----

----

|   |   |   |
|--------|--------|--------|

| For      the fiscal year ended December 31, 2008 |   | Commission      File Number 1-3924 |
|--------------------------------------------------|--------|------------------------------------|

| Delaware(State      or other jurisdictionof      incorporation or organization)                      |   | 95-2078752(I.R.S.      EmployerIdentification      Number) |
|------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|
|                                                                                                 |   |                                                       |
| 1330      Post Oak Blvd., Suite 2000Houston,      Texas(Address      of Principal Executive Offices) |   | 77056(Zip      Code)                                       |

|   | Title      of each class          |   |   | Name      of each exchangeon      which registered |   |
|--------|-----------------------------------|--------|--------|----------------------------------------------------|--------|
|   | Common      Stock, $.50 par value |   |   | American                                           |   |

| Large      accelerated filer o | Accelerated      filer o | Non-accelerated      filer o | Smaller      reporting company x |
|--------------------------------|--------------------------|------------------------------|----------------------------------|

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| TABLE OF CONTENTS            |
|------------------------------|
|                         |
| Part I                       |
|                         |   |   |
| Item 1.                      | Business | 3 |
|                         | General | 3 |
|                         | Real      Estate Operations | 3 |
|                         | Racing Operations | 7 |
|                         | Forest      Products Operations | 8 |
|                         |   |   |
| Item 1A.                     | Risk Factors | 11 |
|                         |   |   |
| Item 1B.                     | Unresolved Staff Comments | 14 |
|                         |   |   |
| Item 2.                      | Properties | 14 |
|                         |   |   |
| Item 3.                      | Legal Proceedings | 14 |
|                         |   |   |
| Item 4.                      | Submission of Matters to a Vote of Security      Holders | 16 |
|                         |   |   |
| Part II                      |
|                         |   |   |
| Item 5.                      | Market for Registrant’s Common Equity,      Related Stockholder Matters |   |
|                         | and Issuer Purchases of Equity      Securities | 16 |
|                         |   |   |
| Item 6.                      | Selected Financial Data | * |
|                         |   |   |
| Item 7.                      | Management’s Discussion and Analysis of      Financial Condition and Results |   |
|                         | of Operations | 18 |
|                         |   |   |
| Item 7A.                     | Quantitative and Qualitative Disclosures About      Market Risk | * |
|                         |   |   |
| Item 8.                      | Financial Statements and Supplementary      Data | 32 |
|                         | Report      of Independent Registered Public Accounting Firm | 32 |
|                         | Report      of Independent Registered Public Accounting Firm | 33 |
|                         | Consolidated Balance Sheets | 34 |
|                         | Consolidated Statements of      Operations | 35 |
|                         | Consolidated Statements of Cash      Flows | 36 |
|                         | Consolidated Statements of Stockholders’      Deficit | 37 |
|                         | Notes to Consolidated Financial      Statements | 38 |
|                         |   |   |
| Item 9.                      | Changes in and Disagreements with      Accountants on Accounting and |   |
|                         | Financial    Disclosure | 73 |
|                         |   |   |
| Item 9A.                     | Controls and Procedures | 73 |
|                         |   |   |
| Item 9B.                     | Other Information | 73 |
|                         |   |   |
| Part III                     |
|                         |   |   |
| Items      10-14.            | To      be filed with the Registrant’s definitive proxy statement |   |
|                         |   |   |
| Part IV                      |
| Item 15.                     | Exhibits | 74 |
|                         |   |   |
| Signatures                   |   | 75 |
|                         |   |   |
| Index of Exhibits            |   | 76 |
|                         |   |   |
| Glossary of Defined    Terms |   | 81 |

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Table of Contents

PART I

ITEM1. 
BUSINESS

General

| • | Residential      and commercial real estate investment and development, through MAXXAM      Property Company (“MPC”) and other wholly      owned subsidiaries of the Company, as well as joint      ventures.  The Company’s real estate investment and development      activities are conducted primarily in Arizona, California, Puerto Rico and      Texas, including associated golf course or resort operations in certain      locations.  Company subsidiaries also own several commercial      real estate properties that are subject to long-term lease      arrangements. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Racing      operations, through Sam Houston Race Park, Ltd. (“SHRP”), a Texas limited      partnership wholly owned by the Company.  SHRP owns and operates      a Texas Class 1 pari-mutuel horse racing facility in the greater Houston      metropolitan area, and a pari-mutuel greyhound racing facility in      Harlingen, Texas. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Real Estate Operations

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Table of Contents

|                                                           |   |   |   |   |   | Book      Value as of December 31, 2008 |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|-----------------------------------------|--------|
|                                                           |   |   |   |   |   | (In      millions)                      |   |
|                                                           |   |   |   |   |   |                                    |   |
| Palmas      del Mar (Puerto Rico):                             |   |   |   |   |   |                                    |   |
| Undeveloped      land and parcels held for sale                |   |   | 988    |   | acres  |                                    | $      | 32.9 |   |
| Property,      plant and equipment, receivables and other, net |   |   |   |   |   |                                    |   | 5.5 |   |
| Total                                                          |   |   |   |   |   |                                    |   | 38.4 |   |
| Resort      operations - Palmas Country Club      (1)          |   |   |   |   |   |                                    |   | 14.6 |   |
| Total                                                          |   |   |   |   |   |                                    |   | 53.0 |   |
| Fountain      Hills (Arizona):                                 |   |   |   |   |   |                                    |   |   |   |
| Residential      developed lots and lots under development     |   |   | 122    |   | lots   |                                    |   | 22.8 |   |
| Undeveloped      residential land                              |   |   | 431    |   | acres  |                                    |   | 4.6 |   |
| Property,      plant, equipment and receivables, net           |   |   |   |   |   |                                    |   | 1.1 |   |
| Total                                                          |   |   |   |   |   |                                    |   | 28.5 |   |
| Mirada      (California):                                      |   |   |   |   |   |                                    |   |   |   |
| Residential      developed lots                                |   |   | 2      |   | lots   |                                    |   | 0.5 |   |
| Property,      plant, equipment and receivables, net           |   |   |   |   |   |                                    |   | 0.3 |   |
| Total                                                          |   |   |   |   |   |                                    |   | 0.8 |   |
| Commercial      lease properties:                              |   |   |   |   |   |                                    |   |   |   |
| Property,      plant and equipment, net:                       |   |   |   |   |   |                                    |   |   |   |
| Lake      Pointe Plaza (Texas)                                 |   |   |   |   |   |                                    |   | 96.8 |   |
| Cooper      Cameron building (Texas)                           |   |   |   |   |   |                                    |   | 25.0 |   |
| Motel      6 facilities (10 states)                            |   |   |   |   |   |                                    |   | 36.7 |   |
| Other                                                          |   |   |   |   |   |                                    |   | 2.6 |   |
| Total                                                          |   |   |   |   |   |                                    |   | 161.1 |   |
| Total      real estate properties and receivables              |   |   |   |   |   |                                    | $      | 243.4 |   |
|                                                           |   |   |   |   |   |                                    |   |   |   |

| (1) | The      operations of Palmas Country Club include two 18-hole golf courses, a      20-court tennis facility, a member clubhouse and a beach      club.  Amounts shown are net of accumulated      depreciation. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | Book      Value as of December 31, 2008 |   |
|----------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                     |   | (In      millions)                      |   |
|                                                     |   |                                    |   |
| Joint      Ventures:                                     |   |                                    |   |
| FireRock,      LLC:                                      |   |                                    |   |
| Golf      course, clubhouse and other club facilities(1) |   | $                                       | 13.2   |   |
| Other      property, plant and equipment, net(1)         |   |                                    | 2.4    |   |
| Total                                                    |   |                                    | 15.6   |   |
|                                                     |   |                                    |   |   |
| Investment      in FireRock, LLC(2)                      |   | $                                       | (0.4   | ) |
| RMCAL      Development LP:                               |   |                                    |   |   |
| Residential      units under development(1)              |   | $                                       | 30.9   |   |
|                                                     |   |                                    |   |   |
| Investment      in RMCAL Development LP(2)               |   | $                                       | 4.2    |   |

| (1) | Amounts      reflect 100% of the book value of the joint venture’s    assets. |
|-----|-------------------------------------------------------------------------------------|

| (2) | Amounts      reflect the book value of the Company’s 50%  interest. |
|-----|---------------------------------------------------------------------------|

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|                                         |   | Years      Ended December 31, |   |
|----------------------------------------------|--------|-------------------------------|--------|
|                                         |   | 2008                          |   |   | 2007 |   |
|                                         |   | (In      millions)            |   |
|                                         |   |                          |   |   |   |   |
| Palmas      del Mar:                         |   |                          |   |   |   |   |
| Real      estate sales                       |   | $                             | 0.6    |   |   | $ | 0.3 |   |
| Commercial,      resort operations and other |   |                          | 9.9    |   |   |   | 11.7 |   |
| Total                                        |   |                          | 10.5   |   |   |   | 12.0 |   |
| Fountain      Hills:                         |   |                          |   |   |   |   |   |   |
| Real      estate sales                       |   |                          | 1.9    |   |   |   | 7.7 |   |
| Commercial      operations and other         |   |                          | 2.8    |   |   |   | 3.3 |   |
| Total                                        |   |                          | 4.7    |   |   |   | 11.0 |   |
| Mirada:                                      |   |                          |   |   |   |   |   |   |
| Real      estate sales                       |   |                          | 0.5    |   |   |   | 3.0 |   |
| Commercial      operations and other         |   |                          | -      |   |   |   | 0.1 |   |
| Total                                        |   |                          | 0.5    |   |   |   | 3.1 |   |
| Commercial      lease properties:            |   |                          |   |   |   |   |   |   |
| Lake      Pointe Plaza                       |   |                          | 11.1   |   |   |   | 11.1 |   |
| Cooper      Cameron building                 |   |                          | 2.3    |   |   |   | 2.3 |   |
| Motel      6 facilities                      |   |                          | 4.8    |   |   |   | 4.8 |   |
| Other                                        |   |                          | 0.2    |   |   |   | 0.2 |   |
| Total                                        |   |                          | 18.4   |   |   |   | 18.4 |   |
| Other:                                       |   |                          |   |   |   |   |   |   |
| Commercial      operations and other         |   |                          | 0.2    |   |   |   | 0.2 |   |
| Total                                        |   |                          | 0.2    |   |   |   | 0.2 |   |
| Total                                        |   | $                             | 34.3   |   |   | $ | 44.7 |   |
|                                         |   |                          |   |   |   |   |   |   |
| FireRock,      LLC(1):                       |   |                          |   |   |   |   |   |   |
| Golf      course operations                  |   | $                             | 4.3    |   |   | $ | 4.0 |   |
|                                         |   |                          |   |   |   |   |   |   |
| RMCAL      Development LP(1):                |   |                          |   |   |   |   |   |   |
| Real      estate sales                       |   | $                             | 7.8    |   |   | $ | 17.1 |   |

| (1) | Amounts      reflect 100% of the joint venture’srevenues. |
|-----|-----------------------------------------------------------------|

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Racing Operations

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Forest Products Operations

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|   | Potential      Impact on the Company and Certain Related  Entities |
|--------|--------------------------------------------------------------------|

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Table of Contents

ITEM1A.          RISKFACTORS

|   | • | employment      levels and population growth andshifts; |
|--------|---------|---------------------------------------------------------|

|   | • | interest      rates and the availability offinancing; |
|--------|---------|-------------------------------------------------------|

|   | • | consumer      confidence; and |
|--------|---------|-------------------------------|

|   | • | changes      in the desirability of residential and commercial  areas. |
|--------|---------|------------------------------------------------------------------------|

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|   | The      bankruptcy cases of the Debtors could result in claims against or have      other adverse impacts on the Company and its  affiliates. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | a      variety of liquid money market instruments,and |
|---------------------|-------------------------------------------------------|

| •   | U.S.      equity securities and corporate debt securities, U.S. treasury obligations      and other debt securities. |
|---------------------|----------------------------------------------------------------------------------------------------------------------|

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Table of Contents

ITEM1B.          UNRESOLVED STAFFCOMMENTS

ITEM2.             PROPERTIES

ITEM3.             LEGALPROCEEDINGS

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ITEM4.             SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY,      RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY      SECURITIES |
|---------|------------------------------------------------------------------------------------------------------------------------------|

|                |   | 2008   |   |   | 2007   |   |
|---------------------|--------|--------|--------|--------|--------|--------|
|                |   | High   |   |   | Low    |   |   | High |   |   | Low |   |
|                |   |   |   |   |   |   |   |   |   |   |   |   |
| First      quarter  |   | $      | 33.00  |   |   | $      | 26.07 |   |   | $ | 30.00 |   |   | $ | 27.20 |   |
| Second      quarter |   |   | 32.00  |   |   |   | 23.95 |   |   |   | 32.00 |   |   |   | 27.60 |   |
| Third      quarter  |   |   | 25.55  |   |   |   | 10.00 |   |   |   | 29.00 |   |   |   | 26.25 |   |
| Fourth      quarter |   |   | 14.75  |   |   |   | 8.37 |   |   |   | 29.50 |   |   |   | 25.55 |   |

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|                                                                                  |   | (a)                                                                                                                    |      |   | (b)                                                                                    |   |   | (c)                                                                                                                                                                  |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|-----------|--------|----------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Plan      Category                                                                    |   | Number      of  Securitiesto      be Issued uponExercise      ofOutstanding      Options,Warrants      and Rights |      |   | Weighted-AverageExercise      Price ofOutstandingOptions,      Warrantsand      Rights |   |   | Number      of SecuritiesRemaining      Available forFuture      Issuance under EquityCompensation      Plans(Excluding      SecuritiesReflected      in Column (a)) |   |
|                                                                                  |   |                                                                                                                   |      |   |                                                                                   |   |   |                                                                                                                                                                 |   |
| Equity      compensation plans approved   by      security holders:    |   |                                                                                                                   |      |   |                                                                                   |   |   |                                                                                                                                                                 |   |
| Common      Stock                                                                     |   |                                                                                                                   | 1,052,182 |   |                                                                                   | $      | 21.07  |                                                                                                                                                                 |   |   | 12,058 |  (1) |
| Preferred      Stock                                                                  |   |                                                                                                                   | -         |   |                                                                                   |   | -      |                                                                                                                                                                 |   |   | 70,000 |  (1) |
|                                                                                  |   |                                                                                                                   |      |   |                                                                                   |   |   |                                                                                                                                                                 |   |   |   |   |
| Equity      compensation plans not   approved      by security holders |   |                                                                                                                   | -         |   |                                                                                   |   | -      |                                                                                                                                                                 |   |   | - |   |
|                                                                                  |   |                                                                                                                   |      |   |                                                                                   |   |   |                                                                                                                                                                 |   |   |   |   |
| Total                                                                                 |   |                                                                                                                   | 1,052,182 |   |                                                                                   | $      | 21.07  |                                                                                                                                                                 |   |   | 82,058 |  (1) |

| (1) | Includes      (a) 358 shares of Common Stock and 70,000 shares of Class A $0.05      Non-Cumulative Participating Convertible Preferred Stock (the “Class A Preferred      Stock”) available for issuance under the Company’s 2002 Omnibus      Employee Incentive Plan (the “2002 Omnibus Plan”),      and (b) 11,700 shares of Common Stock available for issuance under the      Company’s Non-Employee Director Stock Plan (the “Director      Plan”).  Awards under the 2002 Omnibus Plan may be made      in the form of incentive or non-qualified stock options, stock      appreciation rights, performance units or shares, and restricted and      unrestricted stock. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

