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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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



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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999     COMMISSION FILE NUMBER 333-18723

                           MAXXAM GROUP HOLDINGS INC.

             (Exact name of Registrant as Specified in its Charter)


              DELAWARE                                      76-0518669
   (State or other jurisdiction                         (I.R.S. Employer
 of incorporation or organization)                    Identification Number)

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

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

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


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

                                      None.

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

                                      None.

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


      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes /X/   No / /

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

      Number of shares of Common Stock outstanding at March 8, 2000: 1,000

      REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                 Not applicable.

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                                TABLE OF CONTENTS

                                     PART I

Item 1.    Business
               General
               Forest Products Operations
                        Pacific Lumber Operations
                        Britt Lumber Operations
                        Regulatory and Environmental Factors and Headwaters
                           Agreement
               Aluminum Operations

Item 2.    Properties

Item 3.    Legal Proceedings

Item 4.    Submission of Matters to a Vote of Security Holders

                                  PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

Item 6.    Selected Financial Data

Item 7.    Management's Discussion and Analysis of Financial Condition
               and Results of Operations

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Item 8.    Financial Statements and Supplementary Data
               Report of Independent Public Accountants
               Consolidated Balance Sheet
               Consolidated Statement of Operations
               Consolidated Statement of Cash Flows
               Consolidated Statement of Stockholder's Deficit
               Notes to Consolidated Financial Statements

Item 9.    Changes in and Disagreements with Accountants on Accounting and
                   Financial Disclosure

                                 PART III

Items
   10-13.  Not applicable.

                                  PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K


ITEM 1.         BUSINESS

GENERAL

      MAXXAM Group Holdings Inc. (the "COMPANY" or "MGHI") is a wholly owned
subsidiary of MAXXAM Inc. ("MAXXAM"). The Company's wholly owned subsidiary,
MAXXAM Group Inc. ("MGI"), and MGI's wholly owned subsidiaries, The Pacific
Lumber Company ("PACIFIC LUMBER") and Britt Lumber Co., Inc. ("BRITT"), are
engaged in forest products operations. Pacific Lumber's principal wholly owned
subsidiaries are Scotia Pacific Company LLC ("SCOTIA LLC") and Salmon Creek LLC
(formerly known as Salmon Creek Corporation; "SALMON CREEK"). As used herein,
the terms "Company," "MGHI," "MGI," "Pacific Lumber," "Kaiser" or "MAXXAM" refer
to the respective companies and their subsidiaries, unless otherwise noted or
the context indicates otherwise.

      Pacific Lumber, which has been in continuous operation for over 130 years,
engages in several principal aspects of the lumber industry--the growing and
harvesting of redwood and Douglas-fir timber, the milling of logs into lumber
products and the manufacturing of lumber into a variety of value-added finished
products. Britt manufactures redwood fencing and decking products from small
diameter logs, a substantial portion of which Britt acquires from Pacific Lumber
(as Pacific Lumber cannot efficiently process them in its own mills). The
Company also owns 27,938,250 shares of the common stock of Kaiser Aluminum
Corporation ("KAISER"), representing a 35.2% interest in Kaiser. In addition,
MAXXAM has a direct interest in Kaiser of 27.8%. Kaiser is a publicly traded
company (New York Stock Exchange trading symbol "KLU") which operates in several
principal aspects of the aluminum industry--the mining of bauxite, the refining
of bauxite into alumina, the production of primary aluminum from alumina, and
the manufacture of fabricated (including semi-fabricated) aluminum products.

      This Annual Report on Form 10-K contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places
(see Item 1. "Business--Forest Products Operations--Pacific Lumber
Operations--Harvesting Practices," "--Production Facilities," "--Regulatory and
Environmental Factors" and "--Aluminum Operations," Item 3. "Legal Proceedings"
and Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Background," "--Financial Condition and Investing and
Financing Activities" and "--Trends"). 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 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 Report
identifies other factors that could cause such differences between such
forward-looking statements and actual results. 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.

FOREST PRODUCTS OPERATIONS

   PACIFIC LUMBER OPERATIONS

      Consummation of the Headwaters Agreement
      On March 1, 1999, Pacific Lumber, Scotia LLC and Salmon Creek
(collectively, the "PALCO COMPANIES") consummated the Headwaters Agreement (the
"HEADWATERS AGREEMENT") with the United States and California. See "--Regulatory
and Environmental Factors" below. Pursuant to the terms of the Headwaters
Agreement, approximately 5,600 acres of timberlands owned by the Palco Companies
known as the Headwaters Forest and the Elk Head Springs Forest (the "HEADWATERS
TIMBERLANDS") were transferred to the United States. A substantial portion of
the Headwaters Timberlands consists of virgin old growth timberlands. In
consideration for the transfer of the Headwaters Timberlands, Salmon Creek was
paid $299.9 million, Scotia LLC was paid $150,000 and approximately 7,700 acres
of timberlands known as the Elk River Timberlands (the "ELK RIVER TIMBERLANDS")
were transferred to Pacific Lumber (and subsequently transferred to Scotia LLC).
In addition, upon consummation of the Headwaters Agreement (i) habitat
conservation and sustained yield plans were approved covering the Scotia LLC
Timberlands (as defined below), (ii) California agreed to purchase Scotia LLC's
Owl Creek grove and a portion of Pacific Lumber's Grizzly Creek grove, and (iii)
the Palco Companies dismissed takings litigation pending against the United
States and California. Salmon Creek deposited $285.0 million of the proceeds
from the sale of the Headwaters Timberlands into escrow pursuant to an Escrow
Agreement (the "ESCROW AGREEMENT"). These proceeds were released from escrow in
November 1999, with $169.0 million being placed into a Scheduled Amortization
Reserve Account ("SAR ACCOUNT") in order to support principal payments on Scotia
LLC's Timber Notes (as defined below). See "--Regulatory and Environmental
Factors--Escrow Agreement and SAR Account" below.

      Timber and Timberlands
      Pacific Lumber owns and manages approximately 220,000 acres of virtually
contiguous commercial timberlands located in Humboldt County along the northern
California coast, an area which has very favorable soil and climate conditions
for growing timber. These timberlands contain approximately 67% redwood, 26%
Douglas-fir and 7% other timber, are located in close proximity to Pacific
Lumber's four sawmills and contain an extensive network of roads. Approximately
206,000 acres of Pacific Lumber's timberlands are owned by Scotia LLC (the
"SCOTIA LLC TIMBERLANDS"). In addition, Scotia LLC has the exclusive right to
harvest (the "SCOTIA LLC TIMBER RIGHTS") approximately 12,200 acres of Pacific
Lumber's timberlands. The timber in respect of the Scotia LLC Timberlands and
the Scotia LLC Timber Rights is collectively referred to as the "SCOTIA LLC
TIMBER." Substantially all of Scotia LLC's assets are pledged as security for
its 6.55% Class A-1 Series B Timber Collateralized Notes, 7.11% Class A-2 Series
B Timber Collateralized Notes and 7.71% Class A-3 Series B Timber Collateralized
Notes (collectively the "TIMBER NOTES"). The Timber Notes are governed by an
Indenture (the "TIMBER NOTES INDENTURE"). Pacific Lumber harvests and purchases
from Scotia LLC virtually all of the logs harvested from the Scotia LLC Timber.
See "--Relationships with Scotia LLC and Britt" below for a description of this
and other relationships among Pacific Lumber, Scotia LLC and Britt.

      Timber generally is categorized by species and the age of a tree when it
is harvested. "OLD GROWTH" trees are often defined as trees which have been
growing for approximately 200 years or longer, and "YOUNG GROWTH" trees are
those which have been growing for less than 200 years. The forest products
industry grades lumber into various classifications according to quality. The
two broad categories into which all grades fall based on the absence or presence
of knots are called "upper" and "common" grades, respectively. Old growth trees
have a higher percentage of upper grade lumber than young growth trees.

      Pacific Lumber engages in extensive efforts to supplement the natural
regeneration of timber and increase the amount of timber on its timberlands.
Pacific Lumber is required to comply with California forestry regulations
regarding reforestation, which generally require that an area be reforested to
specified standards within an established period of time. Pursuant to the
Services Agreement described below (see "--Relationships with Scotia LLC and
Britt"), Pacific Lumber conducts regeneration activities on the Scotia LLC
Timberlands for Scotia LLC. Regeneration of redwood timber generally is
accomplished through the natural growth of new redwood sprouts from the stump
remaining after a redwood tree is harvested. Such new redwood sprouts grow
quickly, thriving on existing mature root systems. In addition, Pacific Lumber
supplements natural redwood regeneration by planting redwood seedlings.
Douglas-fir timber is regenerated almost entirely by planting seedlings. During
1999, Pacific Lumber planted an estimated 971,000 redwood and Douglas-fir
seedlings.

      California law requires timber owners such as Pacific Lumber to
demonstrate that their operations will not decrease the sustainable productivity
of their timberlands. A timber company may comply with this requirement by
submitting a sustained yield plan to the California Department of Forestry
("CDF") for review and approval. A sustained yield plan contains a timber growth
and yield assessment, which evaluates and calculates the amount of timber and
long-term production outlook for a company's timberlands, a fish and wildlife
assessment, which addresses the condition and management of fisheries and
wildlife in the area, and a watershed assessment, which addresses the protection
of aquatic resources. The relevant regulations require determination of a
long-term sustained yield ("LTSY") harvest level, which is the average annual
harvest level that the management area is capable of sustaining in the last
decade of a 100-year planning horizon. The LTSY is determined based upon timber
inventory, projected growth and harvesting methodologies, as well as soil,
water, air, wildlife and other relevant considerations. A sustained yield plan
must demonstrate that the average annual harvest over any rolling ten-year
period within the planning horizon does not exceed the LTSY.

      Pacific Lumber is also subject to federal and state laws providing for the
protection and conservation of wildlife species which have been designated as
endangered or threatened, certain of which are found on Pacific Lumber's
timberlands. These laws generally prohibit certain adverse impacts on such
species (referred to as a "TAKE"), except for incidental takes which do not
jeopardize the continued existence of the affected species and which are made in
accordance with an approved habitat conservation plan and related incidental
take permit. A habitat conservation plan analyzes the impact of the incidental
take and specifies measures to monitor, minimize and mitigate such impact. In
connection with the consummation of the Headwaters Agreement, Scotia LLC and
Pacific Lumber reached agreement with various federal and state regulatory
agencies with respect to a sustained yield plan (the "SYP") and a multi-species
habitat conservation plan (the "HCP," together with the SYP, the "ENVIRONMENTAL
PLANS"). See "--Regulatory and Environmental Factors" below.

      Harvesting Practices
      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.

      The ability of Pacific Lumber to harvest timber will depend, in part, upon
its ability to obtain regulatory approval of timber harvesting plans ("THPS").
Prior to harvesting timber in California, companies are required to file with
the CDF, and obtain its approval of, a detailed THP for the area to be
harvested. A THP must be submitted by a registered professional forester and
must include information regarding the method of proposed timber operations for
a specified area, whether the operations will have any adverse impact on the
environment and, if so, the mitigation measures to be used to reduce any such
impact. The CDF's evaluation of THPs incorporates review and analysis of such
THPs by several California and federal agencies and public comments received
with respect to such THPs. An approved THP is applicable to specific acreage and
specifies the harvesting method and other conditions relating to the harvesting
of the timber covered by such THP. The number of Pacific Lumber's approved THPs
and the amount of timber covered by such THPs varies significantly from time to
time, depending upon the timing of agency review and other factors. Timber
covered by an approved THP is typically harvested over more than one year. The
Timber Notes Indenture requires Scotia LLC to use its best efforts (consistent
with prudent business practices) to maintain a number of pending THPs which,
together with THPs previously approved, would cover rights to harvest a quantity
of Scotia LLC Timber adequate to pay interest and principal amortization based
on the Minimum Principal Amortization Schedule for the Timber Notes for the next
succeeding twelve month period. Despite Pacific Lumber's best efforts, during
the second half of 1998, into 1999 and through early 2000, Pacific Lumber has
experienced an absence of a sufficient number of available THPs for harvest to
enable it to conduct its operations at historical levels. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Trends." Pacific Lumber believes that the Environmental Plans should
in the long-term expedite the preparation and facilitate approval of its THPs,
although Pacific Lumber is experiencing difficulties in the THP approval process
as it implements the Environmental Plans.

      Pacific Lumber maintains a detailed geographical information system
covering its timberlands (the "GIS"). The GIS covers numerous aspects of Pacific
Lumber's properties, including timber type, tree class, wildlife data, roads,
rivers and streams. Subject to the terms of the Services Agreement (as defined
below), Pacific Lumber, to the extent necessary, provides Scotia LLC with
personnel and technical assistance to assist Scotia LLC in updating, upgrading
and improving the GIS and the other computer systems owned by Scotia LLC. By
carefully monitoring and updating this data base and conducting field studies,
Pacific Lumber's foresters are better able to develop detailed THPs addressing
the various regulatory requirements. Pacific Lumber also utilizes a Global
Positioning System ("GPS") which allows precise location of geographic features
through satellite positioning. Use of the GPS greatly enhances the quality and
efficiency of the GIS data.

      Pacific Lumber employs a variety of well-accepted methods of selecting
trees for harvest. These methods, which are designed to achieve optimal
regeneration, are referred to as "silvicultural systems" in the forestry
profession. Silvicultural systems range from very light thinnings aimed at
enhancing the growth rate of retained trees to clear cutting which results in
the harvest of all trees in an area and replacement with a new forest stand. In
between are a number of varying levels of partial harvests which can be
employed.

      Production Facilities
      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.

      Pacific Lumber owns four highly mechanized sawmills and related facilities
located in Scotia, Fortuna and Carlotta, California. The sawmills historically
have been supplied almost entirely from timber harvested from Pacific Lumber's
timberlands. Since 1986, Pacific Lumber has implemented numerous technological
advances that have increased the operating efficiency of its production
facilities and the recovery of finished products from its timber. Pacific Lumber
produced approximately 155, 230 and 309 million board feet of lumber in 1999,
1998 and 1997, respectively. The Fortuna sawmill produces primarily common grade
lumber and during 1999 produced approximately 54 million board feet of lumber.
The Carlotta sawmill produces both common and upper grade redwood lumber and
during 1999, produced approximately 31 million board feet of lumber. Sawmills
"A" and "B" are both located in Scotia. Sawmill "A" processes Douglas-fir logs
and Sawmill "B" primarily processes large diameter redwood logs. During 1999,
Sawmills "A" and "B" produced approximately 57 million and 11 million board feet
of lumber, respectively. During 1999, Pacific Lumber partially curtailed
operations at all of its sawmills due to difficulties in supplying an adequate
number of logs. The only sawmill which is curtailed at the present time is
Sawmill "B." See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Trends."

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

      Pacific Lumber dries the majority of its upper grade lumber before it is
sold. Upper grades of redwood lumber are generally air-dried for three to twelve
months and then kiln-dried for seven to twenty-four days to produce a
dimensionally stable and high quality product which generally commands higher
prices than "green" lumber (which is lumber sold before it has been dried).
Upper grade Douglas-fir lumber is generally kiln-dried immediately after it is
cut. Pacific Lumber owns and operates 34 kilns, having an annual capacity of
approximately 95 million board feet, to dry its upper grades of lumber
efficiently in order to produce a quality, premium product. Pacific Lumber also
maintains several large enclosed storage sheds which can hold approximately 27
million board feet of lumber.

      In addition, Pacific Lumber owns and operates a modern 25-megawatt
cogeneration power plant which is fueled almost entirely by the wood residue
from Pacific Lumber's milling and finishing operations. This power plant
generates substantially all of the energy requirements of Scotia, California,
the town adjacent to Pacific Lumber's timberlands where several of its
manufacturing facilities are located. Pacific Lumber sells surplus power to
Pacific Gas and Electric Company. In 1999, the sale of surplus power accounted
for approximately 2% of Pacific Lumber's total revenues.

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

<TABLE>
<CAPTION>

                                               YEAR ENDED DECEMBER 31, 1999               YEAR ENDED DECEMBER 31, 1998
                                          ---------------------------------------   ----------------------------------------
                                          % OF TOTAL                                 % OF TOTAL
                                            LUMBER      % OF TOTAL                     LUMBER      % OF TOTAL
                                          PRODUCTION      LUMBER      % OF TOTAL     PRODUCTION      LUMBER      % OF TOTAL
                PRODUCT                     VOLUME       REVENUES      REVENUES        VOLUME       REVENUES      REVENUES
                                          -----------   ------------  ------------   -----------   ------------  ------------
<S>                                       <C>           <C>           <C>            <C>           <C>           <C>
Upper grade redwood lumber.............           12%            29%           23%           14%            35%           29%
Common grade redwood lumber............           35%            39%           32%           58%            49%           41%
                                          -----------   ------------  ------------   -----------   ------------  ------------
   Total redwood lumber................           47%            68%           55%           72%            84%           70%
                                          -----------   ------------  ------------   -----------   ------------  ------------
Upper grade Douglas-fir lumber.........            7%            10%            8%            3%             5%            4%
Common grade Douglas-fir lumber........           41%            20%           16%           22%            10%            8%
                                          -----------   ------------  ------------   -----------   ------------  ------------
   Total Douglas-fir lumber............           48%            30%           24%           25%            15%           12%
                                          -----------   ------------  ------------   -----------   ------------  ------------
Other grades of lumber.................            5%             2%            2%            3%             1%            1%
                                          -----------   ------------  ------------   -----------   ------------  ------------
      Total lumber.....................          100%           100%           81%          100%           100%           83%
                                          ===========   ============  ============   ===========   ============  ============

Logs...................................                                         5%                                         6%
                                                                      ============                               ============

Hardwood chips.........................                                         4%                                         3%
Softwood chips.........................                                         4%                                         3%
                                                                      ------------                               ------------
   Total wood chips....................                                         8%                                         6%
                                                                      ============                               ============

</TABLE>

      Lumber. In 1999, Pacific Lumber sold approximately 178 million board feet
of lumber, which accounted for approximately 81% of its total revenues. Lumber
products vary greatly by the species and quality of the timber from which they
are produced. Lumber is sold not only by grade (such as "upper" grade versus
"common" grade), but also by board size and the drying process associated with
the lumber.

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

      Upper grade redwood lumber, which is derived primarily from large diameter
logs and is characterized by an absence of knots and other defects, is used
primarily in distinctive interior and exterior applications. The overall supply
of upper grade lumber has been diminishing due to increasing environmental and
regulatory restrictions and other factors. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Background."
Common grade redwood lumber, historically Pacific Lumber's largest volume
product, has many of the same aesthetic and structural qualities of redwood
uppers, but has some knots, sapwood and a coarser grain. Such lumber is commonly
used for construction purposes, including outdoor structures such as decks, hot
tubs and fencing.

