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


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


                                    FORM 10-Q

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


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                        Commission File Number 333-18723


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



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

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


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



      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/   No / /


     Number of shares of common stock outstanding at August 10, 2001: 1,000


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

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


                                TABLE OF CONTENTS


PART I.  -  FINANCIAL INFORMATION

    Item 1.   Financial Statements:
              Consolidated Balance Sheet at June 30, 2001 and December 31, 2000
              Consolidated Statement of Operations for the three and six months
                   ended June 30, 2001 and 2000
              Consolidated Statement of Cash Flows for the six months ended
                   June 30, 2001 and 2000
              Condensed Notes to Consolidated Financial Statements

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

    Item 3.   Quantitative and Qualitative Disclosures About Market Risk

PART II.  -  OTHER INFORMATION

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

APPENDIX A - GLOSSARY OF DEFINED TERMS


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

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



                                                                                          JUNE 30,    DECEMBER 31,
                                                                                            2001          2000
                                                                                        ------------- -------------
                                                                                         (UNAUDITED)
                                        ASSETS

Current assets:
   Cash and cash equivalents........................................................... $       69.6  $      201.7
   Marketable securities and other investments.........................................         53.4          28.9
   Receivables:
      Trade............................................................................         16.7          10.4
      Receivables from MAXXAM..........................................................          8.0           6.6
      Other............................................................................          3.3           4.0
   Inventories.........................................................................         44.1          55.1
   Prepaid expenses and other current assets...........................................         17.3          14.2
                                                                                        ------------- -------------
      Total current assets.............................................................        212.4         320.9
Property, plant and equipment, net of accumulated depreciation of $107.3 and
   $102.9, respectively................................................................        231.5         100.0
Timber and timberlands, net of accumulated depletion of $187.3 and
   $183.8, respectively................................................................        243.1         244.3
Note receivable from MAXXAM............................................................        173.6         164.5
Investment in Kaiser...................................................................         44.3          27.6
Deferred financing costs, net..........................................................         23.9          19.8
Deferred income taxes..................................................................         18.4          27.3
Restricted cash, marketable securities and other investments...........................         88.8          96.6
Other assets...........................................................................          7.7           7.9
                                                                                        ------------- -------------
                                                                                        $    1,043.7  $    1,008.9
                                                                                        ============= =============

                         LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
   Accounts payable.................................................................... $        5.6  $        6.2
   Accrued interest....................................................................         30.0          32.4
   Accrued compensation and related benefits...........................................          9.3           8.2
   Deferred income taxes...............................................................          3.1          10.0
   Other accrued liabilities...........................................................          6.1           3.6
   Short-term borrowings and current maturities of long-term debt......................         18.8          53.5
                                                                                        ------------- -------------
      Total current liabilities........................................................         72.9         113.9
Long-term debt, less current maturities................................................        964.8         886.6
Deferred income taxes..................................................................         22.4          31.2
Other noncurrent liabilities...........................................................         25.1          26.6
                                                                                        ------------- -------------
      Total liabilities................................................................      1,085.2       1,058.3
                                                                                        ------------- -------------

Contingencies (See Note 8)

Stockholder's deficit:
   Common stock, $1.00 par value; 3,000 shares authorized; 1,000 shares issued.........            -             -
   Additional capital..................................................................        123.2         123.2
   Accumulated deficit.................................................................       (162.1)       (172.6)
   Accumulated other comprehensive loss................................................         (2.6)            -
                                                                                        ------------- -------------
      Total stockholder's deficit......................................................        (41.5)        (49.4)
                                                                                        ------------- -------------
                                                                                        $    1,043.7  $    1,008.9
                                                                                        ============= =============


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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                            (IN MILLIONS OF DOLLARS)


                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------
                                                                                      (UNAUDITED)
Net sales:
   Lumber and logs...............................................  $     47.1   $    51.0   $    84.9   $     94.7
   Other.........................................................         6.2         4.9        13.2          8.6
                                                                   -----------  ----------  ----------  -----------
                                                                         53.3        55.9        98.1        103.3
                                                                   -----------  ----------  ----------  -----------

Operating expenses:
   Cost of goods sold............................................        42.7        38.7        82.7         71.8
   Selling, general and administrative expenses..................         4.4         3.8         8.8          7.8
   Depletion and depreciation....................................         5.3         4.9        10.2          9.5
                                                                   -----------  ----------  ----------  -----------
                                                                         52.4        47.4       101.7         89.1
                                                                   -----------  ----------  ----------  -----------

Operating income (loss)..........................................         0.9         8.5        (3.6)        14.2

Other income (expense):
   Equity in earnings (loss) of Kaiser...........................       (22.4)        3.9        19.6          8.0
   Investment, interest and other income (expense), net..........         9.1        13.2        18.4         24.0
   Interest expense..............................................       (17.9)      (19.9)      (36.5)       (40.1)
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes................................       (30.3)        5.7        (2.1)         6.1

Benefit (provision) in lieu of income taxes......................         3.5       (0.8)         9.0          0.8
                                                                   -----------  ----------  ----------  -----------
Income (loss) before extraordinary item..........................       (26.8)        4.9         6.9          6.9
Extraordinary item:
   Gains on repurchases of debt, net of income tax provisions
      of $0.9, $2.0 and $1.0, respectively.......................         1.7           -         3.6          1.4
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $    (25.1)  $     4.9   $    10.5   $      8.3
                                                                   ===========  ==========  ==========  ===========


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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN MILLIONS OF DOLLARS)


