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, 1998

                       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 November 13, 1998: 
7,000,597 

<PAGE>

                             TABLE OF CONTENTS


                                                                       PAGE
PART I. - FINANCIAL INFORMATION

     Item 1.   Financial Statements:
          Consolidated Balance Sheet at September 30, 1998 
               and December 31, 1997                                      3
          Consolidated Statement of Operations for the three 
               and nine months ended September 30, 1998 and 1997          4
          Consolidated Statement of Cash Flows for the nine months 
               ended September 30, 1998 and 1997                          5
          Condensed Notes to Consolidated Financial Statements            6

     Item 2.   Management's Discussion and Analysis of Financial 
               Condition and Results of Operations                       13

PART II. - OTHER INFORMATION

     Item 1.   Legal Proceedings                                         28
     Item 6.   Exhibits and Reports on Form 8-K                          30
     Signatures                                                         S-1
     Appendix A - Glossary of Defined Terms                             A-1


<PAGE>

                        MAXXAM INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                SEPTEMBER 30,  DECEMBER 31,
                                                     1998          1997
                                                ------------  ------------
                                                 (UNAUDITED)
<S>                                             <C>           <C>
                    ASSETS
Current assets:
     Cash and cash equivalents                  $      253.9  $      164.6 
     Marketable securities                              27.0          84.6 
     Receivables:                                            
          Trade, net of allowance for doubtful
               accounts of  $6.4 and $5.9,
               respectively                            214.0         255.9 
          Other                                        109.3         126.3 
     Inventories                                       573.6         629.6 
     Prepaid expenses and other current assets         162.8         175.1 
                                                ------------  ------------ 
               Total current assets                  1,340.6       1,436.1 
Property, plant and equipment, net of
     accumulated depreciation of $902.6 and
     $845.6, respectively                            1,319.6       1,320.9 
Timber and timberlands, net of accumulated
     depletion of $177.0 and $169.2,
     respectively                                      296.3         299.1 
Investments in and advances to unconsolidated
     affiliates                                        142.1         159.5 
Deferred income taxes                                  511.5         479.9 
Long-term receivables and other assets                 436.5         418.7 
                                                ------------  ------------ 
                                                $    4,046.6  $    4,114.2 
                                                ============  ============ 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                           $      181.6  $      187.3 
     Accrued interest                                   40.1          68.7 
     Accrued compensation and related benefits         136.0         159.3 
     Other accrued liabilities                         178.6         174.9 
     Payable to affiliates                              80.2          82.9 
     Short-term borrowings and current
          maturities of long-term debt                  16.7          69.0 
                                                ------------  ------------ 
               Total current liabilities               633.2         742.1 
Long-term debt, less current maturities              1,976.7       1,888.0 
Accrued postretirement medical benefits                714.4         730.1 
Other noncurrent liabilities                           574.7         586.3 
                                                ------------  ------------ 
               Total liabilities                     3,899.0       3,946.5 
                                                ------------  ------------ 
Commitments and contingencies
Minority interests                                     180.7         170.6 
Stockholders' deficit:
     Preferred stock, $.50 par value;
          12,500,000 shares authorized; Class
          A $.05 Non-Cumulative Participating
          Convertible Preferred Stock; 669,701
          shares issued                                   .3            .3 
     Common stock, $.50 par value; 28,000,000
          shares authorized; 10,063,359
          shares issued                                  5.0           5.0 
     Additional capital                                222.8         222.8 
     Accumulated deficit                              (148.7)       (118.5)
     Pension liability adjustment                       (3.3)         (3.3)
     Treasury stock, at cost (shares held:
          preferred - 845; common - 3,062,762)        (109.2)       (109.2)
                                                ------------  ------------ 
               Total stockholders' deficit             (33.1)         (2.9)
                                                ------------  ------------ 
                                                $    4,046.6  $    4,114.2 
                                                ============  ============ 

<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,
                                      --------------------------  --------------------------
                                           1998          1997          1998          1997
                                      ------------  ------------  ------------  ------------
                                                            (UNAUDITED)
                                                                     
<S>                                   <C>           <C>           <C>           <C>
Net sales:
     Aluminum operations              $      541.6  $      634.1  $    1,753.4  $    1,778.6 
     Forest products operations               65.9          72.8         181.3         216.5 
     Real estate and other operations         21.3          19.1          57.7          51.6 
                                      ------------  ------------  ------------  ------------ 
                                             628.8         726.0       1,992.4       2,046.7 
                                      ------------  ------------  ------------  ------------ 

Costs and expenses:
     Cost of sales and operations:
          Aluminum operations                460.6         523.7       1,466.3       1,473.7 
          Forest products operations          43.7          39.8         116.3         119.9 
          Real estate and other
               operations                     13.9          12.5          35.3          31.4 
     Selling, general and
          administrative expenses             42.6          47.3         128.6         139.0 
     Depreciation and depletion               27.6          28.8          83.2          87.4 
     Restructuring of aluminum
          operations                             -             -             -          19.7 
                                      ------------  ------------  ------------  ------------ 
                                             588.4         652.1       1,829.7       1,871.1 
                                      ------------  ------------  ------------  ------------ 

Operating income                              40.4          73.9         162.7         175.6 

Other income (expense):
     Investment, interest and other
          income                               2.8          14.3          24.6          30.5 
     Interest expense                        (52.3)        (52.3)       (158.7)       (158.3)
                                      ------------  ------------  ------------  ------------ 
Income (loss) before income taxes and
     minority interests                       (9.1)         35.9          28.6          47.8 
Credit (provision) for income taxes           11.5         (13.9)         (1.9)         13.6 
Minority interests                            (4.4)         (4.0)        (14.4)        (10.8)
                                      ------------  ------------  ------------  ------------ 
Income (loss) before extraordinary
     item                                     (2.0)         18.0          12.3          50.6 
Extraordinary item:                                                            
     Loss on early extinguishment of
          debt, net of income
          tax benefit of $22.9               (42.5)            -         (42.5)            - 
                                      ------------  ------------  ------------  ------------ 
Net income (loss)                     $      (44.5) $       18.0  $      (30.2) $       50.6 
                                      ============  ============  ============  ============ 

Basic earnings per common share:
     Income (loss) before
          extraordinary item          $      (0.28) $       2.17  $       1.76  $       5.96 
     Extraordinary item                      (6.07)            -         (6.07)            - 
                                      ------------  ------------  ------------  ------------ 
     Net income (loss)                $      (6.35) $       2.17  $      (4.31) $       5.96 
                                      ============  ============  ============  ============ 

Diluted earnings per common and
     common equivalent share:
     Income (loss) before
          extraordinary item          $      (0.28) $       1.98  $       1.58  $       5.46 
     Extraordinary item                      (6.07)            -         (5.44)            - 
                                      ------------  ------------  ------------  ------------ 
     Net income (loss)                $      (6.35) $       1.98  $      (3.86) $       5.46 
                                      ============  ============  ============  ============ 


<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,
                                                      --------------------------
                                                           1998          1997
                                                      ------------  ------------
                                                              (UNAUDITED)
<S>                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                $      (30.2) $       50.6 
     Adjustments to reconcile net income to net cash
          used for operating activities:
          Depreciation and depletion                          83.2          87.4 
          Extraordinary loss on early extinguishment
               of debt, net                                   42.5             - 
          Restructuring of aluminum operations                   -          19.7 
          Non-cash benefit for income taxes                   (8.3)        (12.5)
          Net sales of marketable securities                  62.2           1.2 
          Net gains on marketable securities                  (4.6)        (10.1)
          Minority interests                                  14.4          10.8 
          Amortization of deferred financing costs
               and discounts on long-term debt                15.7          18.5 
          Amortization of excess of investment over
               equity in net assets of unconsolidated
               affiliates                                      7.5           8.7 
          Equity in loss (gain) of unconsolidated
               affiliates, net of dividends received           (.5)         14.6 
          Net gain on sale of real estate, mortgage
               loans and other assets                         (3.2)         (5.0)
          Increase (decrease) in cash resulting from               
               changes in:
               Receivables                                    35.3         (50.9)
               Payable to affiliates and other
                    liabilities                              (77.7)        (55.2)
               Inventories                                    53.8           5.9 
               Accrued interest                              (28.4)        (23.9)
               Prepaid expenses and other assets              29.1          (7.7)
               Accounts payable                               (6.6)        (30.3)
               Accrued and deferred income taxes               1.6          11.4 
          Other                                                3.1           7.0 
                                                      ------------  ------------ 
               Net cash provided by operating
                    activities                               188.9          40.2 
                                                      ------------  ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                    (80.0)       (120.1)
     Net proceeds from sale of assets                         18.2          34.4 
     Investment in subsidiaries and joint ventures           (10.6)         (7.1)
     Restricted cash withdrawals used to acquire
          timberlands                                          1.8             - 
     Other                                                     3.0          (2.6)
                                                      ------------  ------------ 
          Net cash used for investing activities             (67.6)        (95.4)
                                                      ------------  ------------ 
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of long-term debt                873.7          19.7 
     Premium for early retirement of debt                    (45.5)            - 
     Redemptions, repurchases and principal payments
          on long-term debt                                 (800.8)        (76.6)
     Dividends paid to Kaiser's minority preferred
          stockholders                                           -          (4.2)
     Redemption of preference stock                           (8.6)         (2.0)
     Restricted cash withdrawals (deposits), net               6.4          (6.5)
     Treasury stock repurchases                              (35.1)        (17.7)
     Incurrence of deferred financing costs                  (22.0)            - 
     Other                                                     (.1)          3.5  
                                                      ------------  ------------ 
          Net cash used for financing activities             (32.0)        (83.8)
                                                      ------------  ------------ 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          89.3        (139.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD             164.6         336.6 
                                                      ------------  ------------ 
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $      253.9  $      197.6 
                                                      ============  ============ 


<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

<PAGE>

                        MAXXAM INC. AND SUBSIDIARIES

            CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      

1.        GENERAL

          The information contained in the following Condensed 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 Form 10-K.  Any capitalized terms used but not
defined in these Condensed Notes to Consolidated Financial Statements are
defined in the "Glossary of Defined Terms" contained in Appendix A.  All
references to the "Company" include MAXXAM Inc. and its subsidiary
companies unless otherwise indicated or the context indicates otherwise. 
See Note 4 below regarding the formation of Scotia LLC and the merger of
Scotia Pacific into Scotia LLC.  Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end.  The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

          The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at September 30, 1998,
the consolidated results of operations for the three and nine months ended
September 30, 1998 and 1997 and consolidated cash flows for the nine months
ended September 30, 1998 and 1997.  Certain reclassifications of prior
period information have been made to conform to the current presentation.