ITEM6.             SELECTEDFINANCIAL DATA

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Table of Contents

| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF      FINANCIAL CONDITION AND RESULTS OFOPERATIONS |
|---------|-------------------------------------------------------------------------------------------------|

|                                               |   | Years      Ended December 31, |   |
|----------------------------------------------------|--------|-------------------------------|--------|
|                                               |   | 2008                          |   |   | 2007      (1) |   |
|                                               |   | (In      millions of dollars) |   |
|                                               |   |                          |   |   |   |   |
| Sales                                              |   | $                             | 83.6   |   |   | $ | 91.5 |   |
| Net      costs and expenses                        |   |                          | (96.9  | ) |   |   | (117.2 | ) |
| Operating      income (loss)                       |   |                          | (13.3  | ) |   |   | (25.7 | ) |
| Other      income (expense)                        |   |                          | (4.9   | ) |   |   | 1.6 |   |
| Interest      expense                              |   |                          | (16.8  | ) |   |   | (17.1 | ) |
| Loss      before income taxes                      |   |                          | (35.0  | ) |   |   | (41.2 | ) |
| Provision      for income taxes                    |   |                          | (57.4  | ) |   |   | (0.5 | ) |
| Net      loss                                      |   | $                             | (92.4  | ) |   | $ | (41.7 | ) |
|                                               |   |                          |   |   |   |   |   |   |
| Revenues      by segment as a percentage of total: |   |                          |   |   |   |   |   |   |
| Real      estate                                   |   |                          | 41.0   | % |   |   | 48.8 | % |
| Racing                                             |   |                          | 54.1   | % |   |   | 51.2 | % |
| Corporate                                          |   |                          | 4.9    | % |   |   | - |   |
|                                               |   |                          | 100    | % |   |   | 100 | % |

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| (i)   | net      insurance recoveries of approximately $4.3 million related to damage      caused by Hurricane Ike at Sam Houston Race  Park; |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

| (ii)   | an      approximate $6.1 million benefit due to changes in stock-based      compensation expense resulting from a decrease in the market price for the      Company’s Common Stock; |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii)   | a      $10.0 million gain on the settlement of the Sanctions Motion;      offset by |
|-------------------|-------------------------------------------------------------------------------------|

| (iv)   | substantial      legal fees related to the Wilson actions;      and |
|------------------|---------------------------------------------------------------------|

| (v)   | a      reduction in sales volumes at the Company’s real estate segment, resulting      in an overall $2.0 million decline in operating  results. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | Years      Ended December 31, |   |
|----------------------------------------------------------|--------|-------------------------------|--------|
|                                                     |   | 2008                          |   |   | 2007 |   |
|                                                     |   | (In      millions of dollars) |   |
|                                                     |   |                          |   |   |   |   |
| Money      market accounts and other investments         |   | $                             | 3.1    |   |   | $ | 6.0 |   |
| Auction      rate securities (Note 4)                    |   |                          | (4.4   | ) |   |   | (0.8 | ) |
| Marketable      securities (Note 4)                      |   |                          | (2.2   | ) |   |   | 0.7 |   |
| Investments      in limited partnerships (Note 5)        |   |                          | (1.9   | ) |   |   | (4.3 | ) |
| Joint      ventures (Note 5)                             |   |                          | (0.7   | ) |   |   | - |   |
| Contingent      consideration (Note 3)                   |   |                          | 1.2    |   |   |   | - |   |
| Other                                                    |   |                          | -      |   |   |   | 0.1 |   |
| Investment      interest and other income (expense), net |   | $                             | (4.9   | ) |   | $ | 1.7 |   |

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Table of Contents

|                                                               |   | Years      Ended December 31, |   |
|--------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                               |   | 2008                          |   |   | 2007 |   |
|                                                               |   | (In      millions of dollars) |   |
|                                                               |   |                          |   |   |   |   |
| Sales:                                                             |   |                          |   |   |   |   |
| Real      estate:                                                  |   |                          |   |   |   |   |
| Fountain      Hills                                                |   | $                             | 1.9    |   |   | $ | 7.7 |   |
| Mirada                                                             |   |                          | 0.5    |   |   |   | 3.0 |   |
| Palmas                                                             |   |                          | 0.6    |   |   |   | 0.3 |   |
| Total                                                              |   |                          | 3.0    |   |   |   | 11.0 |   |
|                                                               |   |                          |   |   |   |   |   |   |
| Resort,      commercial and other:                                 |   |                          |   |   |   |   |   |   |
| Fountain      Hills                                                |   |                          | 2.8    |   |   |   | 3.3 |   |
| Palmas                                                             |   |                          | 9.9    |   |   |   | 11.7 |   |
| Commercial      lease properties                                   |   |                          | 18.4   |   |   |   | 18.4 |   |
| Other                                                              |   |                          | 0.2    |   |   |   | 0.3 |   |
| Total                                                              |   | $                             | 31.3   |   |   | $ | 33.7 |   |
|                                                               |   |                          |   |   |   |   |   |   |
| Total      sales                                                   |   | $                             | 34.3   |   |   | $ | 44.7 |   |
|                                                               |   |                          |   |   |   |   |   |   |
| Operating      income (loss):                                      |   |                          |   |   |   |   |   |   |
| Fountain      Hills                                                |   | $                             | (2.6   | ) |   | $ | 0.1 |   |
| Mirada                                                             |   |                          | (0.2   | ) |   |   | 1.6 |   |
| Palmas                                                             |   |                          | (12.5  | ) |   |   | (12.8 | ) |
| Commercial      lease properties                                   |   |                          | 13.0   |   |   |   | 10.6 |   |
| Other                                                              |   |                          | (1.3   | ) |   |   | (1.3 | ) |
| Total      operating income (loss)                                 |   | $                             | (3.6   | ) |   | $ | (1.8 | ) |
|                                                               |   |                          |   |   |   |   |   |   |
| Investment,      interest and other income:                        |   |                          |   |   |   |   |   |   |
| Equity      in earnings (losses) from real estate joint ventures   |   | $                             | (0.7   | ) |   | $ | - |   |
| Other                                                              |   |                          | 0.6    |   |   |   | 1.7 |   |
|                                                               |   | $                             | (0.1   | ) |   | $ | 1.7 |   |
|                                                               |   |                          |   |   |   |   |   |   |
| Interest      expense and amortization of deferred financing costs |   |                          | (16.7  | ) |   |   | (17.0 | ) |
|                                                               |   |                          |   |   |   |   |   |   |
| Income      (loss) before income taxes                             |   | $                             | (20.4  | ) |   | $ | (17.1 | ) |

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Table of Contents

|                               |   | Years      Ended December 31, |   |
|------------------------------------|--------|-------------------------------|--------|
|                               |   | 2008                          |   |   | 2007 |   |
|                               |   | (In      millions of dollars) |   |
|                               |   |                          |   |   |   |   |
| Number      of live racing days:   |   |                          |   |   |   |   |
| Sam      Houston Race Park         |   |                          | 77     |   |   |   | 104 |   |
| Valley      Race Park              |   |                          | 93     |   |   |   | 99 |   |
|                               |   |                          |   |   |   |   |   |   |
| Handle:                            |   |                          |   |   |   |   |   |   |
| Sam      Houston Race Park:        |   |                          |   |   |   |   |   |   |
| On-track      handle               |   | $                             | 118.6  |   |   | $ | 124.2 |   |
| Off-track      handle              |   |                          | 79.1   |   |   |   | 122.7 |   |
| Total                              |   | $                             | 197.7  |   |   | $ | 246.9 |   |
|                               |   |                          |   |   |   |   |   |   |
| Valley      Race Park:             |   |                          |   |   |   |   |   |   |
| On-track      handle               |   | $                             | 17.0   |   |   | $ | 17.4 |   |
| Off-track      handle              |   |                          | 3.8    |   |   |   | 3.9 |   |
| Total                              |   | $                             | 20.8   |   |   | $ | 21.3 |   |
|                               |   |                          |   |   |   |   |   |   |
| Sales:                             |   |                          |   |   |   |   |   |   |
| Sam      Houston Race Park:        |   |                          |   |   |   |   |   |   |
| Gross      pari-mutuel commissions |   | $                             | 28.3   |   |   | $ | 31.0 |   |
| Concert      revenues              |   |                          | 4.3    |   |   |   | 1.7 |   |
| Other      revenues                |   |                          | 7.5    |   |   |   | 9.0 |   |
| Total                              |   |                          | 40.1   |   |   |   | 41.7 |   |
| Valley      Race Park:             |   |                          |   |   |   |   |   |   |
| Gross      pari-mutuel commissions |   |                          | 4.1    |   |   |   | 4.1 |   |
| Other      revenues                |   |                          | 1.0    |   |   |   | 1.0 |   |
| Total                              |   |                          | 5.1    |   |   |   | 5.1 |   |
| Total      sales                   |   | $                             | 45.2   |   |   | $ | 46.8 |   |
|                               |   |                          |   |   |   |   |   |   |
| Operating      loss:               |   |                          |   |   |   |   |   |   |
| Sam      Houston Race Park         |   | $                             | (3.6   | ) |   | $ | (6.6 | ) |
| Valley      Race Park              |   |                          | (1.0   | ) |   |   | (0.9 | ) |
| Other                              |   |                          | (0.4   | ) |   |   | (0.6 | ) |
| Total      operating loss          |   | $                             | (5.0   | ) |   | $ | (8.1 | ) |
|                               |   |                          |   |   |   |   |   |   |
| Loss      before income taxes      |   | $                             | (5.0   | ) |   | $ | (8.0 | ) |

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|                                                 |   | Years      Ended December 31, |   |
|------------------------------------------------------|--------|-------------------------------|--------|
|                                                 |   | 2008                          |   |   | 2007 |   |
|                                                 |   | (In      millions of dollars) |   |
|                                                 |   |                          |   |   |   |   |
|                                                 |   |                          |   |   |   |   |
| Revenue                                              |   | $                             | 4.1    |   |   | $ | - |   |
| Cost      of goods sold                              |   |                          | (5.1   | ) |   |   | - |   |
| Loss      on lumber sale                             |   |                          | (1.0   | ) |   |   | - |   |
| Corporate      expenses, including legal fees        |   |                          | (18.5  | ) |   |   | (13.5 | ) |
| Gain      on settlement of Sanctions      Motion     |   |                          | 10.0   |   |   |   | - |   |
| Stock-based      compensation                        |   |                          | 6.1    |   |   |   | (0.3 | ) |
| Operating      loss                                  |   |                          | (3.4   | ) |   |   | (13.8 | ) |
| Investment,      interest and other income (expense) |   |                          | (4.9   | ) |   |   | (0.4 | ) |
| Loss      before income taxes                        |   | $                             | (8.3   | ) |   | $ | (14.2 | ) |

|                          | Years      Ended December 31, |   |
|-------------------------------|-------------------------------|--------|
|                          | 2008                          |   | 2007 |   |
|                          | (In      millions of dollars) |   |
|                          |                          |   |   |   |   |   |
| Operating      loss           |                          | $      | (1.3 | ) |   | $ | (1.9 | ) |
| Loss      before income taxes |                          |   | (1.3 | ) |   |   | (1.9 | ) |

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|                                                                                                                               |   | Real      Estate              |   |   | Racing |   |   | MGI    |   |   | Corporate |   |   | Total  |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|
|                                                                                                                               |   | (In      millions of dollars) |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |
| Debt      and credit facilities   (excluding      intercompany         notes)                        |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |
| Short-term      borrowings andcurrent maturities      oflong-term debt:                                                            |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | 5.9    |   |   | $      | 0.2    |   |   | $      | -         |   |   | $      | -      |   |   | $ | 6.1 |   |
| December 31,2007                                                                                                                   |   |                          | 5.2    |   |   |   | 0.1    |   |   |   | -         |   |   |   | -      |   |   |   | 5.3 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Long-term      debt, excludingcurrent maturities      anddiscounts:                                                                |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | 205.0  |   |   | $      | 0.7    |   |   | $      | -         |   |   | $      | -      |   |   | $ | 205.7 |   |
| December 31,2007                                                                                                                   |   |                          | 210.4  |   |   |   | 0.8    |   |   |   | -         |   |   |   | -      |   |   |   | 211.2 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Cash,      cash equivalents,marketable securitiesand other investments                                                             |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Current restricted      amounts                                                                                                    |   | $                             | 0.2    |   |   | $      | 0.3    |   |   | $      | -         |   |   | $      | -      |   |   | $ | 0.5 |   |
| Other current      amounts                                                                                                         |   |                          | 5.1    |   |   |   | 7.7    |   |   |   | -         |   |   |   | 49.3   |   |   |   | 62.1 |   |
|                                                                                                                               |   |                          | 5.3    |   |   |   | 8.0    |   |   |   | -         |   |   |   | 49.3   |   |   |   | 62.6 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Long-term unrestricted      investments                                                                                            |   |                          | -      |   |   |   | -      |   |   |   | -         |   |   |   | 2.0    |   |   |   | 2.0 |   |
| Long-termrestrictedamounts                                                                                                         |   |                          | 3.6    |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | 3.6 |   |
|                                                                                                                               |   | $                             | 8.9    |   |   | $      | 8.0    |   |   | $      | -         |   |   | $      | 51.3   |   |   | $ | 68.2 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Changes      in cash and cashequivalents                                                                                           |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Capital      expenditures for the year ended:                                                                                      |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | 0.6    |   |   | $      | 1.8    |   |   | $      | -         |   |   | $      | -      |   |   | $ | 2.4 |   |
| December 31,2007                                                                                                                   |   |                          | 2.0    |   |   |   | 2.9    |   |   |   | -         |   |   |   | 0.1    |   |   |   | 5.0 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Net      proceeds from dispositions of propertyand investments for      the  year ended:                                 |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | -      |   |   | $      | -      |   |   | $      | -         |   |   | $      | -      |   |   | $ | - |   |
| December 31,2007                                                                                                                   |   |                          | 0.1    |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | 0.1 |   |
|                                                                                                                               |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| Borrowings      (repayments) of debt and credit facilities,net of financing costs, for      the  year ended:             |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | (4.3   | )      |   | $      | (0.4   | )      |   | $      | -         |   |   | $      | -      |   |   | $ | (4.7 | ) |
| December 31,2007                                                                                                                   |   |                          | (4.3   | )      |   |   | 0.6    |   |   |   | -         |   |   |   | -      |   |   |   | (3.7 | ) |
| Dividends,      advances (including interest paid)and tax sharing payments      received (paid)for the  year      ended: |   |                          |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |
| December 31,2008                                                                                                                   |   | $                             | 11.3   |   |   | $      | 6.0    |   |   | $      | -         |   |   | $      | (17.3  | ) |   | $ | - |   |
| December 31,2007                                                                                                                   |   |                          | 5.8    |   |   |   | 5.8    |   |   |   | -         |   |   |   | (11.6  | ) |   |   | - |   |