                                                                                                 SIX MONTHS ENDED
                                                                                                     JUNE 30,
                                                                                               --------------------
                                                                                                 2001       2000
                                                                                               ---------  ---------
                                                                                                    (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income................................................................................. $   10.5   $    8.3
   Adjustments to reconcile net income to net cash used for operating activities:
      Depletion and depreciation..............................................................     10.2        9.5
      Extraordinary gains on repurchases of debt..............................................     (3.6)      (1.4)
      Equity in undistributed earnings of Kaiser..............................................    (19.6)      (8.0)
      Amortization of deferred financing costs................................................      1.1        1.2
      Net gain on marketable securities.......................................................     (3.0)      (5.1)
      Deferral of interest payment on note receivable from MAXXAM.............................     (9.0)      (8.1)
   Increase (decrease) in cash resulting from changes in:
      Receivables.............................................................................     (5.6)      (0.9)
      Inventories, net of depletion...........................................................      9.5       (1.5)
      Prepaid expenses and other assets.......................................................     (3.1)      (3.7)
      Accounts payable........................................................................     (0.6)         -
      Accrued interest........................................................................     (2.4)      (1.4)
      Accrued and deferred income taxes.......................................................    (10.3)      (0.3)
      Other liabilities.......................................................................      3.9        1.9
      Long-term assets and long-term liabilities..............................................     (1.9)       1.0
                                                                                               ---------  ---------
        Net cash used for operating activities................................................    (23.9)      (8.5)
                                                                                               ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net purchases of marketable securities.....................................................    (21.2)     (23.6)
   Capital expenditures.......................................................................   (138.6)      (6.0)
   Restricted cash withdrawals used to acquire timberlands....................................        -        0.3
   Net proceeds from dispositions of property and investments.................................        -        0.1
                                                                                               ---------  ---------
        Net cash used for investing activities................................................   (159.8)     (29.2)
                                                                                               ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuances of long-term debt..................................................    122.5          -
   Borrowings (repayments) under revolving credit agreements..................................    (37.0)       5.6
   Redemptions, repurchases of and principal payments on long-term debt.......................    (36.5)     (18.1)
   Incurrence of deferred financing costs.....................................................     (5.2)         -
   Restricted cash (deposits) withdrawals, net................................................      7.8        9.3
   Dividends paid to stockholder..............................................................        -      (45.0)
   Other......................................................................................        -          -
                                                                                               ---------  ---------
        Net cash provided by (used for) financing activities..................................     51.6      (48.2)
                                                                                               ---------  ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS.....................................................   (132.1)     (85.9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..............................................    201.7      189.8
                                                                                               ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................... $   69.6   $  103.9
                                                                                               =========  =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid, net of capitalized interest................................................. $   37.7   $   40.3
   Tax allocation payments to MAXXAM..........................................................      1.3        0.5

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Repurchases of debt using restricted cash and marketable securities........................ $      -   $   20.1


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


                   MAXXAM GROUP HOLDINGS INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    GENERAL

      The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K. Any capitalized terms used but not defined in these Condensed Notes
to Consolidated Financial Statements are defined in the "Glossary of Defined
Terms" contained in Appendix A. All references to the "Company" include MAXXAM
Group Holdings Inc. and its subsidiary companies unless otherwise noted or the
context indicates otherwise. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the entire year.

      The consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary for a fair presentation of the consolidated
financial position of the Company at June 30, 2001, and the consolidated results
of operations for the three and six months ended June 30, 2001 and 2000, and the
consolidated cash flows for the six months ended June 30, 2001 and 2000. The
Company is a wholly owned subsidiary of MAXXAM.

      COMPREHENSIVE INCOME (LOSS)
      The following table sets forth comprehensive income (loss) (in millions).


                                                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                         JUNE 30,                JUNE 30,
                                                                  ----------------------- -----------------------
                                                                     2001        2000        2001         2000
                                                                  ----------  ----------- -----------  ----------

Net income (loss)...............................................  $   (25.1)  $      4.9  $     10.5   $     8.3
Cumulative effect of accounting change, net of income tax
   provision of $0.2............................................       (0.1)           -         0.6           -
Unrealized losses, net of income tax benefit of $0.8 and $1.5,
   respectively, on derivative instruments arising during the
   period.......................................................       (1.4)           -        (2.5)          -
Less reclassification adjustment for realized gains (losses),
   net of income tax (provision) benefit of $(2.1) and $0.3,
   respectively, on derivative instruments included in net
   income.......................................................        3.1            -        (0.9)          -
Change in value of available-for-sale investments, net of income
   tax provision of $0.2 for each period........................       (0.1)           -         0.2           -
                                                                  ----------  ----------- -----------  ----------
Comprehensive income (loss).....................................  $   (23.6)  $      4.9  $      7.9   $     8.3
                                                                  ==========  =========== ===========  ==========

      ACCOUNTING PRONOUNCEMENTS FOR DERIVATIVE FINANCIAL INSTRUMENTS - KAISER
      Effective January 1, 2001, Kaiser began reporting derivative activities
pursuant to SFAS No. 133, which requires companies to recognize all derivative
instruments as assets or liabilities in the balance sheet and to measure those
instruments at fair value. Kaiser, the Company's equity investee, utilizes
derivative financial instruments primarily to mitigate its exposure to changes
in prices for certain of the products which Kaiser sells and consumes and, to a
lesser extent, to mitigate its exposure to changes in foreign currency exchange
rates. Changes in the market value of Kaiser's derivative instruments represent
unrealized gains or losses. Such unrealized gains or losses will fluctuate,
based on prevailing market prices at each subsequent balance sheet date, until
the transaction occurs. Under SFAS No. 133, these changes are recorded as an
increase or reduction in stockholders' equity through either other comprehensive
income or net income, depending on the facts and circumstances with respect to
the hedge and its documentation. To the extent that changes in the market values
of Kaiser's hedging positions are initially recorded in other comprehensive
income, such changes are reversed from other comprehensive income (offset by any
fluctuations in other "open" positions) and are recorded in traditional net
income upon the occurrence of the transactions to which the hedges relate. Under
the equity method of accounting which the Company follows in accounting for its
investment in Kaiser, the Company will reflect its equity share of Kaiser's
adjustments through either other comprehensive income or traditional net income,
as appropriate.