          SFAS No. 130 was issued in June 1997 and was adopted by the
Company as of January 1, 1998.  SFAS No. 130 requires the presentation of
an additional income measure (termed "comprehensive income") which adjusts
traditional net income for certain items that previously were only
reflected as direct charges to equity (such as minimum pension
liabilities).  SFAS No. 133, issued in June 1998, requires companies to
recognize all derivative instruments as assets or liabilities in the
balance sheet and to measure those instruments at fair value.  SFAS No. 133
must be adopted by the Company no later than January 1, 2000, although
earlier application is permitted.  The Company is currently evaluating how
and when to implement SFAS No. 133.

          The amount of the Company's comprehensive income adjustments is
not significant so there is not a significant difference between
"traditional" net income and comprehensive income for the three and nine
month periods ended September 30, 1998 and 1997.  However, differences
between comprehensive income and traditional net income may become
significant in future periods as a result of SFAS No. 133.  As discussed
more fully in Note 7, the intent of Kaiser's hedging programs is to "lock-
in" a price (or range of prices) for products sold or used so that earnings
and cash flows are subject to reduced risk of volatility.  Under SFAS No.
133, the Company will be required to "mark-to-market" its hedging positions
at the end of each period in advance of the period of recognition for the
transaction to which the hedge relates.  Pursuant to SFAS No. 130, the
Company will reflect changes in the fair value of its open hedging
positions as an increase or reduction in stockholders' equity through
comprehensive income.  Under SFAS No. 130, the impact of the changes in the
fair value of financial instruments will be reversed from comprehensive
income (net of any fluctuations in other "open" positions) and will be
reflected in traditional net income upon occurrence of the transaction to
which the hedge relates.

          The combined impact of implementing SFAS No. 130 and SFAS No. 133
will result in fluctuations in comprehensive income and stockholders'
equity in periods of price volatility, despite the fact that the Company's
cash flow and earnings will be "fixed" to the extent hedged.  The amount of
such fluctuations could be significant.

2.        INVENTORIES

          Inventories consist of the following (in millions):

<TABLE>
<CAPTION>
                                                 SEPTEMBER 30,  DECEMBER 31,
                                                      1998          1997
                                                 ------------  ------------
<S>                                              <C>           <C>
Aluminum Operations:
     Finished fabricated aluminum products       $      109.9  $      103.9 
     Primary aluminum and work in process               187.3         226.6 
     Bauxite and alumina                                101.0         108.4 
     Operating supplies and repair and
          maintenance parts                             121.5         129.4 
                                                 ------------  ------------
                                                        519.7         568.3 
                                                 ------------  ------------
Forest Products Operations:
     Lumber                                              41.2          49.7 
     Logs                                                12.7          11.6 
                                                 ------------  ------------
                                                         53.9          61.3 
                                                 ------------  ------------
                                                 $      573.6  $      629.6 
                                                 ============  ============

</TABLE>


3.        RESTRICTED CASH

          Long-term receivables and other assets include restricted cash in
the amount of $25.6 million and $33.7 million at September 30, 1998 and
December 31, 1997, respectively.  The restricted cash at December 31, 1997
primarily represents the amount held by the trustee in the Liquidity
Account for the benefit of holders of the Old Timber Notes under the
indenture governing the Old Timber Notes.  The restricted cash at September
30, 1998 primarily represents the amount held by the trustee under the
Timber Notes Indenture governing the Timber Notes to enable Scotia LLC to
acquire timberlands.

4.        LONG-TERM DEBT

          Long-term debt consists of the following (in millions):

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30,  DECEMBER 31,
                                                       1998          1997
                                                  ------------  ------------
<S>                                               <C>           <C>
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 
12-1/4% MGI Senior Secured Discount Notes due
     August 1, 2003, net of discount                         -         117.3 
10-1/2% Pacific Lumber Senior Notes due March 1,
     2003                                                    -         235.0 
Pacific Lumber Credit Agreement                              -           9.4 
7.95% Scotia Pacific Timber Collateralized Notes
     due July 20, 2015                                       -         320.0 
7.43% Scotia LLC Timber Collateralized Notes due
     July 20, 2028                                       867.2             - 
KACC Credit Agreement                                        -             - 
10-7/8% KACC Senior Notes due October 15, 2006,
     including premium                                   225.7         225.8 
9-7/8% KACC Senior Notes due February 15, 2002,
     net of discount                                     224.4         224.2 
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                            54.4          61.6 
Other notes and contracts, primarily secured by
     receivables, buildings, real estate and
     equipment                                            31.7          36.1 
                                                  ------------  ------------ 
                                                       1,993.4       1,919.4 
          Less: current maturities                       (16.7)        (31.4)
                                                  ------------  ------------ 
                                                  $    1,976.7  $    1,888.0 
                                                  ============  ============ 

</TABLE>

          In October 1998, the Company drew down $16.0 million under the
Custodial Trust Agreement, and the borrowing converted to a term loan
maturing on October 21, 1999, as provided under the terms of the agreement. 
The loan is secured by 7,915,000 shares of Kaiser common stock.

          On July 20, 1998, Scotia LLC, a recently formed limited liability
company wholly owned by Pacific Lumber,  issued the Timber Notes which
consist of $867.2 million aggregate principal amount of Class A-1, Class A-
2 and Class A-3 timber collateralized notes which mature on July 20, 2028
and have an overall effective interest rate of 7.43% per annum.  Net
proceeds from the offering of the Timber Notes were used primarily to
prepay the Old Timber Notes and to redeem the Pacific Lumber Senior Notes
and the MGI Notes effective August 19, 1998.  The Company recognized an
extraordinary loss of $42.5 million, net of the related income tax benefit
of $22.9 million, in the quarter ended September 30, 1998 for the early
extinguishment of the Old Timber Notes, Pacific Lumber Senior Notes and MGI
Notes.  Concurrently with the issuance of the Timber Notes, (i) Scotia
Pacific was merged into Scotia LLC, (ii) Pacific Lumber transferred to
Scotia LLC approximately 13,500 acres of timberlands and the timber and
timber harvesting rights with respect to an additional 19,700 acres of
timberlands, and (iii) Scotia LLC transferred to Pacific Lumber the timber
and timber harvesting rights related to approximately 1,400 acres of
timberlands.

          Under the Timber Notes Indenture, the business activities of
Scotia LLC are generally limited to the ownership and operation of its
timber and timberlands.  The Timber Notes are senior secured obligations of
Scotia LLC and are not obligations of, or guaranteed by, Pacific Lumber or
any other person.  The Timber Notes are secured by a lien on (i) Scotia
LLC's timber and timberlands (representing $245.1 million of the Company's
consolidated balance at September 30, 1998), and (ii) substantially all of
Scotia LLC's other property.  Interest on the Timber Notes is further
secured by the Timber Notes Line of Credit.  The Timber Notes Indenture
permits Scotia LLC to have outstanding up to $75.0 million of non-recourse
indebtedness to acquire additional timberlands and to issue additional
timber notes provided certain conditions are met (including repayment or
redemption of the $160.7 million of Class A-1 Timber Notes).  

          The Timber Notes are structured to link, to the extent of cash
available, the deemed depletion of Scotia LLC's timber (through the harvest
and sale of logs) to the required amortization of the Timber Notes.  The
required amount of amortization on any Timber Note payment date is
determined by various mathematical formulas set forth in the Timber Notes
Indenture.  The minimum amount of principal which Scotia LLC must pay (on a
cumulative basis and subject to available cash) through any Timber Notes
payment date in order to avoid an Event of Default is referred to as
Minimum Principal Amortization.  If the Timber Notes were amortized in
accordance with Minimum Principal Amortization, the final installment of
principal would be paid on July 20, 2028.  The minimum amount of principal
which Scotia LLC must pay (on a cumulative basis) through any Timber Notes
payment date in order to avoid payment of prepayment or deficiency premiums
is referred to as Scheduled Amortization.  If all payments of principal are
made in accordance with Scheduled Amortization, the payment date on which
Scotia LLC will pay the final installment of principal is January 20, 2014. 
Such final installment would include a single bullet principal payment of
$463.3 million related to the Class A-3 Timber Notes.

          Principal and interest on the Timber Notes are payable
semiannually on January 20 and July 20.  The Timber Notes are redeemable at
the option of Scotia LLC at any time.  The redemption price of the Timber
Notes is equal to the sum of the principal amount, accrued interest and a
prepayment premium calculated based upon the yield of like term Treasury
securities plus 50 basis points.

5.        PER SHARE INFORMATION

          Basic earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period
including the weighted average impact of the shares of common stock issued
and treasury stock acquired during the year from the date of issuance or
repurchase.  The weighted average common shares outstanding were 7,000,597
shares and 8,491,364 shares for the nine months ended September 30, 1998
and 1997, respectively.

          Diluted earnings per share calculations also include the dilutive
effect of the Class A Preferred Stock (which is convertible into Common
Stock) as well as common and preferred stock options.  The weighted average
number of common and common equivalent shares was 7,816,615 shares and
9,272,428 shares for the nine months ended September 30, 1998 and 1997,
respectively.

6.        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 the
environmental laws and regulations, and to claims and litigation based upon
such laws.  KACC is currently 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, 1998, the balance of such accruals, which are
primarily included in noncurrent liabilities, was $28.3 million.  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 remedial action to be taken.  Kaiser expects that these remedial
actions will be taken over the next several years and estimates that annual
expenditures to be charged to these environmental accruals will be
approximately $2.0 million to $9.0 million for the years 1998 through 2002
and an aggregate of approximately $7.0 million thereafter.

          As additional facts are developed and definitive remedial 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 
$18.0 million.  As the resolution of these matters is subject to further
regulatory review and approval, no specific assurances 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 working to resolve
these matters.  Kaiser believes that it has insurance coverage available to
recover certain incurred and future environmental costs and is actively
pursuing claims in this regard.  As of September 30, 1998, no accruals have
been made for any such insurance recoveries.  However, subsequent to
September 30, 1998, KACC determined that recoveries totaling up to
approximately $34.0 million are likely to be received during the fourth
quarter 1998 related to current and future claims against its insurers.  
Approximately one-fourth to one-third of the recoveries are allocable to
previously accrued (expensed) items.  The amount ultimately allocated to
previously expensed items will be reflected in earnings during the fourth
quarter of 1998.  No assurances can be given that the Kaiser will be
successful in other attempts to recover incurred or future costs from other
insurers or that the amount of any recoveries received will ultimately be
adequate to cover the costs incurred.   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, 1998, the number of claims pending was
approximately 86,400 compared to 77,400 at December 31, 1997.  During the
quarter and nine months ended September 30, 1998, approximately 5,500 and
16,000 of such claims were received and 3,000 and 7,000 of such claims were
settled or dismissed, respectively.  In addition, the foregoing pending
claims and settlement figures as of September 30, 1998 do not reflect the
fact that KACC reached agreements under which it will settle approximately
20,000 of the pending asbestos-related claims over an extended period.