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|   | Level      2 - Observable inputs other than Level 1 prices such as quoted prices for      similar assets or liabilities; quoted prices in markets that are not      active; or other inputs that are observable or can be corroborated by      observable market data for substantially the full term of the assets or      liabilities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level      3 - Unobservable inputs that are supported by little or no market activity      and that are significant to the fair value of the assets or      liabilities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                         |   | Fair      Value Measurements as ofDecember      31, 2008 |   |
|------------------------------|--------|----------------------------------------------------------|--------|
|                         |   | Total                                                    |   |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |
| Description:                 |   |                                                     |   |   |   |   |   |   |   |   |   |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |
| Short-term      investments  |   | $                                                        | 2.5    |   |   | $ | 2.5 |   |   | $ | - |   |   | $ | - |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Auction rate      securities |   |                                                     | 1.5    |   |   |   | - |   |   |   | - |   |   |   | 1.5 |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                        |   | $                                                        | 4.0    |   |   | $ | 2.5 |   |   | $ | - |   |   | $ | 1.5 |   |

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|                                                                            |   | Auction      Rate Securities |   |
|---------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                            |   |                         |   |
| Carrying      value as of January 1, 2008                                       |   | $                            | 11.5   |   |
| Settlements                                                                     |   |                         | (5.6   | ) |
| Impairment      charge included in theConsolidated Statement of      Operations |   |                         | (4.4   | ) |
| Carrying      value as of December 31, 2008                                     |   | $                            | 1.5    |   |

ITEM7A.          QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM8.             FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

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REPORT OF INDEPENDANT REGISTERED PUBLIC ACCOUNTINGFIRM

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| MAXXAM      INC. AND SUBSIDIARIES                                                                                                                                                                                                      |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| CONSOLIDATED      BALANCE SHEETS                                                                                                                                                                                                       |   |
| (In      millions of dollars, except share information)                                                                                                                                                                                |   |
|                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                   |   | December      31,2008 |   |   | December      31,2007 |   |
|                                                                                                                                                                                                                                   |   |   |   |
|                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| Assets                                                                                                                                                                                                                                 |   |   |   |   |   |   |
| Current      assets:                                                                                                                                                                                                                   |   |   |   |   |   |   |
| Cash and cash      equivalents                                                                                                                                                                                                         |   | $ | 59.6 |   |   | $ | 67.8 |   |
| Marketable securities and other      short-term investments                                                                                                                                                                            |   |   | 2.5 |   |   |   | 25.1 |   |
| Investments in limited      partnerships                                                                                                                                                                                               |   |   | - |   |   |   | 21.1 |   |
| Receivables:                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Trade, net of allowance for      doubtful accounts of $0.9 and $0.5, respectively                                                                                                                                                      |   |   | 1.5 |   |   |   | 3.0 |   |
| Other                                                                                                                                                                                                                                  |   |   | 1.4 |   |   |   | 1.6 |   |
| Real estate      inventory                                                                                                                                                                                                             |   |   | 2.7 |   |   |   | 3.9 |   |
| Prepaid expenses and other      current assets                                                                                                                                                                                         |   |   | 6.8 |   |   |   | 2.9 |   |
| Restricted cash                                                                                                                                                                                                                        |   |   | 0.5 |   |   |   | 2.3 |   |
| Total current      assets                                                                                                                                                                                                              |   |   | 75.0 |   |   |   | 127.7 |   |
| Property,      plant and equipment, net of accumulated depreciation of$108.8and $99.1,      respectively                                                                                                                               |   |   | 210.4 |   |   |   | 219.8 |   |
| Real      estate inventory                                                                                                                                                                                                             |   |   | 58.1 |   |   |   | 52.7 |   |
| Deferred      income taxes                                                                                                                                                                                                             |   |   | 41.6 |   |   |   | 94.7 |   |
| Deferred      financing costs                                                                                                                                                                                                          |   |   | 4.2 |   |   |   | 4.9 |   |
| Investments      in limited partnerships                                                                                                                                                                                               |   |   | 0.5 |   |   |   | 2.9 |   |
| Investments      in joint ventures                                                                                                                                                                                                     |   |   | 3.8 |   |   |   | 4.5 |   |
| Other      long-term assets and investments                                                                                                                                                                                            |   |   | 3.1 |   |   |   | 8.1 |   |
| Restricted      cash                                                                                                                                                                                                                   |   |   | 3.6 |   |   |   | 3.6 |   |
|                                                                                                                                                                                                                                   |   | $ | 400.3 |   |   | $ | 518.9 |   |
| Liabilities      and Stockholders’      Deficit                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Accountspayable                                                                                                                                                                                                                        |   | $ | 5.4 |   |   | $ | 6.5 |   |
| Short-term borrowings and      current maturities of long-term debt                                                                                                                                                                    |   |   | 6.1 |   |   |   | 5.3 |   |
| Accruedinterest                                                                                                                                                                                                                        |   |   | 0.9 |   |   |   | 0.9 |   |
| Accrued compensation and      related benefits                                                                                                                                                                                         |   |   | 1.8 |   |   |   | 2.3 |   |
| Accrued defense      costs                                                                                                                                                                                                             |   |   | 6.1 |   |   |   | 4.0 |   |
| Accrued taxes                                                                                                                                                                                                                          |   |   | 1.2 |   |   |   | 1.3 |   |
| Deferred income                                                                                                                                                                                                                        |   |   | 2.9 |   |   |   | 0.7 |   |
| Other accrued      liabilities                                                                                                                                                                                                         |   |   | 7.1 |   |   |   | 11.6 |   |
| Total current      liabilities                                                                                                                                                                                                         |   |   | 31.5 |   |   |   | 32.6 |   |
| Long-term      debt, less current maturities                                                                                                                                                                                           |   |   | 205.7 |   |   |   | 211.2 |   |
| Accrued      pension and other postretirement benefits                                                                                                                                                                                 |   |   | 19.4 |   |   |   | 7.0 |   |
| Other      noncurrent liabilities                                                                                                                                                                                                      |   |   | 46.5 |   |   |   | 45.1 |   |
| Losses      in excess of investment in Debtors                                                                                                                                                                                         |   |   | 484.2 |   |   |   | 484.2 |   |
| Total    liabilities                                                                                                                                                                                                                   |   |   | 787.3 |   |   |   | 780.1 |   |
| Commitments      and contingencies                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| Stockholders’      deficit:                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
| Preferred stock, $0.50 par      value; $0.75 liquidation preference; 2,500,000 sharesauthorized; Class A $0.05      Non-Cumulative Participating Convertible PreferredStock; 668,964 shares issued      and 668,119 shares outstanding |   |   | 0.3 |   |   |   | 0.3 |   |
|                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Common stock, $0.50 par value;      13,000,000 shares authorized; 10,063,359 sharesissued; 4,559,637      and  5,248,717 shares outstanding, respectively                                                                    |   |   | 5.0 |   |   |   | 5.0 |   |
| Additional paid in      capital                                                                                                                                                                                                        |   |   | 225.3 |   |   |   | 225.3 |   |
| Accumulated    deficit                                                                                                                                                                                                                 |   |   | (435.3 | ) |   |   | (342.9 | ) |
| Accumulated other comprehensive      loss                                                                                                                                                                                              |   |   | (14.5 | ) |   |   | (1.2 | ) |
| Treasury stock, at cost (shares      held; preferred – 845; common – 5,503,722 and    4,814,642,      respectively)                                                                                         |   |   | (167.8 | ) |   |   | (147.7 | ) |
| Total stockholders’      deficit                                                                                                                                                                                                 |   |   | (387.0 | ) |   |   | (261.2 | ) |
|                                                                                                                                                                                                                                   |   | $ | 400.3 |   |   | $ | 518.9 |   |

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| MAXXAM      INC. AND SUBSIDIARIES                                    |   |
|----------------------------------------------------------------------|--------|
|                                                                 |   |   |   |   |   |   |
| CONSOLIDATED      STATEMENTS OF OPERATIONS                           |   |
| (In      millions of dollars, except per share information)          |   |
|                                                                 |   |   |   |   |   |   |
|                                                                 |   | Years      Ended December 31, |   |
|                                                                 |   | 2008 |   |   | 2007 |   |
|                                                                 |   |   |   |   |   |   |
| Sales:                                                               |   |   |   |   |   |   |
| Real      estate                                                     |   | $ | 34.3 |   |   | $ | 44.7 |   |
| Racing                                                               |   |   | 45.2 |   |   |   | 46.8 |   |
| Corporate                                                            |   |   | 4.1 |   |   |   | - |   |
| Forest      products, net of discounts                               |   |   | - |   |   |   | 4.4 |   |
|                                                                 |   |   | 83.6 |   |   |   | 95.9 |   |
|                                                                 |   |   |   |   |   |   |   |   |
| Cost      and expenses:                                              |   |   |   |   |   |   |   |   |
| Cost      of sales and operations:                                   |   |   |   |   |   |   |   |   |
| Real      estate                                                     |   |   | 16.3 |   |   |   | 20.5 |   |
| Racing                                                               |   |   | 41.2 |   |   |   | 42.0 |   |
| Corporate                                                            |   |   | 5.1 |   |   |   | - |   |
| Forest      products                                                 |   |   | - |   |   |   | 4.3 |   |
| Selling,      general and administrative expenses                    |   |   | 38.5 |   |   |   | 42.2 |   |
| Gain      on sales of other assets                                   |   |   | - |   |   |   | (0.1 | ) |
| Depreciation,      depletion and amortization                        |   |   | 11.4 |   |   |   | 14.9 |   |
| Proceeds      on involuntary conversion and net insurance recoveries |   |   | (5.6 | ) |   |   | - |   |
| Gain      on settlement of Sanctions      Motion                     |   |   | (10.0 | ) |   |   | - |   |
|                                                                 |   |   | 96.9 |   |   |   | 123.8 |   |
|                                                                 |   |   |   |   |   |   |   |   |
| Operating      loss:                                                 |   |   |   |   |   |   |   |   |
| Real      estate                                                     |   |   | (3.6 | ) |   |   | (1.8 | ) |
| Racing                                                               |   |   | (5.0 | ) |   |   | (8.1 | ) |
| Corporate                                                            |   |   | (3.4 | ) |   |   | (13.8 | ) |
| Forest      products                                                 |   |   | (1.3 | ) |   |   | (4.2 | ) |
|                                                                 |   |   | (13.3 | ) |   |   | (27.9 | ) |
|                                                                 |   |   |   |   |   |   |   |   |
| Other      income (expense):                                         |   |   |   |   |   |   |   |   |
| Investment,      interest and other income (expense), net            |   |   | (4.9 | ) |   |   | 1.7 |   |
| Interest      expense                                                |   |   | (16.2 | ) |   |   | (19.4 | ) |
| Amortization      of deferred financing costs                        |   |   | (0.6 | ) |   |   | (0.8 | ) |
| Loss      before income taxes                                        |   |   | (35.0 | ) |   |   | (46.4 | ) |
| Provision      for income taxes                                      |   |   | (57.4 | ) |   |   | (0.5 | ) |
| Net      loss                                                        |   | $ | (92.4 | ) |   | $ | (46.9 | ) |
|                                                                 |   |   |   |   |   |   |   |   |
| Basic      net loss per common and common equivalent share           |   | $ | (19.67 | ) |   | $ | (8.93 | ) |
|                                                                 |   |   |   |   |   |   |   |   |
| Diluted      net loss per common and common equivalent share         |   | $ | (19.67 | ) |   | $ | (8.93 | ) |
|                                                                 |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding - Basic and Diluted         |   |   | 4,698,134 |   |   |   | 5,251,355 |   |

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| MAXXAM      INC. AND SUBSIDIARIES                                                     |   |
|---------------------------------------------------------------------------------------|--------|
|                                                                                  |   |   |   |   |   |   |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                            |   |
| (In      millions of dollars)                                                         |   |
|                                                                                  |   |   |   |   |   |   |
|                                                                                  |   | Years      Ended December 31, |   |
|                                                                                  |   | 2008 |   |   | 2007 |   |
|                                                                                  |   |   |   |   |   |   |
| Cash      flows from operating activities:                                            |   |   |   |   |   |   |
| Net      loss                                                                         |   | $ | (92.4 | ) |   | $ | (46.9 | ) |
| Adjustments      to reconcile net loss to net cash used foroperating      activities: |   |   |   |   |   |   |   |   |
| Depreciation,      depletion and amortization                                         |   |   | 11.4 |   |   |   | 14.9 |   |
| Non-cash      stock-based compensation expense                                        |   |   | (6.1 | ) |   |   | 0.3 |   |
| Gains      on sales of other assets                                                   |   |   | - |   |   |   | (0.1 | ) |
| Net      losses from investments                                                      |   |   | 8.3 |   |   |   | 4.4 |   |
| Amortization      of deferred financing costs                                         |   |   | 0.6 |   |   |   | 0.8 |   |
| Equity      losses in joint ventures, net of dividends                                |   |   | 0.7 |   |   |   | - |   |
| Deferred      taxes                                                                   |   |   | 47.2 |   |   |   | - |   |
| Gain      on involuntary conversion of property                                       |   |   | (4.8 | ) |   |   | - |   |
| Increase      (decrease) in cash resulting from changes in:                           |   |   |   |   |   |   |   |   |
| Receivables                                                                           |   |   | 1.9 |   |   |   | 7.6 |   |
| Inventories                                                                           |   |   | 1.2 |   |   |   | 0.8 |   |
| Prepaid      expenses and other assets                                                |   |   | (0.5 | ) |   |   | 2.9 |   |
| Accounts      payable                                                                 |   |   | (1.8 | ) |   |   | 1.4 |   |
| Other      accrued liabilities                                                        |   |   | (1.8 | ) |   |   | (3.6 | ) |
| Accrued      interest                                                                 |   |   | - |   |   |   | 2.7 |   |
| Long-term      assets and long-term liabilities                                       |   |   | 5.1 |   |   |   | (8.3 | ) |
| Other                                                                                 |   |   | 0.8 |   |   |   | (0.5 | ) |
| Net      cash used for operating activities                                           |   |   | (30.2 | ) |   |   | (23.6 | ) |
|                                                                                  |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                            |   |   |   |   |   |   |   |   |
| Net      proceeds from the disposition of property and investments                    |   |   | - |   |   |   | 0.1 |   |
| Proceeds      on involuntary conversion of property                                   |   |   | 4.8 |   |   |   | - |   |
| Maturities      of marketable securities and other investments                        |   |   | 17.8 |   |   |   | 157.6 |   |
| Sales      of marketable securities and other investments                             |   |   | 13.0 |   |   |   | 117.9 |   |
| Sales      of investments in limited partnerships                                     |   |   | 21.4 |   |   |   | - |   |
| Purchases      of marketable securities and other investments                         |   |   | (9.6 | ) |   |   | (210.6 | ) |
| Net      proceeds from restricted cash                                                |   |   | 1.2 |   |   |   | (0.7 | ) |
| Capital      expenditures                                                             |   |   | (2.4 | ) |   |   | (5.0 | ) |
| Decrease      in cash due to deconsolidation of Debtors                               |   |   | - |   |   |   | (1.1 | ) |
| Contribution      to joint venture                                                    |   |   | - |   |   |   | (0.6 | ) |
| Net      cash provided by investing activities                                        |   |   | 46.2 |   |   |   | 57.6 |   |
|                                                                                  |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                            |   |   |   |   |   |   |   |   |
| Principal      payments on long-term debt                                             |   |   | (5.3 | ) |   |   | (4.9 | ) |
| Borrowings      under long-term debt                                                  |   |   | 0.6 |   |   |   | - |   |
| Borrowings      under revolving and short-term credit facilities                      |   |   | - |   |   |   | 3.3 |   |
| Treasury      stock purchases                                                         |   |   | (20.1 | ) |   |   | (0.3 | ) |
| Net      proceeds from refundable deposits                                            |   |   | 0.6 |   |   |   | 0.9 |   |
| Net      cash used for financing activities                                           |   |   | (24.2 | ) |   |   | (1.0 | ) |
|                                                                                  |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                             |   |   | (8.2 | ) |   |   | 33.0 |   |
| Cash      and cash equivalents at beginning of the period                             |   |   | 67.8 |   |   |   | 34.8 |   |
| Cash      and cash equivalents at end of the period                                   |   | $ | 59.6 |   |   | $ | 67.8 |   |