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

      Logs. Pacific Lumber sells certain logs that, due to their size or
quality, cannot be efficiently processed by its mills into lumber. Substantially
all of these logs are purchased by Britt. See "--Relationships with Scotia LLC
and Britt" below. Except for the agreement with Britt described below, Pacific
Lumber does not have any significant contractual relationships with third
parties relating to the purchase of logs. During 1999, Pacific Lumber purchased
approximately 57 million board feet of logs from third parties.

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

      Backlog and Seasonality
      Pacific Lumber's backlog of sales orders at December 31, 1999 and 1998 was
$15.4 million and $16.8 million, respectively, the substantial portion of which
was delivered in the first quarter of the next fiscal year. The decline in the
sales backlog from 1998 to 1999 was principally due to a diminished supply of
THPs which reduced the volume of logs available for the production of lumber
products. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Trends." Pacific Lumber has historically
experienced lower first quarter sales due largely to the general decline in
construction-related activity during the winter months. As a result, Pacific
Lumber's results in any one quarter are not necessarily indicative of results to
be expected for the full year. See "--Regulatory and Environmental Factors"
below and Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Background."

      Other
      The Company also derives revenues from a soil amendment operation and a
concrete block manufacturing operation.

      Marketing
      The housing, construction and remodeling markets are the primary markets
for Pacific Lumber's lumber products. Pacific Lumber's policy is to maintain a
wide distribution of its products both geographically and in terms of the number
of customers. Pacific Lumber sells its lumber products throughout the country to
a variety of accounts, the large majority of which are wholesalers, followed by
retailers, industrial users, exporters and manufacturers. Upper grades of
redwood and Douglas-fir lumber are sold throughout the entire United States, as
well as to export markets. Common grades of redwood lumber are sold principally
west of the Mississippi River, with California accounting for approximately 51%
of these sales in 1999. Common grades of Douglas-fir lumber are sold primarily
in California. In 1999, Pacific Lumber had three customers which accounted for
approximately 7%, 7% and 4%, respectively, of Pacific Lumber's total net lumber
sales. Exports of lumber accounted for approximately 5% of Pacific Lumber's
total revenues in 1999. Pacific Lumber markets its products through its own
sales staff which focuses primarily on domestic sales.

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

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

      Employees
      As of March 1, 2000, Pacific Lumber had approximately 1,150 employees,
none of whom are covered by a collective bargaining agreement.

      Relationships with Scotia LLC and Britt
      Scotia LLC's foresters, wildlife and fisheries biologists, geologists and
other personnel are responsible for providing a number of forest stewardship
techniques, including protecting the timber located on the Scotia LLC
Timberlands from forest fires, erosion, insects and other damage, overseeing
reforestation activities and monitoring environmental and regulatory compliance.
Scotia LLC's personnel are also responsible for preparing THPs and updating the
information contained in the GIS. See "--Harvesting Practices" above for a
description of the GIS updating process and the THP preparation process.

      Scotia Pacific and Pacific Lumber are parties to several agreements
between themselves, including a master purchase agreement, a services agreement,
an additional services agreement, an environmental indemnification agreement and
a reciprocal rights agreement. The master purchase agreement (the "MASTER
PURCHASE AGREEMENT") governs the sale to Pacific Lumber of logs harvested from
the Scotia LLC Timberlands. As Pacific Lumber purchases logs from Scotia LLC
pursuant to the Master Purchase Agreement, Pacific Lumber is responsible, at its
own expense, for harvesting and removing the standing Scotia LLC Timber covered
by approved THPs, and the purchase price is therefore based upon "stumpage
prices." Title to, and the obligation to pay for, harvested logs does not pass
to Pacific Lumber until the logs are transported to Pacific Lumber's log decks
and measured. The Master Purchase Agreement generally contemplates that all
sales of logs by Scotia LLC to Pacific Lumber will be at a price which equals or
exceeds the applicable SBE Price. The Master Purchase Agreement defines the "SBE
PRICE" for any species and category of timber as the stumpage price for such
species and category, as set forth in the most recent "HARVEST VALUE SCHEDULE"
(or any successor publication) published by the California State Board of
Equalization (or any successor agency) applicable to the timber sold during the
period covered by such Harvest Value Schedule. Harvest Value Schedules are
published twice a year for purposes of computing a yield tax imposed on timber
harvested between January 1 through June 30 and July 1 through December 31. SBE
Prices are not necessarily representative of actual prices that would be
realized from unrelated parties at subsequent dates.

      After obtaining an approved THP, Scotia LLC offers for sale the logs to be
harvested pursuant to such THP. While Scotia LLC may sell logs to third parties,
it derives substantially all of its revenue from the sale of logs to Pacific
Lumber pursuant to the Master Purchase Agreement. Each sale of logs by Scotia
LLC to Pacific Lumber is made pursuant to a separate log purchase agreement that
relates to the Scotia LLC Timber covered by an approved THP and incorporates the
provisions of the Master Purchase Agreement. Each such log purchase agreement
provides for the sale to Pacific Lumber of the logs harvested from the Scotia
LLC Timber covered by such THP and generally constitutes an exclusive agreement
with respect to the timber covered thereby, subject to certain limited
exceptions. However, the timing and amount of log purchases by Pacific Lumber is
affected by factors outside the control of Scotia LLC, including regulatory and
environmental factors, the financial condition of Pacific Lumber, Pacific
Lumber's own supply of timber and its ability to harvest such timber, and the
supply and demand for lumber products (which, in turn, will be influenced by
demand in the housing, construction and remodeling industries).

      Scotia LLC continues to rely on Pacific Lumber to provide operational,
management and related services not performed by its own employees with respect
to the Scotia LLC Timberlands pursuant to a services agreement (the "SERVICES
AGREEMENT"). The services under the Services Agreement include the furnishing of
all equipment, personnel and expertise not within Scotia LLC's possession and
reasonably necessary for the operation and maintenance of the Scotia LLC
Timberlands and the Scotia LLC Timber as well as timber management techniques
designed to supplement the natural regeneration of, and increase the amount of,
Scotia LLC Timber. Pacific Lumber is required to provide all services under the
Services Agreement in a manner consistent in all material respects with prudent
business practices which, in the reasonable judgment of Pacific Lumber (a) are
consistent with then current applicable industry standards and (b) are in
compliance in all material respects with all applicable timber laws. As
compensation for the services provided by Pacific Lumber pursuant to the
Services Agreement, Scotia LLC pays Pacific Lumber a services fee ("SERVICES
FEE") which is adjusted each year based on a specified government index relating
to wood products and reimburses Pacific Lumber for the cost of constructing,
rehabilitating and maintaining roads, and performing reforestation services, on
the Scotia LLC Timberlands, as determined in accordance with generally accepted
accounting principles. Certain of such reimbursable expenses are expected to
vary in relation to the amount of timber to be harvested in any given period.

      Scotia LLC and Pacific Lumber are also parties to an additional services
agreement (the "ADDITIONAL SERVICES AGREEMENT") pursuant to which Scotia LLC
provides certain services to Pacific Lumber. Services include (a) assisting
Pacific Lumber to operate, maintain and harvest its own timber properties, (b)
updating and providing access to the GIS with respect to information concerning
Pacific Lumber's own timber properties and (c) assisting Pacific Lumber with its
statutory and regulatory compliance. Pacific Lumber pays Scotia LLC a fee for
such services equal to the actual cost of providing such services, as determined
in accordance with generally accepted accounting principles.

      Scotia LLC, Pacific Lumber and Salmon Creek are also parties to a
reciprocal rights agreement (the "RECIPROCAL RIGHTS AGREEMENT") whereby, among
other things, the parties granted to each other certain reciprocal rights of
egress and ingress through their respective properties in connection with the
operation and maintenance of such properties and their respective businesses. In
addition, Pacific Lumber and Scotia LLC are parties to an environmental
indemnification agreement (the "ENVIRONMENTAL INDEMNIFICATION AGREEMENT"),
pursuant to which Pacific Lumber agreed to indemnify Scotia LLC from and against
certain present and future liabilities arising with respect to hazardous
materials, hazardous materials contamination or disposal sites, or under
environmental laws with respect to the Scotia LLC Timberlands. In particular,
Pacific Lumber is liable with respect to any contamination which occurred on the
Scotia LLC Timberlands prior to the date of their transfer to Scotia LLC.

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

   BRITT LUMBER OPERATIONS

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

      Marketing
      In 1999, Britt sold approximately 65 million board feet of lumber products
to approximately 59 different customers. Over one-half of its 1999 lumber sales
were in California. The remainder of its 1999 sales were in ten other western
states. In 1999, Britt had four customers which accounted for approximately 39%,
15%, 13% and 9%, respectively, of Britt's total sales. Britt markets its
products through its own salesmen to a variety of customers, including
distribution centers, industrial remanufacturers, wholesalers and retailers.

      Britt's backlog of sales orders at December 31, 1999 and 1998 was
approximately $3.5 million and $3.2 million, respectively, the substantial
portion of which was delivered in the first quarter of the next fiscal year.

      Facilities and Employees
      Britt's manufacturing operations are conducted on 12 acres of land, ten
acres of which are leased on a long-term fixed-price basis from an unrelated
third party. Production is conducted in a 46,000 square foot mill. An 18-acre
log sorting and storage yard is located one quarter of a mile away. The mill was
constructed in 1980, and capital expenditures to enhance its output and
efficiency are made periodically. Britt's (single shift) mill capacity, assuming
40 production hours per week, is estimated at 37.4 million board feet of fencing
products per year. As of March 1, 2000, Britt employed approximately 130 people,
none of whom are covered by a collective bargaining agreement.

      Competition
       Britt competes primarily with the northern California mills of Georgia
Pacific, Eel River and Redwood Empire.

   REGULATORY AND ENVIRONMENTAL FACTORS

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.

      General
      Pacific Lumber's business is subject to the Environmental Plans and 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 also plays a
significant role in Pacific Lumber's business. The California Forest Practice
Act (the "FOREST PRACTICE ACT") and related regulations adopted by the
California Board of Forestry (the "BOF") set forth detailed requirements for the
conduct of timber harvesting operations in California. These requirements
include the obligation of timber companies to prepare, and obtain regulatory
approval of, detailed THPs containing information with respect to areas proposed
to be harvested (see "--Pacific Lumber Operations--Harvesting Practices" above).
California law also requires large timber companies submitting THPs to
demonstrate that their proposed timber operations will not decrease the
sustainable productivity of their timberlands. See "--Pacific Lumber
Operations--Timber and Timberlands" above. The federal Endangered Species Act
(the "ESA") and California Endangered Species Act (the "CESA") provide in
general for the protection and conservation of specifically listed wildlife and
plants which have been declared to be endangered or threatened. These laws
generally prohibit the take of certain species, except for incidental takes
pursuant to otherwise lawful activities which do not jeopardize the continued
existence of the affected species and which are made in accordance with an
approved habitat conservation plan and related incidental take permits. A
habitat conservation plan, among other things, analyzes the potential impact of
the incidental take of species and specifies measures to monitor, minimize and
mitigate such impact. The operations of Pacific Lumber are also subject to the
California Environmental Quality Act (the "CEQA"), which provides for protection
of the state's air and water quality and wildlife, and the California Water
Quality Act and Federal Clean Water Act, which require that Pacific Lumber
conduct its operations so as to reasonably protect the water quality of nearby
rivers and streams. Compliance with such laws, regulations and judicial and
administrative interpretations, together with other regulatory and environmental
matters, have resulted in restrictions on the scope and timing of its timber
operations, increased operational costs and engendered litigation and other
challenges to its operations.

      The Headwaters Agreement
      In order to, among other things, mitigate these difficulties, on March 1,
1999, Scotia LLC, Pacific Lumber and Salmon Creek consummated the Headwaters
Agreement with the United States and California. See "--Consummation of the
Headwaters Agreement" above. The Board of Managers of Scotia LLC (the "BOARD OF
MANAGERS"), pursuant to a recommendation by a special committee of the Board of
Managers which had been appointed to review the Headwaters Agreement, voted to
consummate the transactions contemplated by the Headwaters Agreement. A
condition of the approval of the transactions by the Board of Managers was that
the net proceeds from the sale of the Headwaters Timberlands, subject to release
upon the satisfaction of certain conditions, be deposited in a restricted
account or trust arrangement to support the Timber Notes. See "--Escrow
Agreement and SAR Account" below and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition
and Investing and Financing Activities" below.

      The Environmental Plans
      The Environmental Plans, consisting of the HCP and the SYP, were approved
by the applicable federal and state regulatory agencies upon the consummation of
the Headwaters Agreement. In connection with approval of the Environmental
Plans, incidental take permits ("PERMITS") were issued with respect to certain
threatened, endangered and other species found on the Scotia LLC Timberlands.
The Permits cover the 50-year term of the HCP and allow incidental takes of 17
different species covered by the HCP, including four species which are found on
the Scotia LLC Timberlands and had previously been listed as endangered or
threatened under the ESA and/or the CESA. The agreements which implement the
Environmental Plans also provide for various remedies (including the issuance of
written stop orders and liquidated damages) in the event of a breach of these
agreements or the Environmental Plans by Scotia LLC.

     Under the Environmental Plans, harvesting activities are prohibited or
restricted on certain areas of the Scotia LLC Timberlands. For a 50-year period,
harvesting activities are severely restricted in several areas (consisting of
substantial quantities of old growth redwood and Douglas-fir timber) to serve as
habitat conservation areas for the marbled murrelet, a coastal seabird, and
certain other species. Additional areas alongside streamsides have been
designated as buffers, in which harvesting is prohibited or restricted, to
protect aquatic and riparian habitat. These streamside buffers may be adjusted
up or down, subject to certain minimum and maximum buffers, based upon a
watershed analysis process, which the HCP requires be completed within five
years of its effective date. Further, harvesting in other areas of the Scotia
LLC Timberlands is currently prohibited while these areas are evaluated for the
potential risk of landslide and the degree to which harvesting activities will
be prohibited or restricted in the future.

      The HCP also imposes certain restrictions on the use of roads on the
timberlands covered by the HCP during several months of the year and during
periods of wet weather, except for certain limited situations. These
restrictions may restrict operations so that certain harvesting activities can
generally only be carried out from June through October of any particular
harvest year, and then only if wet weather conditions do not exist. However,
Pacific Lumber anticipates that some harvesting will be able to be conducted
during the other months. The HCP also requires that 75 miles of roads be
stormproofed on an annual basis. Certain other roads must be built or repaired.
The HCP requires the stormproofing to be done between May 2 and October 14 of
each year, while the road building and repair is to be accomplished between June
2 and October 14 of each year. The road stormproofing and building and repair is
also required to be suspended if certain wet weather conditions exist.

      The HCP contains an adaptive management provision, which various
regulatory agencies have clarified will be implemented on a timely and efficient
basis, and in a manner which will be both biologically and economically sound.
This provision allows the Palco Companies to propose changes to any of the HCP
prescriptions based on, among other things, certain economic considerations. The
regulatory agencies have also clarified that in applying this adaptive
management provision, to the extent the changes proposed do not result in the
jeopardy of a particular species, the regulatory agencies will consider the
practicality of the suggested changes, including the cost and economic
feasibility and viability.

      Owl Creek and Grizzly Creek Agreements
      In connection with the consummation of the Headwaters Agreement,
California entered into agreements with respect to the future purchase of the
Owl Creek grove (the "OWL CREEK AGREEMENT") and a portion of the Grizzly Creek
grove (the "GRIZZLY CREEK AGREEMENT").

      Under the Owl Creek Agreement, Scotia LLC agreed to sell the Owl Creek
grove to the state of California for consideration consisting of the lesser of
the appraised fair market value or $79.7 million. The state may pay the
consideration for the Owl Creek grove to Scotia LLC in cash or, at the state's
option, 25% in cash and the balance in three equal annual installments without
interest. California must purchase the Owl Creek grove by June 30, 2001.
Consummation of the purchase is also subject to typical real estate title and
other closing conditions. Scotia LLC is continuing to work with California to
consummate the sale of the Owl Creek grove. See Note 2 to the Consolidated
Financial Statements.

      With respect to the potential future sale of a portion of the Grizzly
Creek grove, Pacific Lumber and the California Wildlife Conservation Board
("CWCB") agreed that Pacific Lumber would transfer a portion of the Grizzly
Creek grove to the state of California at a purchase price not to exceed $20.0
million. The Grizzly Creek Agreement provides that California must purchase a
portion of the Grizzly Creek grove by October 31, 2000. Consummation of the
purchase is also subject to typical real estate title and other closing
conditions. Also pursuant to the terms of the Grizzly Creek Agreement, Pacific
Lumber granted the state of California a five-year option to purchase, at fair
market value, additional property within the Grizzly Creek grove. Pacific Lumber
is continuing to work with California to consummate the sale of a portion of the
Grizzly Creek grove.

      Water Quality
      Under the Federal Clean Water Act, the Environmental Protection Agency
(the "EPA") is required to establish total maximum daily load limits ("TMDLS")
in water courses that have been declared to be "water quality impaired." The EPA
and the North Coast Regional Water Quality Control Board ("NCRWQCB") are in the
process of establishing TMDL limits for 17 northern California rivers and
certain of their tributaries, including certain water courses that flow within
the Scotia LLC Timberlands. As part of this process, the EPA and the NCRWQCB are
expected to submit the TMDL requirements on the Scotia LLC Timberlands for
public review and comment. Following the comment period, the NCRWQCB would
finalize the TMDL requirements applicable to the Scotia LLC Timberlands, which
may require aquatic measures that are different from or in addition to the
prescriptions to be developed pursuant to the watershed analysis process
contained in the HCP.

      Impact of Future Legislation
      Laws, regulations and related judicial decisions and administrative
interpretations dealing with Pacific Lumber's business are subject to change and
new laws and regulations are frequently introduced concerning the California
timber industry. From time to time, bills are introduced in the California
legislature and the U.S. Congress which relate to the business of Pacific
Lumber, including the protection and acquisition of old growth and other
timberlands, threatened and endangered species, environmental protection, air
and water quality and the restriction, regulation and administration of timber
harvesting practices. In addition to existing and possible new or modified
statutory enactments, regulatory requirements and administrative and legal
actions, the California timber industry remains subject to potential California
or local ballot initiatives and evolving federal and California case law which
could affect timber harvesting practices. It is not possible to assess the
effect of such future legislative, judicial and administrative events on Pacific
Lumber or its business.

      Timber Operator's License
      Historically, Pacific Lumber has conducted logging operations on the
Scotia LLC Timberlands with its own staff of logging personnel as well as
through contract loggers. In order to conduct logging operations in California,
a logging company must obtain from the CDF a Timber Operator's License. On
February 26, 1999, the CDF issued Pacific Lumber a conditional Timber Operator's
License ("1999 TOL") for calendar year 1999 which contained, among other things,
operational restrictions similar to those certain operational restrictions
contained in the HCP. During the first week of January 2000, Pacific Lumber was
granted a Timber Operator's License for the years 2000 and 2001 ("2000 TOL")
containing less restrictions than the 1999 TOL.