          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
KACC's actual costs could exceed 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
asbestos-related cost accrual of $164.9 million, before consideration of
insurance recoveries, is included primarily in other noncurrent liabilities
at September 30, 1998.  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 $15.0
million to $26.0 million for each of the years 1998 through 2002, and an
aggregate of approximately $64.0 million thereafter.

          Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs.  While active
coverage litigation has been concluded, the timing and amount of future
recoveries from the insurance carriers will depend on the pace of claims
review and processing by such carriers, and on the resolution of any
disputes which may arise in the course of discussions regarding coverage
under their policies.  Kaiser believes, based on prior insurance-related
recoveries with respect to asbestos-related claims, existing insurance
policies, and the advice of Thelen, Reid & Priest LLP (formerly 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 $131.9 million,
determined on the same basis as the asbestos-related cost accrual, is
recorded primarily in long-term receivables and other assets at September
30, 1998.

          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 a formal administrative
proceeding against the Company and others by filing the Notice.  The Notice
alleges, among other things, 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 $560.0 million from the Company and
Federated, civil money penalties and the removal from, and prohibition
against the Company and the other respondents engaging in, the banking
industry.  The hearing on the merits of this matter commenced on September
22, 1997, adjourned on December 19, 1997, recommenced on June 16, 1998 and
adjourned on October 16, 1998.  The hearing is expected to recommence on
February 9, 1999 and conclude in April 1999.

          On August 2, 1995, the FDIC filed the FDIC action in the U.S.
District Court for the Southern District of Texas.  The original complaint
against Mr. Hurwitz alleged damages in excess of $250.0 million 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 alleged, among other things, that Mr. Hurwitz was obligated to
ensure that UFG, Federated and the Company maintained the net worth of
USAT.  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 their 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 this contingency.  Accordingly, it is
impossible to assess the ultimate outcome of the foregoing matters or their
potential impact on the Company; however, any adverse outcome of these
matters could have a material adverse effect 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.

7.         DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

          At September 30, 1998, the net unrealized gain on KACC's position
in aluminum forward sales and option contracts (based on an average
contract price of $.74 per pound of primary aluminum), natural gas, fuel
oil and diesel fuel forward purchase and option contracts, and forward
foreign exchange contracts, was approximately $17.6 million.  Any gain or
losses on the derivative contracts utilized in KACC's hedging activities
are offset by losses or gains, respectively, on the transactions being
hedged.  See Note 1 for a discussion of SFAS No. 133, a new accounting
pronouncement which requires the Company to "mark-to-market" its hedging
positions at each period end in advance of the period of recognition for
the transaction to which the hedge relates. 

          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.  Since 1993, the AMT 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 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 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, 1998, KACC had sold forward, at fixed prices, approximately 23,400 and
24,000 tons of primary aluminum with respect to 1998 and 1999,
respectively.  As of September 30, 1998, KACC had also purchased put
options to establish a minimum price for approximately 11,250 tons of
primary aluminum with respect to 1998 and had entered into option contracts
that established a price range for an additional 57,900 and 124,500 tons
with respect to 1998 and 1999, respectively.  Additionally, at September
30, 1998, KACC also held fixed price purchase contracts for 16,100 tons of
primary aluminum with respect to 1998.

          As of September 30, 1998, KACC had sold forward virtually all of
the alumina available to it in excess of its projected internal smelting
requirements for 1998, 1999 and 2000 at prices indexed to future prices of
primary aluminum.

          Energy
          KACC is exposed to energy price risk from fluctuating prices for
fuel oil, diesel fuel, 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, 1998, KACC had a
combination of fixed price purchase and option contracts for the purchase
of approximately 45,000 MMBtu of natural gas per day during the remainder
of 1998.  As of September 30, 1998, KACC also held a combination of fixed
price purchase and option contracts for an average of 232,000 and 245,000
barrels per month of fuel oil and diesel fuel for 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,
1998, KACC had net forward foreign exchange contracts totaling
approximately $168.8 million for the purchase of 246.6 million Australian
dollars from October 1998 through December 2000, in respect of its
commitments for 1998 through 2000 expenditures denominated in Australian
dollars.

8.        SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                         NINE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                    --------------------------
                                                         1998          1997
                                                    ------------  ------------
<S>                                                 <C>           <C>
Supplemental disclosure of cash flow information
     (in millions):
     Interest paid, net of capitalized interest     $      171.5  $      164.0 
     Income taxes paid                                      12.7          15.2 
     Capital spending excluded from investing
          activities                                          -           10.3 

</TABLE>

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 are defined in the
"Glossary of Defined Terms" contained in Appendix A.

          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 Form 10-Q and the 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, an 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 indicated 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
          Substantially all of KACC's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington, aluminum
smelters, Trentwood, Washington, rolling mill, and Newark, Ohio, extrusion
facility were covered by a master labor agreement with the USWA which
expired on September 30, 1998.  Kaiser did not reach a settlement with the
USWA prior to the expiration of the master labor agreement, and the USWA
chose to strike.  Until the strike ends, Kaiser plans to run the facilities
using a combination of temporary workers, salaried employees, retirees and
others.  Based on operating results to date, Kaiser believes that a
significant business interruption will not occur.  Kaiser will initially
experience an adverse impact on its profitability until plant operations
and temporary workforce levels are stabilized at the five facilities. 
Kaiser expects operations at facilities to be stabilized and able to run
at, or near, full capacity, if it is deemed appropriate to do so, at a
level of profitability approximating pre-strike levels (subject to market
conditions) by the end of the fourth quarter of 1998 or during the first
quarter of 1999.   However, no assurances can be given that Kaiser's
efforts to run the plants on a sustained basis without business
interruption or material negative impact on its operating results will be
successful.

          Kaiser and the USWA are communicating and several meetings have
been held; however, no formal schedule for bargaining sessions have been
developed as of the date of this report.  The objective of Kaiser has been
and continues to be to negotiate a fair labor contract that is consistent
with its business strategy and the commercial realities of the marketplace.

          Kaiser has previously announced that it temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma, Washington
aluminum smelters at September 30, 1998, as a result of the USWA strike.  
The curtailed potlines represent approximately 70,000 tons of annual
production capacity of 273,000 tons per year at the facilities.  Kaiser has
also announced that it has begun preparations to restart all three
curtailed lines.  However, neither the number of potlines nor the actual
timing of any such restart has been determined and will be dependent upon
market conditions and other factors.

          During 1998, Kaiser's 90%-owned Valco smelter in Ghana reached an
agreement with the VRA to receive compensation in lieu of the power
necessary to run two potlines that were curtailed during February and April
1998.  The compensation is substantially mitigating the financial impact of
the curtailment.  Valco had previously curtailed one additional potline in
January 1998 for which it received no compensation.   Valco is now
operating only one of its five potlines, as compared to 1997, when Valco
operated four potlines.  Each of Valco's potlines produces, on average,
approximately 40,000 tons of primary aluminum per year.  As previously
announced, Kaiser has notified the VRA that it believes it had the
contractual rights at the beginning of 1998 to sufficient energy to run
four and one-half potlines for the balance of the year.  Valco continues to
seek compensation from the VRA with respect to the January 1998 reduction
of its power allocation.  Valco and the VRA also are in continuing
discussions concerning other matters, including steps that might be taken
to reduce the likelihood of power curtailments beyond 1998.  No assurances
can be given as to the success of these discussions.   In November 1998,
Valco received notification from the VRA as to the facility's proposed 1999
power allocation.  Valco anticipates making a formal response to the VRA's
proposal no later than December.  While the proposed allocation would
enable Valco to operate up to approximately three potlines in 1999,
any decisions by Valco to restart any of the currently curtailed
potlines will be made only after further discussions with the VRA and after
consideration of market and other economic factors.

          Kaiser believes that it has insurance coverage available to
recover certain incurred and future environmental costs and is actively
pursuing claims in this regard.  Through September 30, 1998, no accruals
have been made for any such insurance recoveries.  However, subsequent to
September 30, 1998, KACC determined that recoveries totaling up to
approximately $34.0 million are likely to be received during the fourth
quarter of 1998 related to current and future claims against certain of its
insurers.  It is currently estimated that approximately one-fourth to one-
third of the recoveries are allocable to previously accrued (expensed)
items.  The amount ultimately allocated to previously expensed items will
be reflected in earnings during the fourth quarter of 1998. No assurances
can be given that Kaiser will be successful in other attempts to recover
incurred or future costs from other insurers or that the amount of any
recoveries received will ultimately be adequate to cover costs incurred.

          Summary
          The following table presents selected operational and financial
information for the three and nine months ended september 30, 1998 and
1997.  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,
                                       --------------------------  --------------------------
                                            1998          1997          1998          1997
                                       ------------  ------------  ------------  ------------
<S>                                    <C>           <C>           <C>           <C>
Shipments: (1)                                                                                
     Alumina                                  644.6         579.2       1,721.7       1,457.0 
     Aluminum products:
          Primary aluminum                     61.5          86.4         210.3         246.9 
          Fabricated aluminum products         97.7         105.2         311.0         299.5 
                                       ------------  ------------  ------------  ------------
               Total aluminum products        159.2         191.6         521.3         546.4 
                                       ============  ============  ============  ============
Average realized sales price:
     Alumina (per ton)                 $        190  $        200  $        195  $        196 
     Primary aluminum (per pound)               .70           .76           .70           .75 

Net sales:
     Bauxite and alumina:
          Alumina                      $      122.6  $      115.9  $      336.4  $      285.6 
          Other (2) (3)                        24.7          27.1          77.2          80.2 
                                       ------------  ------------  ------------  ------------
               Total bauxite and
                    alumina                   147.3         143.0         413.6         365.8 
                                       ------------  ------------  ------------  ------------
     Aluminum processing:
          Primary aluminum                     94.6         145.0         326.6         409.5 
          Fabricated aluminum products        298.8         341.7       1,008.7         990.6 
          Other (3)                              .9           4.4           4.5          12.7 
                                       ------------  ------------  ------------  ------------
               Total aluminum
                    processing                394.3         491.1       1,339.8       1,412.8 
                                       ------------  ------------  ------------  ------------
                    Total net sales    $      541.6  $      634.1  $    1,753.4  $    1,778.6 
                                       ============  ============  ============  ============
Operating income (4)                   $       32.3  $       56.1  $      135.4  $      125.6 
                                       ============  ============  ============  ============

Income before income taxes and
     minority interests                $        5.9  $       30.7  $       52.2  $       44.0 
                                       ============  ============  ============  ============
Capital expenditures                   $       15.6  $       25.9  $       52.3  $       94.7 
                                       ============  ============  ============  ============

<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 million related to restructuring of
     the aluminum operations for the nine months ended September 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 1997, the AMT price for primary aluminum remained
relatively stable in the $.75 to $.80 per pound range through November and
then declined during December to the $.70 to $.75 per pound range.  After
beginning 1998 at approximately  $.73, the AMT price for primary aluminum
declined to approximately $.69 at the end of March 1998 and further
declined to approximately $.63 at the end of September 1998.  The AMT price
for primary aluminum for the week ended October 30, 1998, was approximately
$.62 per pound.
          