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| MAXXAM      INC. AND SUBSIDIARIES                                       |   |
|-------------------------------------------------------------------------|--------|
|                                                                    |   |   |   |   |   |   |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS'      DEFICIT                   |   |
| (In      millions, except per share information)                        |   |
|                                                                    |   |   |   |   |   |   |
|                                                                    |   | Years      Ended December 31, |   |
|                                                                    |   | 2008 |   |   | 2007 |   |
|                                                                    |   |   |   |   |   |   |
| Preferred      Stock ($.50 Par)                                         |   |   |   |   |   |   |
| Balance      at beginning and end of year                               |   | $ | 0.3 |   |   | $ | 0.3 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Common      Stock ($.50 Par)                                            |   |   |   |   |   |   |   |   |
| Balance      at beginning and end of year                               |   | $ | 5.0 |   |   | $ | 5.0 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Additional      Paid in Capital                                         |   |   |   |   |   |   |   |   |
| Balance      at beginning and end of year                               |   | $ | 225.3 |   |   | $ | 225.3 |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Accumulated      Deficit                                                |   |   |   |   |   |   |   |   |
| Balance      at beginning of year                                       |   | $ | (342.9 | ) |   | $ | (296.0 | ) |
| Net      loss                                                           |   |   | (92.4 | ) |   |   | (46.9 | ) |
| Balance      at end of year                                             |   | $ | (435.3 | ) |   | $ | (342.9 | ) |
|                                                                    |   |   |   |   |   |   |   |   |
| Accumulated      Other Comprehensive Income (Loss)                      |   |   |   |   |   |   |   |   |
| Minimum      pension liability adjustment, net of taxes                 |   | $ | (13.6 | ) |   | $ | (0.4 | ) |
| Other                                                                   |   |   | 0.3 |   |   |   | 0.1 |   |
| Unrealized      gains (losses) on available-for-sale investments        |   |   | - |   |   |   | (1.9 | ) |
| Other      comprehensive loss                                           |   |   | (13.3 | ) |   |   | (2.2 | ) |
| Accumulated      other comprehensive income (loss) at beginning of year |   |   | (1.2 | ) |   |   | 1.0 |   |
| Accumulated      other comprehensive loss at end of year                |   | $ | (14.5 | ) |   | $ | (1.2 | ) |
|                                                                    |   |   |   |   |   |   |   |   |
| Treasury      Stock                                                     |   |   |   |   |   |   |   |   |
| Balance      at beginning of year                                       |   | $ | (147.7 | ) |   | $ | (147.4 | ) |
| Treasury      stock purchases                                           |   |   | (20.1 | ) |   |   | (0.3 | ) |
| Balance      at end of year                                             |   | $ | (167.8 | ) |   | $ | (147.7 | ) |
|                                                                    |   |   |   |   |   |   |   |   |
| Comprehensive      Loss                                                 |   |   |   |   |   |   |   |   |
| Net      loss                                                           |   | $ | (92.4 | ) |   | $ | (46.9 | ) |
| Other      comprehensive loss                                           |   |   | (13.3 | ) |   |   | (2.2 | ) |
| Total      comprehensive loss                                           |   | $ | (105.7 | ) |   | $ | (49.1 | ) |

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| MAXXAM      INC. AND SUBSIDIARIES               |
|-------------------------------------------------|
|                                            |
| NOTES TO CONSOLIDATED FINANCIAL      STATEMENTS |
|                                            |
| Index      of Notes                             |
|                                            |
| Number                                          | Description |                       Page |
| 1                                               | Basis      of Presentation and Summary of Significant Accounting    Policies | 38 |
| 2                                               | New      Accounting Standards | 46 |
| 3                                               | Segment      Information and Other Items | 48 |
| 4                                               | Cash,      Cash Equivalents and Marketable Securities | 51 |
| 5                                               | Equity      Method Investments | 53 |
| 6                                               | Property,      Plant and Equipment | 56 |
| 7                                               | Debt | 57 |
| 8                                               | Income      Taxes | 58 |
| 9                                               | Employee      Benefit and Incentive Plans | 61 |
| 10                                              | Commitments      and Contingencies | 65 |
| 11                                              | Stockholders’      Deficit | 68 |
| 12                                              | Supplemental      Cash Flow and Other Information | 70 |
| 13                                              | Quarterly      Financial Information (Unaudited) | 70 |
| 14                                              | Damage      to SHRP Facility | 71 |
| 15                                              | Related      Party Transaction | 72 |

| • | Residential      and commercial real estate investment and development, through MAXXAM      Property Company (“MPC”) and other wholly      owned subsidiaries of the Company, as well as joint      ventures.  The Company’s real estate investment and development      activities are conducted primarily in Arizona, California, Puerto Rico and      Texas, including associated golf course or resort operations in certain      locations.  Company subsidiaries also own several commercial      real estate properties that are subject to long-term lease      arrangements. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Racing      operations, through Sam Houston Race Park, Ltd. (“SHRP”), a Texas limited      partnership wholly owned by the Company.  SHRP owns and operates      a Texas Class 1 pari-mutuel horse racing facility in the greater Houston      metropolitan area, and a pari-mutuel greyhound racing facility in      Harlingen, Texas. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Potential      Impact on the Company and Certain Related  Entities |
|--------|--------------------------------------------------------------------|

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|   | Use      of Estimates and Assumptions |
|--------|---------------------------------------|

| (i)   | the      ultimate outcome of the BankruptcyCases, |
|-----------------|---------------------------------------------------|

| (ii)   | estimated      defense costs and the ultimate outcome of the Wilson Actions      discussed in Note 10, |
|------------------|--------------------------------------------------------------------------------------------------------|

| (iii)   | the      ultimate outcome of the tax examinations discussed in Note    8, |
|-------------------|---------------------------------------------------------------------------|

| (iv)   | estimates      used to determine projected pension obligations and the expected value of      pension plan assets discussed in Note9, |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| (v)   | projected      future cash flows and estimated fair values used in the evaluation of      long-lived assets for possible impairment,and |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| (vi)   | the      value of the Company’s investmentportfolio. |
|------------------|------------------------------------------------------------|

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|                                                                |   | 2008      (1) |      |   | 2007   |   |
|---------------------------------------------------------------------|--------|---------------|-----------|--------|--------|--------|
|                                                                |   |          |      |   |   |   |
| Weighted      average number of common shares outstanding-basic(2): |   |          | 4,698,134 |   |   |   | 5,251,355 |   |
|                                                                |   |          |      |   |   |   |   |   |
| Effect      of dilution(3):                                         |   |          |      |   |   |   |   |   |
| Conversion      of Class A Preferred Stock                          |   |          | -         |   |   |   | - |   |
| Exercise      of stock options                                      |   |          | -         |   |   |   | - |   |
|                                                                |   |          |      |   |   |   |   |   |
| Weighted      average number of common shares outstanding-diluted   |   |          | 4,698,134 |   |   |   | 5,251,355 |   |
|                                                                |   |          |      |   |   |   |   |   |

|  (1) | In      the second quarter of 2008, a mathematical error was discovered in the      calculation of the weighted average number of shares used to determine      basic and diluted shares outstanding for the first quarter of      2008.  As a result, earnings per share for the three months      ended March 31, 2008 was incorrectly reported as a loss of $2.58 per      share, rather than a loss of $2.72 pershare. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | In      March 2008, MAXXAM Parent purchased 687,480 shares of its Common Stock      from two affiliated institutional holders in a privately negotiated      transaction for an aggregate cost of $20.1  million. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The      Company had a loss for the years ended December 31, 2008 and      2007.  The Class A Preferred Stock and options were therefore      not included in the computation of earnings per share for the period as      the effect would be anti-dilutive.  If the Company was required      to include dilutive shares in its per share calculations, the number of      dilutive shares of Class A Preferred Stock for the years ended December      31, 2008 and 2007 would be 668,119 and 668,119, respectively, and the      number of dilutive options for the years ended December 31, 2008 and 2007      would be 9,248 and 65,192,respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                              |   | December      31, |   |
|-------------------------------------------------------------------|--------|-------------------|--------|
|                                                              |   | 2008              |   |   | 2007 |   |
|                                                              |   |              |   |   |   |   |
| Minimum      pension liability, net of related income tax effects |   | $                 | (13.2  | ) |   | $ | 0.4 |   |
| Unrealized      losses on available-for-sale securities           |   |              | (1.3   | ) |   |   | (1.3 | ) |
| Other                                                             |   |              | -      |   |   |   | (0.3 | ) |
|                                                              |   | $                 | (14.5  | ) |   | $ | (1.2 | ) |

|   | Level      2 - Observable inputs other than Level 1 prices such as quoted prices for      similar assets or liabilities; quoted prices in markets that are not      active; or other inputs that are observable or can be corroborated by      observable market data for substantially the full term of the assets or      liabilities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level      3 - Unobservable inputs that are supported by little or no market activity      and that are significant to the fair value of the assets or      liabilities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                         |   | Fair      Value Measurements as ofDecember      31, 2008 |   |
|------------------------------|--------|----------------------------------------------------------|--------|
|                         |   | Total                                                    |   |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |
| Description:                 |   |                                                     |   |   |   |   |   |   |   |   |   |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |
| Short-term      investments  |   | $                                                        | 2.5    |   |   | $ | 2.5 |   |   | $ | - |   |   | $ | - |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Auction      rate securities |   |                                                     | 1.5    |   |   |   | - |   |   |   | - |   |   |   | 1.5 |   |
|                         |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                        |   | $                                                        | 4.0    |   |   | $ | 2.5 |   |   | $ | - |   |   | $ | 1.5 |   |

|                                                                            |   | Auction      Rate Securities |   |
|---------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                            |   |                         |   |
| Carrying      value as of January 1, 2008                                       |   | $                            | 11.5   |   |
| Settlements                                                                     |   |                         | (5.6   | ) |
| Impairment      charge included in theConsolidated Statement of      Operations |   |                         | (4.4   | ) |
| Carrying      value as of December 31, 2008                                     |   | $                            | 1.5    |   |

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|                                                                                           |   | ReportableSegments            |   |   |   |   |   |   |   |      |   |   |                  | ReportableSegments |   |      |   |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|-----------------------|--------------------|--------|-----------|--------|--------|
|                                                                                           |   | Real      Estate              |   |   | Racing |   | MGI    |   |   | Corporate |   |   | TotalExcludingDebtors |               |   | Debtors   |   |   | ConsolidatedTotal |   |
|                                                                                           |   | (In      millions of dollars) |   |
| Investment,      interest andother income for      theyear ended:                              |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | (0.1   | )      |   | $      | -      |   |   | $         | -      |   |                  | $                  | (4.8   | )(1)      |   | $      | (4.9 | ) |   | $ |   |  (2) |   | $ | (4.9 | ) |
| December 31,    2007                                                                           |   |                          | 1.7    |   |   |   | 0.1    |   |   |      | -      |   |                  |               | (0.2   | )         |   |   | 1.6 |   |   |   | 0.1 |  (3) |   |   | 1.7 |   |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,      general andadministrative      expense   for      the year ended: |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | 12.2   |   |   | $      | 12.8   |   |   | $         | 1.3    |   |                  | $                  | 12.2   |      |   | $      | 38.5 |   |   | $ |   |  (2) |   | $ | 38.5 |   |
| December 31,    2007                                                                           |   |                          | 13.9   |   |   |   | 11.3   |   |   |      | 1.9    |   |                  |               | 13.6   |      |   |   | 40.7 |   |   |   |  1.5 |  (3) |   |   | 42.2 |   |
| Operating      loss for theyear ended:                                                         |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | (3.6   | )      |   | $      | (5.0   | )(6)   |   | $         | (1.3   | )      |                  | $                  | (3.4   | )(4)      |   | $      | (13.3 | ) |   | $ |   |        (2) |   | $ | (13.3 | ) |
| December 31,    2007                                                                           |   |                          | (1.8   | )      |   |   | (8.1   | )      |   |      | (1.9   | )      |                  |               | (13.9  | )         |   |   | (25.7 | ) |   |   | (2.2 | )(3) |   |   | (27.9 | ) |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense for theyear ended (5):                                                   |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | 16.7   |   |   | $      | -      |   |   | $         | -      |   |                  | $                  | 0.1    |      |   | $      | 16.8 |   |   | $ |   |        (2) |   | $ | 16.8 |   |
| December 31,    2007                                                                           |   |                          | 17.0   |   |   |   | -      |   |   |      | -      |   |                  |               | 0.1    |      |   |   | 17.1 |   |   |   | 3.1 |        (3) |   |   | 20.2 |   |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation,      depletionand amortization for      theyear ended:                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | 9.4    |   |   | $      | 1.8    |   |   | $         | -      |   |                  | $                  | 0.2    |      |   | $      | 11.4 |   |   | $ |   |  (2) |   | $ | 11.4 |   |
| December 31,    2007                                                                           |   |                          | 12.2   |   |   |   | 1.6    |   |   |      | -      |   |                  |               | 0.2    |      |   |   | 14.0 |   |   |   | 0.9 |  (3) |   |   | 14.9 |   |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      before income taxesfor the year    ended:                                            |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | (20.4  | )      |   | $      | (5.0   | )(6)   |   | $         | (1.3   | )      |                  | $                  | (8.3   | )(4)      |   | $      | (35.0 | ) |   | $ |   |  (2) |   | $ | (35.0 | ) |
| December 31,    2007                                                                           |   |                          | (17.1  | )      |   |   | (8.0   | )      |   |      | (1.9   | )      |                  |               | (14.2  | )         |   |   | (41.2 | ) |   |   |                 (5.2 | )(3) |   |   | (46.4 | ) |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      expendituresfor the year    ended:                                                |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | 0.6    |   |   | $      | 1.8    |   |   | $         | -      |   |                  | $                  | -      |      |   | $      | 2.4 |   |   | $ |   |  (2) |   | $ | 2.4 |   |
| December 31,    2007                                                                           |   |                          | 2.0    |   |   |   | 2.9    |   |   |      | -      |   |                  |               | 0.1    |      |   |   | 5.0 |   |   |   | - |  (3) |   |   | 5.0 |   |
|                                                                                           |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets as of:                                                                       |   |                          |   |   |   |   |   |   |   |      |   |   |                  |               |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31,    2008                                                                           |   | $                             | 267.3  |   |   | $      | 38.1   |   |   | $         | -      |   |                  | $                  | 94.9   |  (7) |   | $      | 400.3 |   |   | $ |   |  (2) |   | $ | 400.3 |   |
| December 31,    2007                                                                           |   |                          | 281.5  |   |   |   | 36.0   |   |   |      | -      |   |                  |               | 201.4  |      |   |   | 518.9 |   |   |   |   |  (2) |   |   | 518.9 |   |