      Escrow Agreement and SAR Account

     As a result of the sale of the Headwaters Timberlands, Salmon Creek
received proceeds of $299.9 million in cash, prior to payment of closing costs
and expenses. Pursuant to the Escrow Agreement entered into among Salmon Creek,
Pacific Lumber and Citibank, N.A. (the "ESCROW AGENT"), Salmon Creek deposited
$285.0 million of such proceeds into a restricted account (the "ESCROWED FUNDS")
with such Escrowed Funds being made available, while so held in escrow, as
necessary to support the Timber Notes, with the balance of $15.0 million being
used to defray expenses in connection with negotiation and consummation of the
Headwaters Agreement. In November 1999, upon satisfaction of certain
requirements set forth in the Escrow Agreement, the Board of Managers approved
the release of the Escrowed Funds, with $169.0 million of the Escrowed Funds
being placed in the SAR Account in order to support principal payments on the
Timber Notes. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition and Investing and
Financing Activities."

ALUMINUM OPERATIONS

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.

   GENERAL

      The Company owns 27,938,250 shares of the common stock of Kaiser,
representing a 35.2% interest in Kaiser. Kaiser operates in several principal
aspects of the aluminum industry through its wholly owned subsidiary, Kaiser
Aluminum & Chemical Corporation ("KACC")--the mining of bauxite, the refining of
bauxite into alumina, the production of primary aluminum from alumina, and the
manufacture of fabricated (including semi-fabricated) aluminum products. In
addition to the production utilized by Kaiser in its operations, Kaiser sells
significant amounts of alumina and primary aluminum in domestic and
international markets. The following table sets forth total shipments and
intersegment transfers of Kaiser's alumina, primary aluminum, and fabricated
aluminum operations:

<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                          1999           1998           1997
                                                      -----------    -----------    -----------
                                                              (IN THOUSANDS OF TONS)
<S>                                                   <C>            <C>            <C>
Alumina:(1)
      Shipments to Third Parties..................        2,093.9        2,250.0        1,929.8
      Intersegment Transfers......................          757.3          750.7          968.0
                                                      -----------    -----------    -----------
                                                          2,851.2        3,000.7        2,897.8
                                                      -----------    -----------    -----------
Primary Aluminum:
      Shipments to Third Parties..................          295.6          263.2          327.9
      Intersegment Transfers......................          171.2          162.8          164.2
                                                      -----------    -----------    -----------
                                                            466.8          426.0          492.1
                                                      -----------    -----------    -----------

Flat-Rolled Products..............................          217.9          235.6          247.9

Engineered Products...............................          171.1          169.4          152.1

<FN>
-------------------------------

(1)   As a result of the explosion at the Gramercy alumina refinery in July
      1999, which completely curtailed production, shipments to third parties
      and intersegment transfers for 1999 include approximately 264,000 tons of
      alumina purchased and resold to certain unaffiliated customers and 131,000
      tons of alumina purchased and transferred to Kaiser's primary aluminum
      business unit.

</FN>
</TABLE>

      The alumina business unit mines bauxite and obtains additional bauxite
tonnage under long-term contracts. The primary aluminum business unit operates
two wholly owned domestic smelters and two foreign smelters in which Kaiser
holds significant ownership interests. Fabricated aluminum products are
manufactured by two business units--flat-rolled products and engineered
products. See "--Business Operations."

   INCIDENT AT GRAMERCY FACILITY

      On July 5, 1999, Kaiser's Gramercy, Louisiana alumina refinery was
extensively damaged by an explosion in the digestion area of the plant.
Twenty-four employees were injured in the incident, several of them severely. As
a result of the incident, alumina production at the facility was completely
curtailed. Production at the plant is expected to remain completely curtailed
until the third quarter of 2000 when Kaiser expects to begin partial production.
Full production is expected to be achieved during the first quarter of 2001 or
shortly thereafter. Kaiser has received the regulatory permit required to
operate the plant once the facility is ready to resume operations. In the
interim, Kaiser is purchasing alumina from third parties, in excess of the
amounts of alumina available from other Kaiser-owned facilities, to supply major
customers' needs as well as to meet intersegment requirements. See Note 2 to the
Consolidated Financial Statements of Kaiser, which are included as Exhibit 99.3
hereto, for further information regarding the Gramercy incident, including
government citations which have been issued with respect to the matter, the
status of insurance recoveries and pending lawsuits.

   LABOR MATTERS

      Substantially all of Kaiser'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 United Steelworkers of America (the "USWA")
which expired on September 30, 1998. The parties did not reach an agreement
prior to the expiration of the master agreement and the USWA chose to strike. In
January 1999, Kaiser declined an offer by the USWA to have the striking workers
return to work at the five plants without a new agreement. Kaiser imposed a
lock-out to support its bargaining position and continues to operate the plants
with salaried employees and other workers as it has since the strike began.

      While Kaiser initially experienced an adverse strike-related impact on its
profitability, Kaiser believes that its operations at the affected facilities,
excluding the Gramercy facility, have been substantially stabilized and will be
able to run at, or near, full capacity, and that the incremental costs
associated with operating the affected plants during the dispute were virtually
eliminated in early 1999 (excluding the impact of restart costs and the effect
of market factors such as a continued partial curtailment at Kaiser's Tacoma
smelter; see "--Business Operations--Primary Aluminum Business Unit" below).
However, no assurances can be given that Kaiser's efforts to run the plants in
this manner on a sustained basis, without a significant business interruption or
material adverse impact on Kaiser's operating results, will be successful.
Kaiser and the USWA continue to communicate. 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. See
"Labor Related Costs" under Note 1 and "Labor Matters" under Note 10 to the
Consolidated Financial Statements of Kaiser, which are included as Exhibit 99.3
hereto, for further information regarding the USWA strike.

   SENSITIVITY TO PRICES AND HEDGING PROGRAMS

      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 upon the volume and mix of all products sold. 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 and generally lag behind primary
aluminum price changes by up to three months. In addition, Kaiser's operations
are exposed to risks from fluctuating energy prices for fuels used in the
production process and from foreign currency movements in respect of material
cash commitments to foreign subsidiaries and affiliates. From time to time in
the ordinary course of business, Kaiser enters into hedging transactions to
provide risk management in respect of its net exposure of earnings and cash flow
related to the above items. While such hedging activities typically are designed
to provide protection against unfavorable price changes, they can, in certain
circumstances, limit Kaiser's ability to realize favorable price changes and can
also impact Kaiser's liquidity. See "Derivative Financial Instruments" under
Note 1 and Note 10 to the Consolidated Financial Statements of Kaiser, which are
included as Exhibit 99.3 hereto, for further information.

   BUSINESS OPERATIONS

      Kaiser's operations are conducted through KACC's four main business units
which compete throughout the aluminum industry. The alumina business unit mines
bauxite and obtains additional bauxite tonnage under long-term contracts. It is
a major producer of alumina and sells significant amounts of its production of
alumina in domestic and international markets. The primary aluminum business
unit operates two wholly owned domestic smelters and two foreign smelters in
which Kaiser holds significant ownership interests. Fabricated aluminum products
are manufactured by two business units--flat-rolled products and engineered
products. These products are manufactured at plants located in principal
marketing areas of the United States and Canada. The aluminum utilized in
Kaiser's fabricated products operations is comprised of primary aluminum,
obtained both internally and from third parties, and scrap metal purchased from
third parties.

      Alumina Business Unit

      The following table lists Kaiser's bauxite mining and alumina refining
facilities as of December 31, 1999:

<TABLE>
<CAPTION>

                                                                                                ANNUAL
                                                                                              PRODUCTION          TOTAL
                                                                                               CAPACITY          ANNUAL
                                                                                COMPANY      AVAILABLE TO      PRODUCTION
                ACTIVITY                      FACILITY        LOCATION         OWNERSHIP      THE COMPANY       CAPACITY
--------------------------------------    --------------  ---------------    -------------  ---------------   -------------
                                                                                                (IN THOUSANDS OF TONS)
<S>                                       <C>             <C>                <C>            <C>               <C>
Bauxite Mining                             KJBC            Jamaica                49.0%             4,500.0         4,500.0
                                           Alpart(1)       Jamaica                65.0%             2,275.0         3,500.0
                                                                                            ---------------   -------------
                                                                                                    6,775.0         8,000.0
                                                                                            ===============   =============

Alumina Refining                           Gramercy(2)     Louisiana             100.0%             1,075.0         1,075.0
                                           Alpart          Jamaica                65.0%               942.5         1,450.0
                                           QAL(3)          Australia              28.3%             1,033.0         3,650.0
                                                                                            ---------------   -------------
                                                                                                    3,050.5         6,175.0
                                                                                            ===============   =============

<FN>
------------------

(1)   Alumina Partners of Jamaica ("ALPART") bauxite is refined into alumina
      at the Alpart alumina refinery.
(2)   Production is currently completely curtailed.
(3)   Queensland Alumina Limited ("QAL").
</FN>
</TABLE>

      Primary Aluminum Business Unit

      The following table lists Kaiser's primary aluminum smelting facilities as
of December 31, 1999:

<TABLE>
<CAPTION>

                                                                      ANNUAL
                                                                       RATED          TOTAL
                                                                     CAPACITY        ANNUAL         1999
                                                        COMPANY    AVAILABLE TO       RATED       OPERATING
              LOCATION                  FACILITY       OWNERSHIP    THE COMPANY     CAPACITY        RATE
--------------------------------     --------------   -----------  ------------   ------------  -------------
                                                                      (IN THOUSANDS OF TONS)
<S>                                  <C>              <C>          <C>            <C>           <C>
Domestic
      Washington                     Mead                 100%           200.0          200.0         102%(1)
      Washington                     Tacoma               100%            73.0           73.0          73%(1)
                                                                   ------------   ------------
           Subtotal                                                      273.0          273.0
                                                                   ------------   ------------
International
      Ghana                          Valco                 90%           180.0          200.0          57%
      Wales, United Kingdom          Anglesey              49%            66.2          135.0         102%
                                                                   ------------   ------------
           Subtotal                                                      246.2          335.0
                                                                   ------------   ------------

           Total                                                         519.2          608.0
                                                                   ============   ============

<FN>
------------------

(1)  1999 operating rates were affected by the continuing USWA dispute.

</FN>
</TABLE>

      Flat-Rolled Products Business Unit
      Kaiser manufactures and markets fabricated aluminum products for the
transportation, packaging, construction and consumer durables markets in the
United States and abroad. The flat-rolled products business unit operates the
Trentwood, Washington, rolling mill. The business unit supplies the aerospace
and general engineering markets (producing heat-treat products), the beverage
container market (producing body, lid and tab stock) and the specialty coil
markets (producing automotive brazing sheet, wheel, and tread products), both
directly and through distributors. Kaiser continues to shift the product mix of
its Trentwood rolling mill away from beverage can body stock toward higher value
added product lines.

      Engineered Products Business Unit
      The engineered products business unit operates soft-alloy extrusion
facilities in Los Angeles, California; Sherman, Texas; Richmond, Virginia; and
London, Ontario, Canada; an aluminum cathodic protection business located in
Tulsa, Oklahoma; rod and bar extrusion facilities in Newark, Ohio, and Jackson,
Tennessee, which produce screw machine stock, redraw rod, forging stock, and
billet; and a facility in Richland, Washington, which produces seamless tubing
in both hard and soft alloys for the automotive, other transportation, export,
recreation, agriculture and other industrial markets.

      The engineered products business unit also operates forging facilities at
Oxnard, California and Greenwood, South Carolina, and a machine shop at
Greenwood, South Carolina. In April 1999, Kaiser sold to its partner its 50%
interest in AKW L.P., a partnership which designs, manufactures and sells
heavy-duty aluminum truck wheels, and in May 1999 sold a small casting operation
located in Canton, Ohio. The engineered products business unit is a major
supplier of high-quality forged parts to customers in the automotive, commercial
vehicle and ordnance markets.

   COMPETITION

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" in this section for cautionary
information with respect to such forward-looking statements.

      Kaiser competes globally with producers of bauxite, alumina, primary
aluminum, and fabricated aluminum products. Many of Kaiser's competitors have
greater financial resources than Kaiser. Primary aluminum and, to some degree,
alumina are commodities with generally standard qualities, and competition in
the sale of these commodities is based primarily upon price, quality and
availability. Aluminum competes in many markets with steel, copper, glass,
plastic, and other materials. Beverage container materials, including aluminum,
face increased competition from plastics as increased polyethylene terephthalate
("PET") container capacity is brought on line by plastics manufacturers. Kaiser
competes with numerous domestic and international fabricators in the sale of
fabricated aluminum products. Kaiser manufactures and markets fabricated
aluminum products for the transportation, packaging, construction, and consumer
durables markets in the United States and abroad. Sales in these markets are
made directly and through distributors to a large number of customers.
Competition in the sale of fabricated products is based upon quality,
availability, price and service, including delivery performance. Kaiser
concentrates its fabricating operations on selected products in which it
believes it has production expertise, high-quality capability, and geographic
and other competitive advantages. Kaiser believes that, assuming the current
relationship between worldwide supply and demand for alumina and primary
aluminum does not change materially, the loss of any one of Kaiser's customers,
including intermediaries, would not have a material adverse effect on its
financial condition or results of operations. Also see the description of the
business units above.

   ASBESTOS AND ENVIRONMENTAL CONTINGENCIES

      Kaiser 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 Kaiser or exposure to products
containing asbestos produced or sold by Kaiser. As of December 31, 1999, 100,000
claims were pending, compared with 86,400 claims as of December 31, 1998. See
"Asbestos Contingencies" under Note 10 to Kaiser's Consolidated Financial
Statements (Exhibit 99.3 hereto) for additional information regarding these
asbestos contingencies.

      Kaiser is subject to a number of environmental laws, to fines or penalties
assessed for alleged breaches of the environmental laws, and to claims and
litigation based upon such laws. 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. See "Environmental Contingencies" under Note 10 to the Consolidated
Financial Statements of Kaiser, (which are included as Exhibit 99.3 hereto), for
further information.

   MISCELLANEOUS

      For further information concerning the business and financial condition of
Kaiser, see Kaiser's Consolidated Financial Statements and the notes thereto
(Exhibit 99.3 hereto), as well as Kaiser's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. Such Exhibit and Form 10-K are available at
no charge by writing to the following address: Kaiser Aluminum Corporation,
Shareholder Services Department, 5847 San Felipe, Suite 2600, Houston, Texas
77057.

ITEM 2.         PROPERTIES

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

ITEM 3.         LEGAL PROCEEDINGS

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.

TIMBER HARVESTING LITIGATION

      On May 27, 1998, an action entitled Mateel Environmental Justice
Foundation v. Pacific Lumber, Scotia Pacific Holding Company, Salmon Creek
Corporation and MAXXAM Group Inc. (No. DR 980301) was brought in the Superior
Court of Humboldt County. This action alleged, among other things, violations of
California's business and professions code based on citations and violations
(primarily water quality related) issued against the defendants since 1994 in
connection with a substantial number of THPs. On December 1, 1999, the Court
dismissed this action with prejudice.

      On December 2, 1997, a lawsuit entitled Kristi Wrigley, et al. v. Charles
Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia
Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company
LLC, et al. (No. 9700399) (the "WRIGLEY LAWSUIT") was filed in the Superior
Court of Humboldt County. A similar action entitled Jennie Rollins, et al. v.
Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc.,
Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc., Barnum Timber
Company, et al. (No. 9700400) (the "ROLLINS LAWSUIT") was also filed on December
2, 1997 in the Superior Court of Humboldt County. These actions allege, among
other things, that defendants' logging practices have damaged the plaintiffs'
properties and property values by contributing to landslides in the Stafford
area (Rollins lawsuit) and the destruction of certain watersheds in the Elk
River watershed (Wrigley lawsuit). Plaintiffs further allege that in order to
have THPs approved in connection with these areas, the defendants submitted
false information to the CDF in violation of California's business and
professions code and the Racketeering Influence and Corrupt Practices Act
("RICO"). In connection with the Rollins lawsuit, on September 27, 1999 the
Court accepted the plaintiffs' amended complaint which, among other things,
eliminated the RICO claims and reduced the number of THPs involved in the
lawsuit from 343 to seven. In connection with the Wrigley lawsuit, the
plaintiffs filed an application seeking to eliminate allegations concerning the
seven THPs involved in the Rollins lawsuit, reducing to 336 the number of THPs
involved in the Wrigley lawsuit. The Rollins lawsuit has been set for trial on
July 10, 2000. The Company believes that it has strong factual and legal
defenses with respect to these matters; however, there can be no assurance that
they will not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.

      On March 31, 1999, an action entitled Environmental Protection Information
Association, Sierra Club v. California Department of Forestry and Fire
Protection, California Department of Fish and Game, The Pacific Lumber Company,
Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No. 99CS00639)
(the "EPIC-SYP/PERMITS LAWSUIT") was filed alleging, among other things, that
the CDF and the CDFG violated the CEQA and the CESA with respect to the SYP and
the Permits issued by California. This action is now pending in Humboldt County,
California (No. CV-990445). The plaintiffs seek, among other things, injunctive
relief to set aside the CDF's and the CDFG's decisions approving the SYP and the
Permits issued by California.

      On March 31, 1999, an action entitled United Steelworkers of America,
AFL-CIO, CLC, and Donald Kegley v. California Department of Forestry and Fire
Protection, The Pacific Lumber Company, Scotia Pacific Company LLC and Salmon
Creek Corporation (No. 99CS00626) (the "USWA LAWSUIT") was filed alleging, among
other things, violations of the Forest Practice Act in connection with the CDF's
approval of the SYP. This action is now pending in Humboldt County, California
(No. CV-990452). The plaintiffs seek to prohibit the CDF from approving any THPs
relying on the SYP.

      The Company believes that appropriate procedures were followed throughout
the public review and approval process concerning the Environmental Plans, and
the Company is working with the relevant state and federal agencies to defend
the USWA lawsuit and the EPIC-SYP/Permits lawsuit. Although uncertainties are
inherent in the final outcome of the EPIC-SYP/Permits lawsuit and the USWA
lawsuit, the Company believes that the resolution of these matters should not
result in a material adverse effect on its financial condition, results of
operations or liquidity.

HUNSAKER ACTION

      On November 24, 1998, an action entitled William Hunsaker, et al. v.
Charles E. Hurwitz, Pacific Lumber, MAXXAM Group Inc., MXM Corp., Federated
Development Company and Does I-50 (No. C 98-4515) was filed in the United States
District Court for the Northern District of California. This action alleges,
among other things, that a class consisting of the vested employees and retirees
of the former Pacific Lumber Company (Maine) ("OLD PALCO") is entitled to
recover approximately $60 million of surplus funds allegedly obtained through
deceit and fraudulent acts from the Old Palco retirement plan that was
terminated in 1986 following acquisition by MAXXAM of Pacific Lumber. Plaintiffs
further allege that defendants violated RICO and engaged in numerous acts of
unfair business practices in violation of California's business and
professions code. In addition to seeking the surplus funds, plaintiffs also
seek, among other things, a constructive trust on the assets traceable from the
surplus funds, plus interest, trebling of damages for violation of RICO,
punitive damages, and injunctive and other relief. On March 30, 1999, the Court
dismissed the lawsuit with prejudice and ordered the plaintiffs to pay the
defendants' costs with respect to the lawsuit. On April 30, 1999, the plaintiffs
appealed the dismissal.

