Convertible Preferred Stock; shares
          issued:  669,701                                 .3            .3 
     Common stock, $.50 par value; 28,000,000
          shares authorized; shares issued:
          10,063,359 and 10,063,885,
          respectively                                    5.0           5.0 
     Additional capital                                 219.9         155.9 
     Accumulated deficit                               (133.1)       (185.6)
     Pension liability adjustment                        (5.0)         (5.1)
     Treasury stock, at cost (shares held:
          preferred - 845; common: 1,785,512
          and 1,400,112, respectively)                  (39.0)        (21.3)
                                                 ------------- -------------
               Total stockholders' equity
                    (deficit)                            48.1         (50.8)
                                                 ------------- -------------
                                                 $    4,048.3  $    4,115.7 
                                                 ============= =============


<FN>

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

</TABLE>

<PAGE>

                        MAXXAM INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                           THREE MONTHS ENDED          NINE MONTHS ENDED
                                             SEPTEMBER 30,               SEPTEMBER 30,
                                      --------------------------- ---------------------------
                                           1997          1996          1997          1996
                                      ------------- ------------- ------------- -------------
                                                            (UNAUDITED)
<S>                                   <C>           <C>           <C>           <C>
Net sales:
     Aluminum operations              $      634.1  $      553.4  $    1,778.6  $    1,652.1 
     Forest products operations               72.8          68.5         216.5         199.6 
     Real estate and other
          operations                          19.1          19.3          51.6          69.4 
                                      ------------- ------------- ------------- -------------

                                             726.0         641.2       2,046.7       1,921.1 
                                      ------------- ------------- ------------- -------------

Costs and expenses:
     Cost of sales and operations
          (exclusive of
          depreciation and
          depletion):
          Aluminum operations                523.7         485.0       1,473.7       1,394.8 
          Forest products
               operations                     39.8          40.1         119.9         114.6 
          Real estate and other
               operations                     12.5          16.8          31.4          57.1 
     Selling, general and
          administrative expenses             47.3          58.7         139.0         152.9 
     Depreciation and depletion               28.8          31.0          87.4          92.9 
     Restructuring of aluminum
          operations                            --            --          19.7            -- 
                                      ------------- ------------- ------------- -------------
                                             652.1         631.6       1,871.1        1,812.3
                                      ------------- ------------- ------------- -------------
                                                                                             
Operating income                              73.9           9.6         175.6          108.8

Other income (expense):
     Investment, interest and other
          income                              14.3          19.6          30.5          35.1 
     Interest expense                        (52.3)        (44.8)       (158.3)       (135.5)
                                      ------------- ------------- ------------- -------------
Income (loss) before income taxes
     and minority interests                   35.9         (15.6)         47.8           8.4 
Credit (provision) for income taxes          (13.9)         23.0          13.6          27.1 
Minority interests                            (4.0)         (2.1)        (10.8)         (7.5)
                                      ------------- ------------- ------------- -------------
Net income                            $       18.0  $        5.3  $       50.6  $       28.0 
                                      ============= ============= ============= =============

Net income per common and common
     equivalent share                 $       1.98  $        .56  $       5.46  $       2.96 
                                      ============= ============= ============= =============


<FN>

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

</TABLE>

<PAGE>

                        MAXXAM INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                          (IN MILLIONS OF DOLLARS)



<TABLE>
<CAPTION>

                                                           NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                      ---------------------------
                                                           1997          1996
                                                      ------------- -------------
                                                              (UNAUDITED)
<S>                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                       $       50.6  $       28.0 
     Adjustments to reconcile net income to net
          cash used for operating activities:
          Depreciation and depletion                          87.4          92.9 
          Restructuring of aluminum operations                19.7            -- 
          Non-cash benefit for income taxes                  (12.5)           -- 
          Net sales of marketable securities                   1.2           1.0 
          Net gains on marketable securities                 (10.1)         (5.7)
          Minority interests                                  10.8           7.5 
          Amortization of deferred financing costs
               and discounts on long-term debt                18.5          15.9 
          Amortization of excess investment over
               equity in net assets of
               unconsolidated affiliates                       8.7           9.1 
          Equity in (earnings) loss of
               unconsolidated affiliates, net of
               dividends received                             14.6          (7.5)
          Net gain on sale of real estate, mortgage
               loans and other assets                         (5.0)        (17.4)
          Increase (decrease) in cash resulting
               from changes in:
               Receivables                                   (50.9)         57.1 
               Payable to affiliates and other
                    liabilities                              (55.2)        (40.5)
               Inventories                                     5.9         (18.2)
               Accrued interest                              (23.9)        (31.2)
               Prepaid expenses and other assets              (7.7)        (27.4)
               Accounts payable                              (30.3)        (25.9)
               Accrued and deferred income taxes              11.4         (25.9)
          Other                                                7.0           1.7 
                                                      ------------- -------------
               Net cash provided by operating
                    activities                                40.2          13.5 
                                                      ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Net proceeds from disposition of property and
          investments                                         34.4          35.0 
     Capital expenditures                                   (120.1)       (108.0)
     Investment in subsidiaries and joint ventures            (7.1)         (2.0)
     Other                                                    (2.6)          (.4)
                                                      ------------- -------------
               Net cash used for investing
                    activities                               (95.4)        (75.4)
                                                      ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings under revolving credit
          agreements                                            --         117.3 
     Proceeds from issuance of long-term debt                 19.7           4.3 
     Redemptions, repurchases and principal
          payments on long-term debt                         (76.6)        (32.6)
     Dividends paid to Kaiser's minority preferred
          stockholders                                        (4.2)         (8.4)
     Redemption of preference stock                           (2.0)         (5.2)
     Restricted cash deposits                                 (6.5)          (.5)
     Treasury stock repurchases                              (17.7)           -- 
     Other                                                     3.5           3.3 
                                                      ------------- -------------
               Net cash provided by (used for)
                    financing activities                     (83.8)         78.2 
                                                      ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                            (139.0)         16.3 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD             336.6         104.2 
                                                      ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $      197.6  $      120.5 
                                                      ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid, net of capitalized interest       $      164.0  $      150.9 
     Income taxes paid                                        15.2          21.7 
     Capital spending excluded from investing
          activities                                          10.3            -- 


<FN>

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

</TABLE>

<PAGE>

                       MAXXAM INC. AND SUBSIDIARIES

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


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 Inc.
with the Securities and Exchange Commission for the fiscal year ended
December 31, 1996 (the "Form 10-K").  All references to the "Company"
include MAXXAM Inc. and its subsidiary companies unless otherwise indicated
or the context indicates otherwise.  Any capitalized items used but not
defined in these Condensed Notes to Consolidated Financial Statements have
the same meaning given to them in the Form 10-K.  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 as of and for the periods
ended September 30, 1997 and September 30, 1996 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, 1997,
the consolidated results of operations for the three and nine months ended
September 30, 1997 and 1996 and consolidated cash flows for the nine months
ended September 30, 1997 and 1996.  Certain reclassifications of prior
period information have been made to conform to the current presentation.

2.        INVENTORIES

          Inventories consist of the following:


<TABLE>
<CAPTION>

                                              SEPTEMBER 30,  DECEMBER 31,
                                                   1997          1996
                                              ------------- -------------
<S>                                           <C>           <C>
Aluminum Operations:
     Finished fabricated aluminum products    $        95.4 $       113.5
     Primary aluminum and work in process             220.7         200.3
     Bauxite and alumina                              110.5         110.2
     Operating supplies and repair and
          maintenance parts                           126.7         138.2
                                              ------------- -------------
                                                      553.3         562.2
                                              ------------- -------------
Forest Products Operations:
     Lumber                                            50.4          55.8
     Logs                                              22.0          16.8
                                              ------------- -------------
                                                       72.4          72.6
                                              ------------- -------------
                                              $       625.7 $       634.8
                                              ============= =============


</TABLE>

3.        RESTRICTED CASH

          Long-term receivables and other assets include restricted cash in
the amount of $35.4 and $30.0 at September 30, 1997 and December 31, 1996,
respectively.  Such restricted cash primarily represents the amount held by
the trustee under the indenture governing the Timber Notes.  In addition,
cash and cash equivalents include $7.3 and $17.6 at September 30, 1997 and
December 31, 1996, respectively, which is restricted for debt service
payments on the Timber Notes.