| (1) | Includes      an aggregate $6.2 million impairment charge for the year ended December      31, 2008 related to the Company’s investment portfolio (see Note      4). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | As      a result of the deconsolidation of the Debtors, their data is not included      in the consolidated results of operations for the year ended December 31,      2008 or in consolidated total assets as of December 31, 2008 or December      31, 2007. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | These      amounts are for the period from January 1, 2007 through January 18,      2007. |
|-----|-------------------------------------------------------------------------------------------|

| (4) | Includes      the following: |
|-----|------------------------------|

| Stock-based      compensation benefit                               |   | $      | 6.1   |   |
|---------------------------------------------------------------------|--------|--------|-------|--------|
| Gain      on settlement of Sanctions Motion (see      Note 10)      |   |   | 10.0  |   |
| Defense      costs related to the Wilson actions (see      Note 10) |   |   | (10.0 | )      |

| (5) | Interest      expense includes amortization of deferred financing  costs. |
|-----|---------------------------------------------------------------------------|

| (6) | Includes      the following with respect to the damage to the Sam Houston Race Park as a      result of Hurricane Ike (see Note 14 for additional      information): |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Write      off of estimated net book value of property damaged or destroyed by      Hurricane Ike |   | $      | (1.3 | )      |
|---------------------------------------------------------------------------------------------------|--------|--------|------|--------|
| Property      insurance recoveries in excess deductibles                                          |   |   | 4.8  |   |
| Net      business interruption loss recoveries                                                    |   |   | 0.8  |   |
| Gain      on involuntary conversion and net insurance recoveries                                  |   | $      | 4.3  |   |

| (7) | The      reduction in total assets reflects (i) the utilization of tax attributes      resulting from the consummation of the MRC/Marathon Plan (see Note 8),      (ii) the utilization of cash in operations, (iii) utilization of cash to      purchase shares of Common Stock, and (iv) impairment losses related to the      Company’s investment portfolio (see Note 4), among other      things. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                         |   | Years      Ended December 31, |   |
|----------------------------------------------|--------|-------------------------------|--------|
|                                         |   | 2008                          |   |   | 2007(1) |   |
|                                         |   |                          |   |   |   |   |
| Real      estate:                            |   |                          |   |   |   |   |
| Real      estate investment and development  |   | $                             | 3.0    |   |   | $ | 11.0 |   |
| Resort,      commercial and other operations |   |                          | 12.9   |   |   |   | 15.3 |   |
| Commercial      lease properties             |   |                          | 18.4   |   |   |   | 18.4 |   |
| Total      real estate sales                 |   | $                             | 34.3   |   |   | $ | 44.7 |   |
|                                         |   |                          |   |   |   |   |   |   |
| Racing:                                      |   |                          |   |   |   |   |   |   |
| Gross      pari-mutuel commissions           |   | $                             | 32.4   |   |   | $ | 35.1 |   |
| Other                                        |   |                          | 12.8   |   |   |   | 11.7 |   |
| Total      racing sales                      |   | $                             | 45.2   |   |   | $ | 46.8 |   |
|                                         |   |                          |   |   |   |   |   |   |
| Corporate                                    |   |                          |   |   |   |   |   |   |
| Log      and lumber sales                    |   | $                             | 4.1    |   |   | $ | - |   |
| Total      corporate sales                   |   | $                             | 4.1    |   |   | $ | - |   |
|                                         |   |                          |   |   |   |   |   |   |
| Forest      products:                        |   |                          |   |   |   |   |   |   |
| Lumber,      net of discount                 |   |                          |   |   |   | $ | 2.7 |   |
| Logs                                         |   |                          |   |   |   |   | 1.1 |   |
| Wood      chips                              |   |                          |   |   |   |   | 0.2 |   |
| Cogeneration      power                      |   |                          |   |   |   |   | 0.3 |   |
| Other                                        |   |                          |   |   |   |   | 0.1 |   |
| Total      forest products sales             |   |                          |   |   |   | $ | 4.4 |   |

| (1) | Results for the Debtors’      operations have been included for the period from January 1, 2007 through      January 18, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                                                                        |   | December      31,2008 |   |   | December      31,2007 |   |
|-----------------------------------------------------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|
| Current:                                                                    |   |                  |   |   |                  |   |
| Cash      and cash equivalents                                              |   | $                     | 59.6   |   |                  | $      | 67.8 |   |
| Marketable      securities - auction rate securities                        |   |                  | -      |   |                  |   | 5.5 |   |
| Marketable      securities - other                                          |   |                  | 2.5    |   |                  |   | 19.5 |   |
| Restricted      cash                                                        |   |                  | 0.5    |   |                  |   | 2.3 |   |
| Total      current                                                          |   |                  | 62.6   |   |                  |   | 95.1 |   |
|                                                                        |   |                  |   |   |                  |   |   |   |
| Non-Current:                                                                |   |                  |   |   |                  |   |   |   |
| Marketable      securities - auction rate securities      (1)               |   |                  | 1.5    |   |                  |   | 6.0 |   |
| Restricted      cash                                                        |   |                  | 3.6    |   |                  |   | 3.6 |   |
| Total      non-current                                                      |   |                  | 5.1    |   |                  |   | 9.6 |   |
|                                                                        |   |                  | 67.7   |   |                  |   | 104.7 |   |
| Less:  restricted      amounts                                    |   |                  | (4.1   | )      |                  |   | (5.9 | ) |
| Total      unrestricted cash, cash equivalents and marketable    securities |   | $                     | 63.6   |   |                  | $      | 98.8 |   |

| (1) | Included in other long-term      assets and investments on the Consolidated Balance      Sheets. |
|-----|--------------------------------------------------------------------------------------------------|

|                                                                                           |   | December      31,2008 |   |   | December      31,2007 |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|
|                                                                                           |   |                  |   |   |                  |   |
| Funds      held in escrow for the Palmas Country Club, Inc. notes  (see      Note 7) |   | $                     | 3.3    |   |                  | $      | 3.3 |   |
| Horsemen      custodial accounts                                                               |   |                  | 0.2    |   |                  |   | 2.2 |   |
| Other                                                                                          |   |                  | 0.6    |   |                  |   | 0.4 |   |
| Total      restricted cash                                                                     |   | $                     | 4.1    |   |                  | $      | 5.9 |   |

|                                                       | December      31, 2008 |   |
|------------------------------------------------------------|------------------------|--------|
|                                                       | CarryingValue          |   | AggregateFair      Value |   | Net      Gainsin      AOCL |   | Net      Lossesin      AOCL |   |
|                                                       |                   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      securities and other investments               |                   | $      | 2.5 |   |   | $ | 2.5 |   |   | $ | - |   |   | $ | (1.3 | ) |
| Auction      rate securities      (1)                      |                   |   | 1.5 |   |   |   | 1.5 |   |   |   | - |   |   |   | - |   |
| Total                                                      |                   | $      | 4.0 |   |   | $ | 4.0 |   |   | $ | - |   |   | $ | (1.3 | ) |
|                                                       |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       | December      31, 2007 |   |
|                                                       | CarryingValue          |   | AggregateFair      Value |   | Net      Gainsin      AOCL |   | Net      Lossesin      AOCL |   |
|                                                       |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt      securities with maturities of less than one year |                   | $      | 6.3 |   |   | $ | 6.3 |   |   | $ | - |   |   | $ | - |   |
| Equity      securities and other investments               |                   |   | 13.2 |   |   |   | 13.2 |   |   |   | 0.4 |   |   |   | (1.7 | ) |
| Auction      rate securities      (1)                      |                   |   | 11.5 |   |   |   | 11.5 |   |   |   | - |   |   |   | - |   |
| Total                                                      |                   | $      | 31.0 |   |   | $ | 31.0 |   |   | $ | 0.4 |   |   | $ | (1.7 | ) |

| (1) | See Note 2 for a rollforward of      auction rate securities from December 31, 2007 to December 31,      2008. |
|-----|----------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                                             |   | December      31,2008 |   |   | December      31,2007 |   |
|--------------------------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|
| Money      market accounts and other investments |   | $                     | 3.2    |   |                  | $      | 6.3 |   |
| Marketable      securities                       |   |                  | (2.2   | )      |                  |   | 0.7 |   |
| Auction      rate securities                     |   |                  | (4.4   | )      |                  |   | (0.8 | ) |
| Net      investment earnings (losses)            |   | $                     | (3.4   | )      |                  | $      | 6.2 |   |

----

Table of Contents

|                                                        | As      of and for the Year EndedDecember      31, |   |
|-------------------------------------------------------------|----------------------------------------------------|--------|
|                                                        | 2008                                               |   | 2007 |   | 2006 |   |
|                                                        |                                               |   |   |   |   |   |   |   |   |
| Investments      in limited partnerships                    |                                               | $      | 0.5 |   |   | $ | 24.0 |   |   | $ | 26.1 |   |
| Investments      in joint ventures                          |                                               |   | 3.8 |   |   |   | 4.5 |   |   |   | 3.9 |   |
| Total      equity method investments                        |                                               | $      | 4.3 |   |   | $ | 28.5 |   |   | $ | 30.0 |   |
|                                                        |                                               |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |                                               |   |   |   |   |   |   |   |   |   |   |   |
|                                                        | 2008                                               |   | 2007 |   | 2006 |   |
| Earnings      (losses) from limited partnerships            |                                               | $      | (1.9 | ) |   | $ | (4.3 | ) |   | $ | (0.6 | ) |
| Earnings      (losses) from joint ventures                  |                                               |   | (0.7 | ) |   |   | - |   |   |   | (0.4 | ) |
| Total      earnings (losses) from equity method investments |                                               | $      | (2.6 | ) |   | $ | (4.3 | ) |   | $ | (1.0 | ) |

|                                 Goldman Sachs Catastrophe Risk Premium Opportunities Fund, L.P.      (“GSC”) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 Arbitrage Associates L.P. (“AA”)                                             |
|                                 Gruss Arbitrage Partners (Enhanced) L.P. (“GA”)                              |
|                                 Goldman Sachs Liquidity Partners 2007, L.P. (“GSLP”)                         |
|                                 Goldman Sachs Global Alpha Fund, L.P. (“GSGA”)                               |
|                                 Bear Stearns Asset Backed Securities Partners, L.P.  (“BS”)                  |

|                                        |   | Individual      Investment |      |
|---------------------------------------------|--------|----------------------------|-----------|
|                                        |   | GSC                        |      |   | AA |   |   | GA |   |   | GSLP |   |   | GSGA |   |   | BS |   |   | Total |   |
|                                        |   |                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      at January 1, 2008          |   | $                          | 4.5       |   |   | $ | 5.1 |   |   | $ | 4.8 |   |   | $ | 4.9 |   |   | $ | 1.8 |   |   | $ | 2.9 |   |   | $ | 24.0 |   |
| Equity      earnings (losses) realized |   |                       |  0.1 |   |   |   |        - |   |   |   | 0.1 |   |   |   | (1.3 | ) |   |   | 0.2 |   |   |   | (1.0 | ) |   |   | (1.9 | ) |
| Cash      proceeds received                 |   |                       | (4.6      | ) |   |   | (5.1 | ) |   |   | (4.7 | ) |   |   | (3.6 | ) |   |   | (2.0 | ) |   |   | (1.4 | ) |   |   | (21.4 | ) |
| Investment      at December 31, 2008   |   | $                          | -         | (1) |   | $ | - | (2) |   | $ | 0.2 | (3) |   | $ | - | (4) |   | $ | - | (5) |   | $ | 0.5 | (6) |   | $ | 0.7 |   |

| (1) | This investment was divested on      June 30, 2008. |
|-----|-----------------------------------------------------|

| (2) | This investment was divested on      May 2, 2008. |
|-----|---------------------------------------------------|

| (3) | This investment was divested on      July 17, 2008.  The remaining balance is expected to be received      in April 2009 and is recorded in Accounts Receivable-Other as of December      31, 2008. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | This investment was divested on      October 1, 2008 through a sale to the Company’s Chief Executive      Officer.  See Note 15 for further      information. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | This investment was divested on      October 22, 2008. |
|-----|--------------------------------------------------------|

| (6) | This investment is in process of      liquidation and is classified as a noncurrent asset at December 31, 2008      and 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                                                             |   | As      of and for the Year EndedDecember      31, |     |
|----------------------------------------------------------------------------------|--------|----------------------------------------------------|----------|
|                                                                             |   | 2007                                               |     |   | 2006 |   |
|                                                                             |   |                                               |     |   |   |   |
| Combined      Statement of Operations:                                           |   |                                               |     |   |   |   |
|                                                                             |   |                                               |     |   |   |   |
|      Net      income (loss)                             |   | $                                                  | (1,157.2 | ) |   | $ | (228.2 | ) |
|                                                                             |   |                                               |     |   |   |   |   |   |
| Combined      Financial Position:                                                |   |                                               |     |   |   |   |   |   |
|                                                                             |   |                                               |     |   |   |   |   |   |
|      Current      assets                                |   | $                                                  | 6,157.9  |   |   | $ | 10,361.2 |   |
|      Total      assets                                  |   | $                                                  | 6,157.9  |   |   | $ | 10,361.2 |   |
|                                                                             |   |                                               |     |   |   |   |   |   |
|      Current      liabilities                           |   | $                                                  | 4,177.9  |   |   | $ | 6,131.9 |   |
|      Partners’      capital                       |   |                                               | 1,980.0  |   |   |   | 4,229.3 |   |
|      Total      liabilities and partners’ capital |   | $                                                  | 6,157.9  |   |   | $ | 10,361.2 |   |
|                                                                             |   |                                               |     |   |   |   |   |   |
| Number      of Individual Investments                                            |   |                                               | 6        |   |   |   | 4 |   |

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Table of Contents

|                                               |   | As      of and for the Year EndedDecember      31, |   |
|----------------------------------------------------|--------|----------------------------------------------------|--------|
|                                               |   | 2008                                               |   |   | 2007 |   |   | 2006 |   |
|                                               |   |                                               |   |   |   |   |   |   |   |
| Combined      Statement of Operations:             |   |                                               |   |   |   |   |   |   |   |
|                                               |   |                                               |   |   |   |   |   |   |   |
| Revenue                                            |   | $                                                  | 12.1   |   |   | $ | 21.1 |   |   | $ | 12.8 |   |
| Operating income                                   |   |                                               | (1.8   | ) |   |   | (0.6 | ) |   |   | (1.5 | ) |
| Net income(loss)                                   |   |                                               | (1.8   | ) |   |   | (0.6 | ) |   |   | (1.4 | ) |
|                                               |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Combined      Financial Position:                  |   |                                               |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Current assets                                     |   | $                                                  | 3.6    |   |   | $ | 5.1 |   |   | $ | 5.9 |   |
| Noncurrentassets                                   |   |                                               | 46.8   |   |   |   | 48.9 |   |   |   | 53.6 |   |
| Total assets                                       |   | $                                                  | 50.4   |   |   | $ | 54.0 |   |   | $ | 59.5 |   |
|                                               |   |                                               |   |   |   |   |   |   |   |   |   |   |
| Current    liabilities                             |   | $                                                  | 1.0    |   |   | $ | 3.1 |   |   | $ | 23.0 |   |
| Noncurrent      liabilities                        |   |                                               | 38.3   |   |   |   | 38.0 |   |   |   | 23.8 |   |
| Partners’capital                             |   |                                               | 11.1   |   |   |   | 12.9 |   |   |   | 12.7 |   |
| Total liabilities and partners’      capital |   | $                                                  | 50.4   |   |   | $ | 54.0 |   |   | $ | 59.5 |   |

|                                           |                                                |   | December      31, |   |
|------------------------------------------------|-----------------------------------------------------|--------|-------------------|--------|
|                                           | Estimated      Useful Lives                         |   | 2008              |   |   | 2007 |   |
|                                           |                                                |   |              |   |   |   |   |
| Land      and improvements                     |           5 - 30 years      (1) |   | $                 | 78.1   |   |   | $ | 78.5 |   |
| Buildings                                      | 5 -      40 years                                   |   |              | 210.7  |   |   |   | 211.6 |   |
| Machinery      and equipment                   | 3 -      15 years                                   |   |              | 29.4   |   |   |   | 27.7 |   |
| Construction      in progress                  |                                                |   |              | 1.0    |   |   |   | 1.1 |   |
|                                           |                                                |   |              | 319.2  |   |   |   | 318.9 |   |
| Less:  Accumulated      depreciation |                                                |   |              | (108.8 | ) |   |   | (99.1 | ) |
|                                           |                                                |   | $                 | 210.4  |   |   | $ | 219.8 |   |

| (1) | Estimated useful life applies to      improvements only. |
|-----|----------------------------------------------------------|