          Net Sales - Bauxite and Alumina
          Net sales of alumina increased by 6% for the quarter ended
September 30, 1998, from the comparable period in the prior year, as a
result of an 11% increase in alumina shipments, offset by a 5% decrease in
average realized prices.  For the nine month period ended September 30,
1998, net sales of alumina increased by 18% from the comparable period in
the prior year due to a 18% increase in alumina shipments.  Increased
shipments of alumina in the quarter and nine month period ended September
30, 1998, were due, in part, to reduced intracompany usage of alumina at
Valco.

          Net Sales - Aluminum Processing
          Net sales of primary aluminum for the quarter ended September 30,
1998, decreased by 35% from the comparable prior year period as a result of
an 8% decrease in average realized prices as well as a 29% decrease in
shipments.  The decrease in shipments is primarily a result of the Valco
potline curtailments described above.  Net sales of fabricated aluminum
products for the quarter ended September 30, 1998, were down 13% as
compared to the prior year period primarily as a result of a 6% decrease in
average realized prices as well as a 7% decrease in shipments.  The
decrease in fabricated aluminum product shipments from the third quarter of
1997 was the result of a reduced demand for engineered products resulting
from earlier strikes at two major end users of such products and an
inventory destocking among customers of heat-treat general engineering
products.

          For the nine month period ended September 30, 1998, net sales for
the aluminum processing segment decreased by approximately 5% compared to
the same period ended September 30, 1997.  Net sales of primary aluminum
for the 1998 period declined by 20% from the comparable prior year period
as a result of the price and volume factors discussed above.  This decline
was partially offset on a year-to-date basis by a 2% increase in net sales
of fabricated aluminum products.  The increase in net sales of fabricated
aluminum products on a year-to-date basis was the result of a 4% increase
in shipments offset by a 2% decrease in average realized prices.  Increased
year-over-year shipments reflected increased demand in the first half of
the year, particularly for heat treat products.

          Operating Income
          Operating income for the three and nine month periods ended
September 30, 1998, decreased by 42% and 7%, respectively, as compared to
the comparable prior year periods and after adjusting 1997 results for the
impact of a non-recurring $19.7 million restructuring charge.  Operating
income declined in the quarter and nine month periods ended September 30,
1998, from the comparable prior year periods primarily due to a decline in
the average realized prices of alumina, primary aluminum and fabricated
aluminum products.  Operating income for the 1998 periods was also affected
by the increased costs and reduced profitability caused by preparations for
the strike discussed above.  Reduced shipments of primary aluminum in the
third quarter of 1998, as well as on a year-to-date basis, were
substantially offset by compensation recorded by Kaiser for two of the
three Valco potlines curtailed during 1998.  The compensation will be
received over a 18-month period which began in July 1998.  Operating income
for the quarter and nine-month period ended September 30, 1997, included
approximately $2.7 million and $7.5 million, respectively, from the
settlement of certain issues related to energy service contracts. 

     FOREST PRODUCTS OPERATIONS         

          The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries, Pacific Lumber and Britt. 
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, 1998 and 1997.  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,
                                    --------------------------  --------------------------
                                         1998          1997          1998          1997
                                    ------------  ------------  ------------  ------------
<S>                                 <C>           <C>           <C>           <C>
SHIPMENTS:
     Lumber: (1)
          Redwood upper grades              11.1          12.7          33.2          39.0 
          Redwood common grades             63.6          53.9         177.1         178.7 
          Douglas-fir upper grades           1.6           3.3           5.1           8.3 
          Douglas-fir common grades         11.6          22.5          32.9          59.0 
          Other                               .7           4.6           6.4          13.4 
                                    ------------  ------------  ------------  ------------ 
               Total lumber                 88.6          97.0         254.7         298.4 
                                    ============  ============  ============  ============ 
     Logs (2)                                1.8           4.0           3.1          10.6 
                                    ============  ============  ============  ============ 
     Wood chips (3)                         58.8          63.6         139.6         185.9 
                                    ============  ============  ============  ============ 
Average sales price:
     Lumber: (4)
          Redwood upper grades      $      1,453  $      1,537  $      1,486  $      1,427 
          Redwood common grades              560           546           540           533 
          Douglas-fir upper grades         1,264         1,243         1,275         1,205 
          Douglas-fir common grades          376           443           353           473 
     Logs (4)                                478           426           452           412 
     Wood Chips (5)                           74            73            72            75 

Net sales:
     Lumber, net of discount        $       57.9  $       64.1  $      163.7  $      191.8 
     Logs                                     .9           1.7           1.4           4.4 
     Wood Chips                              4.3           4.7          10.0          13.9 
     Cogeneration power                      1.4           1.2           3.2           3.4 
     Other                                   1.4           1.1           3.0           3.0 
                                    ------------  ------------  ------------  ------------ 
               Total net sales      $       65.9  $       72.8  $      181.3  $      216.5 
                                    ============  ============  ============  ============ 
Operating income                    $       12.9  $       23.2  $       37.7  $       66.5 
                                    ============  ============  ============  ============ 
Operating cash flow (6)             $       18.8  $       29.4  $       55.0  $       85.9 
                                    ============  ============  ============  ============  
Income (loss) before income taxes   $       (8.1) $        7.3  $      (15.0) $       17.1 
                                    ============  ============  ============  ============  
Capital expenditures                $        4.4  $        4.3  $       10.4  $       16.7 
                                    ============  ============  ============  ============ 

<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>

          Recent Operating Results 

          Net sales declined from $72.8 million and $216.5 million for the
three and nine months ended September 30, 1997, respectively, to $65.9
million and $181.3 million for the comparable periods of 1998 primarily due
to lower shipments of lumber, logs and wood chips. The decline in shipments
which occurred during the first six months of the 1998 period was
principally due to well-above-normal rainfall which reduced demand for
lumber products and severely limited the availability of rail
transportation. The increased rainfall, combined with additional
restrictions on Pacific Lumber's wet weather operations pursuant to the
terms of the Stipulation and the applicability of logging restrictions
during the nesting seasons for both the northern spotted owl and the
marbled murrelet, also impeded Pacific Lumber's ability to transport logs
to its mills and hindered logging operations, thereby reducing the volume
of logs available for the production of lumber products. Revenues for the
three months ended September 30, 1998 were primarily affected by a
reduction in the volume of logs harvested and converted into lumber
products. Pacific Lumber's reduced harvest level during the third quarter
of 1998 was due in substantial part to the absence of a sufficient number
of available THPs to enable it to conduct its operations at levels
consistent with those in the comparable period of 1997. The diminished
supply of available THPs was attributable to a reduced volume of approved
THPs during the third quarter of 1998 as well as regulatory and judicial
restrictions imposed upon harvesting activities in areas covered by
previously approved THPs.  See "--Trends."  These difficulties in
harvesting and transporting logs affected the types of logs available for
the mills and Pacific Lumber's ability to produce a desirable mix of lumber
products which in turn adversely affected sales.

          The reduced number of approved THPs was, and continues to be,
attributable to several factors, including a significantly reduced level of
thps submitted by Pacific Lumber to the CDF during the first nine months of
1998 due to (a) the extensive amount of time devoted by Pacific Lumber's
foresters, wildlife and fisheries biologists and other personnel to (i)
amending a significant number of previously submitted THPs to incorporate
various new requirements which Pacific Lumber agreed to as part of the Pre-
Permit Agreement, (ii) preparing the Combined Plan and all the related
data, (iii) responding to comments received from various federal and state
governmental agencies with respect to its filed THPs in light of the new
and more stringent requirements that Pacific Lumber agreed to observe
pursuant to the Pre-Permit Agreement and (iv) assisting with responding to
newly filed litigation involving certain approved THPs (see Part II. 
Item 1.  "Legal Proceedings") and (b) implementation of a provision
contained in the Pre-Permit Agreement which requires, for the first time, a
licensed geologist to review virtually all of Pacific Lumber's THPs prior
to submission to the CDF.  Pacific Lumber has also experienced an
unexpected significantly slower rate of review and approval with respect to
its filed THPs due, in large part, to the issues that have emerged in
applying the requirements embodied in the Pre-Permit Agreement to Pacific
Lumber's THPs, certain of which requirements impose new forestry practices
that apply solely to Pacific Lumber's operations.  As a result of the
factors discussed above, Pacific Lumber had a severely diminished inventory
of approved THPs at November 1, 1998 which is limiting Pacific Lumber's
ability to conduct harvesting operations.  Pacific Lumber believes that its
harvesting levels during the fourth quarter of 1998 will be significantly
below that of the fourth quarter of 1997 which would in turn have an
adverse impact on lumber production and shipments. 

          Pacific Lumber has released a draft of the Combined Plan for
public review and comment, and therefore believes that it has completed
most of its work in connection with preparation of the Combined Plan;
however, additional work will be required as a result of completion of the
public review and comment process for the Combined Plan and as a result of
the California Headwaters Bill.  Pacific Lumber has also retained several
geologists, and believes it has made progress with the various state and
federal government agencies in resolving issues regarding the application
of the requirements of the Pre-Permit Agreement to Pacific Lumber's filed
THPs.  Accordingly, Pacific Lumber believes that it will be able to
increase its rate of THP submissions during the first half of 1999.  In
addition, if the Combined Plan and the Permits are approved, Pacific Lumber
expects to experience a more streamlined THP process, which should result
in an increased volume of approved THPs.  However, there can be no
assurance that Pacific Lumber will not continue to experience difficulties
in submitting and receiving approvals of its THPs similar to those
difficulties it has been experiencing. 

          Pacific Lumber expects that its cash flow from operations,
together with other available sources of funds, will be sufficient to fund
its working capital, capital expenditures and required debt service
obligations for the next year.  However, cash flows from operations may be
adversely affected if Pacific Lumber continues to experience difficulties
in the THP submission and approval process, additional judicial or
regulatory restrictions are imposed on Pacific Lumber's harvesting
activities, inclement weather conditions hamper harvesting operations or
the Combined Plan is not approved or is not acceptable to Pacific Lumber.  

          See "--Financial Conditions and Investing Activities."

          Net Sales
          Net sales decreased from $72.8 million to $65.9 million for the
quarters ended September 30, 1997 and 1998, respectively, due to lower
shipments of redwood upper grade lumber and Douglas-fir upper and common
grade lumber.  Third quarter lumber shipments were lower primarily as a
result of the factors described above.  Lumber shipments also were
adversely affected by a general oversupply in the market for Douglas-fir
common grade lumber.  Net sales declined from $216.5 million in the first
nine months of 1997 to $181.3 million for the first nine months of 1998
primarily due to lower shipments of lumber, logs and wood chips which was
the result of the factors described above. 