OTHER LITIGATION MATTERS

      Kaiser is involved in significant legal proceedings, including asbestos
and environmental litigation as well as litigation involving the Gramercy
incident and the USWA strike. For further information, see Item 1. "Business--
Aluminum Operations--Incident at Gramercy Facility," "--Labor Matters,"
"--Asbestos and Environmental Contingencies" and "--Miscellaneous" as
well as Notes 2 and 10 to Kaiser's Consolidated Financial Statements (Exhibit
99.3 hereto).

      The Company is involved in other claims, lawsuits and other proceedings.
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.

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

      Not applicable.

                                     PART II

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

      All of the Company's common stock is owned by MAXXAM. Accordingly, the
Company's common stock is not traded on any stock exchange and has no
established public trading market. The 12% Senior Secured Notes due 2003 of the
Company (the "MGHI NOTES") are secured by the common stock of MGI and the
Pledged Kaiser Shares. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition and Investing
and Financing Activities" and Note 6 to the Consolidated Financial Statements
appearing in Item 8.

ITEM 6.         SELECTED FINANCIAL DATA

      Not applicable.

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

BACKGROUND

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" for cautionary information with respect
to such forward-looking statements.

      The Company's wholly owned subsidiary, MGI, and its operating
subsidiaries, Pacific Lumber and Britt, are engaged in forest products
operations. The Company's business is somewhat seasonal and has historically
been higher in the months of April through November than in the months of
December through March. Management expects that the Company's revenues and cash
flows will continue to be markedly seasonal. The following should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto appearing in Item 8.

     Due to Pacific Lumber's difficulties in implementing the Environmental
Plans and the resulting lower harvests on its property, Pacific Lumber's
production of redwood lumber has decreased. Furthermore, logging costs have
increased due to the harvest of smaller diameter logs and compliance with
environmental regulations and the Environmental Plans. Pacific Lumber has been
able to lessen the impact of these factors by instituting a number of measures
at its sawmills during the past several years designed to enhance the efficiency
of its operations, such as modernization and expansion of its manufactured
lumber facilities and other improvements in lumber recovery. See also
"--Trends."

      The Company also owns 27,938,250 shares of Kaiser common stock (the
"KAISER SHARES") representing a 35.2% interest in Kaiser on a fully diluted
basis as of December 31, 1999. The Company follows the equity method of
accounting for its investment in Kaiser. As discussed more fully in Note 5 to
the Consolidated Financial Statements, until August 1997, cumulative losses with
respect to the results of operations attributable to Kaiser's common
stockholders exceeded cumulative earnings. However, this was no longer the case
when equity attributable to Kaiser's common stockholders increased upon
conversion of the PRIDES into Kaiser common stock on August 29, 1997. As a
result, the Company recorded a $33.4 million adjustment to reduce the
stockholder's deficit reflecting the Company's 35.4% equity in the impact of the
PRIDES conversion on the common stockholders. In addition, the Company began
recording its equity in Kaiser's results of operations. See Note 5 to the Notes
to the Consolidated Financial Statements for further information, including
summarized financial information of Kaiser.

   RESULTS OF OPERATIONS

      The following table presents selected operational and financial
information for the years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                                          ------------------------------
                                                            1999      1998       1997
                                                          --------- ---------  ---------
                                                             (IN MILLIONS OF DOLLARS,
                                                           EXCEPT SHIPMENTS AND PRICES)
<S>                                                       <C>       <C>        <C>
Shipments:
   Lumber: (1)
      Redwood upper grades..............................      24.6      41.9       52.4
      Redwood common grades.............................     137.4     230.1      244.2
      Douglas-fir upper grades..........................      10.4       6.9       11.5
      Douglas-fir common grades.........................      61.5      47.5       75.3
      Other.............................................       8.7       7.0       14.5
                                                          --------- ---------  ---------
        Total lumber....................................     242.6     333.4      397.9
                                                          ========= =========  =========
   Wood chips (2).......................................     163.7     176.7      237.8
                                                          ========= =========  =========

Average sales price:
   Lumber: (3)
      Redwood upper grades..............................  $  1,531  $  1,478   $  1,443
      Redwood common grades.............................       629       540        531
      Douglas-fir upper grades..........................     1,290     1,280      1,203
      Douglas-fir common grades.........................       430       346        455
   Wood chips (4).......................................        77        70         73

Net sales:
   Lumber, net of discount..............................  $  165.3  $  211.6   $  256.1
   Wood chips...........................................      12.5      12.3       17.4
   Cogeneration power...................................       3.8       3.9        4.5
   Other................................................       6.2       5.8        9.2
                                                          --------- ---------  ---------
      Total net sales...................................  $  187.8  $  233.6   $  287.2
                                                          ========= =========  =========
Operating income (loss).................................  $   (4.4) $   40.6   $   84.5
                                                          ========= =========  =========
Operating cash flow (5).................................  $   12.6  $   63.1   $  110.6
                                                          ========= =========  =========
Income (loss) before income taxes and
      extraordinary item(6).............................  $  177.9  $  (27.3)  $   23.8
                                                          ========= =========  =========
Net income (loss)(7)....................................  $  100.0  $  (59.8)  $   18.6
                                                          ========= =========  =========
Capital expenditures....................................  $   23.1  $   22.0   $   22.9
                                                          ========= =========  =========
<FN>

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

(1)  Lumber shipments are expressed in millions of board feet.
(2)  Wood chip shipments are expressed in thousands of bone dry units of
     2,400 pounds.
(3)  Dollars per thousand board feet.
(4)  Dollars per bone dry unit.
(5)  Operating income before depletion and depreciation, also referred to
     as "EBITDA."
(6)  1999 results include a $239.8 million gain on the sale of the Headwaters
     Timberlands.
(7)  1998 results include an extraordinary loss of $41.8 million, net of tax,
     for the early extinguishment of debt.
</FN>
</TABLE>

      Net Sales
      Net sales declined from $233.6 million for the year ended December 31,
1998 to $187.8 million for the year ended December 31, 1999 primarily due to
lower shipments of redwood lumber offset somewhat by higher shipments of
Douglas-fir lumber and higher lumber prices. The decrease in redwood lumber
shipments is due to the reduction in the volume of logs available for the
production of lumber products. A diminished supply of approved THPs reduced log
supplies throughout 1999. See "--Trends" below. Net sales for both 1999 and 1998
were also affected by the seasonal restrictions on Pacific Lumber's logging
operations during wet weather and during the nesting seasons for both the
northern spotted owl and the marbled murrelet.

      Net sales declined from $287.2 million for the year ended December 31,
1997 to $233.6 million for the year ended December 31, 1998 primarily due to
lower shipments of lumber, logs and wood chips. The decline in shipments which
occurred during the first half of 1998 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 Pacific Lumber's 1998 Timber Operator's License, 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 second half of 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 second half of 1998 was due in large
part to the absence of a sufficient number of THPs available for harvest 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 as well as regulatory and
judicial restrictions imposed upon harvesting activities in areas covered by
previously approved THPs. See "--Trends" below. 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.

      Operating Income (Loss)
      The Company had an operating loss for the year ended December 31, 1999 as
compared to operating income for the comparable prior year primarily due to the
decrease in net sales discussed above. Results for 1999 were also affected by
higher costs and expenses due to higher logging costs as well as manufacturing
inefficiencies resulting from production curtailments at the sawmills due to the
lack of logs.

      Operating income for 1998 decreased from 1997 principally due to the
decrease in net sales discussed above. This impact was partially offset by a
decrease in depletion expense as a result of the decline in volumes discussed
above and a decrease in logging costs for the year ended December 31, 1998 from
the prior year.

      Income (Loss) Before Income Taxes and Extraordinary Item
      Income before income taxes and extraordinary item for the year ended
December 31, 1999 increased as compared to the 1998 period, primarily due to the
gain on the sale of the Headwaters Timberlands of $239.8 million ($142.1 million
net of deferred taxes) offset by the operating loss discussed above. Income
before income taxes and extraordinary item for the year ended December 31, 1999
also reflects a $19.2 million equity loss from Kaiser, interest income earned
from investing the net proceeds from the sale of the Headwaters Timberlands and
higher earnings from marketable securities. The Company had a loss before income
taxes and extraordinary item for 1998 as compared to income for 1997 principally
due to lower operating income discussed above, a decrease in equity earnings of
Kaiser and a decrease in investment income from marketable securities. Kaiser's
results for 1999 were affected by a gain from the involuntary conversion at the
Gramercy facility, charges for asbestos-related claims, a gain on the
disposition of a joint venture and lower aluminum prices. Kaiser's results for
1998 were negatively affected by strike related costs, a write down of its
Micromill assets and lower aluminum prices.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" and below for cautionary information
with respect to such forward-looking statements.

      Note 6 to the Consolidated Financial Statements contains information
concerning the Company's indebtedness and information concerning certain
restrictive debt covenants.

      In December 1996, MGHI issued $130.0 million aggregate principal amount of
the MGHI Notes. Net proceeds of $125.0 million received from the offering of the
MGHI Notes were loaned to MAXXAM pursuant to an intercompany note (the "MAXXAM
NOTE"). Pursuant to the terms of the MAXXAM Note, MAXXAM is entitled to defer
the payment of interest on the MAXXAM Note on any interest payment date to the
extent that the Company has sufficient funds to satisfy its obligations on the
MGHI Notes on such date. Any such deferred interest will be added to the
principal amount of the MAXXAM Note and will be payable at maturity. Interest
deferred on the MAXXAM Note on the February 1, 2000 payment date amounted to
$8.1 million. The deferred amount effectively increases the note receivable
balance to $155.9 million. The Company expects that interest payments on the
MGHI Notes will be paid with existing cash and dividends received from MGI.

      The indenture governing the MGHI Notes (the "MGHI INDENTURE") contains
covenants which generally limit dividends from MGI to MGHI to the greater of
$18.4 million per year or, on a cumulative basis since September 30, 1996, to
MGI's consolidated net income plus consolidated depreciation and depletion. In
addition, the MGHI Indenture provides for the distribution of any funds received
as a result of Salmon Creek making a distribution. On January 31, 2000, MGI paid
an $18.4 million dividend to MGHI. On February 8, 2000, MGI paid MGHI a $90.0
million dividend of the proceeds from the sale of the Headwaters Timberlands,
out of which MGHI paid a $45.0 million dividend to MAXXAM.

      In December 1999, MGI repurchased $4.8 million of the MGHI Notes, reducing
the outstanding balance to $125.2 million at December 31, 1999.

      Scotia LLC issued the $867.2 million aggregate principal amount of Timber
Notes on July 20, 1998. Proceeds from the offering of the Timber Notes were used
primarily to prepay Scotia Pacific's 7.95% Timber Collateralized Notes due 2015
(the "OLD TIMBER NOTES") and to redeem the 10 1/2% Senior Notes due 2003 of
Pacific Lumber and the 11 1/4% Senior Secured Notes and the 12 1/4% Senior
Secured Discount Notes due 2003 of MGI.

      On November 18, 1999, $169.0 million of funds from the sale of the
Headwaters Timberlands were contributed to Scotia LLC and set aside in the SAR
Account, which is available for making principal payments on the Timber Notes.

      In 1999, Scotia LLC's agreement with a group of banks, pursuant to which
Scotia LLC may borrow to pay interest on the Timber Notes (the "SCOTIA LLC LINE
OF CREDIT"), was extended to July 16, 2000 and is expected to be renewed
annually. At December 31, 1999, Scotia LLC could have borrowed a maximum of one
year's interest due on the Timber Notes (or $63.0 million) under the Scotia LLC
Line of Credit. As of December 31, 1999, no borrowings were outstanding under
the Scotia LLC Line of Credit.

      On the January 20, 2000 note payment date for the Timber Notes, Scotia LLC
had $2.2 million in cash available to pay the $31.5 million of interest due.
Scotia LLC borrowed the remaining $29.3 million in funds under the Scotia LLC
Line of Credit. In addition, Scotia LLC repaid $12.9 million of principal on the
Timber Notes (an amount equal to Scheduled Amortization) using funds held in the
SAR Account.

      With respect to short-term liquidity, the Company believes that Scotia LLC
will not generate sufficient cash from operations to pay all of the interest on
the Timber Notes on the July 20, 2000 payment date. However, the Company expects
that any such shortfall will be borrowed under the Scotia LLC Line of Credit and
that funds to pay the Scheduled Amortization amount will be provided from the
SAR Account.

      Pacific Lumber's revolving credit agreement (the "PACIFIC LUMBER CREDIT
AGREEMENT"), a senior secured credit facility which expires on October 31, 2001,
allows for borrowings of up to $60.0 million, all of which may be used for
revolving borrowings, $20.0 million of which may be used for standby letters of
credit and $30.0 million of which may be used for timberland acquisitions.
Commencing in April 2001, borrowings for timberland acquisitions are to be
repaid annually from 50% of Pacific Lumber's excess cash flow (as defined). The
remaining excess cash flow is available for dividends. Upon maturity of the
facility, all outstanding borrowings used for timberland acquisitions will
convert to a term loan repayable over four years. As of December 31, 1999, $34.1
million of borrowings was available under the agreement, no borrowings were
outstanding and letters of credit outstanding amounted to $12.5 million.

      The MGHI Indenture, the Timber Notes Indenture and the Pacific Lumber
Credit Agreement contain various covenants which, among other things, limit the
ability to incur additional indebtedness and liens, to engage in transactions
with affiliates, to pay dividends and to make investments. Under the terms of
the Timber Notes Indenture, Scotia LLC will generally have available cash for
distribution to Pacific Lumber when Scotia LLC's cash flows from operations
exceed the amounts required by the Timber Notes Indenture to be reserved for the
payment of current debt service (including interest, principal and premiums) on
the Timber Notes, capital expenditures, certain other operating expenses and
replenishment of the SAR Account. Pacific Lumber can pay dividends in an amount
that is generally equal to 50% of Pacific Lumber's consolidated net income plus
depletion and cash dividends received from Scotia LLC, exclusive of the net
income and depletion of Scotia LLC as long as any Timber Notes are outstanding.

      In September 1999, Britt paid a dividend of $5.7 million to MGI which in
turn made a capital contribution to Pacific Lumber for the same amount.
Additionally, MGI made a capital contribution of $45.0 million to Pacific Lumber
in December 1999.

      Capital expenditures were made during the past three years to improve
production efficiency, reduce operating costs and acquire additional
timberlands. The Company's consolidated capital expenditures were $23.1 million,
$22.0 million and $22.9 million for the years ended December 31, 1999, 1998 and
1997, respectively. Capital expenditures, excluding expenditures for
timberlands, are estimated to be between $10.0 million and $12.0 million per
year for the 2000 - 2002 period. Included in capital expenditures for 1999 and
1998 is $15.9 million and $12.4 million, respectively, for timberland
acquisitions. Pacific Lumber and Scotia LLC may purchase additional timberlands
from time to time as appropriate opportunities arise.

      As of December 31, 1999, the Company had cash and marketable securities of
$233.6 million as well as long-term restricted cash and marketable securities of
$158.9 million. Long-term restricted cash includes $153.2 million held in the
SAR Account. Long-term debt (net of current maturities) was $969.4 million as of
December 31, 1999 as compared to $990.2 million at December 31, 1998. The
decrease in long-term debt was primarily due to principal payments on the Timber
Notes. The Company anticipates that existing cash, cash equivalents, marketable
securities, funds available from the SAR Account and available sources of
financing will be sufficient to fund its working capital and capital expenditure
requirements for the next year. With respect to long-term liquidity, although
the Company believes that its existing cash and cash equivalents should provide
sufficient funds to meet the working capital and capital expenditure
requirements for itself and its subsidiaries, until such time as Pacific Lumber
has adequate cash flows from operations, and/or dividends from Scotia LLC, there
can be no assurance that this will be the case. Furthermore, due to its highly
leveraged condition, the Company is more sensitive than less leveraged companies
to factors affecting its operations, including governmental regulation and
litigation affecting its timber harvesting practices (see Note 10 to the
Consolidated Financial Statements), increased competition from other lumber
producers or alternative building products and general economic conditions.

TRENDS

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 1. "Business--General" and below for cautionary information
with respect to such forward-looking statements.

      The Company's forest products operations are conducted by MGI through
Pacific Lumber and Britt. Regulatory and environmental matters play a
significant role in Pacific Lumber's operations, which are subject to a variety
of California and federal laws and regulations, as well as the HCP, SYP and
Pacific Lumber's 2000 TOL, dealing with timber harvesting practices, threatened
and endangered species and habitat for such species, and air and water quality.
Moreover, these laws and regulations are modified from time to time and are
subject to judicial and administrative interpretation. Compliance with such
laws, regulations and judicial and administrative interpretations, and related
litigation have increased the cost of logging operations. The Company's forest
products operations have also been adversely affected by a lack of available
logs as a result of a severely diminished supply of available THPs. Prior to the
consummation of the Headwaters Agreement on March 1, 1999, the reduced number of
approved THPs was attributable to several factors, including a significantly
reduced level of THPs submitted by Pacific Lumber to the CDF during the second
half of 1998 and during the first two months of 1999 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 in February 1998 in the course of completing the Headwaters
Agreement (the "PRE-PERMIT AGREEMENT"), (ii) preparing the Environmental Plans
and all the related data, responding to comments on the Environmental Plans,
assessing and responding to federal and state proposals and changes concerning
the Environmental Plans, and evaluating the Environmental Plans, (iii)
responding to comments received by Pacific Lumber 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) responding to newly filed litigation
involving certain of Pacific Lumber's approved THPs and (b) implementation of a
provision contained in the Pre-Permit Agreement which required, for the first
time, a licensed geologist to review virtually all of Pacific Lumber's THPs
prior to submission to the CDF. Pacific Lumber 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 emerged in applying the requirements
embodied in the Pre-Permit Agreement to Pacific Lumber's THPs, certain of which
requirements imposed new forestry practices that applied solely to Pacific
Lumber's operations.

      With the consummation of the Headwaters Agreement, Pacific Lumber has
completed its work in connection with preparation of the Environmental Plans;
however, significant additional work continues to be required in connection with
their implementation. As a result of the implementation process, 1999 was a
transition period for Pacific Lumber with respect to the filing and approval of
its THPs. The transition period is expected to continue into 2000. Pacific
Lumber believes that the rate of submissions of THPs during 2000 will increase
significantly. However, Pacific Lumber believes that the review and approval
process for THPs through at least the first quarter of 2000 will continue to be
slower than Pacific Lumber has historically experienced as Pacific Lumber, the
CDF and other agencies continue to develop procedures for implementing the
Environmental Plans. Nevertheless, Pacific Lumber anticipates that after a
transition period, the implementation of the Environmental Plans will streamline
the process of preparing THPs and potentially shorten the time to obtain
approval of THPs.