4.        LONG-TERM DEBT

          Long-term debt consists of the following:


<TABLE>
<CAPTION>

                                               SEPTEMBER 30,  DECEMBER 31,
                                                    1997          1996
                                               ------------- -------------
<S>                                            <C>           <C>
     14% MAXXAM Senior Subordinated Reset
          Notes due May 20, 2000               $         --  $       25.0 
     12-1/2% MAXXAM Subordinated Debentures
          due December 15, 1999,
          net of discount                                --          17.6 
     12% MGHI Senior Secured Notes due
          August 1, 2003                              130.0         130.0 
     11-1/4% MGI Senior Secured Notes due
          August 1, 2003                              100.0         100.0 
     12-1/4% MGI Senior Secured Discount
          Notes due August 1, 2003, net of
          discount                                    113.9         104.2 
     10-1/2% Pacific Lumber Senior Notes due
          March 1, 2003                               235.0         235.0 
     Pacific Lumber Credit Agreement                    7.0            -- 
     7.95% Scotia Pacific Timber
          Collateralized Notes due July 20,
          2015                                        320.0         336.1 
     KACC Credit Agreement                               --            -- 
     10-7/8% KACC Senior Notes due October
          15, 2006, including premium                 225.8         225.9 
     9-7/8% KACC Senior Notes due February
          15, 2002, net of discount                   224.2         224.0 
     12-3/4% KACC Senior Subordinated Notes
          due February 1, 2003                        400.0         400.0 
     Alpart CARIFA Loans                               60.0          60.0 
     Other aluminum operations debt                    62.0          52.0 
     Other notes and contracts, primarily
          secured by receivables, buildings,
          real estate and equipment                    26.6          41.7 
                                               ------------- -------------
                                                    1,904.5       1,951.5 
                    Less: current maturities          (23.9)        (69.6)
                                               ------------- -------------
                                               $    1,880.6  $    1,881.9 
                                               ============= =============


</TABLE>

          On October 9, 1997, the Pacific Lumber Credit Agreement was
amended to, among other things, extend the date on which it expires to May
31, 2000.

5.        PER SHARE INFORMATION

          Per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted
average common equivalent shares assumed to be issued from the exercise of
common stock options based upon the average price of the Company's common
stock during the period.

          New Accounting Pronouncement
          In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.  128, "Earnings Per Share"
("SFAS No.  128").  Under SFAS No.  128, primary earnings per share
("Primary EPS") will be replaced by basic earnings per share ("Basic EPS"),
and fully diluted earnings per share ("Fully Diluted EPS") will be replaced
by diluted earnings per share ("Diluted EPS").  Basic EPS differs from
Primary EPS in that it only includes the weighted average impact of
outstanding shares of the Company's common stock (i.e., it excludes common
stock equivalents, the dilutive effect of options, etc.).  Diluted EPS is
substantially similar to Fully Diluted EPS.  The provisions of SFAS No. 128
will result in the retroactive restatement of previously reported Primary
EPS and Fully Diluted EPS figures.  SFAS No. 128 is effective for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted.  The following table shows Basic and Diluted
EPS on a pro forma basis.  Pro forma Diluted EPS is the same as the amounts
reported previously for Primary and Fully Diluted EPS.


<TABLE>
<CAPTION>


                                              THREE MONTHS ENDED          NINE MONTHS ENDED
                                                SEPTEMBER 30,               SEPTEMBER 30,
                                         --------------------------- ---------------------------
                                              1997          1996          1997          1996
                                         ------------- ------------- ------------- -------------
<S>                                      <C>           <C>           <C>           <C>
Basic EPS                                $        2.17 $         .61 $        5.96 $        3.21
Diluted EPS                                       1.98           .56          5.46          2.96


</TABLE>

6.        CREDIT FOR INCOME TAXES

          The Company's credit for income taxes differs from the federal
statutory rate due principally to (i) the revision of prior years' tax
estimates and other changes in valuation allowances, (ii) percentage
depletion, and (iii) foreign, state and local taxes, net of related federal
tax benefits.  Revision of prior years' tax estimates includes amounts for
the reversal of reserves which the Company no longer believes are
necessary.  Generally, the reversal of reserves relates to the expiration
of the relevant statute of limitations with respect to certain income tax
returns, or the resolution of specific income tax matters with the relevant
tax authorities.  The credit for income taxes for the nine months ended
September 30, 1997 includes a benefit of $32.1 relating to the reversal of
reserves the Company no longer believes are necessary.  There was no such
tax benefit for reversal of reserves for the three months ended September
30, 1997.  The credit for income taxes for the three and nine months ended
September 30, 1996 includes a benefit of $17.0 and $30.4, respectively,
relating to the reversal of reserves the Company no longer believes are
necessary.

7.        CONTINGENCIES

          Environmental Contingencies
          Kaiser and KACC are subject to a number of environmental laws and
regulations, to fines or penalties assessed for alleged breaches of such
environmental laws and regulations, and to claims and litigation based upon
such laws.  KACC currently is subject to a number of lawsuits under CERCLA
and, along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on
the National Priorities List under CERCLA.

          Based on Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals, primarily related
to potential solid waste disposal and soil and groundwater remediation
matters.  At September 30, 1997, the balance of such accruals, which are
primarily included in other noncurrent liabilities, was $30.8.  These
environmental accruals represent Kaiser's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology and Kaiser's assessment of
the likely remediation actions to be taken.  Kaiser expects that these
remediation actions will be taken over the next several years and estimates
that annual expenditures to be charged to these environmental accruals will
be approximately $3.0 to $8.0 for the years 1997 through 2001 and an
aggregate of approximately $7.0 thereafter.

          As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of remediation
are established or alternative technologies are developed, changes in these
and other factors may result in actual costs exceeding the current
environmental accruals.  Kaiser believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to an estimated
$19.0.  As resolution of these matters is subject to further regulatory
review and approval, no specific assurance can be given as to when the
factors upon which a substantial portion of this estimate is based can be
expected to be resolved.  However, Kaiser is currently working to resolve
certain of these matters.  While uncertainties are inherent in the
final outcome of these environmental matters, and it is impossible to
determine the actual costs that ultimately may be incurred, management
believes that the resolution of such uncertainties should not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

          Asbestos Contingencies
          KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
KACC or exposure to products containing asbestos produced or sold by KACC. 
The lawsuits generally relate to products KACC has not manufactured for at
least 20 years.  At September 30, 1997, the number of such claims pending
was approximately 71,200 as compared with 71,100 at December 31, 1996.  In
1996, approximately 21,100 of such claims were received and 9,700 were
settled or dismissed.  During the quarter and nine months ended September
30, 1997, approximately 3,400 and 9,000 of such claims were received and
6,500 and 8,900 of such claims were settled or dismissed, respectively.

          Based on past experience and reasonably anticipated future
activity, Kaiser has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed through 2008.  There are
inherent uncertainties involved in estimating asbestos-related costs, and
Kaiser's actual costs could exceed or be less than these estimates. 
Kaiser's accrual was calculated based on the current and anticipated number
of asbestos-related  claims, the prior timing and amounts of asbestos-
related payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash,
P.A. with respect to the current state of the law related to asbestos
claims.  Accordingly, an estimated asbestos-related cost accrual of $156.8,
before consideration of insurance recoveries, is included primarily in
other noncurrent liabilities at September 30, 1997.  While Kaiser does not
believe there is a reasonable basis for estimating such costs beyond 2008
and, accordingly, no accrual has been recorded for such costs which may be
incurred beyond 2008, there is a reasonable possibility that such costs may
continue beyond 2008, and such costs may be substantial.  Kaiser estimates
that annual future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 for each of the years 1997 through 2001, and
an aggregate of approximately $86.0 thereafter.

          Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs.  Claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from the insurance carriers. 
The timing and amount of ultimate recoveries from these insurance carriers
are dependent upon the resolution of these disputes.  Kaiser believes,
based on prior insurance-related recoveries in respect of asbestos-related
claims, existing insurance policies, and the advice of Thelen, Marrin,
Johnson & Bridges LLP with respect to applicable insurance coverage law
relating to the terms and conditions of these policies, that substantial
recoveries from the insurance carriers are probable.  Accordingly, an
estimated aggregate insurance recovery of $127.9, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in long-
term receivables and other assets at September 30, 1997.