          Operating income
          Operating income for the three and nine months ended September
30, 1998 decreased from the comparable prior year periods primarily due to
the decrease in net sales discussed above.  In addition, cost of sales for
the three months ended September 30, 1998 increased by 10% over the
comparable prior year period due to an increase in logging costs.  This
impact was partially offset by a decrease in depletion expense as a result
of the decline in volumes discussed above for the three and nine months
ended September 30, 1998 from the comparable prior year periods, and a
decrease in logging costs for the nine months ended September 30, 1998 from
the prior year period.

          Income (loss) before income taxes and minority interests
          Income before income taxes for the three and nine months ended
September 30, 1998 decreased from the comparable 1997 periods, primarily
due to the decrease in operating income discussed above.  Results for both
1998 periods were also affected by a decrease in investment income from
marketable securities.

     REAL ESTATE AND OTHER OPERATIONS

          The Company, principally through its wholly owned subsidiaries,
invests in and develops residential and commercial real estate primarily in
Arizona, California, Texas and Puerto Rico.  The Company, through its
subsidiaries, also has majority ownership in SHRP, Ltd., a Texas limited
partnership, which owns and operates a Class 1 horse racing facility in
Houston, Texas.

<TABLE>
<CAPTION>

                                               THREE MONTHS ENDED          NINE MONTHS ENDED
                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                          --------------------------  --------------------------
                                               1998          1997          1998          1997
                                          ------------  ------------  ------------  ------------
                                                          (IN MILLIONS OF DOLLARS
<S>                                       <C>           <C>           <C>           <C>
Net sales:
     Real estate                          $       15.2  $       14.0  $       41.0  $       36.0 
     SHRP, Ltd.                                    6.1           5.1          16.7          15.6 
                                          ------------  ------------  ------------  ------------
          Total net sales                 $       21.3  $       19.1  $       57.7  $       51.6 
                                          ============  ============  ============  ============

Operating income (loss):
     Real estate                          $       (0.9) $        0.3  $       (0.7) $       (1.0)
     SHRP, Ltd.                                      -          (0.7)          0.6          (0.8)
                                          ------------  ------------  ------------  ------------
          Total operating loss            $       (0.9) $       (0.4) $       (0.1) $       (1.8)
                                          ============  ============  ============  ============
Income before income taxes and minority
     interests:
     Real estate                          $        1.2  $        5.8  $       11.8  $        9.0 
     SHRP, Ltd.                                   (0.6)         (1.5)         (1.4)         (2.9)
                                          ------------  ------------  ------------  ------------
          Total income before income
               taxes and minority
               interests                  $        0.6  $        4.3  $       10.4  $        6.1 
                                          ============  ============  ============  ============

</TABLE>


          Net sales
          Net sales for the quarter and nine months ended September 30,
1998 increased from the same prior year periods primarily due to higher
revenue from SHRP, Ltd. and increased revenues from the Company's real
estate development projects offset by a decline in revenues from commercial
operations reflecting dispositions of assets from the RTC Portfolio.

          Operating loss
          Real estate and other operations had a higher operating loss for
the quarter ended September 30, 1998 as compared to the same period in 1997
resulting in part from estimated losses from hurricane damage at the
Company's Palmas del Mar project in Puerto Rico.  The estimated losses from
hurricane damage are primarily due to deductibles related to insurance
coverages.  The decrease in operating loss for the year-to-date period of
1998, as compared to the same period in 1997, was the result of higher net
sales discussed above, offset by the decline in operating income from
commercial operations reflecting dispositions of RTC Portfolio assets and
estimated losses from hurricane damage.  

          Income before income taxes and minority interests
          Income before income taxes and minority interests for the quarter
ended September 30, 1998 decreased  when compared to the same period in
1997 due to gains from RTC Portfolio sales in 1997 and the higher operating
loss discussed above.  Income before income taxes and minority interests
for the nine months ended September 30, 1998 increased from the comparable
period of 1997 due to an increase in income from the Sunridge Canyon joint
venture and a gain from the sale of the resort operations at the Company's
Waterwood development project, and the lower operating loss discussed
above.  

     OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED          NINE MONTHS ENDED
                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                          --------------------------  --------------------------
                                               1998          1997          1998          1997
                                          ------------  ------------  ------------  ------------
                                                          (IN MILLIONS OF DOLLARS)
<S>                                       <C>           <C>           <C>           <C>
Operating loss                            $       (3.9) $       (5.0) $      (10.3) $      (14.7)
Loss before income taxes and
     minority interests                           (7.5)         (6.4)        (19.0)        (19.4)

</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 quarter ended September 30, 1998
decreased from the comparable prior year period due to compensation related
accruals made in 1997.  The operating loss for the nine months ended
September 30, 1998 decreased from the same periods in 1997 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, which
are not attributable to the Company's industry segments.  The loss for the
third quarter ended September 30, 1998 increased from the same period in
1997 primarily due to lower interest and other income from cash equivalents
and marketable securities.  The loss for the nine months ended September
30, 1998 was nearly unchanged when compared to the loss for the same period
in 1997 as the lower operating loss discussed above was offset by lower
earnings from cash equivalents and marketable securities and higher
interest expense.  

          Credit for income taxes
          Results for the quarter and nine month period ended September 30,
1998, include a non-recurring, favorable $8.3 million non-cash tax benefit
resulting from the resolution of certain matters.  Results for the nine
month period ended September 30, 1997 include a non-recurring, non-cash tax
benefit of $32.1 million relating to settlement of certain matters.  

          Minority interests
          Minority interests primarily represents the minority stockholders' 
interest in the Company's aluminum operations.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

     PARENT COMPANY AND MGHI

          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.

          The various credit instruments of Kaiser, MGHI, Pacific Lumber
and Scotia LLC 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, 1998, no dividends could be paid by MGHI. 
Pursuant to the terms of the KACC Credit Agreement, Kaiser is prohibited
from paying any dividends with respect to its common stock.  On October 30,
1998, the MCOP Credit Agreement was replaced by a new credit facility for
$14.0 million.  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 $8.2 million could be paid as of November
13, 1998). 

           In October 1998, the Company drew down $16.0 million under the
Custodial Trust Agreement, and the borrowing converted to a term loan
maturing on October 21, 1999 as provided under the terms of the agreement. 
The loan is secured by 7,915,000 shares of Kaiser common stock.

          On May 14, 1998, the Company repaid the $35.1 million of one-year
notes issued to NL and CMRT.

          Kaiser has an effective shelf registration statement covering the
offering of up to 10 million shares of Kaiser common stock owned by the
Company.  Net proceeds from any transaction initiated by the Company
pursuant to this registration statement would be for the benefit of the
Company rather than Kaiser.

          As of September 30, 1998, the Company (excluding its
subsidiaries) had cash and marketable securities of approximately $27.8
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 6 to the
Consolidated Financial Statements could materially adversely affect the
Company's consolidated financial position, results of operations or
liquidity.  See Note 6 to the Consolidated Financial Statements for a
discussion of the Company's material contingencies.

          During the nine months ended September 30, 1998, the Company
purchased an additional amount of the SHRP Notes and the corresponding
equity interest in SHRP Equity, Inc. for $10.6 million, thereby increasing
the Company's ownership in SHRP, Ltd. to 98.2%.

     ALUMINUM OPERATIONS

          At September 30, 1998, Kaiser had long-term debt of $964.5
million, compared with $971.7 million at December 31, 1997.

          At September 30, 1998, $274.1 million (of which $74.1 million
could have been used for letters of credit) was available to KACC under the
KACC Credit Agreement and no amounts were outstanding under the revolving
credit facility.  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 nine months ended
September 30, 1998, the average per annum interest rates on loans
outstanding under the KACC Credit Agreement were approximately 9%.

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

          Kaiser's capital expenditures during the nine months ended
September 30, 1998, were $52.3 million, and were used primarily to improve
production efficiency, reduce operating costs, expand capacity at existing
facilities, and construct new facilities.  Total capital expenditures (of
which approximately 8% is expected to be funded by Kaiser's minority
partners in certain foreign joint ventures) are expected to be between
$75.0 and $125.0 million per annum in each of 1998 through 2000.

          During 1998, the Micromill(TM) facility commenced shipments of
products to customers, but the amount of such shipments has been
minimal.  Additional product trials for international and domestic
customers were conducted in the third quarter.  However, the Micromill(TM)
technology has not yet been fully implemented or commercialized, and there
can be no assurance that full implementation or commercialization will be
successful.  In October 1998, Kaiser temporarily suspended substantially
all of its Micromill(TM) commercialization efforts and temporarily
transferred the employees of the Micromill(TM) facility to KACC's strike
affected plants in the state of Washington in order to supplement the
workforce at those locations.  Recommencement of the commercialization
efforts on the Micromill(TM) technology will depend on when the strike
ends, when the employees from the Micromill(TM) facility are no longer
needed at the strike affected plants and other economic considerations.

          Management continues to evaluate numerous projects, including the
Micromill(TM) technology, all of which require substantial capital in both
the United States and overseas.

          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 expected
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 discussed further in Note 4 to the Consolidated Financial
Statements, on July 20, 1998, Scotia LLC issued $867.2 million aggregate
principal amount of Timber Notes.  Proceeds from the offering of the Timber
Notes were used primarily to prepay the Old Timber Notes and redeem the
Pacific Lumber Senior Notes and the MGI Notes effective August 19, 1998. 
In addition to principal payments, proceeds from the issuance of the Timber
Notes were used to pay redemption premiums and financing costs, and
provided $25 million for timberland acquisitions.

          As of September 30, 1998, $34.1 million of borrowings was
available under the Pacific Lumber Credit Agreement, of which $5.6 million
was available for letters of credit and $20.6 million was restricted to
timberland acquisitions.  As of September 30, 1998 no borrowings were
outstanding and letters of credit outstanding amounted to $14.4 million. 
At November 13, 1998, Pacific Lumber had borrowings outstanding of $5.0
million.  The Pacific Lumber Credit Agreement expires on November 30, 1998;
however, Pacific Lumber and the existing bank have executed a term sheet
setting forth the basic terms of a new three-year credit facility.  The new
facility would allow borrowings up to $60 million, all of which may be used
for revolving borrowings, $20 million of which may be used for standby
letters of credit and $30 million of which may be used for timberland
acquisitions.  Borrowings would be secured by all of Pacific Lumber's
domestic accounts receivable and inventory.  Borrowings for timberland
acquisitions would also be secured by the acquired timberlands and prior to
maturity of the facility would be repaid annually from 50% of Pacific
Lumber's cash flow (as defined).  The remaining 50% of cash flow would be
available for dividends.  Upon maturity of the facility, all outstanding
borrowings under the credit facility would convert to a term loan repayable
over four years.