      There can be no assurance that Pacific Lumber will not continue to
experience difficulties in receiving approvals of its THPs similar to those it
has been experiencing. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, or adverse
weather conditions, would not have a material adverse effect on the Company's
financial position, results of operations or liquidity. See Item 3. "Legal
Proceedings" and Note 10 to the Consolidated Financial Statements for further
information regarding regulatory and legal proceedings affecting the Company's
operations.

YEAR 2000

      The transition to the year 2000 date change was made without any
significant problems or interruption of business activity. Management had
completed its assessment of, modifications to and testing of the Company's
critical information technology and embedded technology prior to December 31,
1999. The principal software and equipment of the Company affected by the date
change to the year 2000 were the cogeneration plant, financial information
systems, the GIS and certain personal computers and field equipment used by the
foresters and other professional staff. The modification costs and the costs
associated with new systems were less than $100,000.

      Kaiser, the Company's equity investee, also did not experience any
significant problems or interruption of business activity as a result of the
year 2000 date change. Kaiser's total spending related to year 2000 readiness,
which began in 1997 and continued through 1999, was $8.3 million.

ACCOUNTING PRONOUNCEMENTS

      Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS NO. 133") 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
initially required adoption by January 1, 2000. However, Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Financial Instruments
and Hedging Activities-Deferral of Effective Date of SFAS No. 133," issued in
June 1999, delayed the required implementation date of SFAS No. 133 to no later
than January 1, 2001. Kaiser, the Company's equity investee, has hedging
programs which use various derivative products to "lock-in" a price (or range of
prices) for products sold or used so that earnings and cash flows are subject to
a reduced risk of volatility. Under SFAS No. 133, Kaiser 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 transactions to which the hedges relate.
Kaiser will reflect changes in the fair value of its open hedging positions as
an increase or reduction in stockholders' equity through comprehensive income.
The impact of the changes in the fair value of Kaiser's hedging positions 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 transactions to which the hedges relate. Under the equity method of
accounting which the Company follows in accounting for its investment in Kaiser,
the Company will reflect its equity share of Kaiser's adjustments to
stockholder's equity through comprehensive income.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      This item is not applicable for the Company and its subsidiaries; however,
Kaiser, the Company's equity investee, utilizes hedging transactions to lock-in
a specified price or range of prices for certain products which it sells or
consumes and to mitigate its exposure to changes in foreign currency exchange
rates. See Item 7A. "Quantitative and Qualitative Disclosures About Market Risk"
from Kaiser's Annual Report on Form 10-K included as Exhibit 99.4 hereto for
information regarding Kaiser's hedging activities.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MAXXAM Group Holdings Inc.:

      We have audited the accompanying consolidated balance sheets of MAXXAM
Group Holdings Inc. (a Delaware corporation and a wholly owned subsidiary of
MAXXAM Inc.) and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, cash flows and stockholder's deficit for
each of the three years in the period ended December 31, 1999. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MAXXAM Group
Holdings Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

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

                                        ARTHUR ANDERSEN LLP


San Francisco, California
March 7, 2000


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

               (IN MILLIONS OF DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                            -----------------------
                                                                                               1999        1998
                                                                                            ----------  -----------
                                          ASSETS
<S>                                                                                         <C>         <C>
Current assets:
   Cash and cash equivalents..............................................................  $   189.8   $    150.8
   Marketable securities..................................................................       43.8         11.7
   Receivables:
      Trade...............................................................................       10.9         10.5
      Other...............................................................................        9.1          7.1
   Inventories............................................................................       44.6         44.0
   Prepaid expenses and other current assets..............................................       17.7          8.0
                                                                                            ----------  -----------
        Total current assets..............................................................      315.9        232.1
Timber and timberlands, net of accumulated depletion of $180.6 and $178.4,
   respectively...........................................................................      254.1        302.3
Property, plant and equipment, net of accumulated depreciation of $93.7 and
   $85.7, respectively....................................................................      100.4        103.1
Note receivable from MAXXAM Inc...........................................................      147.8        132.8
Investment in Kaiser Aluminum Corporation.................................................       21.9         41.5
Deferred financing costs, net.............................................................       23.6         26.2
Deferred income taxes.....................................................................      100.3         90.4
Restricted cash and marketable securities.................................................      158.9         16.6
Other assets..............................................................................        8.8          7.2
                                                                                            ----------  -----------
                                                                                            $ 1,131.7   $    952.2
                                                                                            ==========  ===========

                           LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Accounts payable.......................................................................  $     6.1   $      3.4
   Accrued interest.......................................................................       34.5         34.9
   Accrued compensation and related benefits..............................................        3.7          8.4
   Deferred income taxes..................................................................        7.0          9.7
   Other accrued liabilities..............................................................        5.3          2.2
   Current maturities of long-term debt...................................................       16.0          8.3
                                                                                            ----------  -----------
        Total current liabilities.........................................................       72.6         66.9
Long-term debt, less current maturities...................................................      969.4        990.2
Deferred income taxes.....................................................................       78.8          1.5
Other noncurrent liabilities..............................................................       45.8         28.1
                                                                                            ----------  -----------
        Total liabilities.................................................................    1,166.6      1,086.7
                                                                                            ----------  -----------

Contingencies

Stockholder's deficit:
   Common stock, $1.00 par value; 3,000 shares authorized; 1,000 shares issued............          -            -
   Additional capital.....................................................................      123.2        123.2
   Accumulated deficit....................................................................     (157.7)      (257.7)
   Accumulated other comprehensive loss - additional minimum pension liability............       (0.4)           -
                                                                                            ----------  -----------
        Total stockholder's deficit.......................................................      (34.9)      (134.5)
                                                                                            ----------  -----------
                                                                                             $1,131.7   $    952.2
                                                                                            ==========  ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                                -----------------------------------
                                                                                   1999        1998        1997
                                                                                ----------  ----------  -----------
<S>                                                                             <C>         <C>         <C>
Net sales:
   Lumber and logs............................................................  $   165.5   $   213.1   $    261.0
   Other......................................................................       22.3        20.5         26.2
                                                                                ----------  ----------  -----------
                                                                                    187.8       233.6        287.2
                                                                                ----------  ----------  -----------

Operating expenses:
   Cost of goods sold.........................................................      159.5       155.3        162.0
   Selling, general and administrative expenses...............................       15.7        15.2         14.6
   Depletion and depreciation.................................................       17.0        22.5         26.1
                                                                                ----------  ----------  -----------
                                                                                    192.2       193.0        202.7
                                                                                ----------  ----------  -----------

Operating income (loss).......................................................       (4.4)       40.6         84.5

Other income (expense):
   Gain on sale of Headwaters Timberlands.....................................      239.8           -            -
   Equity in earnings (loss) of Kaiser Aluminum Corporation...................      (19.2)        0.1          7.0
   Investment, interest and other income (expense), net.......................       44.5        23.6         27.3
   Interest expense...........................................................      (82.8)      (91.6)       (95.0)
                                                                                ----------  ----------  -----------
Income (loss) before income taxes and extraordinary item......................      177.9       (27.3)        23.8
Credit (provision) in lieu of income taxes....................................      (77.9)        9.3         (5.2)
                                                                                ----------  ----------  -----------
Income (loss) before extraordinary item.......................................      100.0       (18.0)        18.6
Extraordinary item:
   Loss on early extinguishment of debt, net of
      income tax benefit of $23.6.............................................          -       (41.8)           -
                                                                                ----------  ----------  -----------
Net income (loss).............................................................  $   100.0   $   (59.8)  $     18.6
                                                                                ==========  ==========  ===========
<FN>

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

                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                       1999      1998       1997
                                                                                     --------- ---------  ---------
<S>                                                                                  <C>       <C>        <C>
Cash flows from operating activities:
   Net income (loss)...............................................................  $  100.0  $  (59.8)  $   18.6
   Adjustments to reconcile net income (loss) to net cash provided by (used for)
      operating activities:
      Depletion and depreciation...................................................      17.0      22.5       26.1
      Gain on sale of Headwaters Timberlands.......................................    (239.8)        -          -
      Extraordinary loss on early extinguishment of debt, net......................         -      41.8          -
      Equity in undistributed loss (earnings) of Kaiser Aluminum Corporation.......      19.2      (0.1)      (7.0)
      Amortization of deferred financing costs and discounts on long-term debt.....       2.4      11.5       16.6
      Net sales (purchases) of marketable securities...............................     (20.6)     42.6      (11.3)
      Net gains on marketable securities...........................................     (11.5)     (2.9)      (8.6)
      Deferral of interest payment on note receivable from MAXXAM Inc..............     (15.0)     (7.8)         -
   Increase (decrease) in cash resulting from changes in:
      Receivables..................................................................      (2.8)      1.0       (5.2)
      Inventories, net of depletion................................................      (2.1)     14.0        9.7
      Prepaid expenses and other assets............................................      (2.8)     (2.7)      (5.4)
      Accounts payable.............................................................       2.7      (0.3)      (0.4)
      Accrued interest.............................................................      (0.3)      4.0        5.6
      Other accrued liabilities....................................................      (0.7)      1.3        0.6
      Accrued and deferred income taxes............................................      76.3     (10.5)       4.8
      Long-term assets and long-term liabilities...................................      (2.1)      0.7        2.0
                                                                                     --------- ---------  ---------
        Net cash provided by (used for) operating activities.......................     (80.1)     55.3       46.1
                                                                                     --------- ---------  ---------
Cash flows from investing activities:

   Net proceeds from dispositions of property and investments......................     298.3       6.6        0.4
   Capital expenditures............................................................     (23.1)    (21.2)     (13.5)
   Restricted cash withdrawals used to acquire timberlands.........................      12.9       8.9          -
                                                                                     --------- ---------  ---------
        Net cash provided by (used for) investing activities.......................     288.1      (5.7)     (13.1)
                                                                                     --------- ---------  ---------
Cash flows from financing activities:
   Proceeds from issuance of long-term debt........................................         -     867.2          -
   Premiums for early retirement of debt...........................................         -     (45.5)         -
   Incurrence of deferred financing costs..........................................      (0.7)    (22.4)         -
   Redemptions, repurchases of and principal payments on long-term debt............     (13.1)   (796.8)     (16.3)
   Dividends paid..................................................................         -      (2.5)         -
   Other restricted cash withdrawals (deposits), net...............................    (155.2)      9.4        1.5
                                                                                     --------- ---------  ---------
        Net cash provided by (used for) financing activities.......................    (169.0)      9.4      (14.8)
                                                                                     --------- ---------  ---------

Net increase in cash and cash equivalents..........................................      39.0      59.0       18.2
Cash and cash equivalents at beginning of year.....................................     150.8      91.8       73.6
                                                                                     --------- ---------  ---------
Cash and cash equivalents at end of year...........................................  $  189.8  $  150.8   $   91.8
                                                                                     ========= =========  =========

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

                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
                (IN MILLION OF DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>

                                                                                   ACCUMU-
                                                                                   LATIVE
                                                                                    OTHER
                                                  COMMON      ADDI-     ACCUM-     COMPRE-                 COMPRE-
                                                   STOCK     TIONAL     ULATED     HENSIVE                 HENSIVE
                                                ($1.00 PAR)  CAPITAL    DEFICIT     INCOME      TOTAL      INCOME
                                                ---------- ----------  ---------  ----------  ---------  ----------
<S>                                             <C>        <C>         <C>        <C>         <C>        <C>
Balance, December 31, 1996....................  $       -  $    89.8   $ (214.0)  $       -   $ (124.2)
   Net income.................................          -          -       18.6           -       18.6   $    18.6
   Equity in Kaiser Aluminum Corporation's
      reduction of pension liability..........          -          -          -         1.0        1.0         1.0
                                                                                                         ----------
   Comprehensive income.......................                                                           $    19.6
                                                                                                         ==========
   Gain from issuance of Kaiser Aluminum
      Corporation common stock due to
      PRIDES conversion.......................          -       33.4          -           -       33.4
                                                ---------- ----------  ---------  ----------  ---------
Balance, December 31, 1997....................          -      123.2     (195.4)        1.0      (71.2)
   Net loss...................................          -          -      (59.8)          -      (59.8)  $   (59.8)
   Equity in Kaiser Aluminum Corporation's
      reduction of pension liability reversal.          -          -          -        (1.0)      (1.0)       (1.0)
                                                                                                         ----------
   Comprehensive loss.........................                                                           $   (60.8)
                                                                                                         ==========
   Dividend...................................          -          -       (2.5)          -       (2.5)
                                                ---------- ----------  ---------  ----------  ---------
Balance, December 31, 1998....................          -      123.2     (257.7)          -     (134.5)
   Net income.................................          -          -      100.0           -      100.0   $   100.0
   Equity in Kaiser Aluminum
      Corporation's additional minimum
      pension liability.......................          -          -          -        (0.4)      (0.4)       (0.4)
                                                                                                         ----------
   Comprehensive income.......................                                                           $    99.6
                                                ---------- ----------  ---------  ----------  ---------  ==========
Balance, December 31, 1999....................  $       -  $   123.2   $ (157.7)  $    (0.4)  $  (34.9)
                                                ========== ==========  =========  ==========  =========

<FN>

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

                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   FORMATION OF MGHI

      MAXXAM Group Holdings Inc. ("MGHI") was formed on November 4, 1996, to
facilitate the offering of the $130.0 million aggregate principal amount of 12%
Senior Secured Notes due 2003 (the "MGHI NOTES") as described in Note 6.
Subsequent to its formation, MGHI received, as a capital contribution from
MAXXAM Inc. ("MAXXAM"), 100% of the capital stock of MAXXAM Group Inc. ("MGI")
and 27,938,250 shares of the common stock of Kaiser Aluminum Corporation
("KAISER") which represents a 35.2% interest in Kaiser on a fully diluted basis
as of December 31, 1999. The contribution of MGI's capital stock has been
accounted for as a reorganization of entities under common control, which
requires MGHI to record the assets and liabilities of MGI at MAXXAM's historical
cost. Accordingly, MGHI is the successor entity to MGI and as such, the
accompanying financial statements of MGHI and its subsidiaries (together, the
"COMPANY") reflect both the historical operating results of MGI and MAXXAM's
purchase accounting adjustments which principally relate to MGI's timber and
depreciable assets. The purchase accounting adjustments arose from MAXXAM's
acquisition of MGI in May 1988. The contribution of the Kaiser common stock has
been reflected in the consolidated financial statements of the Company as if
such contribution occurred as of the beginning of the earliest period presented,
at MAXXAM's historical cost using the equity method of accounting. The Company
conducts its business primarily through the operations of its subsidiaries,
including MGI.

   BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of MGHI and its
wholly owned subsidiaries. MGHI is a wholly owned subsidiary of MAXXAM.
Intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to prior years' financial statements to be
consistent with the current year's presentation.

      The Company's wholly owned subsidiary, MGI, and its wholly owned
subsidiaries, The Pacific Lumber Company ("PACIFIC LUMBER") and Britt Lumber
Co., Inc. ("BRITT") are engaged in forest products operations. Pacific Lumber's
principal wholly owned subsidiaries are Scotia Pacific Company LLC ("SCOTIA
LLC") and Salmon Creek LLC ("SALMON CREEK"). MGI is engaged in several principal
aspects of the lumber industry - the growing and harvesting of redwood and
Douglas-fir timber, the milling of logs into lumber and the manufacture of
lumber into a variety of finished products. Housing, construction and remodeling
are the principal markets for the Company's lumber products.

   USE OF ESTIMATES AND ASSUMPTIONS

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

   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Cash Equivalents
      Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less. See "Restricted Cash and Marketable
Securities" below.

      Marketable Securities
      Marketable securities which are considered "held-to-maturity" securities
consist of commercial paper with original maturities in excess of three months
and other types of corporate and government debt obligations. These securities
are carried at cost adjusted for discount and premium amortization. As of
December 31, 1999 and 1998, the carrying amount approximated fair value.
Marketable securities which are considered "trading" or "available for sale"
securities consist of long and short positions in corporate common stocks and
option contracts and are carried at fair value. The cost of the securities sold
is determined using the first-in, first-out method. Included in investment,
interest and other income (expense), net for each of the three years in the
period ended December 31, 1999 were: 1999 - net realized holding gains of $12.5
million and net unrealized losses of $0.9 million; 1998 - net unrealized holding
gains of $5.1 million and net realized losses of $2.2 million; and 1997 - net
unrealized holding gains of $2.9 million and net realized gains of $5.7 million.
See "Restricted Cash and Marketable Securities" below.

      Inventories
      Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method not in excess of market
value. Replacement cost is not in excess of LIFO cost. Inventory costs consist
of material, labor and manufacturing overhead, including depreciation and
depletion.

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

      Property, Plant and Equipment
      Property, plant and equipment, including capitalized interest, is stated
at cost, net of accumulated depreciation. Depreciation is computed utilizing the
straight-line method at rates based upon the estimated useful lives of the
various classes of assets. The carrying value of property, plant and equipment
is assessed when events and circumstances indicate that an impairment is
present. The existence of an impairment is determined by comparing the net
carrying value of the asset to its estimated undiscounted future cash flows. If
an impairment is present, the asset is reported at the lower of carrying value
or fair value.

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

      Restricted Cash and Marketable Securities
      Cash and cash equivalents and marketable securities includes restricted
investments of $43.0 million and $74.8 million at December 31, 1999 and 1998,
respectively. Restricted investments are primarily held as security for short
positions in marketable securities and for debt service payments on the
Company's Class A-1, Class A-2 and Class A-3 Timber Collateralized Notes due
2028 (the "TIMBER NOTES"). Current marketable securities consist of the current
portion of amounts held in the SAR Account defined in the following paragraph.

      Long-term restricted cash and marketable securities of $158.9 million at
December 31, 1999 primarily represents amounts held in a Scheduled Amortization
Reserve Account (the "SAR ACCOUNT") to support principal payments on the Timber
Notes, whereas long-term restricted cash of $16.6 million at December 31, 1998
primarily represents the amount held in an account by the trustee (the
"PREFUNDING ACCOUNT") under the indenture governing the Timber Notes (the
"TIMBER NOTES INDENTURE") to enable Scotia LLC to acquire timberlands.

      Concentrations of Credit Risk Cash equivalents and restricted marketable
securities are invested primarily in commercial paper as well as other types of
corporate and government debt obligations. The Company has mitigated its
concentration of credit risk with respect to these investments by purchasing
high grade investments (ratings of A1/P1 short-term or at least AA/aa
long-term debt). No more than 10% is invested within the same issue.

      Fair Value of Financial Instruments
      The carrying amounts of cash equivalents approximate fair value.
Marketable securities are carried at fair value which is determined based on
quoted market prices. As of December 31, 1999 and 1998, the estimated fair value
of debt, including current maturities, was $882.5 million and $942.8 million,
respectively. The estimated fair value of debt is determined based on the quoted
market prices for the publicly traded issues and on the current rates offered
for borrowings similar to the other debt. The Company's publicly traded debt
issues are thinly traded financial instruments; accordingly, their market prices
at any balance sheet date may not be representative of the prices which would be
derived from a more active market.