          Kaiser continues to monitor claims activity, the status of
lawsuits (including settlement initiatives), legislative progress and costs
incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from Kaiser's underlying assumptions.  While uncertainties
are inherent in the final outcome of these asbestos matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred and insurance recoveries that will be received, Kaiser believes
that, based on the factors discussed in the preceding paragraphs, the
resolution of asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

          OTS Contingency and Related Matters
          On December 26, 1995, the OTS initiated formal administrative
proceedings against the Company and others by filing the Notice.  The
Notice alleges misconduct by the Company, Federated, Mr. Charles Hurwitz
and others (the "respondents") with respect to the failure of USAT, a
wholly owned subsidiary of UFG.  The Notice  claims that the Company was a
savings and loan holding company, that with others it controlled USAT, and
that it was therefore obligated to maintain the net worth of USAT.  The
Notice makes numerous other allegations against the Company and the other
respondents, including, among other things, allegations that through USAT
it was involved in prohibited transactions with Drexel, Burnham, Lambert
Inc.  The OTS, among other things, seeks unspecified damages in excess of
$138.0 from the Company and Federated, civil money penalties and a removal
from, and prohibition against the Company and the other respondents
engaging in, the banking industry.  On September 15, 1997, the OTS filed a
prehearing statement which purported to summarize its claims against and
the relief it seeks from the respondents.  Among other things, the
prehearing statement alleges that the Company and Federated are liable for
restitution and reimbursement against loss for their pro rata portion
(allegedly 35%) of the amount of USAT's capital deficiency and all imbedded
losses as of the date of USAT's receivership ($1.6 billion) or
approximately $560 million.  The respondents also submitted prehearing
statements refuting the OTS's claims and denying liability.  The hearing on
the merits commenced on September 22, 1997 and is scheduled to conclude on
December 19, 1997 (although it is unclear whether the hearing will conclude
by the scheduled date).

          On August 2, 1995, the FDIC filed the FDIC action in the U.S.
District Court for the Southern District of Texas (the "Court").  The 
original complaint seeks damages from Mr. Hurwitz in excess of $250.0 based
on the allegation that Mr. Hurwitz was a controlling shareholder, de facto
senior officer and director of USAT, and was involved in certain decisions
which contributed to the insolvency of USAT.  The original complaint
further alleges, among other things, that Mr. Hurwitz was obligated to
ensure that UFG, Federated and MAXXAM maintained the net worth of USAT. 
The Court has joined the OTS as a party to the FDIC action and granted the
motions to intervene filed by the Company and three other respondents in
the OTS administrative proceeding.  The OTS is seeking to be dismissed from
the FDIC action.  On January 15, 1997, the FDIC filed an amended complaint
which seeks, conditioned on the OTS prevailing in its administrative
proceeding, unspecified damages from Mr. Hurwitz relating to amounts the
OTS does not collect from the Company and Federated with respect to alleged
obligations to maintain USAT's net worth.

          The Company's bylaws provide for indemnification of its officers
and directors to the fullest extent permitted by Delaware law.  The Company
is obligated to advance defense costs to its officers and directors,
subject to the individual's obligation to repay such amount if it is
ultimately determined that the individual was not entitled to
indemnification.  In addition, the Company's indemnity obligation can,
under certain circumstances, include amounts other than defense costs,
including judgments and settlements.  The Company has concluded that it is
unable to determine a reasonable estimate of the loss (or range of loss),
if any, that could result from these contingencies.  Accordingly, it is
impossible to assess the ultimate outcome of the foregoing matters or their
potential impact on the Company's consolidated financial position, results
of operations or liquidity.

          Other 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 consolidated financial position, results of operations or
liquidity.

8.        DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

          At September 30, 1997, the net unrealized loss, including
unamortized net option premiums, on KACC's position in aluminum forward
sales and option contracts, (based on an average price of $1,647 per ton,
or $.75 per pound, of primary aluminum), natural gas and fuel oil forward
purchase and option contracts, and forward foreign exchange contracts, was
approximately $11.6.

          Alumina and Aluminum
          Kaiser's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold. 
Primary aluminum prices have historically been subject to significant
cyclical fluctuations.  During the period from January 1, 1993, through
September 30, 1997, the average Midwest United States transaction price for
primary aluminum has ranged from approximately $.50 to $1.00 per pound. 
Alumina prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.  

          From time to time in the ordinary course of business, KACC enters
into hedging transactions to provide price risk management in respect of
the net exposure of earnings resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap, rolling ingot
and bauxite, whose prices fluctuate with the price of primary aluminum. 
Forward sales contracts are used by KACC to effectively lock-in or fix the
price that KACC will receive for its shipments.  KACC also uses option
contracts (i) to establish a minimum price for its product shipments, (ii)
to establish a "collar" or range of prices for KACC's anticipated sales,
and/or (iii) to permit KACC to realize possible upside price movements.  As
of September 30, 1997, KACC had sold forward, at fixed prices,
approximately 17,300 93,600 and 24,000 tons of primary aluminum with
respect to 1997, 1998 and 1999, respectively.  As of September 30, 1997,
KACC had also purchased put options to establish a minimum price for
approximately 42,100 and 52,000 tons with respect to 1997 and 1998,
respectively, and had entered into option contracts that established a
price range for an additional 51,000, 231,600 and 124,500 tons for 1997,
1998 and 1999, respectively.

          As of September 30, 1997, KACC had sold forward virtually all of
the alumina available to it in excess of its projected internal smelting
requirements for 1997, 1998 and 1999 at prices indexed to future prices of
primary aluminum.

          Energy
          KACC is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process.  Accordingly,
KACC from time to time in the ordinary course of business enters into
hedging transactions with major suppliers of energy and energy related
financial instruments.  As of September 30, 1997, KACC had a combination of
fixed price purchase and option contracts for the purchase of approximately
44,000 MMBtu of natural gas per day during 1997, and for 41,000 MMBtu of
natural gas per day for 1998.  As of September 30, 1997, KACC also held a
combination of fixed price purchase and option contracts for an average of
228,000, 232,000 and 25,000 barrels of fuel oil per month for 1997, 1998
and 1999, respectively.

          Foreign Currency
          KACC enters into forward exchange contracts to hedge material
cash commitments to foreign subsidiaries or affiliates.  At September 30,
1997, KACC had net forward foreign exchange contracts totaling
approximately $135.0 for the purchase of 175.5 Australian dollars from
October 1997 through December 1998, in respect of its commitments for 1997
and 1988 expenditures denominated in Australian dollars.  At September 30,
1997, Kaiser also held options to purchase approximately 10.0 Australian
dollars over the last three months of 1997.

9.        RESTRUCTURING OF OPERATIONS

          Kaiser has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements with the full
effect planned to be realized in 1998 and beyond, measured against 1996
results.  The initiative is based on Kaiser's conclusion that the level of
performance of its existing facilities and businesses would not achieve the
level of profits Kaiser considers satisfactory based upon historic long-
term average prices for primary aluminum and alumina.  During the second
quarter of 1997, Kaiser recorded a $19.7 restructuring charge to reflect
actions taken and plans initiated to achieve the reduced production costs,
decreased corporate selling, general and administrative expenses, and
enhanced product mix intended to achieve this goal.  The significant
components of the restructuring charge are enumerated below.

          Erie Plant Disposition
          During the second quarter of 1997, Kaiser formed a joint venture
with a third party related to the assets and liabilities associated with
the wheel manufacturing operations at its Erie, Pennsylvania, fabrication
plant.  Kaiser's management subsequently decided to close the remainder of
the Erie plant in order to consolidate its aluminum forging operations at
two other facilities for increased efficiency.  As a result of the joint
venture formation and plant closure, Kaiser recognized a net pre-tax loss
of approximately $1.4.

          Other Asset Dispositions
          As a part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management made decisions regarding product
rationalization and geographical optimization, which led management to
decide to dispose of certain assets which had nominal operating
contribution.  These strategic decisions resulted in Kaiser recognizing a
pre-tax charge for approximately $15.6 associated with such asset
dispositions.

          Employee and Other Costs
          As a part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management concluded that certain corporate and other
staff functions could be consolidated or eliminated resulting in a second
quarter pre-tax charge of approximately $2.7 for benefit and other costs.

10.  COMPLETED ACQUISITION

          During June 1997, Kaiser Bellwood Corporation, a newly formed,
wholly owned subsidiary of KACC, completed the acquisition of Reynolds
Metals Company's Bellwood, Virginia, extrusion plant and its existing
inventories for a total purchase price (after post-closing adjustments) of
$41.6, consisting of cash payments of $38.4 and the assumption of
approximately $3.2 of employee related and other liabilities.  Upon
completion of the transaction, Kaiser Bellwood Corporation became a
subsidiary guarantor under the indentures in respect of KACC's 9-7/8%
Senior Notes due 2002, 10-7/8% Series B and Series D Senior Notes due 2006,
and 12-3/4% Senior Subordinated Notes due 2003.

11.  CONVERSION OF PRIDES TO KAISER COMMON STOCK

          During August 1997, the 8,673,850 outstanding shares of PRIDES
were converted into 7,227,848 shares of Kaiser common stock pursuant to the
terms of the PRIDES Certificate of Designations.  Further, in accordance
with the PRIDES Certificate of Designations no dividends were paid or
payable for the period June 30, 1997, to, but not including, the date of
conversion. 

          From 1993 until August 1997, cumulative losses with respect to
the results of operations attributable to Kaiser's common stockholders
exceeded cumulative earnings.  However, as a result of the equity
attributable to the PRIDES being converted into equity attributable to
common stockholders, the Company recorded a $64.8 adjustment to
stockholders' equity and a reduction in minority interest of the same
amount.