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Table of Contents

|                                                                                                            |   | December      31, |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                            |   | 2008              |   |   | 2007 |   |
|                                                                                                            |   |              |   |   |   |   |
| 7.56%      Lakepointe Notes due June 8, 2021                                                                    |   | $                 | 110.0  |   |   | $ | 111.8 |   |
| 7.03%      Motel Notes due May 1, 2018                                                                          |   |              | 41.4   |   |   |   | 43.3 |   |
| 6.08%      Beltway Notes due November 9, 2024                                                                   |   |              | 27.2   |   |   |   | 27.9 |   |
| 7.12%      PCCI Notes due December 20, 2030                                                                     |   |              | 27.7   |   |   |   | 28.2 |   |
| Prime      + 0.5% EN Facility due October 29, 2011                                                              |   |              | 0.6    |   |   |   | - |   |
| Other      notes and contracts, primarily secured by receivables,      buildings,real estate and      equipment |   |              | 4.9    |   |   |   | 5.3 |   |
| Total      principal outstanding                                                                                |   |              | 211.8  |   |   |   | 216.5 |   |
|                                                                                                            |   |              |   |   |   |   |   |   |
| Less:  Short-term      borrowings and current maturities                                              |   |              | (6.1   | ) |   |   | (5.3 | ) |
|                                                                                                            |   | $                 | 205.7  |   |   | $ | 211.2 |   |

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Table of Contents

|                  |   | Years      Ending December 31, |   |
|-----------------------|--------|--------------------------------|--------|
|                  |   | 2009                           |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
|                  |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lakepointe      Notes |   | $                              | 2.0    |   |   | $ | 2.1 |   |   | $ | 2.5 |   |   | $ | 3.0 |   |   | $ | 3.2 |   |   | $ | 97.2 |   |
| Motel      Notes      |   |                           | 2.2    |   |   |   | 2.3 |   |   |   | 2.5 |   |   |   | 2.6 |   |   |   | 3.2 |   |   |   | 28.6 |   |
| Beltway      Notes    |   |                           | 0.8    |   |   |   | 0.8 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 0.9 |   |   |   | 22.9 |   |
| Palmas      Notes     |   |                           | 0.6    |   |   |   | 0.6 |   |   |   | 0.6 |   |   |   | 0.7 |   |   |   | 0.7 |   |   |   | 24.5 |   |
| EN      Facility      |   |                           | -      |   |   |   | - |   |   |   | 0.6 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other                 |   |                           | 0.5    |   |   |   | 0.5 |   |   |   | 0.4 |   |   |   | 0.4 |   |   |   | 0.3 |   |   |   | 2.8 |   |
|                  |   | $                              | 6.1    |   |   | $ | 6.3 |   |   | $ | 7.5 |   |   | $ | 7.6 |   |   | $ | 8.3 |   |   | $ | 176.0 |   |

|     |   | Years      Ended December 31, |   |
|----------|--------|-------------------------------|--------|
|     |   | 2008                          |   |   | 2007 |   |
|     |   |                          |   |   |   |   |
| Domestic |   | $                             | (19.8  | ) |   | $ | (28.3 | ) |
| Foreign  |   |                          | (15.2  | ) |   |   | (18.1 | ) |
|     |   | $                             | (35.0  | ) |   | $ | (46.4 | ) |

----

Table of Contents

|                 |   | Years      Ended December 31, |   |
|----------------------|--------|-------------------------------|--------|
|                 |   | 2008                          |   |   | 2007 |   |
|                 |   |                          |   |   |   |   |
| Current:             |   |                          |   |   |   |   |
| Federal              |   | $                             | (10.3  | ) |   | $ | - |   |
| State      and local |   |                          | -      |   |   |   | (0.5 | ) |
| Foreign              |   |                          | 0.1    |   |   |   | - |   |
|                 |   |                          | (10.2  | ) |   |   | (0.5 | ) |
| Deferred:            |   |                          |   |   |   |   |   |   |
| Federal              |   |                          | (46.9  | ) |   |   | - |   |
| State      and local |   |                          | (0.2   | ) |   |   | - |   |
| Foreign              |   |                          | (0.1   | ) |   |   | - |   |
|                 |   |                          | (47.2  | ) |   |   | - |   |
|                 |   | $                             | (57.4  | ) |   | $ | (0.5 | ) |

|                                                                                       |   | Years      Ended December 31, |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                       |   | 2008                          |   |   | 2007 |   |
|                                                                                       |   |                          |   |   |   |   |
| Loss      before income taxes                                                              |   | $                             | (35.0  | ) |   | $ | (46.4 | ) |
|                                                                                       |   |                          |   |   |   |   |   |   |
| Amount      of federal income tax benefit based upon the statutoryrate                     |   | $                             | 12.3   |   |   | $ | 16.2 |   |
| Loss      of attributes related to the Debtors                                             |   |                          | (67.9  | ) |   |   | - |   |
| Changes      in valuation allowances and revision of prior years’ tax      estimates |   |                          | (1.4   | ) |   |   | (16.1 | ) |
| State      and local taxes, net of federal tax effect                                      |   |                          | (0.1   | ) |   |   | (0.5 | ) |
| Other                                                                                      |   |                          | (0.3   | ) |   |   | (0.1 | ) |
|                                                                                       |   | $                             | (57.4  | ) |   | $ | (0.5 | ) |

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Table of Contents

|                                             |   | December      31, |   |
|--------------------------------------------------|--------|-------------------|--------|
|                                             |   | 2008              |   |   | 2007 |   |
|                                             |   |              |   |   |   |   |
| Deferred      income tax assets:                 |   |              |   |   |   |   |
| Postretirement      benefits other than pensions |   | $                 | 1.3    |   |   | $ | 4.1 |   |
| Loss      and credit carryforwards               |   |              | 12.8   |   |   |   | 252.0 |   |
| Other      liabilities                           |   |              | 11.7   |   |   |   | 21.1 |   |
| Real      estate                                 |   |              | 9.3    |   |   |   | 9.1 |   |
| Timber      and timberlands                      |   |              | -      |   |   |   | 19.0 |   |
| Property,      plant and equipment               |   |              | 8.8    |   |   |   | - |   |
| Other                                            |   |              | 13.2   |   |   |   | 15.8 |   |
| Valuation      allowances                        |   |              | (11.3  | ) |   |   | (194.0 | ) |
| Total      deferred income tax assets, net       |   |              | 45.8   |   |   |   | 127.1 |   |
| Deferred      income tax liabilities:            |   |              |   |   |   |   |   |   |
| Property,      plant and equipment               |   |              | -      |   |   |   | (29.1 | ) |
| Other                                            |   |              | -      |   |   |   | (8.1 | ) |
| Total      deferred income tax liabilities       |   |              | -      |   |   |   | (37.2 | ) |
| Net      deferred income tax assets              |   | $                 | 45.8   |   |   | $ | 89.9 |   |

|                                                  |   |   |                                                                              |   | Expiring   |
|-------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------|--------|------------|
|                                                  |   |   |                                                                              |   |       |
| Regular      tax attribute carryforwards:             |   |   |                                                                              |   |       |
| Net      operating loss carryforwards                 |   | $      |          449.6                       |   | 2010-2028  |
| Alternative      minimum tax credits                  |   |   |              4.4 |   | Indefinite |
| General      business tax credits                     |   |   |              4.4 |   | 2014-2017  |
|                                                  |   |   |                                                                              |   |       |
| Alternative      minimum tax attribute carryforwards: |   |   |                                                                              |   |       |
| Net      operating losses                             |   |   |          474.8                       |   | 2010-2028  |

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Table of Contents

| Unrecognized      tax benefits at January 1, 2008   |   | $      | 146.0 |   |
|-----------------------------------------------------|--------|--------|-------|--------|
| Increases      in tax positions for prior years     |   |   | -     |   |
| Decreases      in tax positions for prior years     |   |   | -     |   |
| Increases      in tax positions for current year    |   |   | 10.3  |   |
| Settlements                                         |   |   | -     |   |
| Lapse      in statute of limitations                |   |   | -     |   |
| Unrecognized      tax benefits at December 31, 2008 |   | $      | 156.3 |   |

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|                                                        |   | Pension      Benefits         |   |   | Medical/Life      Benefits |   |
|-------------------------------------------------------------|--------|-------------------------------|--------|--------|----------------------------|--------|
|                                                        |   | Years      Ended December 31, |   |
|                                                        |   | 2008                          |   |   | 2007                       |   |   | 2008 |   |   | 2007 |   |
|                                                        |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Change      in projected benefit obligation:                |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Projected      benefit obligation at beginning of year      |   | $                             | 30.9   |   |                       | $      | 30.8 |   |   | $ | 3.2 |   |   | $ | 3.1 |   |
| Service      cost                                           |   |                          | -      |   |                       |   | - |   |   |   | 0.1 |   |   |   | 0.1 |   |
| Interest      cost                                          |   |                          | 1.9    |   |                       |   | 1.8 |   |   |   | 0.2 |   |   |   | 0.2 |   |
| Actuarial      (gain) loss                                  |   |                          | 2.2    |   |                       |   | (0.4 | ) |   |   | 0.4 |   |   |   | - |   |
| Curtailments,      settlements and amendments               |   |                          | -      |   |                       |   | - |   |   |   | -  |   |   |   | - |   |
| Benefits      paid                                          |   |                          | (1.4   | )      |                       |   | (1.3 | ) |   |   | (0.3 | ) |   |   | (0.2 | ) |
| Projected      benefit obligation at end of year            |   | $                             | 33.6   |   |                       | $      | 30.9 |   |   | $ | 3.6 |   |   | $ | 3.2 |   |
|                                                        |   |                          |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Change      in plan assets:                                 |   |                          |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of year         |   | $                             | 26.8   |   |                       | $      | 25.1 |   |   | $ | - |   |   | $ | - |   |
| Actual      return on assets                                |   |                          | (8.5   | )      |                       |   | 1.9 |   |   |   | - |   |   |   | - |   |
| Employer      contributions                                 |   |                          | 0.6    |   |                       |   | 1.1 |   |   |   | 0.3 |   |   |   | 0.2 |   |
| Plan      participants’ contributions                 |   |                          | -      |   |                       |   | - |   |   |   | 0.1 |   |   |   | 0.1 |   |
| Benefits      paid                                          |   |                          | (1.4   | )      |                       |   | (1.3 | ) |   |   | (0.3 | ) |   |   | (0.3 | ) |
| Fair-value      of plan assets at end of year               |   | $                             | 17.5   |   |                       | $      | 26.8 |   |   | $ | 0.1 |   |   | $ | - |   |
|                                                        |   |                          |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Funded      status:                                         |   |                          |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Projected      benefits obligation in excess of plan assets |   | $                             | (16.1  | )      |                       | $      | (4.2 | ) |   | $ | (3.7 | ) |   | $ | (3.3 | ) |

|                                |   | December      31, |   |
|-------------------------------------|--------|-------------------|--------|
|                                |   | 2008              |   |   | 2007 |   |
|                                |   |              |   |   |   |   |
| Projected      benefit obligation   |   | $                 | 33.6   |   |   | $ | 30.9 |   |
| Accumulated      benefit obligation |   | $                 | 33.6   |   |   | $ | 30.9 |   |
| Fair      value of plan assets      |   | $                 | 17.6   |   |   | $ | 26.8 |   |

|                                           |   | Pension      Benefits         |   |   | Medical/Life      Benefits |   |
|------------------------------------------------|--------|-------------------------------|--------|--------|----------------------------|--------|
|                                           |   | Years      Ended December 31, |   |
|                                           |   | 2008                          |   |   | 2007                       |   |   | 2008 |   |   | 2007 |   |
|                                           |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Components      of net periodic benefit costs: |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Service      cost                              |   | $                             | -      |   |                       | $      | - |   |   | $ | 0.1 |   |   | $ | 0.1 |   |
| Interest      cost                             |   |                          | 1.9    |   |                       |   | 1.8 |   |   |   | 0.2 |   |   |   | 0.2 |   |
| Expected      return on assets                 |   |                          | (2.3   | )      |                       |   | (2.1 | ) |   |   | - |   |   |   | - |   |
| Recognized      net actuarial loss             |   |                          | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of prior service costs       |   |                          | -      |   |                       |   | - |   |   |   | (0.1 | ) |   |   | (0.1 | ) |
| Net      periodic benefit costs                |   |                          | (0.4   | )      |                       |   | (0.3 | ) |   |   | 0.2 |   |   |   | 0.2 |   |
| Curtailments,      settlements and other       |   |                          | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Adjusted      net periodic benefit costs       |   | $                             | (0.4   | )      |                       | $      | (0.3 | ) |   | $ | 0.2 |   |   | $ | 0.2 |   |