      SFAS No. 133 requires that as of the date of the initial adoption, the
difference between the market value of derivative instruments and the previous
carrying amount of those derivatives recorded on Kaiser's consolidated balance
sheet be reported in net income or other comprehensive income, as appropriate,
as the cumulative effect of a change in accounting principle. As previously
discussed, this impact was reflected in Kaiser's first quarter 2001 financial
statements, and in turn the Company's equity share of the impact was recorded in
its first quarter 2001 financial statements.

2.    SEGMENT INFORMATION

      As a result of the acquisition of certain real estate in June 2001 which
is described in Note 3 below, the Company has determined that it is now
appropriate to present segment information for its forest products and real
estate operations. The following table presents such unaudited financial
information, consistent with the manner in which management reviews and
evaluates the Company's business activities (in millions).


                                                              FOREST          REAL       CORPORATE    CONSOLIDATED
                                                             PRODUCTS        ESTATE      AND OTHER        TOTAL
                                                           -------------  ------------  ------------  -------------
Net sales for the three months ended:
      June 30, 2001....................................... $       53.2   $       0.1   $         -   $       53.3
      June 30, 2000.......................................         55.9            -              -           55.9

Operating income (loss) for the three months ended:
      June 30, 2001.......................................          1.0           0.1          (0.2)           0.9
      June 30, 2000.......................................          8.6             -          (0.1)           8.5

Other income (expense), net for the three months ended:
      June 30, 2001.......................................        (12.0)         (0.1)        (19.1)         (31.2)
      June 30, 2000.......................................        (10.1)            -           7.3           (2.8)

Net sales for the six months ended:
      June 30, 2001.......................................         98.0           0.1             -           98.1
      June 30, 2000.......................................        103.3            -              -          103.3

Operating income (loss) for the six months ended:
      June 30, 2001.......................................         (3.5)          0.1          (0.2)          (3.6)
      June 30, 2000.......................................         14.4             -          (0.2)          14.2

Other income (expense), net for the six months ended:
      June 30, 2001.......................................        (23.3)         (0.1)         24.9            1.5
      June 30, 2000.......................................        (20.8)            -          12.7           (8.1)

Total assets as of:
      June 30, 2001.......................................        616.7         136.8         290.2        1,043.7
      December 31, 2000...................................        726.2             -         282.7        1,008.9

      The column corporate and other includes the results of the parent company
and the investment in Kaiser, and also serves to reconcile the total of the
reportable segments' amounts to the total in the Company's consolidated
financial statements.

3.    ACQUISITION OF ASSETS

      In June 2001, Lakepointe Assets purchased Lake Pointe Plaza, an office
complex located in Sugarland, Texas, for a purchase price of $131.3 million. The
transaction was financed with proceeds of $122.5 million, net of $5.2 million in
deferred financing costs, from the Lakepointe Notes ($122.5 million principal
amount with a final maturity date of June 8, 2021, and an interest rate of
7.56%), and with a cash payment of $14.0 million. Lakepointe Assets acquired the
property subject to two leases to existing tenants while simultaneously leasing
a majority of the premises, representing all of the remaining space, to an
affiliate of the seller. The office complex is fully leased for a period of 20
years under these three leases. Lakepointe Assets is accounting for these leases
as operating leases. The Lakepointe Notes are secured by the leases, Lake Pointe
Plaza and a $60.0 million residual value insurance contract.

4.    CASH, MARKETABLE SECURITIES AND OTHER INVESTMENTS

      Cash, marketable securities and other investments include the following
amounts which are restricted (in millions):


                                                                                         June 30,     DECEMBER 31,
                                                                                           2001           2000
                                                                                       ------------- --------------

Current assets:
   Cash and cash equivalents:
      Amounts held as security for short positions in marketable securities..........  $          -  $         9.2
      Other restricted cash and cash equivalents.....................................          18.5           29.2
                                                                                       ------------- --------------
                                                                                               18.5           38.4
                                                                                       ------------- --------------
   Marketable securities, restricted:
      Amounts held in SAR Account....................................................          16.7           16.3
                                                                                       ------------- --------------

Long-term restricted cash, marketable securities and other investments:
   Amounts held in SAR Account.......................................................         136.9          144.4
   Other amounts restricted under the Timber Notes Indenture.........................           2.8            2.9
   Other long-term restricted cash...................................................           2.2            2.0
   Less: Amounts attributable to Timber Notes held in SAR Account....................         (53.1)         (52.7)
                                                                                       ------------- --------------
                                                                                               88.8           96.6
                                                                                       ------------- --------------

Total restricted cash, marketable securities and other investments...................  $      124.0  $       151.3
                                                                                       ============= ==============

      Cash, marketable securities and other investments include a limited
partnership interest in the Equity Fund Partnership, which invests in a
diversified portfolio of common stocks and other equity securities whose issuers
are involved in merger, tender offer, spin-off or recapitalization transactions.
The following table shows the Company's investment in the Equity Fund
Partnership, including restricted amounts held in the SAR Account, and the
ownership interest (dollars in millions).