12.  SUBSEQUENT EVENTS

          Repurchase of Treasury Stock
          On October 17, 1997 the Company agreed, subject to court action,
to repurchase 1,277,250 shares of its Common Stock, consisting of 250,000
shares owned by NL Industries, Inc. ("NL") and 1,027,250 shares owned by
The Combined Master Retirement Trust ("CMRT"), an affiliate of NL.  The
aggregate purchase price for these shares is $70.2 or $55 per share, of
which $35.1 would be paid in cash and the remaining $35.1 in one-year notes
bearing interest at 10% per annum.  These notes are secured by the Common
Stock being repurchased.  The cash, notes and Common Stock being
repurchased have been placed in escrow pending entry by the Delaware Court
of Chancery of an order which has been requested (a) determining that no
part of the consideration being paid by the Company for the repurchased
shares constitutes consideration for settlement of certain litigation
pending before such Court, and (b) dismissing CMRT and NL from such
litigation.  A proposed settlement of this litigation was recently filed
with the Court.  See "Rancho Mirage Litigation" below.  This transaction
will be completed and reflected in the Company's financial statements should
the Delaware Court of Chancery grant the requested order.

          Rancho Mirage Litigation
          On April 4, 1997, the Delaware Chancery Court issued its opinion
concerning certain shareholder derivative actions brought in connection
with an exchange between Federated and MCOP of certain real estate assets
in Rancho Mirage, California.  The court found, among other things, that
Federated and the director defendants, respectively, caused and allowed the
Company and MCOP to agree to terms in the Mirada transaction which were
unfair to the Company and MCOP.  However, the court deferred a decision on
damages, stating that it would reconsider rescission as a possible remedy
and might await any appeal of its decision.

          The parties subsequently agreed, subject to shareholder notice
and court approval, to settle and dismiss this litigation and other related
litigation.  The proposed settlement provides for, among other things: (a)
payment by or for defendants of $7.5 million to MCOP, (b) transfer by
Federated to MCOP of a 23.7 acre commercial development property near the
Mirada project (together with a pending offer to buy such property for $8.5
million), (c) transfer by Federated to MCOP of approximately $3.9 million
(liquidation value) of MCOP preferred stock, but excluding the right of
Federated to purchase approximately 71,175 shares of the Company's Common
Stock at a price of approximately $55 per share, (d) payment by Federated
to MCOP of approximately $1 million in cash or cancellation of the same
dollar value of options to purchase the Company's Common Stock held by
Federated or Mr. Hurwitz, and (e) payment by MCOP to plaintiffs' counsel of
their attorneys fees and expenses (not to exceed $5.0 and $0.5 in
expenses).  A hearing regarding the proposed settlement has been scheduled
for December 8, 1997.  The transactions provided for in this settlement will
be completed and reflected in the Company's financial statements should the
court give its approval.

                                MAXXAM INC.

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 several places in this Form
10-Q.  Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will,"
"should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of
strategy.  Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in
the forward-looking statements as a result of various factors.  These
factors include the effectiveness of management's strategies and decisions,
general economic and business conditions, developments in technology, new
or modified statutory or regulatory requirements and changing prices and
market conditions.  This section and the Company's Form 10-K identify other
factors that could cause such differences.  No assurance can be given that
these are all of the factors that could cause actual results to vary
materially from the forward-looking statements.

RESULTS OF OPERATIONS

          The Company operates in three principal industries: aluminum,
through its majority owned subsidiary, Kaiser, a fully integrated aluminum
producer; forest products, through MGI and its wholly owned subsidiaries,
principally Pacific Lumber and Britt; real estate investment and
development, managed through MAXXAM Property Company; and other commercial
operations through various other wholly owned subsidiaries.  MGHI owns 100%
of MGI and is a wholly owned subsidiary of the Company.  All references to
the "Company," "Kaiser," "MGHI," "MGI" and "Pacific Lumber" refer to the
respective companies and their subsidiaries, unless otherwise stated or the
context indicates otherwise.

     ALUMINUM OPERATIONS

          Aluminum operations account for a substantial portion of the
Company's revenues and operating results.  Kaiser, through its principal
subsidiary KACC, operates in two business segments: bauxite and alumina,
and aluminum processing.  As an integrated aluminum producer, Kaiser uses a
portion of its bauxite, alumina and primary aluminum production for
additional processing at certain of its facilities.

          Recent Events and Developments
          Kaiser has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements with the full
effect planned to be realized in 1998 and beyond, measured against
1996 results.  The initiative is based on Kaiser's conclusion that the
level of performance of its existing facilities and businesses would not
achieve the level of profits Kaiser considers satisfactory based upon
historic long-term average prices for primary aluminum and alumina.  During
the second quarter of 1997, Kaiser recorded a $19.7 million restructuring
charge to reflect actions taken and plans initiated to achieve the reduced
production costs, decreased corporate selling, general and administrative
expenses, and enhanced product mix intended to achieve this goal.  See Note
9 of the Notes to Condensed Consolidated Financial Statements.

          During June 1997, Kaiser Bellwood Corporation, a newly formed,
wholly owned subsidiary of Kaiser, completed the acquisition of Reynolds
Metals Company's Bellwood, Virginia, extrusion plant and its existing
inventories for a total purchase price of $41.6.  See Note 10 of Notes to
Condensed Consolidated Financial Statements.

          Kaiser currently anticipates that the Volta River Authority may
partially reduce its electric power allocation to Kaiser's 90% owned Valco
smelter facility in Ghana in 1998.  Informal discussions with local
officials suggest that regional rainfall has been insufficient to raise the
level of the lake, from which the facility receives its hydroelectric power to
maintain the current level of power for the coming year.  Formal notice of
Valco's 1998 power allocation is expected on or about November 15, 1997. 
Meetings are planned with local officials for early November to discuss the
situation.

          Summary
          The following table presents selected operational and financial
information for the three and nine months ended September 30, 1997 and
1996.  The information presented in the table is in millions of dollars
except shipments and prices, and intracompany shipments have been excluded.


<TABLE>
<CAPTION>

                                            THREE MONTHS ENDED          NINE MONTHS ENDED
                                              SEPTEMBER 30,               SEPTEMBER 30,
                                       --------------------------- ---------------------------
                                            1997          1996          1997          1996
                                       ------------- ------------- ------------- -------------
<S>                                    <C>           <C>           <C>           <C>
Shipments: (1)                                                                                
     Alumina                                   579.2         598.6       1,457.0      1,506.7 
     Aluminum products:
          Primary aluminum                      86.4          88.1         246.9        262.9 
          Fabricated aluminum
               products                        105.2          83.1         299.5        245.4 
                                       ------------- ------------- ------------- -------------
               Total aluminum
                    products                   191.6         171.2         546.4        508.3 
                                       ============= ============= ============= =============
Average realized sales price:
     Alumina (per ton)                 $         200 $         187 $         196 $         199
     Primary aluminum (per pound)                .76           .67           .75           .69
Net sales:
     Bauxite and alumina:
          Alumina                      $       115.9 $      111.7  $       285.6 $       300.2
          Other (2) (3)                         27.1         25.8           80.2          77.2
                                       ------------- ------------- ------------- -------------
               Total bauxite and
                    alumina                    143.0        137.5          365.8         377.4
                                       ------------- ------------- ------------- -------------
     Aluminum processing:
          Primary aluminum                     145.0        130.6          409.5         402.8
          Fabricated aluminum
               products                        341.7        282.4          990.6         861.4
          Other (3)                              4.4          2.9           12.7          10.5
                                       ------------- ------------- ------------- -------------
               Total aluminum
                    processing                 491.1        415.9        1,412.8       1,274.7
                                       ------------- ------------- ------------- -------------
                    Total net sales    $       634.1 $      553.4  $     1,778.6 $     1,652.1
                                       ============= ============= ============= =============

Operating income(4)                    $        56.1 $       12.0  $       125.6 $        91.9
                                       ============= ============= ============= =============
Income (loss) before income taxes
     and minority interests            $        30.7 $       (8.5) $        44.0 $        26.6
                                       ============= ============= ============= =============

Capital expenditures                   $        25.9 $       39.2  $        94.7 $        91.1
                                       ============= ============= ============= =============


<FN>

---------------
(1)  Shipments are expressed in thousands of metric tons.  A metric ton is
     equivalent to 2,204.6 pounds.
(2)  Includes net sales of bauxite.
(3)  Includes the portion of net sales attributable to minority interests
     in consolidated subsidiaries.
(4)  Includes a pre-tax charge of $19.7 related to restructuring of
     operations recorded in the quarter ended June 30, 1997.

</TABLE>

          Overview
          Kaiser's operating results are sensitive to changes in the prices
of alumina, primary aluminum and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products sold
and on KACC's hedging strategies.  Primary aluminum prices have
historically been subject to significant cyclical fluctuations.  Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.