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|                                                                                  |   | Pension      Benefits         |   |   | Medical/Life      Benefits |   |
|---------------------------------------------------------------------------------------|--------|-------------------------------|--------|--------|----------------------------|--------|
|                                                                                  |   | Years      Ended December 31, |   |
|                                                                                  |   | 2008                          |   |   | 2007                       |   |   | 2008 |   |   | 2007 |   |
|                                                                                  |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Net      loss (gain)                                                                  |   | $                             | (0.4   | )      |                       | $      | (0.3 | ) |   | $ | 0.2 |   |   | $ | 0.2 |   |
| Transition      obligation (asset)                                                    |   |                          | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Prior      service cost (credit)                                                      |   |                          | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of net loss (gain)                                                  |   |                          | 13.0   |   |                       |   | (0.2 | ) |   |   | 0.4 |   |   |   | - |   |
| Amortization      of transition obligation (asset)                                    |   |                          | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of prior service cost                                               |   |                          | -      |   |                       |   | - |   |   |   | 0.1 |   |   |   | 0.1 |   |
|                                                                                  |   |                          |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Total      recognized in other comprehensiveincome                                    |   | $                             | 13.0   |   |                       | $      | (0.2 | ) |   | $ | 0.5 |   |   | $ | 0.1 |   |
| Total      recognized in net periodic benefit costand other comprehensive      income |   | $                             | 12.6   |   |                       | $      | (0.5 | ) |   | $ | 0.7 |   |   | $ | 0.3 |   |

|                        | Pension      Benefits         |   | Medical/Life      Benefits |   |
|-----------------------------|-------------------------------|--------|----------------------------|--------|
|                        | Years      Ended December 31, |   |
|                        | 2008                          |   | 2007                       |   | 2008 |   | 2007 |   |
|                        |                          |   |                       |   |   |   |   |   |   |   |   |   |
| Current      liabilities    |                          | $      | 0.2                        |   |   | $ | 0.3 |   |   | $ | 0.2 |   |   | $ | 0.2 |   |
| Noncurrent      liabilities |                          |   | 15.9                       |   |   |   | 3.9 |   |   |   | 3.5 |   |   |   | 3.1 |   |
|                        |                          | $      | 16.1                       |   |   | $ | 4.2 |   |   | $ | 3.7 |   |   | $ | 3.3 |   |

|                           | Pension      Benefits         |   | Medical/Life      Benefits |      |
|--------------------------------|-------------------------------|--------|----------------------------|-----------|
|                           | Years      Ended December 31, |   |
|                           | 2008                          |   | 2007                       |      | 2008 |   | 2007 |   |
|                           |                          |   |                       |      |   |   |   |   |   |   |   |   |
| Net      actuarial (gain) loss |                          | $      | 13.8                       |  (1) |   | $ | 0.8 |   |   | $ | - |  (1) |   | $ | (0.4 | ) |
| Prior      service cost        |                          |   | -                          |      |   |   | - |   |   |   | (0.6 | )(2) |   |   | (0.7 | ) |
|                           |                          | $      | 13.8                       |      |   | $ | 0.8 |   |   | $ | (0.6 | ) |   | $ | (1.1 | ) |

|                                                           |   | Pension      Benefits         |   |   | Medical/Life      Benefits |   |
|----------------------------------------------------------------|--------|-------------------------------|--------|--------|----------------------------|--------|
|                                                           |   | Years      Ended December 31, |   |
|                                                           |   | 2008                          |   |   | 2007                       |   |   | 2008 |   |   | 2007 |   |
|                                                           |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Weighted-average      assumptions:                             |   |                          |   |   |                       |   |   |   |   |   |   |   |
| Discount      rate used to determine benefit obligation        |   |                          | 5.750  | %      |                       |   | 6.125 | % |   |   | 5.750 | % |   |   | 6.125 | % |
| Discount      rate used to determine net periodic benefit cost |   |                          | 6.125  | %      |                       |   | 6.0 | % |   |   | 6.125 | % |   |   | 6.0 | % |
| Expected      return on plan assets                            |   |                          | 8.75   | %      |                       |   | 8.75 | % |   |   | - |   |   |   | - |   |
| Rate      of compensation increase                             |   |                          | -      | (1)    |                       |   | - | (1) |   |   | - |   |   |   | - |   |

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|                                                         |   | 1-Percentage-Point      Increase |   |   | 1-Percentage-Point      Decrease |   |
|--------------------------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|
|                                                         |   |                             |   |   |                             |   |
| Effect      on total of service and interest cost components |   | $                                | -      |   |                             | $      | - |   |
| Effect      on the postretirement benefit obligations        |   |                             | 0.5    |   |                             |   | (0.4 | ) |

|                   |   | Years      Ended December 31, |   |
|------------------------|--------|-------------------------------|--------|
|                   |   | 2008                          |   |   | 2007 |   |
|                   |   |                          |   |   |   |   |
| Asset      Category:   |   |                          |   |   |   |   |
| Equity      securities |   |                          | 70     | % |   |   | 70 | % |
| Debt      securities   |   |                          | 30     | % |   |   | 30 | % |
| Total                  |   |                          | 100    | % |   |   | 100 | % |

| Years      Ended December 31, |   | Pension      Benefits |   |   | Medical/Life      Benefits |   |
|-------------------------------|--------|-----------------------|--------|--------|----------------------------|--------|
|                          |   |                  |   |   |                       |   |
| 2009                          |   | $                     | 1.8    |   |                       | $      | 0.2 |   |
| 2010                          |   |                  | 1.9    |   |                       |   | 0.2 |   |
| 2011                          |   |                  | 1.9    |   |                       |   | 0.2 |   |
| 2012                          |   |                  | 2.0    |   |                       |   | 0.2 |   |
| 2013                          |   |                  | 2.1    |   |                       |   | 0.3 |   |
| Years      2014-2018          |   |                  | 10.6   |   |                       |   | 1.3 |   |

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| Years      Ended December 31,     |   | (In      millions) |   |
|-----------------------------------|--------|--------------------|--------|
|                              |   |               |   |
| 2009                              |   | $                  | 1.1    |   |
| 2010                              |   |               | 1.0    |   |
| 2011                              |   |               | 0.8    |   |
| 2012                              |   |               | 0.5    |   |
| 2013                              |   |               | 0.4    |   |
| Thereafter                        |   |               | 0.6    |   |
| Total      minimum lease payments |   | $                  | 4.4    |   |

| Years      Ended December 31, |   | (In      millions) |   |
|-------------------------------|--------|--------------------|--------|
|                          |   |               |   |
| 2009                          |   | $                  | 18.0   |   |
| 2010                          |   |               | 18.0   |   |
| 2011                          |   |               | 18.3   |   |
| 2012                          |   |               | 18.5   |   |
| 2013                          |   |               | 18.8   |   |
| Thereafter                    |   |               | 134.5  |   |
| Total      minimum rentals    |   | $                  | 226.1  |   |

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|                          |   | Years      Ended December 31, |   |
|-------------------------------|--------|-------------------------------|--------|
|                          |   | 2008                          |   |   | 2007 |   |
|                          |   |                          |   |   |   |   |
| Expected      volatility      |   |                          | 35     | % |   |   | 25 | % |
| Expected      dividends       |   |                          | -      |   |   |   | - |   |
| Expected      term (in years) |   |                          | 7.27   |   |   |   | 7.44 |   |
| Risk-free      rate           |   |                          | 1.55   | % |   |   | 3.45 | % |

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|                                  |   | Options |      |   | WeightedAverageExercise      Price |   |   | WeightedAverageRemainingContractualTerm      (in years) |   |   | AggregateFair      Value(in      millions) |   |
|---------------------------------------|--------|---------|-----------|--------|------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|--------------------------------------------|--------|
|                                  |   |    |      |   |                               |   |   |                                                    |   |   |                                       |   |
| Balance      at January 1, 2008       |   |    | 1,019,086 |   |                               | $      | 24.11  |                                                    |   |   |                                       |   |   |   |
| Granted                               |   |    | 130,000   |   |                               |   | 11.03  |                                                    |   |   |                                       |   |   |   |
| Exercised                             |   |    | (2,600    | )      |                               |   | 13.70  |                                                    |   |   |                                       |   |   |   |
| Forfeited      or expired             |   |    | (94,304   | )      |                               |   | 40.77  |                                                    |   |   |                                       |   |   |   |
| Balance      at December 31, 2008     |   |    | 1,052,182 |   |                               | $      | 21.04  |                                                    |   |   | 5.19                                       |   |   | $ | 1.0 |   |
| Exercisable      at December 31, 2008 |   |    | 785,697   |   |                               | $      | 21.33  |                                                    |   |   | 3.93                                       |   |   | $ | 0.6 |   |

|                                  |   | Options |      |   | WeightedAverageExercise      Price |   |   | WeightedAverageRemainingContractualTerm      (in years) |   |   | AggregateFair      Value(in      millions) |   |
|---------------------------------------|--------|---------|-----------|--------|------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|--------------------------------------------|--------|
|                                  |   |    |      |   |                               |   |   |                                                    |   |   |                                       |   |
| Balance      at January 1, 2007       |   |    | 1,081,853 |   |                               | $      | 25.52  |                                                    |   |   |                                       |   |   |   |
| Granted                               |   |    | 77,625    |   |                               |   | 27.08  |                                                    |   |   |                                       |   |   |   |
| Exercised                             |   |    | (37,652   | )      |                               |   | 17.00  |                                                    |   |   |                                       |   |   |   |
| Forfeited      or expired             |   |    | (102,740  | )      |                               |   | 43.76  |                                                    |   |   |                                       |   |   |   |
| Balance      at December 31, 2007     |   |    | 1,019,086 |   |                               | $      | 24.11  |                                                    |   |   | 5.33                                       |   |   | $ | 7.5 |   |
| Exercisable      at December 31, 2007 |   |    | 768,420   |   |                               | $      | 22.78  |                                                    |   |   | 4.32                                       |   |   | $ | 7.0 |   |

| Range      of Exercise Prices |   | Shares |      |   | Weighted      Average Remaining Contractual Life |   |   | Weighted      Average Exercise Price |   |   | Options      Exercisable |   |   | Weighted      Average Exercise Price |    |
|-------------------------------|--------|--------|-----------|--------|--------------------------------------------------|--------|--------|--------------------------------------|--------|--------|--------------------------|--------|--------|--------------------------------------|---------|
|                          |   |   |      |   |                                             |   |   |                                 |   |   |                     |   |   |                                 |    |
| From      $9.40 to $15.88     |   |   | 403,210   |   |                                             |   | 5.28   |                                 |   | $      | 11.70                    |   |   |                                 | 275,610 |   |   | $ | 12.17 |   |
| From      $16.38 to $19.72    |   |   | 291,652   |   |                                             |   | 3.81   |                                 |   |   | 18.69                    |   |   |                                 | 291,652 |   |   |   | 18.69 |   |
| From      $22.58 to $45.50    |   |   | 323,020   |   |                                             |   | 6.85   |                                 |   |   | 31.17                    |   |   |                                 | 184,135 |   |   |   | 32.89 |   |
| From      $50.50 to $62.00    |   |   | 34,300    |   |                                             |   | 0.18   |                                 |   |   | 55.37                    |   |   |                                 | 34,300  |   |   |   | 55.37 |   |
|                          |   |   | 1,052,182 |   |                                             |   | 5.19   |                                 |   |   | 21.04                    |   |   |                                 | 785,697 |   |   |   | 21.33 |   |

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|                                            | Years      Ended December 31, |   |
|-------------------------------------------------|-------------------------------|--------|
|                                            | 2008                          |   | 2007 |   |
|                                            | (In      millions)            |   |
|                                            |                          |   |   |   |   |   |
| Interest      paid, net of capitalized interest |                          | $      | 16.4 |   |   | $ | 16.4 |   |
| Income      taxes paid, net                     |                          |   | 0.2 |   |   |   | - |   |

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|                                                                 |   | Three      Months Ended |   |
|----------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                 |   | March      31(1)        |   |   | June      30 |   |   | September      30 |   |   | December      31(2) |   |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| 2008:                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                |   | $                       | 21.7   |   |   | $ | 23.3 |   |   | $ | 23.7 |   |   | $ | 14.9 |   |
| Operating income      (loss)                                         |   |                    | (7.1   | ) |   |   | (5.1 | ) |   |   | (8.2 | ) |   |   | 7.1 |   |
| Income (loss) before income      taxes                               |   |                    | (13.9  | ) |   |   | (12.5 | ) |   |   | (13.0 | ) |   |   | 4.4 |   |
| Net loss                                                             |   |                    | (13.9  | ) |   |   | (12.7 | ) |   |   | (65.4 | ) |   |   | (0.4 | ) |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income (loss) per common      andcommon equivalent share (3)   |   | $                       | (2.72  | )(4) |   | $ | (2.78 | ) |   | $ | (14.34 | ) |   | $ | (0.09 | ) |
| Diluted income (loss) per      common and commonequivalent share (3) |   | $                       | (2.72  | )(4) |   | $ | (2.78 | ) |   | $ | (14.34 | ) |   | $ | (0.09 | ) |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2007:                                                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                |   | $                       | 28.7   |   |   | $ | 23.3 |   |   | $ | 23.0 |   |   | $ | 20.9 |   |
| Operating loss                                                       |   |                    | (6.1   | ) |   |   | (4.3 | ) |   |   | (7.6 | ) |   |   | (9.9 | ) |
| Loss before income      taxes                                        |   |                    | (12.3  | ) |   |   | (6.7 | ) |   |   | (10.5 | ) |   |   | (16.9 | ) |
| Net loss                                                             |   |                    | (12.3  | ) |   |   | (6.7 | ) |   |   | (10.5 | ) |   |   | (17.4 | ) |
|                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic loss per common      andcommon equivalent share (3)            |   | $                       | (2.33  | ) |   | $ | (1.28 | ) |   | $ | (2.00 | ) |   | $ | (3.32 | ) |
| Diluted loss per common and      commonequivalent share (3)          |   | $                       | (2.33  | ) |   | $ | (1.28 | ) |   | $ | (2.00 | ) |   | $ | (3.32 | ) |

| (1) | Results      for the Debtors’ operations have been included for the period from January      1, 2007 through January 18, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      Company’s 2008 fourth quarter results include the    following: |
|-----|--------------------------------------------------------------------------------|

|                         Gain      on Sanctions      Motion settlement (see Note 10)                         |   | $      | 10.0 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|
|                         Gain      on involuntary conversion and net insurance recoveries (see Note      14) |   |   | 4.3  |   |

| (3) | The      sum of the quarterly income per share amounts may not equal the annual      amount reported, as per share amounts are computed independently for each      quarter and for the full year based on the respective weighted average      common shares outstanding. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | In      the second quarter of 2008, a mathematical error was discovered in the      calculation of the weighted average number of shares used to determine      basic and diluted shares outstanding for the first quarter of      2008.  As a result, earnings per share for the three months      ended March 31, 2008 was incorrectly reported as a loss of $2.58 per      share, rather than a loss of $2.72 pershare. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

ITEM9A.          CONTROLS ANDPROCEDURES

ITEM9B.          OTHERINFORMATION

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PART III

PART IV

ITEM15.           EXHIBITS

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SIGNATURES

|   |   | MAXXAM      INC. |
|--------|--------|------------------|

| Date:           March      31, 2009 | By:    | CHARLES      E. HURWITZ                                                                                                            |
|--------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                       |   | Charles      E. HurwitzChairman      of the Board of Directors and Chief Executive Officer(Principal      Executive Officer)  |

| Date:           March      31, 2009 | By:    | SHAWN      M. HURWITZ                                                                                                    |
|--------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|
|                                                                                       |   | Shawn      M. HurwitzVice      Chairman of the Board of Directors andPresident                                           |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | M.      EMILY MADISON                                                                                                    |
|                                                                                       |   | M.      Emily MadisonVice      President, Finance(Principal      Accounting Officer andPrincipal      Financial Officer) |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | ROBERT      J. CRUIKSHANK                                                                                                |
|                                                                                       |   | Robert      J. CruikshankDirector                                                                                        |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | J.      KENT FRIEDMAN                                                                                                    |
|                                                                                       |   | J.      Kent FriedmanDirector                                                                                            |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | EZRA      G. LEVIN                                                                                                       |
|                                                                                       |   | Ezra      G. LevinDirector                                                                                               |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | STANLEY      D. ROSENBERG                                                                                                |
|                                                                                       |   | Stanley      D. RosenbergDirector                                                                                        |
|                                                                                       |   |                                                                                                                     |
| Date:           March      31, 2009 | By:    | MICHAEL      J. ROSENTHAL                                                                                                |
|                                                                                       |   | Michael      J. RosenthalDirector                                                                                        |
|                                                                                       |   |                                                                                                                     |