                                                                                          JUNE 30,       DECEMBER 31,
                                                                                            2001             2000
                                                                                        -------------   --------------
Investment in Equity Fund Partnership:
   Restricted........................................................................   $       10.5    $        10.1
   Unrestricted......................................................................           36.5               -
                                                                                        -------------   --------------
                                                                                        $       47.0    $        10.1
                                                                                        =============   ==============

Percentage of ownership held.........................................................           15.0%            10.8%
                                                                                        =============   ==============


5.    INVENTORIES

      Inventories consist of the following (in millions):


                                                                                        JUNE 30,      DECEMBER 31,
                                                                                          2001            2000
                                                                                     --------------  --------------


Lumber.............................................................................  $        33.4   $        34.0
Logs...............................................................................           10.7            21.1
                                                                                     --------------  --------------
                                                                                     $        44.1   $        55.1
                                                                                     ==============  ==============

6.    INVESTMENT IN KAISER

      The Company owns the 27,938,250 Kaiser Shares, 23,443,953 shares of which
are pledged as collateral for the MGHI Notes as of June 30, 2001. Kaiser
operates in several principal aspects of the aluminum industry through the
following business segments: bauxite and alumina, primary aluminum, flat-rolled
products, engineered products and commodities marketing. Kaiser uses a portion
of its bauxite, alumina and primary aluminum production for additional
processing at certain downstream facilities. Kaiser's common stock is publicly
traded on the New York Stock Exchange under the trading symbol "KLU." The Kaiser
Shares represent a 34.6% equity interest in Kaiser at June 30, 2001.

      The market value for the Kaiser Shares based on the price per share quoted
at the close of business on August 9, 2001, was $90.8 million. There can be
no assurance that such value would be realized should the Company dispose of the
Kaiser Shares. The following tables contain summarized financial information of
Kaiser (in millions).


                                                                                          JUNE 30,    DECEMBER 31,
                                                                                            2001          2000
                                                                                        ------------- -------------

Current assets......................................................................... $      903.7  $    1,012.1
Property, plant and equipment, net.....................................................      1,219.1       1,176.1
Other assets...........................................................................      1,220.0       1,154.9
                                                                                        ------------- -------------
        Total assets................................................................... $    3,342.8  $    3,343.1
                                                                                        ============= =============

Current liabilities.................................................................... $      882.8  $      841.4
Long-term debt, less current maturities................................................        698.8         957.8
Other liabilities......................................................................      1,517.7       1,360.6
Minority interests.....................................................................        113.9         101.1
Stockholders' equity...................................................................        129.6          82.2
                                                                                        ------------- -------------
        Total liabilities and stockholders' equity..................................... $    3,342.8  $    3,343.1
                                                                                        ============= =============



                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   ------------------------------------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------

Net sales........................................................  $    446.8   $   552.8   $   927.1   $  1,128.5
Costs and expenses...............................................      (474.4)     (501.3)     (739.3)    (1,040.1)
Other expenses - net.............................................       (78.8)      (34.7)      (99.4)       (53.0)
                                                                   -----------  ----------  ----------  -----------
Income (loss) before income taxes and minority interests.........      (106.4)       16.8        88.4         35.4
Benefit (provision) for income taxes.............................        41.5        (6.4)      (34.5)       (13.7)
Minority interests...............................................         0.8         0.6         1.6          1.0
                                                                   -----------  ----------  ----------  -----------
Net income (loss)................................................  $    (64.1)  $    11.0   $    55.5   $     22.7
                                                                   ===========  ==========  ==========  ===========
Equity in earnings (loss) of Kaiser..............................  $    (22.4)  $     3.9   $    19.6   $      8.0
                                                                   ===========  ==========  ==========  ===========

7.    LONG-TERM DEBT

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


                                                                                      JUNE 30,       DECEMBER 31,
                                                                                        2001             2000
                                                                                   ---------------  ---------------

Pacific Lumber Credit Agreement................................................... $            -   $         37.0
6.55% Scotia LLC Timber Notes due July 20, 2028...................................          123.5            136.7
7.11% Scotia LLC Timber Notes due July 20, 2028...................................          243.2            243.2
7.71% Scotia LLC Timber Notes due July 20, 2028...................................          463.3            463.3
12% MGHI Notes due August 1, 2003.................................................           88.2            118.8
7.56% Lakepointe Notes (See Note 3)...............................................          122.5                -
Other.............................................................................            1.1              1.0
                                                                                   ---------------  ---------------
                                                                                          1,041.8          1,000.0
Less: current maturities..........................................................          (18.8)           (53.5)
      Timber Notes held in SAR Account............................................          (58.2)           (59.9)
                                                                                   ---------------  ---------------
                                                                                   $        964.8   $        886.6
                                                                                   ===============  ===============


      The amount attributable to the Timber Notes held in the SAR Account of
$53.1 million reflected in Note 4 above represents the amount paid to acquire
$58.2 million of principal amount of Timber Notes.

8.    CONTINGENCIES

      Regulatory and environmental matters play a significant role in the
Company's forest products business, which is subject to a variety of California
and federal laws and regulations, as well as the HCP and SYP and Pacific
Lumber's timber operator's license, dealing with timber harvesting practices,
threatened and endangered species and habitat for such species, and air and
water quality.

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

      Under the CWA, the EPA is required to establish TMDLs in water courses
that have been declared to be "water quality impaired." The EPA and the North
Coast Water Board are in the process of establishing TMDLs for 17 northern
California rivers and certain of their tributaries, including nine water courses
that flow within the Company's timberlands. The Company expects this process to
continue into 2010. In the December 1999 EPA report dealing with TMDLs on two of
the nine water courses, the agency indicated that the requirements under the HCP
would significantly address the sediment issues that resulted in TMDL
requirements for these water courses. However, the September 2000 report by the
staff of the North Coast Water Board proposed various actions, including
restrictions on harvesting beyond those required under the HCP. Dates for
hearings concerning these matters have not been scheduled. Establishment of the
final TMDL requirements applicable to the Company's timberlands will be a
lengthy process, and the final TMDL requirements applicable to the Company's
timberlands may require aquatic protection measures that are different from or
in addition to the prescriptions to be developed pursuant to the watershed
analysis process provided for in the HCP.