          MGI and its subsidiaries anticipate that cash from operations,
together with existing cash, cash equivalents, marketable securities and
available sources of financing, will be sufficient to fund their working
capital and capital expenditure requirements for the next year.  However,
cash flows from operations may be adversely affected if Pacific Lumber
continues to experience difficulties in the THP submission and approval
process, additional judicial or regulatory restrictions are imposed on
Pacific Lumber's harvesting activities, inclement weather conditions hamper
harvesting operations or the Combined Plan is not approved or is not
acceptable to Pacific Lumber.  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 litigation and 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

          The Company's real estate and other subsidiaries obtained a $14.0
million replacement credit facility for the MCOP Credit Agreement on
October 30, 1998.  As of November 13, 1998, the Company's real estate and
other subsidiaries had approximately $8.2 million available for use under
the new credit facility.  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

     FOREST PRODUCTS OPERATIONS

          Pacific Lumber's business is subject to a variety of California
and federal laws and regulations dealing with timber harvesting, threatened
and endangered species and habitat for such species, and air and water
quality.  Compliance with such laws and regulations plays a significant
role in Pacific Lumber's business.  While compliance with such laws,
regulations and judicial and administrative interpretations, and related
litigation have increased the costs of Pacific Lumber, they have not
historically had a significant adverse effect on the Company's financial
position, results of operations or liquidity, although Pacific Lumber's
recent results of operations have been adversely affected by the absence of
a sufficient number of available THPs to enable it to conduct its
operations at historic levels.  These laws and related administrative
actions and legal challenges have also severely restricted the ability of
Pacific Lumber to harvest virgin old growth timber and, to a lesser extent,
residual old growth timber on its timberlands.  On August 12, 1998, the
EPIC lawsuit was filed by two environmental groups against Pacific Lumber,
Scotia Pacific and Salmon Creek under which the environmental groups allege
that certain violations of the ESA have resulted from logging activities on
Pacific Lumber's timberlands and seek to prevent the defendants from
carrying out any harvesting activities until certain purported intra-agency
wildlife consultation requirements under the ESA are satisfied in
connection with the Combined Plan (see below).  Pacific Lumber is uncertain
what impact the EPIC lawsuit will have upon its operations and financial
results but it is possible that other approved timber harvesting activities
on Pacific Lumber's timberlands could be severely restricted (and revenues
potentially significantly adversely affected) until such time as the
consultation requirements are satisfied.  Pacific Lumber is vigorously
defending this matter and is devoting resources toward facilitating
completion of the consultation requirements as soon as practicable.

          On September 28, 1996, the Pacific Lumber Parties entered into
the Headwaters Agreement with the United States and California which
provides the framework for the acquisition by the United States and
California of the Headwaters Timberlands.  A substantial portion of the
Headwaters Timberlands contains virgin old growth timber.  Approximately
4,900 of these acres are owned by Salmon Creek, with the remaining acreage
being owned by Scotia LLC (Pacific Lumber owning the timber and related
timber harvesting rights on this acreage).  The Headwaters Timberlands
would be transferred in exchange for (a) cash or other consideration from
the United States and California having an aggregate fair market value of
$300 million, and (b) approximately 7,700 acres of timberlands to be
acquired from a third party.  As part of the Headwaters Agreement, the
Pacific Lumber Parties agreed to not enter the Headwaters Timberlands to
conduct any logging or salvage operations.  Closing of the Headwaters
Agreement is subject to various conditions, including obtaining federal and
California funding, approval of an SYP, approval of a Multi-Species HCP and
issuance of the Permits, acquisition of the third party timberlands and the
issuance of certain tax agreements satisfactory to the Pacific Lumber
Parties.

          In November 1997, President Clinton signed an appropriations bill
which authorizes the expenditure of $250 million of federal funds towards
consummation of the Headwaters Agreement.  These funds remain available
until March 1, 1999, and their availability is subject to, among other
things, contribution by California of its $130 million portion of funding
for the Headwaters Agreement.   In September 1998, California Governor
Wilson signed the California Headwaters Bill, which among other things,
appropriated California's $130 million portion of the funding required to
consummate the Headwaters Agreement.  The state funds remain available
until June 30, 1999.  The bill also contains an additional appropriation
available from July 1, 1999 until June 30, 2000 authorizing the expenditure
of up to $80 million toward acquisition at fair market value of the Owl
Creek grove from Scotia LLC.  If any portion of the $80 million remains
after purchase of the Owl Creek grove, it may be used to purchase certain
other timberlands.  An additional $20 million was appropriated under the
bill toward purchase of a forest grove referred to as "Grizzly Creek" from
Pacific Lumber at fair market value.  The Combined Plan (see below) would
have allowed the harvesting over time of either the Owl Creek grove or
Grizzly Creek grove.  The Scheduled Amortization schedule for the Timber
Notes assumed that the Owl Creek grove would be harvested over time;
however, a provision of the California Headwaters Bill designates the Owl
Creek grove as a conservation area for the marbled murrelet, which would
have the effect of restricting the activities which could be conducted in
the grove.  Pacific Lumber estimates that the Owl Creek grove constitutes
approximately 2% of the aggregate Mbfe contained in the timber owned by
Scotia LLC.  It is uncertain whether the Owl Creek grove will ultimately be
sold to the state of California.  Furthermore, Scotia LLC could arrange to
exchange the Owl Creek grove for other timberlands pursuant to the
substitute collateral provisions of the Timber Notes Indenture.  Were the
Owl Creek grove to be sold to the state of California, Scotia LLC would be
required to recognize Deemed Production (as defined in the Timber Notes
Indenture) with respect to the Mbfe contained within the grove, which could
result in significant prepayments (and related prepayment premiums) which
might be offset by a reduction in the required amortization in later years
attributable to not having any actual harvest from the Owl Creek grove.

          The California Headwaters Bill contains provisions requiring the
inclusion of additional environmentally focused provisions in the final
version of the Multi-Species HCP, including establishing wider interim
streamside "no-cut" buffers (while the watershed assessment process referred
to below is being completed) than provided for in the Combined Plan,
obligating Pacific Lumber and the government agencies to establish a
schedule that results in completion of the watershed assessment process
within five years (on a watershed by watershed basis), imposing minimum and
maximum "no-cut" buffers upon the watershed assessment process and
designating the Company's Owl Creek grove as a marbled murrelet
conservation area.  The California Headwaters Bill also provides that the
SYP shall be subject to the foregoing provisions. 

          With respect to the SYP, Pacific Lumber has proposed an LTSY
which is approximately 10% less than Pacific Lumber's average timber
harvest over the last three calendar years.  If the SYP is approved by the
CDF, Pacific Lumber will have complied with certain BOF regulations
requiring timber companies to project timber growth and harvest on their
timberlands over a 100-year planning period and establish an LTSY harvest
level.  The SYP must demonstrate that the average annual harvest over any
rolling ten-year period will not exceed the LTSY harvest level and that
Pacific Lumber's projected timber inventory is capable of sustaining the
LTSY harvest level in the last decade of the 100-year planning period.  The
SYP is expected to be valid for ten years, although it would be subject to
review after five years.  Thereafter, revised SYPs would be prepared every
decade that address the LTSY harvest level based upon reassessment of
changes in the resource base and other factors.

          In July 1998, the proposed Combined Plan was made available to
the public for review and comment.  The proposed Multi-Species HCP and
related Permits would have a term of 50 years, and would, among other
things, limit the activities which could be conducted by Pacific Lumber in
various forest groves to those which would not be detrimental to marbled
murrelet habitat.  Under the Multi-Species HCP and the California
Headwaters Bill, these groves aggregate approximately 8,500 acres and
consist of substantial quantities of virgin and residual old growth redwood
and Douglas-fir timber.  The Combined Plan and a draft EIR/EIS analyzing
the Headwaters Agreement were released and made available for public review
and comment in July 1998 and early October 1998, respectively.  The public
review and comment periods for the Combined Plan and the draft EIR/EIS
closed on November 16, 1998.

          The Company believes that submission of the proposed Combined
Plan and the draft EIR/EIS for public review and comment and passage of the
California Headwaters Bill are favorable developments that enhance the
prospects for consummation of the Headwaters Agreement and the issuance of
the Permits.  However, certain provisions of the California Headwaters
Bill, including its provisions relating to the watershed assessment
process, are required to be included in the final version of the Combined
Plan.  In addition, discussions are expected to occur with regulatory
agencies following the conclusion of the public review and comment periods
referred to above, which discussions are expected to result in proposed
amendments to the Combined Plan.  The provisions of the California
Headwaters Bill impose, and the potential proposed amendments could impose,
more stringent harvesting requirements and reduce the amount of timber that
Pacific Lumber will be permitted to harvest as contemplated by the SYP in
its current form.  Inasmuch as approval of the Multi-Species HCP and the
SYP are conditions to the consummation of the Headwaters Agreement and
certain modifications proposed by the regulatory agencies may not be
acceptable to Pacific Lumber, any such proposed modifications could also
affect the consummation of the Headwaters Agreement.  Accordingly, while
the parties are working diligently to complete the closing conditions
contained in the Headwaters Agreement, there can be no assurance that the
Multi-Species HCP and the SYP will be approved, that the Permits will be
issued or that the Headwaters Agreement will be consummated.  If the
Headwaters Agreement is not consummated and Pacific Lumber is unable to
harvest or is severely limited in harvesting on various of its timberlands,
it intends to continue and/or expand its takings litigation seeking just
compensation from the appropriate government agencies on the grounds that
such restrictions constitute an uncompensated governmental taking of
private property for public use.

          Several species, including the northern spotted owl, the marbled
murrelet and the coho salmon, have been listed as endangered or threatened
under the ESA and/or the CESA.  Pacific Lumber has developed federal and
state ("no-take") northern spotted owl management plans which permit
harvesting activities to be conducted so long as Pacific Lumber adheres to
certain measures designed to protect the northern spotted owl.  The
potential impact of the listings of the marbled murrelet and the coho
salmon is more uncertain.  If the Multi-Species HCP is approved, Pacific
Lumber would be issued the Permits, which would allow limited incidental
"take" of listed species so long as there was no "jeopardy" to the
continued existence of such species, and the Multi-Species HCP would
identify the measures to be instituted in order to minimize and mitigate
the anticipated level of take to the greatest extent practicable.  The
Multi-Species HCP would not only provide for Pacific Lumber's compliance
with habitat requirements for currently listed species, it should also
provide greater certainty and protection for Pacific Lumber with regard to
identified species that may be listed in the future.