2.    HEADWATERS TRANSACTIONS

      On March 1, 1999, the United States and California acquired the Headwaters
Timberlands, approximately 5,600 acres of timberlands containing a significant
amount of virgin old growth timber, from Salmon Creek and Pacific Lumber. Salmon
Creek received $299.9 million for its 4,900 acres, and for its 700 acres,
Pacific Lumber received the 7,700 acre Elk River Timberlands, which Pacific
Lumber contributed to Scotia LLC in June 1999. See Note 10 below for a
discussion of additional agreements entered into on March 1, 1999.

      As a result of the disposition of the Headwaters Timberlands, the Company
recognized a pre-tax gain of $239.8 million ($142.1 million net of deferred
taxes) in 1999. This amount represents the gain attributable to the portion of
the Headwaters Timberlands for which the Company received $299.9 million in
cash. With respect to the remaining portion of the Headwaters Timberlands for
which the Company received the Elk River Timberlands, no gain has been
recognized as this represented an exchange of substantially similar productive
assets. These timberlands have been reflected in the Company's financial
statements at an amount which represents the Company's historical cost for the
timberlands which were transferred to the United States.

      Scotia LLC and Pacific Lumber also entered into agreements with California
for the future sale of two timber properties known as the Owl Creek grove and
the Grizzly Creek grove. Under these agreements Scotia LLC would sell the Owl
Creek grove to California, no later than June 30, 2001, for the lesser of the
appraised fair market value or $79.7 million, and California must purchase from
Pacific Lumber, no later than October 31, 2000, a portion of the Grizzly Creek
grove for a purchase price determined based on fair market value, but not to
exceed $20.0 million. California also has a five year option under these
agreements to purchase additional property adjacent to the Grizzly Creek grove.
The sale of the Owl Creek grove or Grizzly Creek grove will not be reflected in
the Company's financial statements until each has been concluded.

3.    INVENTORIES

      Inventories consist of the following (in millions):

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                 --------------------
                                                   1999       1998
                                                 ---------  ---------
<S>                                              <C>        <C>
Lumber.......................................... $   23.2   $   36.0
Logs............................................     21.4        8.0
                                                 ---------  ---------
                                                 $   44.6   $   44.0
                                                 =========  =========

</TABLE>

4.    PROPERTY, PLANT AND EQUIPMENT

      The major classes of property, plant and equipment are as follows (dollar
amounts in millions):

<TABLE>
<CAPTION>

                                                                                                 DECEMBER 31,
                                                                               ESTIMATED    -----------------------
                                                                             USEFUL LIVES      1999        1998
                                                                             -------------  ----------  -----------
<S>                                                                          <C>            <C>         <C>
Logging roads, land and improvements.......................................       15 years  $    35.2   $     28.8
Buildings..................................................................       33 years       49.4         50.6
Machinery and equipment....................................................   3 - 15 years      108.8        109.4
Construction in progress...................................................                       0.7           -
                                                                                            ----------  -----------
                                                                                                194.1        188.8
Less:  accumulated depreciation............................................                     (93.7)       (85.7)
                                                                                            ----------  -----------
                                                                                            $   100.4   $    103.1
                                                                                            ==========  ===========

</TABLE>

      Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $10.1 million, $9.8 million and $9.9 million, respectively.

5.    INVESTMENT IN KAISER

      The Company has 27,938,250 shares of the common stock of Kaiser all of
which are pledged as collateral for the MGHI Notes (the "KAISER SHARES"). Kaiser
operates in several principal aspects of the aluminum industry--the mining of
bauxite into alumina, the production of primary aluminum and the manufacture of
fabricated (including semi-fabricated) aluminum products. Kaiser's common stock
is publicly traded on the New York Stock Exchange under the trading symbol
"KLU." The Kaiser Shares represent a 35.2% equity interest in Kaiser at December
31, 1999.

      The Company follows the equity method of accounting for its investment in
Kaiser. As described in Note 1, the Company and MAXXAM are entities under common
control; accordingly, the Company has recorded its investment in Kaiser at
MAXXAM's historical cost. During the first quarter of 1993, losses exhausted
Kaiser's equity with respect to its common stockholders. The Company recorded
its equity share of such losses in January 1993 up to the amount of its
investment in the Kaiser Shares. From January 1993 until August 1997, cumulative
losses with respect to the results of operations attributable to Kaiser's common
stockholders exceeded cumulative earnings. However, this was no longer the case
when equity attributable to Kaiser's common stockholders increased upon
conversion of the PRIDES into Kaiser common stock on August 29, 1997. As a
result, the Company recorded a $33.4 million adjustment to reduce the
stockholder's deficit reflecting the Company's 35.4% equity interest in the
impact of the PRIDES conversion on the common stockholders. In addition, the
Company began recording its equity in Kaiser's results of operations.

      The market value for the Kaiser Shares based on the price per share quoted
at the close of business on March 7, 2000 was $150.2 million. There can be no
assurance that such value would be realized should the Company dispose of its
investment in the Kaiser Shares. The following tables contain summarized
financial information of Kaiser (in millions).

<TABLE>
<CAPTION>

                                                                                                 DECEMBER 31,
                                                                                            -----------------------
                                                                                               1999        1998
                                                                                            ----------  -----------
<S>                                                                                         <C>         <C>
Current assets............................................................................  $   973.9   $  1,030.0
Property, plant and equipment, net........................................................    1,053.7      1,108.7
Other assets..............................................................................    1,171.2        852.2
                                                                                            ----------  -----------
           Total assets...................................................................  $ 3,198.8   $  2,990.9
                                                                                            ==========  ===========

Current liabilities.......................................................................  $   637.9   $    558.4
Long-term debt, less current maturities...................................................      972.5        962.6
Other liabilities.........................................................................    1,405.4      1,227.2
Minority interests........................................................................      117.7        123.5
Stockholders' equity:
   Common.................................................................................       65.3        119.2
                                                                                            ----------  -----------
                                                                                                 65.3        119.2
                                                                                            ----------  -----------
            Total liabilities and stockholders' equity....................................  $ 3,198.8   $  2,990.9
                                                                                            ==========  ===========

</TABLE>

<TABLE>
<CAPTION>


                                                                                     YEARS ENDED DECEMBER 31,
                                                                                -----------------------------------
                                                                                   1999        1998        1997
                                                                                ----------  ----------  -----------
<S>                                                                             <C>         <C>         <C>
Net sales.....................................................................  $ 2,044.3   $ 2,256.4   $  2,373.2
Costs and expenses............................................................   (2,054.1)   (2,120.8)    (2,185.5)
Impairment of assets/restructuring of operations..............................      (19.1)      (45.0)       (19.7)
Other expenses-net............................................................      (61.0)     (106.5)      (107.7)
                                                                                ----------  ----------  -----------
Income (loss) before income taxes and minority interests......................      (89.9)      (15.9)        60.3
Credit (provision) for income taxes...........................................       32.7        16.4         (8.8)
Minority interests............................................................        3.1         0.1         (3.5)
                                                                                ----------  ----------  -----------
Net income (loss).............................................................      (54.1)        0.6         48.0
Dividends on preferred stock..................................................          -           -         (5.5)
                                                                                ----------  ----------  -----------
Net income (loss) available to common stockholders............................  $   (54.1)  $     0.6   $     42.5
                                                                                ==========  ==========  ===========
Equity in earnings (loss) of Kaiser...........................................  $   (19.2)  $     0.1   $      7.0
                                                                                ==========  ==========  ===========

</TABLE>

6.    LONG-TERM AND SHORT-TERM DEBT

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

<TABLE>
<CAPTION>

                                                                                                 DECEMBER 31,
                                                                                            -----------------------
                                                                                               1999        1998
                                                                                            ----------  -----------
<S>                                                                                         <C>         <C>
6.55% Scotia LLC Class A-1 Timber Collateralized Notes due July 20, 2028..................  $   152.6   $    160.7
7.11% Scotia LLC Class A-2 Timber Collateralized Notes due July 20, 2028..................      243.2        243.2
7.71% Scotia LLC Class A-3 Timber Collateralized Notes due July 20, 2028..................      463.3        463.3
12% MGHI Senior Secured Notes due August 1, 2003..........................................      125.2        130.0
Other.....................................................................................        1.1          1.3
                                                                                            ----------  -----------
                                                                                                985.4        998.5
Less: current maturities..................................................................      (16.0)        (8.3)
                                                                                            ----------  -----------
                                                                                            $   969.4   $    990.2
                                                                                            ==========  ===========
</TABLE>

      Scotia LLC Timber Collateralized Notes due 2028
      Scotia LLC issued $867.2 million aggregate principal amount of Timber
Notes on July 20, 1998. Net proceeds from the offering of the Timber Notes were
used primarily to prepay certain debt, and accordingly the Company recognized an
extraordinary loss of $41.8 million, net of the related income tax benefit of
$23.6 million, in 1998 for the early extinguishment.

      The Timber Notes and the Scotia LLC Line of Credit (defined below) are
secured by a lien on (i) Scotia LLC's timber, timberlands and timber rights and
(ii) substantially all of Scotia LLC's other property. 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 remaining $152.6 million of Class A-1 Timber Notes).

      The Timber Notes were 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 Notes 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 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.

      Pursuant to certain liquidity requirements under the Timber Notes
Indenture, Scotia LLC has entered into an agreement (the "SCOTIA LLC LINE OF
CREDIT") with a group of banks pursuant to which Scotia LLC may borrow to pay
interest on the Timber Notes. The maximum amount Scotia LLC may borrow is equal
to one year's interest on the aggregate outstanding principal balance of the
Timber Notes (the "REQUIRED LIQUIDITY AMOUNT"). At December 31, 1999, the
Required Liquidity Amount was $63.0 million. The Scotia LLC Line of Credit
expires on July 16, 2000. Annually, Scotia LLC will request that the banks
extend the Scotia LLC Line of Credit for a period of not less than 364 days. If
not extended, Scotia LLC may draw upon the full amount available. Borrowings
under the Scotia LLC Line of Credit generally bear interest at the Base Rate (as
defined in the agreement) plus 0.25% or a one month or six month LIBOR rate plus
1% at any time the borrowings have not been continually outstanding for more
than six months. As of December 31, 1999, Scotia LLC had no borrowings
outstanding under the Scotia LLC Line of Credit.

      As a result of the sale of the Headwaters Timberlands, Salmon Creek
received proceeds of $299.9 million in cash. See Note 2 to the Consolidated
Financial Statements. On November 18, 1999, $169.0 million of funds from the
sale of the Headwaters Timberlands were contributed to Scotia LLC and set aside
in the SAR Account. See Note 1 to the Consolidated Financial Statements. Amounts
in the SAR Account are part of the collateral securing the Timber Notes and will
be used to make principal payments to the extent that other available amounts
are insufficient to pay Scheduled Amortization on the Class A-1 and Class A-2
Timber Notes. In addition, during the six years beginning January 20, 2014,
amounts in the SAR Account will be used to amortize the Class A-3 Timber Notes
as set forth in the Timber Notes Indenture, as amended. Funds may from time to
time be released to Scotia LLC from the SAR Account if the amount in the account
exceeds the then Required Scheduled Amortization Reserve Balance (as defined in
the Timber Notes Indenture). If the SAR Account falls below the Required
Scheduled Amortization Reserve Balance, up to 50% of any Remaining Funds (funds
that could otherwise be released to Scotia LLC free of the lien securing the
Timber Notes) is required to be used on each monthly deposit date to replenish
the SAR Account.

      Principal and interest on the Timber Notes are payable semi-annually on
January 20 and July 20. On the January 20, 2000 note payment date for the Timber
Notes, Scotia LLC had $2.2 million in cash available to pay the $31.5 million of
interest due. Scotia LLC borrowed the remaining $29.3 million in funds under the
Scotia LLC Line of Credit. In addition, Scotia LLC repaid $12.9 million of
principal on the Timber Notes (an amount equal to Scheduled Amortization). The
SAR Account was used to make the January 20, 2000 principal payment.

      Pacific Lumber Credit Agreement
      The Pacific Lumber Credit Agreement, a senior secured credit facility
which expires on October 31, 2001, allows for borrowings of up to $60.0 million,
all of which may be used for revolving borrowings, $20.0 million of which may be
used for standby letters of credit and $30.0 million of which may be used for
timberland acquisitions. Borrowings are secured by all of Pacific Lumber's
domestic accounts receivable and inventory. Borrowings for timberland
acquisitions are also secured by the acquired timberlands and, commencing in
April 2001, are to be repaid annually from 50% of Pacific Lumber's excess cash
flow (as defined). The remaining excess cash flow is available for dividends.
Upon maturity of the facility, all outstanding borrowings used for timberland
acquisitions will convert to a term loan repayable over four years. At December
31, 1999, Pacific Lumber had $34.1 million of borrowings available under the
agreement, no borrowings were outstanding and letters of credit outstanding
amounted to $12.5 million.

      12% MGHI Senior Secured Notes due 2003 (the "MGHI NOTES")
      The MGHI Notes due August 1, 2003 are guaranteed on a senior, unsecured
basis by MAXXAM. The MGHI Notes are also secured by a pledge of the 27,938,250
shares of Kaiser common stock owned by MGHI as well as the common stock of MGI.
Interest on the MGHI Notes is payable semi-annually. The outstanding balance of
the MGHI Notes declined from $130.0 million as of December 31, 1998 to $125.2
million as of December 31, 1999 as a result of MGI repurchasing $4.8 million of
the MGHI Notes. Approximately 500,000 shares of Kaiser common stock may be
released from the pledge as a result of such repurchase.

      The net proceeds from the offering of the MGHI Notes after expenses were
approximately $125.0 million, all of which was loaned to MAXXAM pursuant to an
intercompany note (the "MAXXAM NOTE") which is pledged to secure the MGHI Notes.
The MAXXAM Note bears interest at the rate of 11% per annum (payable
semi-annually on the interest payment dates applicable to the MGHI Notes) and
matures on August 1, 2003. MAXXAM is entitled to defer the payment of interest
on the MAXXAM Note on any interest payment date to the extent that the Company
has sufficient available funds to satisfy its obligations on the MGHI Notes on
such date. Any such deferred interest will be added to the principal amount of
the MAXXAM Note and will be payable at maturity. As of December 31, 1999, $22.8
million of interest had been deferred and added to principal. An additional $8.1
million of interest was deferred and added to principal on February 1, 2000.

      Maturities
      Scheduled maturities of long-term debt outstanding at December 31, 1999
are: $16.0 million in 2000, $16.5 million in 2001, $17.3 million in 2002, $144.7
million in 2003, $22.4 million in 2004 and $768.5 million thereafter.

      Restricted Net Assets of Subsidiaries
      As of December 31, 1999 and 1998, all of the assets of MGI and its
subsidiaries are subject to certain debt instruments which restrict the ability
to transfer assets, make loans and advances and pay dividends to the Company. As
of December 31, 1999, under the most restrictive covenants contained in the
indentures governing the Timber Notes and the Pacific Lumber Credit Agreement,
Pacific Lumber could pay no dividends other than distributions from Salmon
Creek.

7.    CREDIT (PROVISION) IN LIEU OF INCOME TAXES

      Income taxes are determined using an asset and liability approach which
requires the recognition of deferred income tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred
income tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.

      The Company and its corporate subsidiaries are members of MAXXAM's
consolidated return group for federal income tax purposes.

      Pursuant to a tax allocation agreement between MAXXAM, Pacific Lumber, and
Salmon Creek (the "PL TAX ALLOCATION AGREEMENT"), Pacific Lumber is liable to
MAXXAM for the federal consolidated income tax liability of Pacific Lumber,
Scotia LLC and certain other subsidiaries of Pacific Lumber (but excluding
Salmon Creek) (collectively, the "PL SUBGROUP") computed as if the PL Subgroup
was a separate affiliated group of corporations which was never connected with
MAXXAM. The PL Tax Allocation Agreement further provides that Salmon Creek is
liable to MAXXAM for its federal income tax liability computed on a separate
company basis as if it was never connected with MAXXAM. For taxable periods
beginning after December 7, 1999 (the day on which Salmon Creek was converted
from a corporation to a limited liability company) the PL Subgroup includes
Salmon Creek and there is no separate calculation for Salmon Creek. The
remaining subsidiaries of MGI are each liable to MAXXAM for their respective
income tax liabilities computed on a separate company basis as if they were
never connected with MAXXAM, pursuant to their respective tax allocation
agreements.

      MGI's tax allocation agreement with MAXXAM (the "MGI TAX ALLOCATION
AGREEMENT") provides that MGI's federal income tax liability is computed as if
MGI files a consolidated tax return with all of its subsidiaries except Salmon
Creek, and that such corporations were never connected with MAXXAM (the "MGI
CONSOLIDATED TAX LIABILITY"). For taxable periods beginning after December 7,
1999, the MGI consolidated tax liability includes Salmon Creek. The federal
income tax liability of MGI is the difference between (i) the MGI Consolidated
Tax Liability and (ii) the sum of the separate tax liabilities for MGI's
subsidiaries (computed as discussed above), but excluding Salmon Creek, for
taxable periods through December 7, 1999. To the extent that the MGI
Consolidated Tax Liability is less than the aggregate amounts in (ii), MAXXAM is
obligated to pay the amount of such difference to MGI.

      MGHI's tax allocation agreement with MAXXAM (the "MGHI TAX ALLOCATION
AGREEMENT") provides that the Company's federal consolidated income tax
liability is computed as if MGHI and its subsidiaries, except Salmon Creek, file
a consolidated tax return and that such corporations were never connected with
MAXXAM (the "MGHI CONSOLIDATED TAX LIABILITY"). For taxable periods beginning
after December 7, 1999, the MGHI consolidated tax liability includes Salmon
Creek. The federal income tax liability of MGHI is the difference between the
MGHI Consolidated Tax Liability and the MGI Consolidated Tax Liability. To the
extent that the MGHI Consolidated Tax Liability is less than the MGI
Consolidated Tax Liability, MAXXAM is obligated to pay the amount of such
difference to MGHI.