      Since the consummation of the Headwaters Agreement on March 1, 1999, there
has been a significant amount of work required in connection with the
implementation of the Environmental Plans. As a result of the implementation
process, 1999 and 2000 were transition years for Pacific Lumber with respect to
the filing and approval of its THPs, principally because government agencies
have failed to approve THPs in a timely manner. The rate of approvals of THPs
during the three months ended June 30, 2001, has improved somewhat over prior
quarters; however, it continues to be below what Pacific Lumber requires to meet
its targeted harvest levels under the SYP. Nevertheless, Pacific Lumber
anticipates that once the Environmental Plans are fully implemented, the process
of preparing THPs will become more streamlined, and the time to obtain approval
of THPs will potentially be shortened.

      Lawsuits are pending and threatened which seek to prevent the Company from
implementing the HCP and/or the SYP, implementing certain of the Company's
approved THPs, or carrying out certain other operations. On December 2, 1997,
the Wrigley lawsuit was filed. This action alleges, among other things, that the
defendants' logging practices have contributed to an increase in flooding and
damage to domestic water systems in a portion of the Elk River watershed.

      On January 28, 1997, the ERF lawsuit was filed. This action alleges that
Pacific Lumber has discharged pollutants into federal waterways, and the
plaintiffs are seeking to enjoin Pacific Lumber from continuing such actions,
civil penalties of up to $25,000 per day for each violation, remediation and
other damages. This case was dismissed by the District Court on August 19, 1999,
but the dismissal was reversed by the U.S. Ninth Circuit Court of Appeals on
October 30, 2000, and the case was remanded to the District Court, but no
further proceedings have occurred. The Company believes that it has strong
factual and legal defenses with respect to the Wrigley lawsuit and ERF lawsuit;
however, there can be no assurance that they will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.

      On March 31, 1999, the EPIC-SYP/Permits lawsuit was filed alleging various
violations of the CESA and the California Environmental Quality Act, and
challenging, among other things, the validity and legality of the SYP and the
Permits issued by California. On March 31, 1999, the USWA lawsuit was filed also
challenging the validity and legality of the SYP. The Company believes that
appropriate procedures were followed throughout the public review and approval
process concerning the HCP and the SYP, and the Company is working with the
relevant government agencies to defend these challenges. Although uncertainties
are inherent in the final outcome of the EPIC-SYP/Permits lawsuit and the USWA
lawsuit, the Company believes that the resolution of these matters should not
result in a material adverse effect on its financial condition, results of
operations or the ability to harvest timber.

      In connection with a February 2001 notice of intent to sue Pacific Lumber,
on July 24, 2001, the Bear Creek lawsuit was filed. The lawsuit alleges that
Pacific Lumber's harvesting and other activities under certain of its approved
and proposed THPs will result in discharges of pollutants in violation of the
CWA. The plaintiff asserts that the CWA requires the defendants to obtain a
permit from the North Coast Water Board before beginning timber harvesting and
road construction activities in the Bear Creek watershed, and is seeking to
enjoin these activities until such permit has been obtained. The plaintiff also
seeks civil penalties of up to $27,000 per day for the defendant's alleged
continued violation of the CWA. The Company believes that the requirements under
the HCP are adequate to ensure that sediment and pollutants from its harvesting
activities will not reach levels harmful to the environment. Furthermore, EPA
regulations specifically provide that such activities are not subject to CWA
permitting requirements. The Company believes that it has strong legal defenses
in this matter; however, there can be no assurance that this lawsuit will not
have a material adverse effect on its consolidated financial condition or
results of operations.

      While the Company expects environmentally focused objections and lawsuits
to continue, it believes that the HCP, the SYP and the Permits should enhance
its position in connection with these continuing challenges and, over time,
reduce or minimize such challenges.

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

      The following should be read in conjunction with the financial statements
in Part I, Item 1 of this Report and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8.
"Financial Statements and Supplementary Data" of the Form 10-K. Any capitalized
terms used but not defined in this Item are defined in the "Glossary of Defined
Terms" contained in Appendix A. Except as otherwise noted, all references to
notes represent the Notes to the Condensed Consolidated Financial Statements
included in Item 1.

      This Quarterly Report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this section, in Item 3. "Quantitative and Qualitative Disclosures About Market
Risk," and in Part II. Item 1. "Legal Proceedings." Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may vary materially from the
forward-looking statements as a result of various factors. These factors include
the effectiveness of management's strategies and decisions, general economic and
business conditions, developments in technology, new or modified statutory or
regulatory requirements and changing prices and market conditions. This Form
10-Q and the Form 10-K identify other factors that could cause such differences
between the forward-looking statements and actual results. No assurance can be
given that these are all of the factors that could cause actual results to vary
materially from the forward-looking statements.

RESULTS OF OPERATIONS

      The Company's wholly owned subsidiary, MGI, and its operating
subsidiaries, Pacific Lumber and Britt, are engaged in forest products
operations. The Company's business is somewhat seasonal, and its net sales have
been historically higher in the months of April through November than in the
months of December through March. Management expects that the Company's revenues
and cash flows will continue to be markedly seasonal. Accordingly, the Company's
results for any one quarter are not necessarily indicative of results to be
expected for the full year.