          During the first nine months of 1997, the AMT Price for primary
aluminum remained relatively stable, generally in the $.75 - $.80 per pound
range.  The AMT Price for primary aluminum for the week ended October 31,
1997 was approximately $.77 per pound.  This compares favorably to 1996 when
the AMT Price remained fairly stable, generally in the $.70 - $.75 range
through June and then declined during the second half of the year, reaching a
low of approximately $.65 per pound for October 1996, before recovering late
in the year.

          Net Sales - Bauxite and Alumina
          Net sales of alumina increased by 4% for the quarter ended
September 30, 1997, from the comparable period in the prior year, as a
result of a 7% increase in average realized prices from the sale of
alumina, offset by a 3% decline in alumina shipments.  Shipment volumes
were down as compared to the quarter ended September 30, 1996, primarily as
a result of the timing of shipments.  For the nine month period ended
September 30, 1997, net segment sales declined by 3% from the comparable
period in the prior year.  This change was due primarily to a 2% decrease
in average realized prices between periods and a 3% reduction in alumina
shipments. 

          Net Sales - Aluminum Processing
          Net sales of primary aluminum for the quarter ended September 30,
1997, increased by 11% from the comparable  prior year period as a result
of an 13% increase in average realized prices offset by a 2% decrease in
shipments.  Net sales of fabricated aluminum products for the quarter ended
September 30, 1997, were up 21% as compared to the prior year period as a
result of a 27% increase in shipments offset by a 4% decrease in average
realized prices.  The increase in fabricated aluminum product shipments
over the third quarter of 1996 was the result of Kaiser's June 1997
acquisition of an extrusion facility in Bellwood, Virginia, as well as 
increased international sales of can sheet and increased shipments of heat-
treated products.

          For the nine month period ended September 30, 1997, net sales for
the aluminum processing segment increased by approximately 11% from the
comparable prior year period primarily as a result of a 15% increase in
fabricated aluminum product net sales.  The increase in fabricated product
net sales resulted from the same shipment and price factors discussed in
the preceding paragraph.  Net sales of primary aluminum for the nine month
period ended September 30, 1997, were basically flat as compared to the
prior year as reduced shipments for the period were offset by an increase
in the average realized prices.

          Operating Income
          Operating income improved substantially on a quarter to quarter
basis and, to a lesser extent, for the comparative nine month periods as
well.  In addition to the improvements in net sales discussed above,
operating income increased as a result of improved operating efficiencies
and reduced raw material, energy and supply costs and due to $2.7 million
and $7.5 million for the three and nine months ended September 30, 1997,
respectively, related to the settlement of certain issues related to energy
service contracts.  Operating income for the nine months ended September
30, 1997 included a $19.7 million charge resulting from the previously
discussed restructuring charge.  

     FOREST PRODUCTS OPERATIONS

          The Company's forest products operations are conducted by MGI
through its principal operating  subsidiaries.  MGI's business is seasonal
in that the forest products business generally experiences lower first
quarter sales due largely to the general decline in construction-related
activity during the winter months.  Accordingly, MGI'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, 1997 and
1996.  The information presented in the table is in millions of dollars
except shipments and prices.


<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED          NINE MONTHS ENDED
                                           SEPTEMBER 30,               SEPTEMBER 30,
                                    --------------------------- ---------------------------
                                         1997          1996          1997          1996
                                    ------------- ------------- ------------- -------------
<S>                                 <C>           <C>           <C>           <C>
Shipments:
     Lumber: (1)
          Redwood upper grades               12.7          12.8          39.0          36.1
          Redwood common grades              53.9          57.1         178.7         175.2
          Douglas-fir upper
               grades                         3.3           2.8           8.3           7.8
          Douglas-fir common
               grades                        22.5          18.8          59.0          56.7
          Other                               4.6           5.5          13.4          15.8
                                    ------------- ------------- ------------- -------------
               Total lumber                  97.0          97.0         298.4         291.6
                                    ============= ============= ============= =============
     Logs (2)                                 4.0           4.5          10.6          16.1
                                    ============= ============= ============= =============
     Wood chips (3)                          63.6          55.8         185.9         157.2
                                    ============= ============= ============= =============
Average sales price:
     Lumber: (4)
          Redwood upper grades      $       1,537 $       1,368 $       1,427 $       1,382
          Redwood common grades               546           518           533           509
          Douglas-fir upper
               grades                       1,243         1,108         1,205         1,138
          Douglas-fir common
               grades                         443           489           473           435
     Logs (4)                                 426           478           412           498
     Wood chips (5)                            73            74            75            76
Net sales:
     Lumber, net of discount        $        64.1 $        60.5 $       191.8 $       175.9
     Logs                                     1.7           2.2           4.4           8.0
     Wood chips                               4.7           4.1          13.9          11.9
     Cogeneration power                       1.2           1.1           3.4           2.4
     Other                                    1.1            .6           3.0           1.4
                                    ------------- ------------- ------------- -------------
               Total net sales      $        72.8 $        68.5 $       216.5 $       199.6
                                    ============= ============= ============= =============
Operating income                    $        23.2 $        17.6 $        66.5 $        53.5
                                    ============= ============= ============= =============
Operating cash flow (6)             $        29.4 $        24.3 $        85.9 $        73.7
                                    ============= ============= ============= =============
Income before income taxes          $         7.3 $          .7 $        17.1 $         4.0
                                    ============= ============= ============= =============
Capital expenditures                $         4.3 $         3.1 $        16.7 $         9.0
                                    ============= ============= ============= =============


<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>

          Net sales
          Net sales for the quarter ended September 30, 1997 increased from
the comparable prior year quarter due to higher average realized prices for
common and upper grade redwood lumber, partially offset by lower average
realized prices for common grade Douglas-fir lumber.  Overall, the volume
of lumber shipments in the 1997 third quarter was substantially unchanged
from the 1996 third quarter as an increase in shipments of common grade
Douglas-fir lumber offset a decrease in shipments of common grade redwood
lumber.  Net sales for the nine months ended September 30, 1997 increased
from the comparable prior year period due to higher average realized prices
and shipments for most categories of redwood and Douglas-fir lumber.

          Operating income
          Operating income for the three and nine months ended September
30, 1997 increased from the comparable prior year periods, principally due
to the increase in net sales discussed above.

          Income before income taxes and minority interests
          Income before income taxes for the three and nine months ended
September 30, 1997 increased from the comparable 1996 periods principally
due to higher operating income discussed above. 

     REAL ESTATE AND OTHER OPERATIONS


<TABLE>
<CAPTION>

                                            THREE MONTHS ENDED          NINE MONTHS ENDED
                                              SEPTEMBER 30,               SEPTEMBER 30,
                                       --------------------------- ---------------------------
                                            1997          1996          1997          1996
                                       ------------- ------------- ------------- -------------
                                                       (IN MILLIONS OF DOLLARS)
<S>                                    <C>           <C>           <C>           <C>
Net sales                              $       19.1  $       19.3  $       51.6  $       69.4 
Operating loss                                 (0.4)         (4.6)         (1.8)         (7.3)
Income before income taxes and
     minority interests                         4.3           9.0           6.1          10.2 


</TABLE>


          Net sales
          Net sales decreased for the three and nine months ended September
30, 1997 from the same periods in 1996 primarily due to lower revenues from
resort and commercial operations reflecting various asset dispositions
during 1996 and the first quarter of 1997.

          Operating loss
          The operating losses for the quarter and nine months ended
September 30, 1997 decreased from the same periods in 1996 primarily due to
higher earnings from the sales of real property.  Included in the operating
loss for the nine months ended September 30, 1997 is profit from two bulk
land sales at the Fountain Hills development in Arizona, one of which was
completed in the third quarter.

          Income before income taxes and minority interests
          The decrease in income before income taxes and minority interests
for the three and nine months ended September 30, 1997 from the same
periods in 1996 is primarily due to lower gains from RTC Portfolio sales. 
This decline was partially offset by the reduction in operating losses
discussed above.

     OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS


<TABLE>
<CAPTION>

                                            THREE MONTHS ENDED          NINE MONTHS ENDED
                                              SEPTEMBER 30,               SEPTEMBER 30,
                                       --------------------------- ---------------------------
                                            1997          1996          1997          1996
                                       ------------- ------------- ------------- -------------
                                                       (IN MILLIONS OF DOLLARS)
<S>                                    <C>           <C>           <C>           <C>
Operating loss                         $       (5.0) $      (15.4) $      (14.7) $      (29.3)
Loss before income taxes and
     minority interests                        (6.4)        (16.8)        (19.4)        (32.4)



</TABLE>

          Operating loss
          The operating losses represent corporate general and
administrative expenses that are not allocated to the Company's industry
segments.  The operating loss for the third quarter of 1997 and the nine
months ended September 30, 1997 decreased from the same periods in 1996
principally due to lower accruals for certain legal contingencies.