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INDEX OF EXHIBITS

| ExhibitNumber |   |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1           |   | Restated      Certificate of Incorporation of the Company (conformed to include all      amendments and certificates of designation thereto and incorporated herein      by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q      for the quarter ended June 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *3.2          |   | Certificate      of Powers, Designations, Preferences and Relative, Participating, Optional      and Other Rights of the Company’s Class B Junior Participating Preferred      Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *3.3          |   | Certificate      of Designations of the Company’s Class A $.05 Non-Cumulative Participating      Convertible Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *3.4          |   | Amended      and Restated By-laws of the Company, dated March 30, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| *4.1          |   | Rights      Agreement, dated December 15, 1999, by and between the Company and      American Stock Transfer & Trust Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|          |   | Note:      Included within Exhibits 10.1 to 10.26 below are the principal long-term      debt instruments of the Company and its consolidated      subsidiaries.  Pursuant to Regulation § 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% of the total consolidated assets of the      Company  |
| *10.1         |   | Loan      Agreement, dated June 28, 2001, between Lakepointe Assets LLC and Legg      Mason Real Estate Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| *10.2         |   | Promissory      Note, dated June 28, 2001, between Lakepointe Assets LLC and Legg Mason      Real Estate Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *10.3         |   | Lease      Agreement, dated June 28, 2001, between Lakepointe Assets LLC and Fluor      Enterprises Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *10.4         |   | Guarantee      of Lease, dated June 28, 2001, between Fluor Corporation and Lakepointe      Assets LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.5          |   | Loan      Agreement, dated April 30, 1998, between Nomura Asset Capital Corporation      and M-Six Penvest II Business Trust (incorporated herein by reference to      Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year      ended December 31, 2007; the “Company’s 2007 Form      10-K”)                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.6          |   | Indenture,      Mortgage, Deed of Trust, Security Agreement, Fixture Filing, Financing      Statement and Assignment of Rents and Leases, dated April 30, 1998, among      Nomura Asset Capital Corporation and various property owners (incorporated      herein by reference to Exhibit 10.6 to the Company’s 2007 Form      10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7          |   | Amendment      No. 1 to Indenture and Other Operative Documents, dated September 1, 1998,      among Nomura Asset Capital Corporation and various property owners      (incorporated herein by reference to Exhibit 10.7 to the Company’s 2007      Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8          |   | Amendment      No. 2 to Indenture and Other Operative Documents, dated September 1, 1998,      among Nomura Asset Capital Corporation and various property owners      (incorporated herein by reference to Exhibit 10.8 to the Company’s 2007      Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

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| ExhibitNumber       |   |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.9                |   | Class      A Promissory Note, dated April 30, 1998, executed by M-Six Penvest II      Business Trust, M-Six Penvest II Business Trust (LA), and M-Six Penvest II      Business Trust (NEV) in favor of The Capital Company of America LLC and      Nomura Asset Capital Corporation (incorporated herein by reference to      Exhibit 10.9 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                       |
| 10.10               |   | Class      B Promissory Note, dated April 30, 1998, executed by M-Six Penvest II      Business Trust, M-Six Penvest II Business Trust (LA), and M-Six Penvest II      Business Trust (NEV) in favor of The Capital Company of America LLC and      Nomura Asset Capital Corporation (incorporated herein by reference to      Exhibit 10.10 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                      |
| 10.11               |   | Lease      Agreement, dated April 30, 1998, among Universal Commercial Credit Leasing      III, Inc. and M-Six Penvest II Business Trust and various property owners      (incorporated herein by reference to Exhibit 10.11 to the Company’s 2007      Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12               |   | Lease      Guaranty, dated April 30, 1998, executed by Accor in favor of M-Six      Penvest II Business Trust and various property owners (incorporated herein      by reference to Exhibit 10.12 to the Company’s 2007 Form10-K)                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13               |   | Purchase      Agreement, dated November 12, 2002, between USRA Leveraged Net Lease, LLC      and Motel Assets Holdings LLC (incorporated herein by reference to Exhibit      10.13 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.14               |   | Lender’s      Consent to Transfer, dated December 5, 2002, among LaSalle Bank National      Association, as Trustee for BH Finance LLC Trust, Credit Lease Loan      Pass-Through Certificates, Series 2000-A Pools V-IX; LaSalle Bank National      Association, as Trustee for Capco America Securitization Corporation,      Commercial Mortgage Pass-Through Certificates, Series 1998-D7; M-Six      Penvest II Business Trust; M-Six Penvest II Business Trust (LA); USRA      Leveraged Net Lease, LLC; and Motel Assets Holdings LLC (incorporated      herein by reference to Exhibit 10.14 to the Company’s 2007 Form      10-K)  |
| 10.15 to10.18  |   | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.19               |   | Loan      Agreement, dated November 19, 2002, between Beltway Assets LLC and Legg      Mason Real Estate Services, Inc. (incorporated herein by reference to      Exhibit 10.19 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20               |   | Indemnity      and Guarantee Agreement, dated November 19, 2007, by and between Beltway      Assets Holdings LLC and Legg Mason Real Estate Services, Inc.      (incorporated herein by reference to Exhibit 10.20 to the Company’s 2007      Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.21               |   | Promissory      Note, dated November 18, 2002, executed by Beltway Assets LLC in favor of      Legg Mason Real Estate Services, Inc. (incorporated herein by reference to      Exhibit 10.21 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.22               |   | Lease      Agreement, dated November 19, 2002, between Beltway Assets LLC and Cooper      Cameron Corporation (incorporated herein by reference to Exhibit 10.22 to      the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.23               |   | Loan      Agreement, dated October 26, 2000, between the Puerto Rico Industrial      Tourist, Educational, Medical and Environmental Control Facilities      Financing Authority and Palmas Country Club, Inc. (incorporated herein by      reference to Exhibit 10.28 to the Company’s 2007 Form 10-K)                                                                                                                                                                                                                                                                                                                                           |

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| ExhibitNumber                   |   |  Description                                                                                                                                                                                                                                                                                                                        |
|---------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                            |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.24                           |   | Letter      of Credit and Reimbursement Agreement, dated October 26, 2000, between the      Puerto Rico Tourism Development Fund and Palmas Country Club, Inc.      (incorporated herein by reference to Exhibit 10.29 to the Company’s 2007      Form 10-K)                                                                  |
| 10.25                           |   | Letter      of Credit, dated October 26, 2000, issued by the Puerto Rico Tourism      Development Fund for the benefit of Palmas Country Club, Inc.      (incorporated herein by reference to Exhibit 10.30 to the Company’s 2007      Form 10-K)                                                                             |
| 10.26                           |   | Trust      Agreement, dated October 26, 2000, between the Puerto Rico Industrial      Tourist, Educational, Medical and Environmental Control Facilities      Financing Authority and PaineWebber Trust Company of Puerto Rico      (incorporated herein by reference to Exhibit 10.31 to the Company’s 2007      Form 10-K)  |
| 10.27 to10.30                   |   | [Reserved]                                                                                                                                                                                                                                                                                                                     |
| 10.31                           |   | Stock      Purchase Agreement, dated March 11, 2008, among the Company, Luxor Capital      Partners, LP and Luxor Capital Partners Offshore, Ltd. (incorporated      herein by reference to Exhibit 10.1 to the Company’s Current Report on      Form 8-K filed on March 17, 2008)                                            |
| 10.32                           |   | Term      Sheet Regarding Global Settlement and Plan Support among MRC, Marathon,      the Palco Debtors, the Company, MGHI and MGI (incorporated herein by      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K      filed on May 5, 2008)                                                             |
| 10.33                           |   | Agreement,      dated July 10, 2008, between The Pension Benefit Guaranty Corporation and      the Company (incorporated herein by reference to Exhibit 10.1 to the      Company’s Current Report on Form 8-K filed on July 16, 2008)                                                                                         |
| 10.34                           |   | Settlement      Agreement, dated December 17, 2008,  among the Company, certain      affiliated persons, and the FDIC (incorporated herein by reference to      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December      18, 2008)                                                           |
| *10.35                          |   | Tax      Allocation Agreement (the “MGHI Tax Allocation      Agreement”), dated December 23, 1996, between the Company and      MGHI                                                                                                                                                                                    |
| *10.36                          |   | Amendment      of MGHI Tax Allocation Agreement, dated December 31, 2001                                                                                                                                                                                                                                                            |
| *10.37                          |   | Tax      Allocation Agreement (the “MGI Tax Allocation      Agreement”), dated August 4, 1993, between the Company and      MGI                                                                                                                                                                                         |
| *10.38                          |   | Amendment      of MGI Tax Allocation Agreement, dated December 31, 2001, between the      Company and MGI                                                                                                                                                                                                                           |
| *10.39                          |   | Tax      Allocation Agreement, dated May 21, 1988, among the Company, MGI, Palco      and the companies signatory thereto                                                                                                                                                                                                           |
| *10.40                          |   | Tax      Allocation Agreement (the “Palco Tax Allocation      Agreement”), dated March 23, 1993, among Palco, Scotia Pacific      Holding Company, Salmon Creek Corporation and the Company                                                                                                                             |
| *10.41                          |   | Amendment      of Palco Tax Allocation Agreement, dated December 31, 2001                                                                                                                                                                                                                                                           |
| *10.42                          |   | Tax      Allocation Agreement, dated February 9, 2004, among Britt Lumber Co Inc.,      Palco, MGI and the Company                                                                                                                                                                                                                  |
| 10.43 to       10.50  |   | [Reserved]                                                                                                                                                                                                                                                                                                                          |

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| ExhibitNumber             |   |  Description                                                                                                                                                                                                                                                                                                |
|---------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |   |                                                                                                                                                                                                                                                                                                             |
|                      |   | Executive Officer and Director Compensation Plans      and Agreements                                                                                                                                                                                                                                       |
| *10.51                    |   | MAXXAM      2002 Omnibus Employee Incentive Plan (the “2002 Omnibus      Plan”)                                                                                                                                                                                                                 |
| 10.52                     |   | Form      of Stock Option Agreement under the 2002 Omnibus Plan (incorporated herein      by reference to Exhibit 10.64 to the Company Annual Report on Form 10-K      for the year ended December 31, 2006)                                                                                                |
| *10.53                    |   | MAXXAM      1994 Omnibus Employee Incentive Plan (the “1994 Omnibus      Plan”)                                                                                                                                                                                                                 |
| *10.54                    |   | Form      of Stock Option Agreement under the 1994 Omnibus Plan                                                                                                                                                                                                                                             |
| 10.55                     |   | MAXXAM      1994 Executive Bonus Plan (Amended and Restated 2008) (incorporated herein      by reference to Appendix A to the Company’s Schedule 14A filed on April      28, 2008; the “Executive      Bonus Plan”)                                                                       |
| 10.56                     |   | 2008      Bonus Criteria for the MAXXAM Chief Executive Officer under the Executive      Bonus Plan (incorporated herein by reference to Exhibit 10.1 to the      Company’s Current Report on Form 8-K filed on April 3, 2008)                                                                        |
| 10.57                     |   | 2008      Bonus Criteria for the MAXXAM President under the Executive Bonus Plan      (incorporated herein by reference to Exhibit 10.2 to the Company’s Current      Report on Form 8-K filed on April 3, 2008)                                                                                      |
| 10.58                     |   | 2008      Bonus Criteria for the MAXXAM General Counsel under the Executive Bonus      Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s      Current Report on Form 8-K filed on April 3, 2008)                                                                                |
| 10.59                     |   | 2007      Bonus Criteria for the MAXXAM Chief Executive Officer under the Executive      Bonus Plan (incorporated herein by reference to Exhibit 10.1 to the      Company’s Current Report on Form 8-K filed on April 5, 2007)                                                                        |
| 10.60                     |   | 2007      Bonus Criteria for the MAXXAM Vice Chairman and General Counsel under the      Executive Bonus Plan (incorporated herein by reference to Exhibit 10.2 to      the Company’s Current Report on Form 8-K filed on April 5,      2007)                                                         |
| 10.61                     |   | MAXXAM      Revised Capital Accumulation Plan of 1988 (As Amended and Restated      December 2007) (incorporated herein by reference to Exhibit 10.1 to the      Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,      2008; the “Capital      Accumulation Plan”)  |
| 10.62                     |   | Amendment,      dated December 15, 2008, to the Capital Accumulation Plan (incorporated      herein by reference to Exhibit 10.1 to the Company’s Current Report on      Form 8-K filed on December 16, 2008)                                                                                         |
| *10.63                    |   | Amendment      No. 2, effective as of December 31, 2008, to the Capital Accumulation      Plan                                                                                                                                                                                                              |
| *10.64                    |   | MAXXAM      Supplemental Executive Retirement Plan , as amended effective December 31,      2008                                                                                                                                                                                                            |
| *10.65                    |   | MAXXAM      Supplemental Savings Plan, as amended effective January 1,      2008                                                                                                                                                                                                                            |
| 10.66                     |   | Form      of deferred compensation agreement for executive officers of the Company      (incorporated herein by reference to Exhibit 10.2 to the Company’s      Quarterly Report on Form 10-Q for the quarter ended June 30,      2008)                                                               |
| 10.67 to       10.70 |   | [Reserved]                                                                                                                                                                                                                                                                                             |

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| ExhibitNumber |   |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *10.71        |   | Restricted      Stock Agreement (the “Hurwitz Restricted Stock      Agreement”), dated December 13, 1999, between the Company and      Charles E. Hurwitz                                                                                                                                                                                                                                                                                                                                     |
| *10.72        |   | Amendment,      dated December 16, 2003, to the Hurwitz Restricted Stock      Agreement                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.73         |   | Separation,      Release and Confidentiality Agreement, dated July 31, 2008, between the      Company and J. Kent Friedman (incorporated herein by reference to Exhibit      10.1 to the Company’s Current Report on Form 8-K/A Amendment No. 1 filed      on August 7, 2008) [Note:  a portion of this exhibit      has been redacted and the redacted portion separately filed with the      Securities and Exchange Commission pursuant to a request for confidential      treatment]  |
| 10.74         |   | MAXXAM      Amended and Restated Non-Employee Director Stock Plan (incorporated herein      by reference to Exhibit 99.1 to the Company’s Schedule 14A dated April 20,      2004; the “Director      Plan”)                                                                                                                                                                                                                                                                             |
| 10.75         |   | Form      of Stock Option Agreement under the Director Plan (incorporated herein by      reference to Exhibit 10.68 to the Company’s Annual Report on Form 10-K for      the year ended December 31, 2006)                                                                                                                                                                                                                                                                                          |
| 10.76         |   | Form      of deferred fee agreement for non-employee directors of the Company      (incorporated herein by reference to Exhibit 10.3 to the Company’s      Quarterly Report on Form 10-Q for the quarter ended June 30,      2008)                                                                                                                                                                                                                                                                  |
| *10.77        |   | Deferred      Fee Agreement, dated September 1, 1994, between the Company and Ezra G.      Levin (“Levin Deferred      Fee Agreement”)                                                                                                                                                                                                                                                                                                                                                        |
| *10.78        |   | Amendment,      dated April 3, 1996, to the Levin Deferred Fee Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *10.79        |   | Second      Amendment, dated December 12, 2008, to the Levin Deferred Fee      Agreement                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *21.1         |   | List      of the Company’s Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *23.1         |   | Consent      of Grant Thornton LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *23.2         |   | Consent      of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *31.1         |   | Section      302 Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *31.2         |   | Section      302 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *32           |   | Section      906 Certification of Chief Executive Officer and Chief Financial      Officer                                                                                                                                                                                                                                                                                                                                                                                                                |
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|          |   | *Included      with this filing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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GLOSSARY OF DEFINED TERMS*

* Other than those used exclusively inthe Exhibit Index.

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