      The credit (provision) in lieu of income taxes on income (loss) before
income taxes and extraordinary item consists of the following (in millions):

<TABLE>
<CAPTION>

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                       1999      1998       1997
                                                                                     --------- ---------  ---------
<S>                                                                                  <C>       <C>        <C>
Current:
   Federal in lieu of income taxes.................................................  $   (3.0) $    0.1   $   (0.4)
   State and local.................................................................       0.1      (0.1)      (0.1)
                                                                                     --------- ---------  ---------
                                                                                         (2.9)        -       (0.5)
                                                                                     --------- ---------  ---------
Deferred:
   Federal in lieu of income taxes.................................................     (53.4)      7.1       (4.7)
   State and local.................................................................     (21.6)      2.2          -
                                                                                     --------- ---------  ---------
                                                                                        (75.0)      9.3       (4.7)
                                                                                     --------- ---------  ---------
                                                                                     $  (77.9) $    9.3   $   (5.2)
                                                                                     ========= =========  =========

</TABLE>

      A reconciliation between the credit (provision) in lieu of income taxes
and the amount computed by applying the federal statutory income tax rate to
income (loss) before income taxes and extraordinary item is as follows (in
millions):

<TABLE>
<CAPTION>

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                       1999      1998       1997
                                                                                     --------- ---------  ---------
<S>                                                                                  <C>       <C>        <C>
Income (loss) before income taxes and extraordinary item...........................  $  177.9  $  (27.4)  $   23.8
                                                                                     ========= =========  =========
Amount of federal income tax credit (provision) based
   upon the statutory rate.........................................................  $  (62.3) $    9.6   $   (8.3)
Revision of prior years' tax estimates and other changes in valuation allowances...       4.5      (1.4)       0.9
Equity in earnings (loss) of Kaiser not tax effected...............................      (6.6)      0.1        2.5
State and local taxes, net of federal tax effect...................................     (13.2)      1.3       (0.1)
Expenses for which no federal tax benefit is available.............................      (0.3)     (0.3)      (0.2)
                                                                                     --------- ---------  ---------
                                                                                     $  (77.9) $    9.3   $   (5.2)
                                                                                     ========= =========  =========

</TABLE>

      The revision of prior years' tax estimates and other changes in valuation
allowances, as shown in the table above, includes amounts for the reversal of
reserves which the Company no longer believes are necessary, other changes in
prior years' tax estimates and changes in valuation allowances with respect to
deferred income tax assets. Generally, the reversal of reserves relates to the
expiration of the relevant statute of limitations with respect to certain income
tax returns or the resolution of specific income tax matters with the relevant
tax authorities. For the year ended December 31, 1999, the reversal of reserves
which the Company believes are no longer necessary resulted in a credit to the
income tax provision of $4.1 million. There were no reversals of reserves for
the years ended December 31, 1998 and 1997.

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

<TABLE>
<CAPTION>

                                                                                                 DECEMBER 31,
                                                                                            -----------------------
                                                                                               1999        1998
                                                                                            ----------  -----------
<S>                                                                                         <C>         <C>
Deferred income tax assets:
   Loss and credit carryforwards..........................................................  $   136.5   $    114.7
   Timber and timberlands.................................................................          -         37.4
   Other..................................................................................       17.9         10.9
   Valuation allowances...................................................................      (47.6)       (47.8)
                                                                                            ----------  -----------
      Total deferred income tax assets, net...............................................      106.8        115.2
                                                                                            ----------  -----------
Deferred income tax liabilities:
   Timber and timberlands.................................................................      (72.1)           -
   Property, plant and equipment..........................................................      (16.9)       (15.1)
   Inventories............................................................................      (10.4)        (9.9)
   Other..................................................................................       (5.9)        (9.5)
                                                                                            ----------  -----------
      Total deferred income tax liabilities...............................................     (105.3)       (34.5)
                                                                                            ----------  -----------
Net deferred income tax assets............................................................  $     1.5   $     80.7
                                                                                            ==========  ===========

</TABLE>

      Included in net deferred income tax assets as of December 31, 1999 is
$88.9 million which relates to the benefit of loss and credit carryforwards, net
of valuation allowances. The Company evaluated all appropriate factors to
determine the proper valuation allowances for loss and credit carryforwards.
These factors included any limitations concerning use of the carryforwards, the
year the carryforwards expire and the levels of taxable income necessary for
utilization. The Company has concluded that it will more likely than not
generate sufficient taxable income to realize the benefit attributable to the
loss and credit carryforwards for which valuation allowances were not provided
based on estimated future taxable income and the estimated value of its timber
and timberlands which is well in excess of its tax basis. As of December 31,
1999, the Company had a deferred income tax liability with respect to timber and
timberlands of $72.1 million as compared to a deferred income tax asset of $37.4
million as of December 31, 1998. The deferred income tax liability resulted
primarily from the sale of the Headwaters Timberlands during 1999.

      Included in the net deferred income tax assets listed above are $15.6
million and $72.9 million at December 31, 1999 and 1998, respectively, which are
recorded pursuant to the tax allocation agreements with MAXXAM.

      The following table presents the estimated tax attributes for federal
income tax purposes for the Company and its subsidiaries as of December 31,
1999, under the terms of the respective tax allocation agreements (dollar
amounts in millions). The utilization of certain of these tax attributes is
subject to limitations.

<TABLE>
<CAPTION>

                                                                                                         EXPIRING
                                                                                                          THROUGH
                                                                                                        -----------
<S>                                                                                         <C>         <C>
Regular Tax Attribute Carryforwards:
   Net operating losses...................................................................  $   373.3         2019
Alternative Minimum Tax Attribute Carryforwards:
   Net operating losses...................................................................  $   350.4         2019

</TABLE>

      The income tax credit (provision) related to other comprehensive income
for the years ended December 31, 1999, 1998 and 1997 was $0.2 million, $(0.3)
million and $0.3 million, respectively.

8.    EMPLOYEE BENEFIT PLANS

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

      Pacific Lumber has an unfunded benefit plan for certain postretirement
medical benefits which covers substantially all employees of Pacific Lumber.
Participants of the plan are eligible for certain health care benefits upon
retirement. Participants make contributions for a portion of the cost of their
health care benefits. The expected costs of postretirement medical benefits are
accrued over the period the employees provide services to the date of their full
eligibility for such benefits.

      The following tables present the changes, status and assumptions of
Pacific Lumber's pension and other postretirement benefit plans as of December
31, 1999 and 1998, respectively (in millions):

<TABLE>
<CAPTION>

                                                                            PENSION BENEFITS   MEDICAL/LIFE BENEFITS
                                                                          -------------------- --------------------
                                                                                  YEARS ENDED DECEMBER 31,
                                                                          -----------------------------------------
                                                                            1999       1998      1999       1998
                                                                          ---------  --------- ---------  ---------
<S>                                                                       <C>        <C>       <C>        <C>
Change in benefit obligation:
   Benefit obligation at beginning of year..............................  $   34.3   $   28.9  $    5.0   $    5.0
   Service cost.........................................................       2.4        2.2       0.3        0.3
   Interest cost........................................................       2.5        2.2       0.4        0.3
   Plan participants' contributions.....................................         -          -       0.3        0.2
   Actuarial (gain) loss................................................      (4.8)       1.6      (0.7)      (0.5)
   Benefits paid........................................................      (0.7)      (0.6)     (0.4)      (0.3)
                                                                          ---------  --------- ---------  ---------
      Benefit obligation at end of year                                       33.7       34.3       4.9        5.0
                                                                          ---------  --------- ---------  ---------

Change in plan assets:
   Fair value of plan assets at beginning of year.......................      29.9       25.9         -          -
   Actual return on assets..............................................       5.7        3.5         -          -
   Employer contributions...............................................       2.2        1.1       0.1        0.1
   Plan participants' contributions.....................................         -          -       0.3        0.2
   Benefits paid........................................................      (0.7)      (0.6)     (0.4)      (0.3)
                                                                          ---------  --------- ---------  ---------
   Fair value of plan assets at end of year.............................      37.1       29.9         -          -
                                                                          ---------  --------- ---------  ---------

   Benefit obligation in excess of (less than) plan assets..............      (3.4)       4.4       4.9        5.0
   Unrecognized actuarial gain..........................................      12.8        4.4       2.1        1.5
   Unrecognized prior service costs.....................................      (0.8)      (0.9)        -          -
                                                                          ---------  --------- ---------  ---------
      Accrued benefit liability.........................................  $    8.6   $    7.9  $    7.0   $    6.5
                                                                          =========  ========= =========  =========

</TABLE>


<TABLE>
<CAPTION>
                                                            PENSION BENEFITS             MEDICAL/LIFE BENEFITS
                                                     ------------------------------  ------------------------------
                                                                        YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                       1999       1998      1997       1999      1998       1997
                                                     ---------  --------  ---------  --------- ---------  ---------
<S>                                                  <C>        <C>       <C>        <C>       <C>        <C>
Components of net periodic benefit costs:
   Service cost....................................  $    2.4   $   2.2   $    1.9   $    0.3  $    0.3   $    0.3
   Interest cost...................................       2.5       2.2        1.9        0.4       0.3        0.4
   Expected return on assets.......................      (2.1)     (1.8)      (1.5)         -         -          -
   Amortization of prior service costs.............       0.1       0.1          -          -         -          -
   Recognized net actuarial gain...................         -         -          -       (0.1)     (0.1)      (0.1)
                                                     ---------  --------  ---------  --------- ---------  ---------
      Adjusted net periodic benefit costs..........  $    2.9   $   2.7   $    2.3   $    0.6  $    0.5   $    0.6
                                                     =========  ========  =========  ========= =========  =========

</TABLE>

<TABLE>
<CAPTION>

                                                            PENSION BENEFITS             MEDICAL/LIFE BENEFITS
                                                     ------------------------------  ------------------------------
                                                                        YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                       1999       1998      1997       1999      1998       1997
                                                     ---------  --------  ---------  --------- ---------  ---------
<S>                                                  <C>        <C>       <C>        <C>       <C>        <C>
Weighted-average assumptions:
   Discount rate...................................    7.8%       7.0%      7.3%       7.8%      7.0%       7.3%
   Expected return on plan assets..................    8.0%       8.0%      8.0%         -         -          -
   Rate of compensation increase...................    5.0%       5.0%      5.0%       5.0%      5.0%       5.0%


</TABLE>

      Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates as of December 31, 1999 would have the
following effects (in millions):

<TABLE>
<CAPTION>

                                                                       1-PERCENTAGE-POINT              1-PERCENTAGE-POINT
                                                                            INCREASE                        DECREASE
                                                                   ---------------------------     ---------------------------
<S>                                                                <C>                             <C>
Effect on total of service and interest cost components.......              $    0.1                        $    (0.1)
Effect on the postretirement benefit obligations..............                   0.8                             (0.7)


</TABLE>

      Employee Savings Plan
      Pacific Lumber's employees are eligible to participate in a defined
contribution savings plan sponsored by MAXXAM. This plan is designed to enhance
the existing retirement programs of participating employees. The cost to the
Company of this plan was $1.4 million, $1.4 million and $1.5 million for the
years ended December 31, 1999, 1998 and 1997, respectively.

      Workers' Compensation Benefits
      Pacific Lumber is self-insured for workers' compensation benefits, whereas
Britt is insured for workers' compensation benefits by an outside party.
Included in accrued compensation and related benefits and other noncurrent
liabilities are accruals for workers' compensation claims amounting to $9.8
million and $10.8 million at December 31, 1999 and 1998, respectively. Workers'
compensation expenses amounted to $3.9 million, $3.5 million and $4.7 million
for the years ended December 31, 1999, 1998 and 1997, respectively.

9.    RELATED PARTY TRANSACTIONS

      MAXXAM provides the Company and certain of the Company's subsidiaries with
accounting and data processing services. In addition, MAXXAM provides the
Company with office space and various office personnel, insurance, legal,
operating, financial and certain other services. MAXXAM's expenses incurred on
behalf of the Company are reimbursed by the Company through payments consisting
of (i) an allocation of the lease expense for the office space utilized by or on
behalf of the Company and (ii) a reimbursement of actual out-of-pocket expenses
incurred by MAXXAM, including, but not limited to, labor costs of MAXXAM
personnel rendering services to the Company. Charges by MAXXAM for such services
were $3.1 million, $3.5 million and $2.5 million for the years ended December
31, 1999, 1998 and 1997, respectively. The Company believes that the services
being rendered are on terms not less favorable to the Company than those which
would be obtainable from unaffiliated third parties.

10.   COMMITMENTS AND CONTINGENCIES

      Commitments
      Minimum rental commitments under operating leases at December 31, 1999 are
as follows: years ending December 31, 2000--$4.6 million; 2001--$4.2 million;
2002--$3.3 million; 2003--$2.5 million; 2004--$1.5 million; thereafter--$3.0
million. Rental expense for operating leases was $4.2 million, $3.0 million and
$2.0 million for the years ended December 31, 1999, 1998 and 1997, respectively.

      Contingencies
      Regulatory and environmental matters play a significant role in the
Company's forest products business, which is subject to a variety of California
and federal laws and regulations, as well as the HCP and SYP (defined below) and
Pacific Lumber's 2000 timber operator's license, dealing with timber harvesting
practices, threatened and, endangered species and habitat for such species, and
air and water quality. As further described in Note 2 "Headwaters Transactions,"
on March 1, 1999, Pacific Lumber, including its subsidiaries and affiliates, and
MAXXAM consummated the Headwaters Agreement with the United States and
California. In addition to the transfer of the Headwaters Timberlands described
in Note 2, a sustained yield plan (the "SYP") and a multiple-species habitat
conservation plan (the "HCP") were approved and incidental take permits related
to the HCP (the "PERMITS") were issued.

       The SYP complies with certain California Board of Forestry regulations
requiring timber companies to project timber growth and harvest on their
timberlands over a 100-year planning period and to demonstrate that their
projected average annual harvest for any decade within a 100-year planning
period will not exceed the average annual harvest level during the last decade
of the 100-year planning period. The SYP is effective for 10 years (subject to
review after five years) and may be amended by Pacific Lumber, subject to
approval by the CDF. Revised SYPs will be prepared every decade that address the
harvest level based upon reassessment of changes in the resource base and other
factors. The HCP and the Permits allow incidental "take" of certain species
located on the Company's timberlands which have been listed as endangered or
threatened under the federal Endangered Species Act (the "ESA") and/or the
California Endangered Species Act ("CESA") so long as there is no "jeopardy" to
the continued existence of such species. The HCP identifies the measures to be
instituted in order to minimize and mitigate the anticipated level of take to
the greatest extent practicable. The SYP is also subject to certain of these
provisions. The HCP and related Permits have a term of 50 years. The Company
believes that the SYP and the HCP should in the long-term expedite the
preparation and facilitate approval of its THPs, although the Company is
experiencing difficulties in the THP approval process as it implements these
agreements.

      Under the Federal Clean Water Act, the Environmental Protection Agency
("EPA") is required to establish total maximum daily load limits ("TMDLS") in
water courses that have been declared to be "water quality impaired." The EPA
and the North Coast Regional Water Quality Control Board are in the process of
establishing TMDLs for 17 northern California rivers and certain of their
tributaries, including certain water courses that flow within the Company's
timberlands. The final TMDL requirements applicable to the Company's timberlands
may require aquatic measures that are different from or in addition to the
prescriptions to be developed pursuant to the watershed analysis process
provided for in the HCP.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs or carrying out certain other operations. On December 2, 1997, two
lawsuits were filed against the Company, certain of its subsidiaries and others:
Kristi Wrigley, et al. v. Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM
Group Holdings Inc., Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM
Inc., Scotia Pacific Company LLC, et al. (the "WRIGLEY LAWSUIT") and Jennie
Rollins, et al. v. Charles Hurwitz, John Campbell, Pacific Lumber, MAXXAM Group
Holdings Inc., Scotia Pacific Holding Company, MAXXAM Group Inc., MAXXAM Inc.,
Barnum Timber Company, et al. (the "ROLLINS LAWSUIT"). These actions allege,
among other things, that the defendants' logging practices have damaged the
plaintiffs' properties and property values by contributing to landslides
(Rollins lawsuit) and the destruction of certain watersheds (Wrigley lawsuit).
The Company believes that it has strong factual and legal defenses with respect
to these matters; however, there can be no assurance that they will not have a
material adverse effect on its financial position, results of operations or
liquidity. On March 31, 1999, an action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (the
"EPIC-SYP/PERMITS LAWSUIT") was filed alleging various violations of the CESA
and the California Environmental Quality Act ("CEQA"), and challenging, among
other things, the validity and legality of the Permits issued by California and
the SYP. On March 31, 1999, an action entitled United Steelworkers of America,
AFL-CIO, CLC, and Donald Kegley v. California Department of Forestry and Fire
Protection, The Pacific Lumber Company, Scotia Pacific Company LLC and Salmon
Creek Corporation (the "USWA LAWSUIT") was filed also challenging the validity
and legality of the SYP. The Company believes that appropriate procedures were
followed throughout the public review and approval process concerning the HCP
and the SYP, and the Company is working with the relevant state and federal
agencies to defend these challenges. Although uncertainties are inherent in the
final outcome of the EPIC-SYP/Permits lawsuit and the USWA lawsuit, the Company
believes that the resolution of these matters should not result in a material
adverse effect on its financial condition, results of operations or the ability
to harvest timber. While the Company expects environmentally focused objections
and lawsuits to continue, it believes that the HCP, the SYP and the Permits
should enhance its position in connection with these continuing challenges and,
over time, reduce or minimize such challenges.

11.   SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                       1999      1998       1997
                                                                                     --------- ---------  ---------
                                                                                              (IN MILLIONS)
<S>                                                                                  <C>       <C>        <C>
Supplemental information on non-cash investing and financing activities:
   Acquisition of assets subject to other liabilities..............................  $     -   $    0.8   $    9.4
   Deferral of interest on MAXXAM note receivable..................................      15.0       7.8          -

Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized interest......................................  $   80.8  $   78.2   $   73.1
   Income taxes paid (refunded)....................................................         -       0.2        0.2
   Tax allocation payments to MAXXAM...............................................       1.8       0.2        0.4

</TABLE>

12.   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

      Summary quarterly financial information for the years ended December 31,
1999 and 1998 is as follows (in millions):

<TABLE>
<CAPTION>

                                                                            THREE MONTHS ENDED
                                                        -----------------------------------------------------------
                                                          MARCH 31        JUNE 30      SEPTEMBER 30    DECEMBER 31
                                                        -------------  -------------  -------------- --------------
<S>                                                     <C>            <C>            <C>            <C>
1999:
   Net sales..........................................  $       46.7   $       41.4   $        49.0  $        50.7
   Operating income (loss)............................          (1.5)          (3.4)           (3.9)           4.4
   Net income (loss)..................................         120.3          (10.8)          (19.3)           9.8

1998:
   Net sales..........................................  $       51.9   $       63.5   $        65.9  $        52.3
   Operating income...................................          10.1           14.7            12.8            3.0
   Income (loss) before extraordinary item............           0.9            3.7            (1.5)         (21.1)
   Extraordinary item, net............................             -              -           (41.8)             -
   Net income (loss)..................................           0.9            3.7           (43.4)         (21.0)

</TABLE>


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

      None.

                                    PART III

      Not applicable.