          Lawsuits are pending or threatened which seek to prevent Pacific
Lumber from implementing certain of its approved THPs or other operations. 
While challenges with respect to Pacific Lumber's young growth timber have
historically been limited, on January 26, 1998, the Coho lawsuit was filed
against Pacific Lumber, Scotia Pacific and Salmon Creek.  This action
alleges, among other things, violations of the ESA and claims that
defendants' logging operations in five watersheds have contributed to the
"take" of the coho salmon.  The plaintiffs seek, among other things, to
enjoin timber harvesting on the THPs and acreage identified, and to require
Pacific Lumber to restore coho habitat allegedly harmed by adverse
cumulative effects of past (approved) timber harvesting.  Pacific Lumber
has also received notice of additional threatened actions with respect to
the coho salmon.  Pacific Lumber is unable to predict the outcome of this
case or its ultimate impact on its financial condition or results of
operations or the ability to harvest timber on its THPs.  While the Company
expects environmentally focused objections and lawsuits to continue, it
believes that the Combined Plan should enhance its position in connection
with these challenges.  The Company also believes that the Combined Plan
should expedite the preparation and facilitate approval of Pacific Lumber's
THPs, although there can be no assurance that Pacific Lumber will not face
difficulties in the THP submission and approval process similar to those it
has been experiencing.  See "--Results of Operations--Forest Products
Operations--Recent Operating Results."

          In the event that the final Combined Plan is not approved or is
not acceptable to Pacific Lumber, Pacific Lumber will not enjoy the
benefits of a more streamlined THP preparation and review process. 
Furthermore, it is impossible for the Company to determine the potential
adverse effect of (i) the listings of the marbled murrelet and coho salmon
if the Combined Plan is not approved or is not acceptable to Pacific
Lumber, or (ii) the EPA's potential regulations regarding water quality on
the Company's financial position, results of operations or liquidity until
such time as the various regulatory and legal issues are resolved; however,
if Pacific Lumber is unable to harvest, or is severely limited in
harvesting, on significant amounts of its timberlands, such effect could be
materially adverse to the Company.

YEAR 2000

          The Company utilizes software and related technologies throughout
its business that will be affected by the date change to the year 2000. 
There may also be technology embedded in certain of the equipment owned or
used by the Company that is susceptible to the year 2000 date change as
well.  Each of the Company's segments have implemented programs to assess
the impact of the year 2000 date change.  Year 2000 progress and readiness
has also been the subject of the Company's normal, recurring internal audit
function.

          Kaiser has implemented a company-wide program to coordinate the
year 2000 efforts of its individual business units and to track their
progress.  The intent of the program is to make sure that critical items
are identified on a sufficiently timely basis to assure that the necessary
resources can be committed to address any material risk areas that could
prevent its systems and assets from being able to meet Kaiser's business
needs and objectives.   Each of Kaiser's business units has developed, or
is completing, year 2000 plans specifically tailored to their individual
situations.  A wide range of solutions are being implemented, including
modifying existing systems and, in limited cases where it is cost
effective, purchasing new systems.  Spending related to these projects,
which began in 1997 and is expected to continue through 1999, is currently
estimated to be in the $10-15 million range.  System modification costs are
being expensed as incurred.  Costs associated with new systems are being
capitalized and will be amortized over the life of the product.  Kaiser has
established an internal goal of having all necessary system changes in
place and tested by mid-year 1999.  Kaiser plans to commit the necessary
resources to meet this deadline.

          In addition to addressing Kaiser's internal systems, its company-
wide program involves identification of key suppliers, customers, and other
third party relationships that could be impacted by year 2000 issues.  A
general survey has been conducted of Kaiser's supplier base.  Direct
contact has been made, or is in progress, with parties which are deemed to
be critical including financial institutions, power suppliers and
customers, with which Kaiser has a material relationship.

          Each business unit, including the corporate group, is developing
a contingency plan covering the steps that would be taken if a year 2000
problem were to occur despite Kaiser's best efforts to identify and remedy
all critical at-risk items.  Each contingency plan will address, among
other things, matters such as alternative suppliers for critical inputs,
incremental standby labor requirements at the millennium to address any
problems as they occur, and backup processing capabilities for critical
equipment or processes.  The goal of the contingency plans will be to
minimize any business interruptions and the associated financial
implications.

          MGI has established a team to address the potential impacts of
the year 2000 on each of its critical business functions.  The team has
substantially completed its assessment of MGI's critical information
technology and embedded technology, including its geographic information
system and the equipment and systems used in its operating sawmills and
cogeneration plant, and is now in the process of making the required
modifications for these systems to be year 2000 compliant.  The
modification costs are expected to be immaterial, costing less than
$100,000, and are expected to be completed by mid-year 1999.  In most cases
testing of the modifications will also be completed by such time.  System
modification costs are being expensed as incurred.  Costs associated with
new systems are being capitalized and will be amortized over the life of
the product. 

          In addition to addressing MGI's internal systems, the team is in
the process of identifying key vendors that could be impacted by year 2000
issues and surveys are being conducted regarding their compliance effort. 
Management expects to  evaluate the responses to the surveys over the next
several months and will make direct contact with parties which are deemed
to be critical.  

          The Company's real estate segment has substantially completed the
process of evaluating its information technology systems, and has either
completed the modifications to make these systems compliant or expects to
complete the required modifications by the end of 1998.  The costs are not
material.  Other assets with embedded technology are not significant to the
business operations of this segment.  Several financial institutions
provide various services to this segment which are critical to its business
operations, and inquiries as to the status of their year 2000 compliance
evaluations are in the process of being conducted.

          SHRP, Ltd. is currently in the process of assessing both its
information technology systems and its embedded technology in order to
determine that they are, or will be, year 2000 compliant.  Management has
already determined that its financial data processing hardware and software
are compliant and is presently working with certain key third parties and
support groups of its embedded technology to ensure that they are taking
appropriate measures to assure compliance.  SHRP, Ltd. believes that the
total cost to make these systems year 2000 compliant will not exceed
$100,000.  The most significant area still being evaluated pertains to
certain key third parties, in particular, the firm that provides its
totalisator services to it and others in the horse racing industry.  These
data processing services are required in order for SHRP, Ltd. to conduct
pari-mutuel wagering in the state of Texas.  Management, as well as the
thoroughbred racing industry's association, has received assurances that
such systems will be compliant by the third quarter of 1999.  Management is
evaluating other third party providers of these and other services and
equipment in the event that any such vendors can not provide assurance of
year 2000 compatibility in sufficient time to effect a change. 

          While the Company believes that its program is sufficient to
identify the critical issues and associated costs necessary to address
possible year 2000 problems in a timely manner, there can be no assurance
that the program, or underlying steps implemented, will be successful in
resolving all such issues prior to the year 2000.  If the steps taken by
the Company (or critical third parties) are not made in a timely manner, or
are not successful in identifying and remedying all significant year 2000
issues, business interruptions or delays could occur and could have a
material adverse impact on the Company's results and financial condition. 
However, based on the information the Company has gathered to date and its
expectations of remedying problems encountered, the Company believes that
it will not experience significant business interruptions that would have a
material impact on its results or financial condition.

                        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 subsequent to the filing of the Form 10-K.

MAXXAM INC. LITIGATION

          With respect to the Rockwell matter described in the Form 10-K,
on November 4, 1998, an agreement in principle was reached to settle for a
$3.2 million payment by the Company.  Final settlement and dismissal
documents are being prepared.

          With respect to the OTS action described in the Form 10-K, the
hearing adjourned for a second time on October 16, 1998 after the OTS
concluded the chief portion of its case.  The hearing is scheduled to
recommence on February 9, 1999, at which time the respondents will present
their case.  The hearing is expected to conclude in April 1999.  

KAISER LITIGATION

          With respect to the United States of America v. Kaiser Aluminum &
Chemical Corporation lawsuit described in the Form 10-K, on August 28,
1998, a Certificate of Completion was filed with the United States District
Court for the Eastern District of Washington, evidencing completion of a
program of plant improvements and operational changes at KACC's Trentwood,
Washington, facility, and the attainment and maintenance of furnace
compliance with the capacity standard in the Washington State
Implementation Plan.  Thirty days thereafter, the Consent Decree between
KACC and the United States Environmental Protection Agency was terminated.

          With respect to the Hammons v. Alcan Aluminum Corp. et al lawsuit
described in the Form 10-K, on May 4, 1998, the United States Court of
Appeals for the Ninth Circuit denied the plaintiff's petition for a
rehearing en banc.  On August 12, 1998, the plaintiff filed a petition with
the Supreme Court of the United States for a writ of certiorari, which
petition was denied on October 19, 1998.

PACIFIC LUMBER LITIGATION

          On August 12, 1998, the EPIC lawsuit was filed against Pacific
Lumber, Scotia Pacific and Salmon Creek in the United States District Court
for the Northern District of California.  The action relates to a number of
Pacific Lumber's THPs.  The plaintiffs allege that certain procedural
violations of the ESA have resulted from defendants' logging activities on
Pacific Lumber's timberlands and seek to prevent the defendants from
carrying out any harvesting activities until certain purported intra-agency
wildlife consultation requirements under the ESA are satisfied in
connection with the Combined Plan.  See Part I. Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Trends."  On September 3, 1998, the Court granted plaintiffs' motion for
preliminary injunction covering three THPs (consisting principally of old
growth Douglas-fir timber).  Following evidentiary hearings, which concluded
on October 22, 1998, the Court requested additional briefing which was filed
on November 9, 1998.  The preliminary injunction remains in effect pending
the Court's review of the evidence and the additional briefs.  Pacific
Lumber is uncertain what impact this matter will have upon its operations
and financial results, but were the Court to reaffirm the preliminary
injunction after consideration of the evidence and additional briefs, it is
possible that other approved timber harvesting activities on Pacific
Lumber's timberlands could be severely restricted (and revenues potentially
significantly adversely affected) until such time as the consultation
requirements are satisfied. Pacific Lumber is vigorously defending this
matter and is devoting resources toward facilitating completion of the
consultation requirements as soon as practicable.

          With respect to the Coho lawsuit described in the Form 10-K, on
July 31, 1998, plaintiffs amended their complaint to include certain
additional THPs and are seeking to require defendants to restore coho habitat
allegedly harmed by adverse cumulative effects of past (approved) timber
harvesting.  On November 2, 1998, the Court heard argument and took under
submission defendants' motion for summary judgment challenging plaintiffs
standing to bring this action.  Pacific Lumber has also received notice of
additional threatened actions with respect to the coho salmon.

          Pacific Lumber is also subject to certain other pending THP cases
which would not be expected to have a material adverse effect upon Pacific
Lumber; however, due to the diminished supply of THPs currently held by
Pacific Lumber, the issuance of injunctive or similar relief in certain of
these cases could exacerbate the difficulties that Pacific Lumber has been
experiencing with respect to the conduct of harvesting operations.  See
Part I.  Item 2.  "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Result of Operations--Forest Products
Operations--Recent Operating Results."