      In recent years, MGI has experienced reduced harvests on its property, and
as a result, production of lumber has decreased. The decline in harvest levels
is a result of the difficulties with THPs described under "--Trends."
Furthermore, logging costs have increased due to the harvest of smaller diameter
logs and compliance with environmental regulations and the Environmental Plans.
MGI's management is currently reevaluating MGI's operations in view of these
continuing difficulties. This may result in reductions or curtailments in
sawmill or other operations. As a result of this analysis, MGI may be required
to evaluate the realizability of MGI's investment in any facilities which are
curtailed as a result, and a writedown of the investment in certain assets may be
required.

      The following table presents selected operational and financial
information for the three and six months ended June 30, 2001 and 2000.


                                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                          JUNE 30,                 JUNE 30,
                                                                   -----------------------  -----------------------
                                                                      2001         2000        2001        2000
                                                                   -----------  ----------  ----------  -----------
                                                                   (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES)
Shipments:
   Lumber: (1)
      Redwood upper grades.......................................         4.4         3.8         8.5           7.3
      Redwood common grades......................................        44.8        41.2        82.0          76.6
      Douglas-fir upper grades...................................         2.6         3.2         4.6           5.7
      Douglas-fir common grades..................................        19.9        19.8        32.9          38.9
      Other......................................................         2.1         1.7         2.6           4.7
                                                                   -----------  ----------  ----------  -----------
        Total lumber.............................................        73.8        69.7       130.6         133.2
                                                                   ===========  ==========  ==========  ===========
   Wood chips (2)................................................        34.1        45.5        60.7          84.5
                                                                   ===========  ==========  ==========  ===========

Average sales price:
   Lumber: (3)
      Redwood upper grades.......................................  $    1,775   $   1,830   $   1,809   $     1,728
      Redwood common grades......................................         602         759         607           750
      Douglas-fir upper grades...................................       1,350       1,342       1,365         1,324
      Douglas-fir common grades..................................         349         372         338           398
   Wood chips (4)................................................          68          69          69            66

Net sales:
   Lumber, net of discount.......................................  $     45.5   $    50.1   $    82.7   $      93.8
   Wood chips....................................................         2.3         3.2         4.2           5.6
   Cogeneration power............................................         3.0         1.0         7.4           1.6
   Other.........................................................         2.5         1.6         3.8           2.3
                                                                   -----------  ----------  ----------  -----------
        Total net sales..........................................  $     53.3   $    55.9   $    98.1   $     103.3
                                                                   ===========  ==========  ==========  ===========
Operating income (loss)..........................................  $      0.9   $     8.5   $    (3.6)  $      14.2
                                                                   ===========  ==========  ==========  ===========
Operating cash flow (5)..........................................  $      6.2   $    13.4   $     6.6   $      23.7
                                                                   ===========  ==========  ==========  ===========
Income (loss) before income taxes................................  $    (30.3)  $     5.7   $    (2.1)  $       6.1
                                                                   ===========  ==========  ==========  ===========
Net income (loss) (6)............................................  $    (25.1)  $     4.9   $    10.5   $       8.3
                                                                   ===========  ==========  ==========  ===========
--------------------

(1)   Lumber shipments are expressed in millions of board feet.
(2)   Wood chip shipments are expressed in thousands of bone dry units of 2,400
      pounds.
(3)   Dollars per thousand board feet.
(4)   Dollars per bone dry unit.
(5)   Operating income before depletion and depreciation, also referred to as
      "EBITDA."
(6)   2001 results include after-tax extraordinary gains of $1.7 million and
      $3.6 million for the three and six month periods, respectively, on the
      repurchase of MGHI Notes. 2000 results for the six month period includes
      an after-tax extraordinary gain of $1.4 million on the repurchase of
      Timber Notes.

      Net Sales
      Net sales for the second quarter and first six months of 2001 were lower
than the comparable periods of 2000 primarily as a result of lower prices for
redwood common grade lumber and lower shipments of Douglas-fir lumber. These
declines were offset somewhat by higher shipments of redwood lumber.

      Operating Income (Loss)
      The Company had lower operating income for the second quarter of 2001
compared to the second quarter of 2000, and an operating loss for the six months
ended June 30, 2001, as compared to operating income for the same period of
2000, as a result of the decline in net sales as well as higher costs associated
with lumber production and logging operations.

      Income (Loss) Before Income Taxes
      The Company had a loss before income taxes for the second quarter and
first six months of 2001 as compared to income before income taxes for the
comparable prior year periods. In addition to the impact of the decline in
operating income discussed above, the loss before income taxes for the second
quarter of 2001 was also affected by a decrease in equity in earnings of Kaiser
from $3.9 million for the three months ended June 30, 2000, to $(22.4) million
for the three months ended June 30, 2001. Results for the six months ended June
30, 2001, were lower due to the decline in operating income which was offset in
part by an increase in equity in earnings of Kaiser from $8.0 million to $19.6
million. Kaiser's results improved largely as a result of non-recurring gains on
power sales.

      Benefit (provision) in Lieu of Income Taxes
      The effective benefit (provision) in lieu of income taxes differs from the
statutory rate primarily due to disallowance of a portion of the Company's net
operating loss carryforwards for state tax purposes, and the exclusion of equity
in earnings (loss) of Kaiser from taxable income.

FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES

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

      Note 7 to the Consolidated Financial Statements in the Form 10-K contains
additional information concerning the Company's indebtedness and information
concerning certain restrictive debt covenants. "MGHI PARENT" is used in this
section to refer to the Company on a stand-alone basis without its subsidiaries.

      The following table summarizes certain data related to financial condition
and to investing and financing activities of the Company and its subsidiaries.