                                     PART IV

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

(A)   INDEX TO FINANCIAL STATEMENTS

      1.   FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):

           Report of Independent Public Accountants
           Consolidated Balance Sheet at December 31, 1999 and 1998
           Consolidated Statement of Operations for the Years Ended
              December 31, 1999, 1998 and 1997
           Consolidated Statement of Cash Flows for the Years Ended
              December 31, 1999, 1998 and 1997
           Consolidated Statement of Stockholder's Deficit
           Notes to Consolidated Financial Statements

      2.   FINANCIAL STATEMENT SCHEDULES:

           Schedule I  -  Condensed Financial Information of Registrant at
              December 31, 1999 and 1998 and for the Years Ended
              December 31, 1999, 1998 and 1997

           The Consolidated Financial Statements and Notes thereto of MAXXAM
           Inc., MAXXAM Group Inc. and Kaiser Aluminum Corporation are
           incorporated herein by reference and included as Exhibits 99.1, 99.2
           and 99.3 hereto, respectively.

           All other schedules are inapplicable or the required information is
           included in the Consolidated Financial Statements or the Notes
           thereto.


(B)   REPORTS ON FORM 8-K

      On November 19, 1999, the Company filed a current report on Form 8-K
(under Item 5) dated November 19, 1999, concerning the release from escrow of
funds from the sale of the Headwaters Timberlands and the establishment of the
SAR Account.

(C)   EXHIBITS

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


           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                           MAXXAM GROUP HOLDINGS INC.

                         BALANCE SHEET (UNCONSOLIDATED)
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>

                                                                                                   DECEMBER 31,
                                                                                               --------------------
                                                                                                 1999       1998
                                                                                               ---------  ---------
                                            ASSETS
<S>                                                                                            <C>        <C>
Current assets:
   Cash and cash equivalents.................................................................. $    9.0   $    5.6
   Receivable from MAXXAM Inc.................................................................      6.8        6.1
                                                                                               ---------  ---------
      Total current assets....................................................................     15.8       11.7
Note receivable from MAXXAM Inc...............................................................    147.8      132.8
Deferred income taxes.........................................................................      9.9       10.1
Deferred financing costs......................................................................      2.7        3.5
                                                                                               ---------  ---------
                                                                                               $  176.2   $  158.1
                                                                                               =========  =========

                             LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Accounts payable and other accrued liabilities............................................. $    1.2   $    1.1
   Accrued interest...........................................................................      6.3        6.5
                                                                                               ---------  ---------
      Total current liabilities...............................................................      7.5        7.6
Note payable to MGI...........................................................................      4.6          -
Losses recognized in excess of investments in subsidiaries....................................     73.8      155.0
Long-term debt................................................................................    125.2      130.0
                                                                                               ---------  ---------
      Total liabilities.......................................................................    211.1      292.6
                                                                                               ---------  ---------
Stockholder's deficit:
   Common stock, $1.00 par value, 3,000 shares authorized, 1,000 shares issued................        -          -
   Additional capital.........................................................................    123.2      123.2
   Accumulated deficit........................................................................   (157.7)    (257.7)
   Accumulated other comprehensive loss - additional minimum pension liability................     (0.4)         -
                                                                                               ---------  ---------
      Total stockholder's deficit.............................................................    (34.9)    (134.5)
                                                                                               ---------  ---------
                                                                                               $  176.2   $  158.1
                                                                                               =========  =========

<FN>

See notes to consolidated financial statements and accompanying notes.

</FN>
</TABLE>

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                           MAXXAM GROUP HOLDINGS INC.

               CONDENSED STATEMENT OF OPERATIONS (UNCONSOLIDATED)
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                               ------------------------------------
                                                                                  1999        1998         1997
                                                                               ----------  -----------  -----------
<S>                                                                            <C>         <C>          <C>
Investment, interest and other income......................................... $    17.7   $     14.4   $     13.8
Interest expense..............................................................     (16.4)       (16.4)       (16.4)
General and administrative expenses...........................................      (0.3)        (0.3)        (0.3)
Equity in earnings (loss) of subsidiaries.....................................      99.3        (56.1)        20.6
                                                                               ----------  -----------  -----------
Income (loss) before income taxes and extraordinary item......................     100.3        (58.4)        17.7
Credit (provision) in lieu of income taxes....................................      (0.3)         0.2          0.9
                                                                               ----------  -----------  -----------
Income (loss) before extraordinary item.......................................     100.0        (58.2)        18.6
Extraordinary item:
   Loss on early extinguishment of debt, net of income taxes..................         -         (1.6)           -
                                                                               ----------  -----------  -----------
Net income (loss)............................................................. $   100.0   $    (59.8)  $     18.6
                                                                               ==========  ===========  ===========

<FN>

See notes to consolidated financial statements and accompanying notes.
</FN>
</TABLE>


     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                           MAXXAM GROUP HOLDINGS INC.

               CONDENSED STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                       1999      1998       1997
                                                                                     --------- ---------  ---------
<S>                                                                                  <C>       <C>        <C>
Cash flows from operating activities:
   Net income (loss)...............................................................  $  100.0  $  (59.8)  $   18.6
   Adjustments to reconcile net income (loss) to net cash
      provided by (used for) operating activities:
      Extraordinary loss on early extinguishment of debt, net......................         -       1.6          -
      Amortization of deferred financing costs and
        discounts on long-term debt................................................       0.8       0.8        0.8
      Equity in loss (earnings) of subsidiaries....................................     (99.3)     56.1      (20.6)
      Dividends from subsidiaries..................................................      18.7      18.7        3.0
   Increase (decrease) in cash resulting from changes in:
      Receivable from MAXXAM Inc...................................................     (11.0)     (8.4)      (5.5)
      Accrued and deferred income taxes............................................       0.3      (0.1)      (0.8)
      Accrued interest and other liabilities.......................................      (6.1)     (0.1)       5.2
                                                                                     --------- ---------  ---------
      Net cash provided by operating activities....................................       3.4       8.8        0.7
                                                                                     --------- ---------  ---------

Cash flows from financing activities:
   Consent fees for early retirement of subsidiaries' debt.........................         -      (2.6)         -
   Dividends paid..................................................................         -      (2.5)         -
                                                                                     --------- ---------  ---------
      Net cash used for financing activities.......................................         -      (5.1)         -
                                                                                     --------- ---------  ---------

Net increase in cash and cash equivalents..........................................       3.4       3.7        0.7
Cash and cash equivalents at beginning of year.....................................       5.6       1.9        1.2
                                                                                     --------- ---------  ---------
Cash and cash equivalents at end of year...........................................  $    9.0  $    5.6   $    1.9
                                                                                     ========= =========  =========

<FN>

See notes to consolidated financial statements and accompanying notes.

</FN>
</TABLE>


     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                          NOTES TO FINANCIAL STATEMENTS

1. DEFERRED INCOME TAXES

      The deferred income tax assets and liabilities reported in the
accompanying unconsolidated balance sheet are determined by computing such
amounts on a consolidated basis, as if MGHI files a consolidated tax return with
all of its subsidiaries except Salmon Creek, and as if such corporations were
never connected with MAXXAM, and then reducing such consolidated amounts by the
amounts recorded by MGHI's subsidiaries, but excluding Salmon Creek, pursuant to
their respective tax allocation agreements with MAXXAM. For taxable periods
beginning after December 7, 1999, the computation includes Salmon Creek. A
significant portion of MGHI's net deferred income tax assets relates to loss and
credit carryforwards, net of valuation allowances. MGHI evaluated all
appropriate factors to determine the proper valuation allowances for these
carryforwards, including any limitations concerning their use, the year the
carryforwards expire and the levels of taxable income necessary for utilization.
Based on this evaluation, MGHI has concluded that it is more likely than not
that it will realize the benefit of these carryforwards for which valuation
allowances were not provided.

2. LONG-TERM DEBT

      See Note 6 to the Consolidated Financial Statements for a description of
the MGHI Notes and MAXXAM Note.

3. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                                                YEARS ENDED DECEMBER 31,
                                                                       -----------------------------------------------
                                                                            1999          1998            1997
                                                                       --------------  ----------       --------------
                                                                                      (IN MILLIONS)

<S>                                                                    <C>             <C>             <C>
Supplemental information on non-cash investing and
     financing activities:
   Deferral of interest on MAXXAM note receivable..................     $     15.0       $      7.8      $           -

Supplemental disclosure of cash flow information:
   Interest paid...................................................     $     15.6       $     15.6      $         9.4

</TABLE>

                                   SIGNATURES

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

                                              MAXXAM GROUP HOLDINGS INC.


Date:   March 10, 2000        By:               /S/ CHARLES E. HURWITZ
                                   ---------------------------------------------
                                                  Charles E. Hurwitz
                                                Chairman of the Board

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

Date:   March 10, 2000        By:               /S/ CHARLES E. HURWITZ
                                  ----------------------------------------------
                                                  Charles E. Hurwitz
                                          Chairman of the Board, President,
                                         Chief Executive Officer and Director

Date:   March 10, 2000        By:               /S/ PAUL N. SCHWARTZ
                                  ----------------------------------------------
                                                   Paul N. Schwartz
                                       Vice President, Chief Financial Officer
                                                     and Director
                                            (Principal Financial Officer)


Date:   March 10, 2000        By:                /S/ JOHN T. LA DUC
                                  ----------------------------------------------
                                                    John T. La Duc
                                             Vice President and Director


Date:   March 10, 2000        By:                /S/  ELIZABETH D. BRUMLEY
                                  ----------------------------------------------
                                                  Elizabeth D. Brumley
                                                       Controller
                                             (Principal Accounting Officer)


                                INDEX OF EXHIBITS

<TABLE>
<CAPTION>

      EXHIBIT
      NUMBER                                                   DESCRIPTION
-----------------          -------------------------------------------------------------------------------------------------
<S>                        <C>
       3.1                 Certificate of Incorporation of MAXXAM Group Holdings Inc. (the "Company" or "MGHI")
                           (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form
                           S-4 dated November 4, 1996; Registration No. 333-18723; the "Company's Form S-4")

       3.2                 Amended and Restated By-laws of the Company, adopted July 7, 1998 (incorporated herein by
                           reference to Exhibit 3.2 to the Company's Form S-4)

       4.1                 Indenture, dated as of December 23, 1996 among the Company, as Issuer, MAXXAM Inc.
                           ("MAXXAM"), as Guarantor, and First Bank National Association, as Trustee ("MGHI
                           Indenture"),  regarding the Company's 12% Senior Secured Notes due 2003 (incorporated herein
                           by reference to Exhibit 4.1 to the Company's Form S-4)

       4.2                 First Supplemental Indenture, dated as of July 8, 1998, to the MGHI Indenture (incorporated herein
                           by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q/A of the Company for the quarter
                           ended June 30, 1998; the "Company June 1998 Form 10-Q/A")

       4.3                 Second Supplemental Indenture, dated as of July 29, 1998, to the MGHI Indenture (incorporated
                           herein by reference to Exhibit 4.5 to the Company June 1998 Form 10-Q/A)

       4.4                 Indenture, dated as of July 20, 1998, between Scotia Pacific Company LLC ("Scotia LLC") and State
                           Street Bank and Trust Company ("State Street") regarding Scotia LLC's Class A-1, Class A-2 and
                           Class A-3 Timber Collateralized Notes (the "Timber Note Indenture") (incorporated herein by
                           reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q/A of MAXXAM for the quarter ended
                           June 30, 1998; File No. 1-3924

       4.5                 First Supplemental Indenture, dated as of July 16, 1999, to the Timber Note Indenture
                           (incorporated herein by reference to Exhibit 4.1 to Scotia LLC's Quarterly Report on Form 10-Q
                           for the quarter ended June 30, 1999; File No. 333-63825;  the "Scotia LLC June 1999 Form
                           10-Q")

       4.6                 Second Supplemental Indenture, dated as of November 18, 1999, to the Timber Note Indenture
                           (incorporated herein by reference to Exhibit 99.3 to Scotia LLC's Report on Form 8-K dated
                           November 19, 1999; File No. 333-63825)

       4.7                 Deed of Trust, Security Agreement, Financing Statement Fixture Filing and Assignment of Proceeds,
                           dated as of July 20, 1998, among Scotia LLC, Fidelity National Title Insurance Company, as trustee,
                           and State Street, as collateral agent (incorporated herein by reference to Exhibit 4.6 to Scotia
                           LLC's Registration Statement on Form S-4; Registration No. 333-63825; the "Scotia LLC Registration
                           Statement")

       4.8                 Credit Agreement, dated as of July 20, 1998, among Scotia LLC, the financial institutions party
                           thereto and Bank of America National Trust and Savings Association, as agent (incorporated herein
                           by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q/A of MAXXAM for the quarter ended
                           June 30, 1998; File No. 1-3924; the "MAXXAM June 1998 Form 10-Q")

       4.9                 First Amendment, dated as of July 16, 1999, to the Line of Credit Agreement among Scotia LLC,
                           the financial institutions party thereto and Bank of America National Trust and Savings
                           Association, as agent (incorporated herein by reference to Exhibit 4.2 to the Scotia LLC June 1999
                           Form 10-Q)

       4.10                Amended and Restated Credit Agreement ("Pacific Lumber Credit Agreement") dated as of
                           December 18, 1998 between The Pacific Lumber Company ("Pacific Lumber") and Bank of
                           America National Trust and Savings Association (incorporated herein by reference to Exhibit 4.7
                           to the Company's Annual Report on Form 10-K dated December 31, 1998)

       *4.11               Amendment, dated as of January 31, 2000, to the Pacific Lumber Credit Agreement

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

       10.1                Tax Allocation Agreement dated as of December 23, 1996 between MGHI and MAXXAM (incorporated herein by
                           reference to Exhibit 10.1 to the Company's Form S-4)

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

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

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

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

       10.6                Non-Negotiable Intercompany Note dated as of December 23, 1996 executed by MAXXAM in
                           favor of the Company (incorporated herein by reference to Exhibit 10.8 to the Company's Form
                           S-4)

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

       10.8                New Master Purchase Agreement, dated as of July 20, 1998, between Scotia LLC and Pacific
                           Lumber (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
                           of the Company for the quarter ended June 30, 1998; the "Company June 1998 Form 10-Q")

       10.9                New Services Agreement, dated as of July 20, 1998, between Pacific Lumber and Scotia LLC
                           (incorporated herein by reference to Exhibit 10.2 to the Company June 1998 Form 10-Q)

       10.10               New Additional Services Agreement, dated as of July 20, 1998, between Scotia LLC and Pacific
                           Lumber (incorporated herein by reference to Exhibit 10.3 to the Company June 1998 Form 10-Q)

       10.11               New Reciprocal Rights Agreement, dated as of July 20, 1998, among Pacific Lumber, Scotia LLC
                           and Salmon Creek Corporation (incorporated herein by reference to Exhibit 10.4 to the Company
                           June 1998 Form 10-Q)

       10.12               New Environmental Indemnification Agreement, dated as of July 20, 1998, between Pacific
                           Lumber and Scotia LLC (incorporated herein by reference to Exhibit 10.5 to the Company June
                           1998 Form 10-Q)

       10.13               Purchase and Services Agreement between Pacific Lumber and Britt dated as of March 23, 1993
                           (incorporated herein by reference to Exhibit 10.17 to Amendment No. 2 to the Form S-2
                           Registration Statement of Pacific Lumber; Registration Statement No. 33-56332)

       10.14               Implementation Agreement with Regard to Habitat Conservation Plan for the Properties of Pacific
                           Lumber, Scotia LLC and Salmon Creek dated as of February 1999 by and among The United States Fish
                           and Wildlife Service, the National Marine Fisheries Service, the California Department of Fish and
                           Game ("CDF&G"), the California Department of Forestry and Fire Protection (the "CDF") and Pacific
                           Lumber, Salmon Creek and Scotia LLC (incorporated herein by reference to Exhibit 99.3 to Scotia
                           LLC's Form 8-K dated March 19, 1999; File No. 333- 63825; the "Scotia LLC March 19, 1999 Form 8-K")

       10.15               Agreement Relating to Enforcement of AB 1986 dated as of  February 25, 1999 by and among
                           The California Resources Agency, CDF&G, CDF, The California Wildlife Conservation Board,
                           Pacific Lumber, Salmon Creek and Scotia LLC (incorporated herein by reference to Exhibit 99.4
                           to the Scotia LLC March 19, 1999 Form 8-K)

       10.16               Habitat Conservation Plan dated as of February 1999 for the Properties of Pacific Lumber, Scotia
                           Pacific Holding Company and Salmon Creek (incorporated herein by reference to Exhibit 99.5 to the
                           Scotia LLC March 19, 1999 Form 8-K)

       10.17               Agreement for Transfer of Grizzly Creek and Escrow Instructions and Option Agreement dated as of
                           February 26, 1999 by and between Pacific Lumber and the State of California (incorporated herein by
                           reference to Exhibit 99.6 to Scotia LLC's March 19, 1999 Form 8-K)

       10.18               Agreement for Transfer of Owl Creek and Escrow Instructions and Option Agreement dated as
                           of February 26, 1999 by and between the Company and the State of California (incorporated
                           herein by reference to Exhibit 99.7 to Scotia LLC's March 19, 1999 Form 8-K)

       10.19               Letter dated February 25, 1999 from the CDF to Pacific Lumber (incorporated herein by reference
                           to Exhibit 99.8 to Scotia LLC's March 19, 1999 Form 8-K)

       10.20               Letter dated March 1, 1999 from the CDF to Pacific Lumber (incorporated herein by reference
                           to Exhibit 99.9 to Scotia LLC's March 19, 1999 Form 8-K)

       10.21               Letter dated March 1, 1999 from the U.S. Department of the Interior Fish and Wildlife Service and
                           the U.S. Department of Commerce National Oceanic and Atmospheric Administration to Pacific Lumber,
                           Salmon Creek and the Company (incorporated herein by reference to Exhibit 99.10 to Scotia LLC's
                           March 19, 1999 Form 8-K)

       10.22               Escrow Agreement dated as of March 1, 1999 ("Escrow Agreement") among Pacific Lumber,
                           Salmon Creek and Citibank, N.A. (incorporated herein by reference to Exhibit 10.15 to Scotia
                           LLC's Annual Report on Form 10-K for the fiscal year ended December 31, 1999; File No. 333-
                           63825; "Scotia LLC's 1999 Form 10-K")

       10.23               Amendment to Escrow Agreement dated as of March 26, 1999 (incorporated herein by reference
                           to Exhibit 10.16 to Scotia LLC's 1999 Form 10-K)

       10.24               Second Amendment to Escrow Agreement dated as of October 6, 1999 (incorporated herein by reference
                           to Exhibit 10.1 to the Scotia LLC's Quarterly Report on Form 10-Q for the quarter ended September
                           30, 1999; Registration No. 333-63825)

       *27                 Financial Data Schedule

       *99.1               The consolidated financial statements and notes thereto of MAXXAM Inc. for the fiscal year
                           ended December 31, 1999

       *99.2               The financial statements and notes thereto of MAXXAM Group Inc. for the fiscal year ended
                           December 31, 1999

       *99.3               The consolidated financial statements and notes thereto of Kaiser Aluminum Corporation for the
                           fiscal year ended December 31, 1999

       *99.4               Item 7A of Kaiser Aluminum Corporation's Annual Report on Form 10-K for the fiscal year
                           ended December 31, 1999

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* Included with this filing.

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