          Loss before income taxes and minority interests
          The loss before income taxes and minority interests includes
operating losses, investment, interest and other income (expense) and
interest expense, including amortization of deferred financing costs, that
are not attributable to the Company's industry segments.  The losses for
the three and nine months ended September 30, 1997 decreased from the
comparable periods in 1996, principally due to lower operating losses
described above and higher earnings from marketable securities.  These
improvements were partially offset by an increase in interest expense due
to MGHI's December 1996 borrowing of $130.0 million.

          Minority interests
          Minority interests represent the minority stockholders' interest
in the Company's aluminum operations and minority partners' interest in
SHRP, Ltd.

          Credit for income taxes
          The Company's credit for income taxes include non-recurring, non-
cash tax benefits of $32.1 million for the nine months ended September 30,
1997 and $17.0 million and $30.4 million for the three and nine months
ended September 30, 1996, respectively, relating to the settlement of
certain matters.  There were no such tax benefits for the three months
ended September 30, 1997.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

     PARENT COMPANY AND MGHI

          The various credit instruments of MGHI, KACC, MGI, Pacific Lumber
and Scotia Pacific contain various covenants which, among other things,
limit the ability of such entities to incur additional indebtedness and
liens, to engage in transactions with affiliates, to pay dividends and to
make investments.  As of September 30, 1997, $1.4 million of dividends
could be paid by MGHI and $2.5 million of dividends could be paid by MGI. 
Pursuant to the terms of the KACC Credit Agreement, Kaiser is prohibited
from paying any dividends with respect to its common stock.  The most
restrictive covenants governing debt of the Company's real estate and other
subsidiaries would not restrict payment to the Company of all nonrestricted
cash and unused borrowing availability for such subsidiaries (approximately
$15.6 million could be paid as of September 30, 1997).

          In January 1997, the Company used the proceeds from the
Intercompany Note to redeem its 12-1/2% Subordinated Debentures and 14%
Senior Subordinated Reset Notes together with accrued interest thereon, for
$43.3 million.

          Kaiser has an effective shelf registration statement covering the
offering of up to 10 million shares of Kaiser common stock owned by the
Company.

          The Company has stated that from time to time it may purchase its
Common Stock on national exchanges or in privately negotiated transactions. 
During the period from January 1, 1997 through October 31, 1997, the
Company purchased 385,400 shares of its Common Stock in the open market. 
On October 17, 1997 the Company agreed, subject to court action, to
repurchase 1,277,250 shares of its Common Stock, consisting of 250,000
shares owned by NL Industries, Inc. (NL) and 1,027,250 shares owned by The
Combined Master Retirement Trust ("CMRT"), an affiliate of NL.  The
aggregate purchase price for these shares is $70.2 million, or $55 per
share, of which $35.1 million would be paid in cash and the remaining $35.1
million in one-year notes bearing interest at 10% per annum.  These notes
are secured by the Common Stock being repurchased.  The cash, notes and
Common Stock being repurchased have been placed in escrow pending entry by
the Delaware Court of Chancery of an order which has been requested (a)
determining that no part of the consideration being paid by the Company for
the repurchased shares constitutes consideration for settlement of certain
litigation pending before such Court, and (b) dismissing CMRT and NL from
such litigation.  A proposed settlement of this litigation was recently
filed with the Court.  See below.  This transaction will be completed and
reflected in the Company's financial statements should the Delaware Court
of Chancery grant the requested order.

          As of September 30, 1997, the Company (excluding its
subsidiaries) had cash and marketable securities of approximately $102.7
million.  The Company believes that its existing resources, together with
the cash available from subsidiaries and other sources of financing, will
be sufficient to fund its working capital requirements for the next year. 
With respect to its long-term liquidity, the Company believes that its
existing cash and cash resources, together with the cash proceeds from the
sale of assets and distributions from its subsidiaries should be sufficient
to meet its working capital requirements.  However, there can be no
assurance that the Company's cash resources, together with the cash
proceeds from the sale of assets, distributions from its subsidiaries and
other sources of financing, will be sufficient for such purposes.  Any
substantially adverse outcome of the litigation described in Note 7 to the
Condensed Notes to Consolidated Financial Statements could have a material
adverse affect on the Company's consolidated financial position, results of
operations or liquidity.  See Note 7 to the Condensed Notes to Consolidated
Financial Statements for a discussion of the Company's material
contingencies.

     ALUMINUM OPERATIONS

          During August 1997, the 8,673,850 outstanding shares of PRIDES
were converted into 7,227,848 shares of Kaiser common stock pursuant to the
terms of the PRIDES Certificate of Designations.

          Kaiser has an effective "shelf" registration statement covering
the offering from time to time of up to $150.0 million of equity
securities.

          At September 30, 1997, Kaiser had long-term debt of $972.0
million, compared with $961.9 million at December 31, 1996.  The change in
long-term debt between periods is primarily the result of $19.0 million of
proceeds from the Spokane County, Washington, Solid Waste Disposal Revenue
Bonds which were loaned to KACC to finance certain qualifying capital
expenditures at its Mead smelter, offset by scheduled payments of the
current portion of long-term debt.

          At September 30, 1997, $273.8 million (of which $73.8 million
could have been used for letters of credit) was available to KACC under the
KACC Credit Agreement.  Loans under the KACC Credit Agreement bear interest
at a spread (which varies based on the results of a financial test) over
either a base rate or LIBOR, at Kaiser's option.  During the three and nine
months ended September 30,1997, the average per annum interest rates on
loans outstanding under the KACC Credit Agreement were approximately 9.0%
and 9.5%, respectively.  Upon completion of the acquisition of the Bellwood
facility, Kaiser Bellwood Corporation became a subsidiary guarantor under
the indentures to KACC's 9-7/8% Senior Notes due 2002, 10-7/8% Series B and
Series D Senior Notes due 2006 and 12-3/4% Senior Subordinated Notes due
2003.

          Kaiser's capital expenditures during the three and nine months
ended September 30, 1997, were $25.9 million and $94.7 million,
respectively and were used primarily to acquire the Bellwood extrusion
facility from Reynolds, improve production efficiency, reduce operating
costs, expand capacity at existing facilities, and construct new
facilities.  Kaiser's micromill facility, which was constructed in Nevada
during 1996 as a demonstration and production facility, achieved
operational start-up by year-end 1996.  The facility remained in a start-up
mode during the first nine months of 1997 as Kaiser continued its efforts
to implement the micromill technology on a full scale basis.  While the
micromill technology has not yet been fully implemented or commercialized,
and no assurances can be given that Kaiser will ultimately be successful in
this regards, Kaiser currently expects to commence limited product
shipments to customers in the fourth quarter of 1997.

          Total consolidated capital expenditures (of which approximately
7% is expected to be funded by Kaiser's minority partners in certain
foreign joint ventures) are expected to be between $70.0 million and $140.0
million per annum in each of 1997 through 1999.  Management continues to
evaluate numerous projects, all of which require substantial capital,
including Kaiser's micromill project, and other potential opportunities
both in the United States and overseas.

          Subsequent to September 30, 1997, a joint decision was made by a
KACC subsidiary and its joint venture partner to terminate and dissolve
the Sino-foreign aluminum joint venture in which the subsidiary had
invested approximately $9.0 million in 1995.  Under the terms of the joint
venture agreement and Chinese law, a distribution of the joint venture's
net assets is to be made to each of the parties in respect of their
individual ownership interests.  The amount that will ultimately be
received upon dissolution and the associated terms of any payments are the
subject of ongoing negotiations and is subject to certain governmental
approvals by officials of the People's Republic of China.

          Kaiser believes that its existing cash resources, together with
cash flow from operations and borrowings under the KACC Credit Agreement,
will be sufficient to satisfy its working capital and capital expenditure
requirements for the next year.  With respect to its long-term liquidity,
Kaiser believes that operating cash flow, together with its ability to
obtain both short- and long-term financing, should provide sufficient funds
to meet its long-term working capital and capital expenditure requirements.

     FOREST PRODUCTS OPERATIONS

          As of September 30, 1997, $38.3 million of borrowings was
available under the Pacific Lumber Credit Agreement, of which $5.3 million
was available for letters of credit and $23.0 million was restricted to
timberland acquisitions.  As of September 30, 1997, $7.0 million of
borrowings and $14.7 million in letters of credit were outstanding.  On
October 9, 1997, the Pacific Lumber Credit Agreement was amended to, among
other things, extend the date on which it expires to May 31, 2000.