          On May 27, 1998, an action entitled Mateel Environmental Justice
Foundation v. Pacific Lumber, et al. (No. DR980301) was brought and is now
pending in the Superior Court of Humboldt County against MGI, Scotia
Pacific, Pacific Lumber and Salmon Creek.  This action alleges, among other
things, violations of California's unfair competition law of the business
and professions code based on citations and violations (primarily water
quality related) issued against certain defendants since 1994 in connection
with a substantial number of THPs.  The plaintiff seeks, among other
things, an injunction prohibiting alleged unlawful actions and requiring
corrective action, disgorgement of profits, appointment of a receiver to
ensure compliance with the law and any judgment, and financial security
with respect to future THPs to ensure full compliance with the California
Forest Practice Act.  The Company does not believe that this matter will
have a material adverse effect upon its business or financial condition.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

A.        EXHIBITS:

          *4.1      Loan Agreement, dated as of October 27, 1998, among
                    Southwest Bank of Texas, N.A., MCO Properties Inc., MCO
                    Properties L.P., Horizon Corporation and Horizon
                    Properties Corporation

          10.1      Employment Agreement between KACC and John T. La Duc
                    made effective for the period from January 1, 1998 to
                    December 31, 2002 (incorporated herein by reference to
                    Exhibit 10.5 to the Quarterly Report on Form 10-Q of
                    Kaiser for the quarter ended September 30, 1998, File
                    No. 1-9447)

          10.2      Time-Based Stock Option Grant pursuant to the Kaiser
                    1997 Omnibus Stock Incentive Plan to John T. La Duc
                    effective July 10, 1998 (incorporated herein by
                    reference to Exhibit 10.6 to the Quarterly Report on
                    Form 10-Q of Kaiser for the quarter ended September 30,
                    1998, File No. 1-9447)

          *11       Computation of Net Income per Common and Common Equivalent
                    Share

          *27.1     Financial Data Schedule for the quarter ended September
                    30, 1998

*    Included with this filing.

B.   REPORTS ON FORM 8-K:

          None.


<PAGE>
                                 SIGNATURES


          Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, who have signed this report
on behalf of the Registrant and as the principal financial officer and
principal accounting officer of the Registrant, respectively.


                                           MAXXAM INC.




Date:  November 13, 1998        By:     /S/ PAUL N. SCHWARTZ         
                                         Paul N. Schwartz
                                  President and Chief Financial
                                             Officer 
                                  (Principal Financial Officer)


Date:  November 13, 1998        By:   /S/ ELIZABETH D. BRUMLEY       
                                       Elizabeth D. Brumley
                                       Assistant Controller
                                  (Principal Accounting Officer)
<PAGE>

                                                                 APPENDIX A

                         GLOSSARY OF DEFINED TERMS

AMT Price:  Average Midwest transaction price for primary aluminum

BOF:  California Board of Forestry

Britt:  Britt Lumber Co., Inc., an indirect, wholly owned subsidiary of MGI

CDF:  California Department of Forestry and Fire Protection

California Headwaters Bill:  The bill enacted August 31, 1998 by the
California Legislature which, among other things appropriates California's
$130 million portion of funding required to consummate the Headwaters
Agreement, appropriates up to an additional $80 million to acquire the Owl
Creek grove and contains environmentally focused provisions regarding
streamside buffers, the watershed assessment process and designation of the
Owl Creek grove as a marbled murrelet conservation area

CERCLA:   Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986

CESA:  California Endangered Species Act

Class A Preferred Stock:  Class A $.05 Non-Cumulative Participating
Convertible Preferred Stock of the Company

CMRT:  The Combined Master Retirement Trust

Coho lawsuit:  An action entitled Coho Salmon, et al. v. Pacific Lumber, et
al.  (No. 98-0283) filed January 26, 1998 in the United States District
Court for the Northern District of California 

Combined Plan:  The combined SYP and Multi-Species HCP released by Pacific
Lumber and Scotia LLC for public review and comment in July 1998

Common Stock:  $.50 par value common stock of the Company

Company:  MAXXAM Inc., including its subsidiaries unless otherwise noted or
the context indicates otherwise

Custodial Trust Agreement:  A loan and pledge agreement between the Company
and the Custodial Trust Company providing for up to $25.0 million in
borrowings

EIR/EIS:  An environmental impact statement/report analyzing the
Combined Plan and the Headwaters Agreement released by Pacific Lumber

EPA:  Environmental Protection Agency

EPIC lawsuit:  An action entitled Environmental Protection Information
Center, Inc., Sierra Club v. Pacific Lumber, Scotia Pacific and Salmon
Creek (No. C98-3129) filed August 12, 1998 in the United States District
Court for the Northern District of California

ESA:  The federal Endangered Species Act

Event of Default:  Event of Default under the Timber Notes as defined in
the Timber Notes Indenture

FDIC:  Federal Deposit Insurance Corporation

FDIC action:  A civil action filed by the FDIC on August 2, 1995 entitled
Federal Deposit Insurance Corporation, as manager of the FSLIC Resolution
Fund v. Charles E. Hurwitz

Federated:  Federated Development Company, a principal stockholder of the
Company

Form 10-K:  The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended December 31,
1997

HCP:  Habitat Conservation Plan

Headwaters Agreement:  The September 28, 1996 agreement among the Pacific
Lumber Parties, the United States and California which provides the
framework for the acquisition by the United States and California of  the
Headwaters Timberlands

Headwaters Timberlands:  Approximately 5,600 acres of Pacific Lumber's
timberlands consisting of two forest groves commonly referred to as the
Headwaters Forest and the Elk Head Springs Forest

KACC:   Kaiser Aluminum & Chemical Corporation, Kaiser's principal
operating subsidiary

KACC Credit Agreement:  The revolving credit facility with KACC and a bank
under which KACC is able to borrow by means of revolving credit advances
and letters of credit (up to $125.0 million) in an aggregate amount equal
to the lesser of $325.0 million or a borrowing base relating to eligible
accounts receivable plus eligible inventory

Kaiser:  Kaiser Aluminum Corporation, a subsidiary of the Company engaged
in aluminum operations

Liquidity Account:  A liquidity account maintained by Scotia Pacific with
respect to the Old Timber Notes

LTSY:  Long-term sustained yield

Mbfe:  A concept used in structuring the Timber Notes; under this concept,
one thousand board feet, net Scribner scale, of old growth redwood timber
equates to one Mbfe

MCOP Credit Agreement:  $14.0 million revolving credit facility between
certain of the Company's real estate subsidiaries and a bank

MGHI:  MAXXAM Group Holdings Inc.

MGI:  MAXXAM Group Inc.

MGI Discount Notes:  12-1/4% MGI Senior Secured Discount Notes due August
1, 2003

MGI Notes:  MGI Discount Notes and MGI Senior Notes

MGI Senior Notes:  11-1/4% MGI Senior Secured Notes due August 1, 2003

Minimum Principal Amortization:  The minimum amount of principal on the
Timber Notes which Scotia LLC must pay (on a cumulative basis and subject
to available cash) through any Timber Notes payment date in order to avoid
an Event of Default (as defined in the Timber Notes Indenture)

Multi-Species HCP:  The HCP covering multiple species contemplated by the
Headwaters Agreement

NL:  NL Industries, Inc.

Notice:  A Notice of Charges filed on December 26, 1995 by the OTS against
the Company and others with respect to the failure of USAT

Old Timber Notes:  The 7.95% Scotia Pacific Timber Collateralized Notes due
July 20, 2015

OTS:  The United States Department of Treasury's Office of Thrift
Supervision

Owl Creek grove:  A 900-acre grove of primarily old growth timber owned by
Scotia LLC

Pacific Lumber:  The Pacific Lumber Company, an indirect, wholly owned
subsidiary of MGI

Pacific Lumber Credit Agreement:  The revolving credit agreement between
Pacific Lumber and a bank which provides for borrowings of up to $60.0
million, of which $20.0 million may be used for standby letters of credit
and $30.0 million is restricted to timberland acquisitions

Pacific Lumber Parties:  Pacific Lumber, including its subsidiaries and
affiliates, and MAXXAM

Pacific Lumber Senior Notes:  10-1/2% Pacific Lumber Senior Notes due March
1, 2003

Permits:  The incidental take permits related to the Multi-Species HCP

Pre-Permit Agreement:    The February 27, 1998 Pre-Permit Application
Agreement in Principle entered into by Pacific Lumber, MAXXAM and various
government agencies regarding certain understandings that they had reached
regarding the Multi-Species HCP, the Permits and the SYP

RTC Portfolio:  A portfolio originally consisting of 27 parcels of income
producing real property and 28 loans purchased from the Resolution Trust
Corporation in June 1991

Salmon Creek:  Salmon Creek Corporation, a wholly owned subsidiary of
Pacific Lumber

Scheduled Amortization:  The minimum amount of principal on the Timber
Notes which Scotia LLC must pay (on a cumulative basis) through any Timber
Notes payment date in order to avoid payment of prepayment or deficiency
premiums

Scotia LLC:  Scotia Pacific Company LLC, a limited liability company wholly
owned by Pacific Lumber 

Scotia Pacific:  Scotia Pacific Holding Company, a wholly owned subsidiary
of Pacific Lumber, which was merged into Scotia LLC on July 20, 1998

SFAS No. 130:  Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income"

SFAS No. 133:  Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"

SHRP, Ltd.:  Sam Houston Race Park, Ltd., a 98.2%-owned subsidiary of
MAXXAM

SHRP Notes:  The SHRP, Ltd. 11% Senior Secured Extendible Notes due
September 1, 2001

Stipulation:  Stipulation entered into between CDF and Pacific Lumber in
December 1997 in connection with the administrative action entitled:  In
the matter of the Statement of Issues Against:  The Pacific Lumber Company,
Timber Operator License A-5326 (No. LT 97-8) with respect to Pacific
Lumber's TOL

SYP:  The sustained yield plan establishing LTSY harvest levels for Pacific
Lumber's timberlands

THP:  Timber harvesting plan required to be filed with and approved by the
CDF prior to the harvesting of timber

Timber Notes Indenture:  The indenture dated July 20, 1998 governing the
Timber Notes

Timber Notes:  The Scotia LLC 6.55% Class A-1, 7.11% Class A-2 and 7.71%
Class A-3 Timber Collateralized Notes due July 20, 2028

Timber Notes Line of Credit:  A line of credit provided as security for the
payment of interest on the Timber Notes, which line of credit secures the
payment of one year's interest on the Timber Notes

TOL:  Timber operator's license allowing the holder to conduct timber
harvesting operations

UFG:  United Financial Group, Inc.

USAT:  United Savings Association of Texas

USWA:  United Steelworkers of America

Valco:  Volta Aluminum Company Limited, Kaiser's 90%-owned smelter facility
in Ghana

VRA:  Volta River Authority, an electric power supplier to Valco