                                                                  SCOTIA        PACIFIC     MGI AND       MGHI
                                                                    LLC         LUMBER       OTHER       PARENT      TOTAL
                                                                 ---------     --------    ---------    --------    --------
                                                                             (IN MILLIONS OF DOLLARS)
DEBT AND CREDIT FACILITIES (EXCLUDING INTERCOMPANY NOTES)
Short-term borrowings and current maturities of long-term debt:
   June 30, 2001................................................ $   16.8     $    0.1 (1) $   1.9      $     -     $  18.8
   December 31, 2000............................................     16.4         37.1           -            -        53.5

Long-term debt, excluding current maturities:
   June 30, 2001................................................ $  755.5 (2) $    0.5     $ 120.6 (4)  $  88.2 (2) $ 964.8
   December 31, 2000............................................    767.2          0.6           -        118.8       886.6

Revolving credit facilities:
   Facility commitment amounts.................................. $   61.1     $   60.0     $   2.5      $     -     $ 123.6
   June 30, 2001:
      Borrowings................................................        -            -           -            -           -
      Letters of credit.........................................        -         11.8           -            -        11.8
      Unused and available credit...............................     61.1         31.5         2.5            -        95.1

CASH, CASH EQUIVALENTS, MARKETABLE
   SECURITIES AND OTHER INVESTMENTS
June 30, 2001:
   Current amounts restricted for debt service.................. $   34.9     $      -     $     -      $     -     $  34.9
   Other current amounts........................................      4.6          7.0        35.5         41.0        88.1
                                                                 ---------    ---------    --------     --------    --------
                                                                     39.5          7.0        35.5         41.0       123.0
                                                                 ---------    ---------    --------     --------    --------
   Long-term amounts restricted for debt service................     86.6            -           -            -        86.6
   Other long-term restricted amounts...........................        -            -         2.2            -         2.2
                                                                 ---------    ---------    --------     --------    --------
                                                                     86.6            -         2.2            -        88.8
                                                                 ---------    ---------    --------     --------    --------
                                                                 $  126.1     $    7.0     $  37.7      $  41.0     $ 211.8
                                                                 =========    =========    ========     ========    ========

December 31, 2000:
   Current amounts restricted for debt service.................. $   45.8     $      -     $      -     $     -     $  45.8
   Other current amounts........................................     68.6          0.2         61.7        54.3       184.8
                                                                 ---------    ---------     --------    --------    --------
                                                                    114.4          0.2         61.7        54.3       230.6
                                                                 ---------    ---------     --------    --------    --------

   Long-term amounts restricted for debt service................     92.1            -            -           -        92.1
   Other long-term restricted amounts...........................      2.5            -          2.0           -         4.5
                                                                 ---------    ---------     --------    --------    --------
                                                                     94.6            -          2.0           -        96.6
                                                                 ---------    ---------     --------    --------    --------
                                                                 $  209.0     $    0.2     $   63.7     $  54.3     $ 327.2
                                                                 =========    =========     ========    ========    ========

CHANGES IN CASH AND CASH EQUIVALENTS
Capital expenditures:
   June 30, 2001................................................ $   2.9      $    3.6     $  132.1 (4) $     -     $ 138.6
   June 30, 2000................................................     3.2           1.7          1.1           -         6.0

Net proceeds from dispositions of property and investments:
   June 30, 2001................................................ $     -      $      -     $      -     $     -     $     -
   June 30, 2000................................................       -           0.1            -           -         0.1

Borrowings (repayments) of debt and credit facilities, net of
   financing costs:
   June 30, 2001................................................ $ (11.4)(2)  $  (37.0)    $  117.3 (4) $ (25.1)(2) $  43.8
   June 30, 2000................................................    (7.5)          0.1          3.0        (8.1)      (12.5)

Dividends and advances received (paid):
   June 30, 2001................................................ $ (73.1)(3)  $   73.1 (3) $  (17.1)(3) $  17.1 (3) $     -
   June 30, 2000................................................       -          50.0       (158.4)       63.4       (45.0)

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

(1)     The decrease in Pacific Lumber's short-term borrowings and current
        maturities of long-term debt between December 31, 2000, and June 30,
        2001, was due to the repayment of borrowings under the Pacific Lumber
        Credit Agreement.
(2)     The decrease in Scotia LLC's long-term debt between December 31, 2000,
        and June 30, 2001, was the result of principal payments on the Timber
        Notes of $11.4 million during the six months ended June 30, 2001. The
        decrease in MGHI Parent's long-term debt was due primarily to
        repurchases of debt.
(3)     For the six months ended June 30, 2001, $73.1 million of dividends were
        paid by Scotia LLC to Pacific Lumber, $63.9 million of which was made
        using proceeds from the sale of the Scotia LLC's Owl Creek grove. For
        the six months ended June 30, 2000, $90.0 million of the dividends paid
        from MGI to MGHI were made using proceeds from the sale of the
        Headwaters Timberlands. MGHI in turn paid a $45.0 million dividend to
        MAXXAM Parent.
(4)     The increase in debt and capital expenditures for MGI and other is
        attributable to the Lake Pointe Plaza acquisition and related
        borrowings described in Note 3.

      MGHI Parent expects that interest payments on the $88.2 million of MGHI
Notes outstanding as of June 30, 2001, will be paid with its existing cash.

      The Scotia LLC Line of Credit allows Scotia LLC to borrow up to one year's
interest on the Timber Notes. On June 1, 2001, this facility was extended for an
additional year to July 12, 2002. The Pacific Lumber Credit Agreement expires on
October 31, 2001, but it is expected to be renewed for a two-year period.