          MGI and its subsidiaries anticipate that cash 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, MGI and its subsidiaries believe that their existing cash
and cash equivalents, together with their ability to generate sufficient
levels of cash 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, MGI and its subsidiaries (and in turn MGHI) are more
sensitive than less leveraged companies to factors affecting their
operations, including governmental regulation affecting their timber
harvesting practices (see "--Trends" below), increased competition from
other lumber producers or alternative building products and general
economic conditions.

     REAL ESTATE AND OTHER OPERATIONS

          As of September 30, 1997, the Company's real estate and other
subsidiaries had approximately $8.1 million available for use under the
MCOP Credit Agreement.  The Company believes that the existing cash and
credit facilities of its real estate and other subsidiaries are sufficient
to fund the working capital and capital expenditure requirements of such
subsidiaries for the next year.  With respect to the long-term liquidity of
such subsidiaries, the Company believes that their ability to generate cash
from the sale of their existing real estate, together with their ability to
obtain financing, should provide sufficient funds to meet their working
capital and capital expenditure requirements.

TRENDS

          This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.  See above for cautionary information with respect to
such forward-looking statements.

     FOREST PRODUCTS OPERATIONS

          Regulatory and Environmental Matters
          Pacific Lumber'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. 
Moreover, these laws and regulations are modified from time to time and are
subject to judicial and administrative interpretation.  Compliance with
such laws, regulations and judicial and administrative interpretations,
together with the cost of litigation incurred in connection with certain
timber harvesting operations of Pacific Lumber, increase its cost of
logging operations.  Pacific Lumber is subject to certain pending matters
described below which could have a material adverse effect on the
consolidated financial position, results of operations or liquidity of
Pacific Lumber, and in turn MGI and MGHI.  There can be no assurance that
certain pending or future governmental regulations, legislation, judicial
or administrative decisions or California ballot initiatives will not have
a material adverse affect on Pacific Lumber, and in turn MGI and MGHI.

          Regulatory actions and lawsuits are commenced from time to time
seeking to have certain species listed as threatened or endangered under
the ESA and/or the CESA and, in certain instances, to designate critical
habitat for such species.  In May 1996, the USFWS published the Final
Designation of critical habitat for the marbled murrelet, a coastal
seabird, which designated 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 Pacific Lumber's timberlands are
included in the Final Designation, the substantial portion of such acreage
being young growth timberlands.  In order to mitigate the impact of the
Final Designation, particularly with respect to timberlands occupied by the
marbled murrelet, Pacific Lumber attempted to develop 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 the Takings Litigation alleging that certain portions of
their timberlands had been "taken" and are seeking just compensation. 
Pursuant to the Headwaters Agreement entered into by Pacific Lumber, the
Company, the United States and California on September 28, 1996 as
described below, the Takings Litigation has been stayed at the request of
the parties.

          On April 25, 1997, the NMFS announced the listing of the coho
salmon as threatened under the ESA in northern California, including lands
owned by Pacific Lumber.  On October 1, 1997, the Environmental Protection
Information Center, Inc. ("EPIC"), the Sierra Club and others notified
Pacific Lumber, NMFS and other regulatory agencies of their intent to file
suit against these parties to enjoin an alleged take of the coho salmon
within six watersheds on Pacific Lumber's timberlands.  It is impossible
for Pacific Lumber to determine the potential adverse effect of the Final
Designation, the listing of the coho salmon and/or any related litigation
on its consolidated financial position, results of operations or liquidity
until such time as various regulatory and legal issues are resolved;
however, if Pacific Lumber is unable to harvest, or is severely limited in
harvesting, on the affected timberlands, such effect could be materially
adverse to Pacific Lumber, and in turn MGI and MGHI.  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.  See "Headwaters
Agreement" below for information regarding Pacific Lumber's recent
submission of a revised draft Multi-Species HCP pursuant to the Headwaters
Agreement.  

          In 1994, the BOF adopted certain regulations regarding compliance
with long-term sustained yield ("LTSY") objectives.  These regulations
require that timber companies project timber growth and harvest on their
timberlands over a 100-year planning period and establish a LTSY harvest
level that takes into account environmental and economic considerations. 
Timber companies must submit an SYP demonstrating that the average annual
harvest over any rolling ten-year period will not exceed the LTSY harvest
level and that their projected timber inventory is capable of sustaining
the LTSY harvest level in the last decade of the 100-year planning period. 
On December 17, 1996, Pacific Lumber submitted a proposed SYP to the CDF
which was revised and re-submitted in September 1997.  As revised, the
proposed SYP sets forth an LTSY harvest level substantially the same as
Pacific Lumber's average annual timber harvest over the last six years. 
The proposed SYP also indicates that Pacific Lumber's average annual timber
harvest during the first decade of the SYP would approximate the LTSY
harvest level.  During the second decade of the proposed SYP, Pacific
Lumber's average annual timber harvest would be approximately 10% less than
that proposed for the first decade.  The SYP, when approved, will be valid
for ten years.  Thereafter, revised SYPs are to be prepared every decade
that will address the LTSY harvest level based upon reassessment of changes
in the resource base and protection of public resources.

          The proposed SYP assumes that the transactions contemplated by
the Headwaters Agreement will be consummated and that the Multi-Species HCP
will permit Pacific Lumber to harvest its timberlands (including over the
next two decades a substantial portion of its old growth timberlands not
transferred pursuant to the Headwaters Agreement) to achieve maximum
sustained yield.  The SYP is subject to review and approval by the CDF, and
there can be no assurance that the SYP will be approved in its proposed
form.  Until the SYP is reviewed and approved, Pacific Lumber is unable to
predict the impact that these regulations will have on its future timber
harvesting practices. It is possible that the results of the review and
approval process could require Pacific Lumber to reduce its timber harvest
in future years from the harvest levels set forth in the proposed SYP. 
Pacific Lumber believes it would be able to mitigate the effect of any
required reduction in harvest level by acquisitions of additional
timberlands and making corresponding amendments to the SYP; however, there
can be no assurance that Pacific Lumber would be able to do so, and the
amount of such acquisitions would be limited by Pacific Lumber's available
financial resources.  Pacific Lumber is unable to predict the impact the
sustained yield regulations will have on its financial position, results of
operations or liquidity.  

          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 other timber harvesting
operations, and Pacific Lumber expects that such groups and individuals
will continue to file such objections.  In addition, lawsuits are pending
or threatened which seek to prevent Pacific Lumber from implementing
certain of its approved THPs or which challenge other operations by Pacific
Lumber.  These challenges have severely restricted Pacific Lumber's ability
to harvest old growth timber on its property.  To date, challenges with
respect to Pacific Lumber's THPs relating to young growth timber and to its
other operations 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 timber harvesting and other
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 Pacific Lumber from conducting a portion of its
operations, they have not had a material adverse effect on Pacific Lumber'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 impact on the consolidated financial position,
results of operations or liquidity of Pacific Lumber, and in turn MGI and
MGHI.

          Headwaters Agreement 
          On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California.  The
Headwaters Agreement 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 (collectively, "Headwaters Timberlands").  A
substantial portion of the Headwaters Timberlands consists of virgin old
growth timberlands.  The Headwaters Timberlands would be transferred in
exchange for (a) property and other consideration from the United States
and California having an aggregate fair market value of $300 million, and
(b) approximately 7,755 acres of adjacent timberlands (the "Elk River
Timberlands") to be acquired by the United States and California from a
third party.  The United States and California would also acquire and
retain an additional 1,900 acres of timberlands from such third party.

          Closing of the Headwaters Agreement is subject to various
conditions, including (a) acquisition by the government of the Elk River
Timberlands, (b) approval of an SYP (see "Regulatory and Environmental
Matters" discussed above) and a Multi-Species HCP (covering the Resulting
Pacific Lumber Timber Property and the timberlands to be acquired and
retained by the United States and California) 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.

          As part of the Headwaters Agreement, the Pacific Lumber Parties
agreed to not enter the Headwaters Forest or the Elk Head Springs Forest to
conduct logging operations, including salvage logging (the "Moratorium").
The Moratorium was to terminate if by July 28, 1997 the parties had not
achieved the closing conditions to their respective satisfaction.  On March
11, 1997, the Pacific Lumber Parties agreed to amend the Headwaters
Agreement to extend to February 17, 1998 the period of time during which
these closing conditions must be met.  No written amendment has been
executed, but the Pacific Lumber Parties have continued to observe the
Moratorium.  The extension is subject to the achievement of certain
milestones toward completion of the Headwaters Agreement, including
satisfaction of the Pacific Lumber Parties with the progress of the United
States and California in providing the required consideration.

          The U.S. House and Senate have each passed an appropriations bill
which contains authorization for the expenditure of $250 million of federal
funds toward consummation of the Headwaters Agreement (the "Interior
Appropriations Bill"); however, it is unclear whether President Clinton
will sign the bill.  The federal funding is to remain available until March
1, 1999 and is subject to several conditions, including: (a) contribution
by the State of California of its $130 million portion of funding for the
Headwaters Agreement, (b) approval by the State of California of an SYP
covering the Resulting Pacific Lumber Timber Property, (c) dismissal of the
Takings Litigation, (d) issuance by the United States of the Permit, (e)
completion of an appraisal of the lands and interests being acquired by the
United States (the "Appraisal"), (f) completion of an environmental impact
statement with respect to the Multi-Species HCP, and (g) adequate provision
having been made for access to the Headwaters Timberlands.  Except for
acquisition of lands necessary for roadway access to the Headwaters
Timberlands, the Interior Appropriations Bill requires specific
Congressional authorization of acquisitions that enlarge the Headwaters
Timberlands by over five acres.  The Interior Appropriations Bill also
provides that the acquisition of the Headwaters Timberlands may not be
completed prior to the earlier of (a) 180 days after enactment (extended by
one day for every day beyond 120 days that the Appraisal is not submitted
to Congress), or (b) enactment of any separate authorizing legislation
modifying the Interior Appropriations Bill.

          Pacific Lumber submitted a revised draft of the Multi-Species HCP
to the USFWS, NMFS and other agencies in September 1997.  The Pacific
Lumber Parties and regulatory agencies have had ongoing discussions
regarding the environmental restrictions to be contained in the Multi-
Species HCP, but significant differences remain between what is being
requested by the regulatory agencies and what the Pacific Lumber Parties
are willing to accept.  The Interior Appropriations Bill requires that the
regulatory agencies report to Congress regarding (a) the scientific and
legal standards and criteria under the ESA used to develop the Multi-
Species HCP and the Permit, and (b) should application for the Permit be
denied, the precise substantive rationale for such denial.  The Pacific
Lumber Parties believe that this Congressionally-supervised process may
assist the regulatory authorities and the Pacific Lumber Parties to reach
an acceptable Multi-Species HCP, but no assurances can be made in this
regard.

          Although California has not enacted legislation providing funds
for its portion of the acquisition contemplated by the Headwaters
Agreement, representatives of the State of California continue to indicate
that they are considering various methods of furnishing the required
consideration. 

          The parties to the Headwaters Agreement are working to satisfy
the closing conditions; however, there can be no assurance that the
Headwaters Agreement will be consummated.


                        PART II.  OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

          Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company.  The
following material developments have occurred with respect to such legal
proceedings since the date of the Form 10-K.  Any capitalized or italicized
terms used but not defined in this Item have the same meaning given to them
in the Form 10-K.

MAXXAM INC. LITIGATION

          With respect to the OTS action described under "USAT Matters" in
the Form 10-K, the hearing on the merits commenced on September 22, 1997
and is scheduled to continue through December 19, 1997 (although it is
uncertain whether the hearing will conclude by the scheduled date).  On
September 15, 1997, the OTS filed a prehearing statement which purported to
summarize its claims against and the relief it seeks from the respondents. 
Among other things, the prehearing statement alleges that the Company and
Federated are liable for restitution and reimbursement against loss for
their pro rata portion (allegedly 35%) of the amount of USAT's capital
deficiency and all imbedded losses as of the date of USAT's receivership
($1.6 billion) or approximately $560 million.  The respondents also
submitted prehearing statements refuting the OTS's claims and denying
liability.

          With respect to the FDIC action described under "USAT Matters" in
the Form 10-K, on September 30, 1997, Mr. Hurwitz filed a motion for
sanctions and for dismissal of this action.  On October 23, 1997, the court
dismissed the OTS as a party.

          As noted in the Form 10-K, it is impossible to predict the
ultimate outcome of the OTS action or the FDIC action or their potential
impact on the Company's consolidated financial position, results of
operations or liquidity.

          With respect to the (consolidated) In re MAXXAM Inc./Federated
Shareholders Litigation described under "Rancho Mirage Litigation" in the
Form 10-K, on April 4, 1997, the Court issued its opinion concerning the
merits of the case.  The Court found, among other things, that Federated
and the director defendants, respectively, caused and allowed the Company
and MCOP to agree to terms in the Mirada transaction which were unfair to
the Company and MCOP.  The Court mentioned various theories of damages
which had been presented at the trial (ranging from $3.6 million to $49.4
million, which would be payable to the Company).  However, the Court
deferred a decision on damages, stating that it would reconsider rescission
as a possible remedy and might await any appeal of its decision.  

          The parties subsequently agreed, subject to shareholder notice
and court approval, to settle and dismiss this litigation and the
(coordinated) NL Industries action.  The parties expect the proposed
settlement, if approved, to also dispose of the claims brought in the
Thistlethwaite action and the  NL Industries, Inc., et al. v. Federated
Development Company action pending in Dallas County, Texas.  The proposed
settlement provides for, among other things: (a) payment by or for
defendants of $7.5 million to MCOP, (b) transfer by Federated to MCOP of a
23.7 acre commercial development property near the Mirada project (together
with a pending offer to buy such property for $8.5 million), (c) transfer
by Federated to MCOP of approximately $3.9 million (liquidation value) of
MCOP preferred stock, but excluding the right of Federated to purchase
approximately 71,175 shares of the Company's Common Stock at a price of
approximately $55 per share, (d) payment by Federated to MCOP of
approximately $1 million in cash or cancellation of the same dollar value
of options to purchase the Company's Common Stock held by Federated or Mr.
Hurwitz, and (e) payment by MCOP to plaintiffs' counsel of their attorneys
fees and expenses (not to exceed $5 million and $525,000 in expenses).  A
hearing regarding the proposed settlement has been scheduled for December
8, 1997.

KAISER LITIGATION

          With respect to Catellus Development Corporation v. Kaiser
Aluminum & Chemical Corporation and James L. Ferry & Son Inc. action
described under "Environmental Litigation" in the Form 10-K, on July 28,
1997, KACC and Catellus Development Corporation ("Catellus") entered into a
settlement agreement and release settling all matters pending between the
parties in the United States Court of Appeals for the Ninth Circuit.  All
matters relating to the litigation have now been resolved.  KACC will
remain liable to the City of Richmond for fifty percent (50%) of future
costs of cleaning up certain parts of the property formerly owned by
Catellus in accordance with the final judgment issued by the United States
District Court.  KACC's share of these costs is expected to be less than
$500,000.

          With respect to CID No. 11356 described under "DOJ Proceedings"
in the Form 10-K, Kaiser was informed in April 1997 that the DOJ has
officially closed its investigation and will return the documents submitted
by KACC.

PACIFIC LUMBER LITIGATION

          On October 1, 1997, the Environmental Protection Information
Center, Inc. ("EPIC"), the Sierra Club and others notified Pacific Lumber,
NMFS and other regulatory agencies of their intent to file suit against
these parties to enjoin an alleged take of the coho salmon within six
watersheds on Pacific Lumber's timberlands.

          With respect to the Marbled Murrelet action described in the Form
10-K, on April 18, 1997, the U.S. Ninth Circuit Court of Appeals reversed
the trial court's decision which had preliminarily enjoined eight already-
approved THPs to the extent they rely on the Federal Owl Plan.  On June 18,
1997, the court granted the defendants' motions for summary judgment
disposing of the remaining issues in this case in favor of the defendants.

          With respect to the Takings Litigation described in the Form 10-
K, the parties have asked the court to extend the stay of each action until
November 14, 1997.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS:

     4.1  Loan and Pledge Agreement, dated October 21, 1997, between the
          Company and Custodial Trust Company

     4.2  Second Amendment, dated October 9, 1997, to the Pacific Lumber
          Credit Agreement (incorporated herein by reference to Exhibit 4.1
          to Pacific Lumber's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 1997, File No. 1-9204)

     4.3  Eleventh Amendment, dated October 20, 1997, to the Kaiser Credit
          Agreement (incorporated herein by reference to Exhibit 4.7 to
          Kaiser's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 1997, File No. 1-9447)

     10.1 Stock Purchase Agreement, dated October 17, 1997, by and among
          the Company, CMRT and NL

     10.2 Escrow Agreement, dated as of October 17, 1997, by and among the
          Company, CMRT and NL

     10.3 Non-Negotiable Secured Promissory Note, dated October 17, 1997,
          by the Company payable to CMRT

     10.4 Non-Negotiable Secured Promissory Note, dated October 17, 1997,
          by the Company payable to NL

     11   Computation of Net Income Per Common and Common Equivalent Share

     27   Financial Data Schedule

(B)  REPORTS ON FORM 8-K:

     None.

                                 SIGNATURE


          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 INC.




Date:  November 5, 1997         By:    /S/ PAUL N. SCHWARTZ
                                         Paul N. Schwartz
                                   Executive Vice President and
                                     Chief Financial Officer