      On the January 22, 2001, note payment date for the Timber Notes, Scotia
LLC had $37.4 million set aside in the note payment account to pay the $28.9
million of interest due as well as $8.5 million of principal. Scotia LLC repaid
an additional $2.9 million of principal on the Timber Notes using funds held in
the SAR Account, resulting in a total principal payment of $11.4 million, an
amount equal to Scheduled Amortization. In addition, Scotia LLC made a
distribution to Pacific Lumber of $73.1 million, $63.9 million of which was made
using funds from the December 2000 sale of Scotia LLC's Owl Creek grove and $9.2
million of which was made using excess funds released from the SAR Account.

      On the July 20, 2001, note payment date for the Timber Notes, Scotia LLC
had $29.9 million set aside in the note payment account to pay the $28.5 million
of interest due as well as $1.4 million of principal. Scotia LLC repaid an
additional $1.4 million of principal on the Timber Notes using funds held in the
SAR Account, resulting in a total principal payment of $2.8 million, an amount
equal to Scheduled Amortization. In addition, Scotia LLC made a distribution in
the amount of $3.0 million to its parent, Pacific Lumber.

      In June 2001, Lakepointe Assets purchased Lake Pointe Plaza, an office
complex located in Sugarland, Texas, for a purchase price of $131.3 million. The
transaction was financed with proceeds of $122.5 million, net of $5.2 million in
deferred financing costs, from the Lakepointe Notes ($122.5 million principal
amount with a final maturity date of June 8, 2021, and an interest rate of
7.56%), and with a cash payment of $14.0 million. Lakepointe Assets acquired the
property subject to two leases to existing tenants while simultaneously leasing
a majority of the premises, representing all of the remaining space, to an
affiliate of the seller. The office complex is fully leased for a period of 20
years under these three leases.

      MGHI Parent believes that its existing resources, together with the cash
available from subsidiaries, will be sufficient to fund its debt service and
working capital requirements for the next year. With respect to its long-term
liquidity, MGHI Parent believes that its existing cash and cash resources,
together with distributions from its subsidiaries, should be sufficient to meet
its debt service and working capital requirements. However, there can be no
assurance that this will be the case. Any adverse outcome of the regulatory and
environmental matters described under "--Trends" below could materially
adversely affect cash available from subsidiaries and therefore MGHI Parent's
financial position, results of operations or liquidity.

      MGI and its subsidiaries anticipate that existing cash, cash equivalents,
marketable securities, funds available from the SAR Account and available
sources of financing will be sufficient to fund their working capital, debt
service and capital expenditure requirements for the next year. With respect to
their long-term liquidity, MGI and its subsidiaries believe that their existing
cash and cash equivalents should provide sufficient funds to meet their debt
service and working capital requirements. However, until such time as Pacific
Lumber has adequate cash flows from operations and/or dividends from Scotia LLC,
there can be no assurance that this will be the case. Furthermore, due to its
highly leveraged condition, MGI is more sensitive than less leveraged companies
to factors affecting its operations, including governmental regulation and
litigation affecting its timber harvesting practices (see "--Trends" below and
Note 8), increased competition from other lumber producers or alternative
building products and general economic conditions.

TRENDS

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

      The Company's forest products operations are conducted by MGI through
Pacific Lumber and Britt. Regulatory and environmental matters play a
significant role in Pacific Lumber's operations. See Note 8 and Item 1.
"Business--Forest Products Operations--Regulatory and Environmental Factors" of
the Form 10-K for a discussion of these matters. Regulatory compliance and
related litigation have caused delays in obtaining approvals of THPs and delays
in harvesting on THPs once they are approved. This has resulted in a decline in
harvest, an increase in the cost of logging operations, and lower net sales.

      Since the consummation of the Headwaters Agreement on March 1, 1999, there
has been a significant amount of work required in connection with the
implementation of the Environmental Plans. As a result of the implementation
process, 1999 and 2000 were transition years for Pacific Lumber with respect to
the filing and approval of its THPs, principally because government agencies
have failed to approve THPs in a timely manner. The rate of approvals of THPs
during the three months ended June 30, 2001, has improved somewhat over prior
quarters; however, it continues to be below what Pacific Lumber requires to meet
its targeted harvest levels under the SYP. Nevertheless, Pacific Lumber
anticipates that once the Environmental Plans are fully implemented, the process
of preparing THPs will become more streamlined, and the time to obtain approval
of THPs will potentially be shortened.

      There can be no assurance that Pacific Lumber will not continue to
experience difficulties in receiving approvals of its THPs similar to those it
has been experiencing. Furthermore, there can be no assurance that certain
pending legal, regulatory and environmental matters or future governmental
regulations, legislation or judicial or administrative decisions, or adverse
weather conditions, would not have a material adverse effect on the Company's
financial position, results of operations or liquidity. See Part II. Item 1.
"Legal Proceedings" and Note 8 for further information regarding regulatory and
legal proceedings affecting the Company's operations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for cautionary information with respect to
such forward-looking statements.

      This item is not applicable for the Company and its subsidiaries; however,
Kaiser, the Company's equity investee, utilizes hedging transactions to lock-in
a specified price or range of prices for certain products which it sells or
consumes and to mitigate its exposure to changes in foreign currency exchange
rates. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk"
from Kaiser's Quarterly Report on Form 10-Q filed for the period ended June 30,
2001, included as Exhibit 99.1 to the Form 10-Q, for information relative to
Kaiser's hedging activities.

                           PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

      Reference is made to Item 3 of the Form 10-K for information concerning
material legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings subsequent to
the filing of the Form 10-K.

      TIMBER HARVESTING LITIGATION

      In connection with a February 2001 notice of intent to sue Pacific Lumber,
on July 24, 2001, the Bear Creek lawsuit was filed. The lawsuit alleges that
Pacific Lumber's harvesting and other activities under certain of its approved
and proposed THPs will result in discharges of pollutants in violation of the
CWA. The plaintiff asserts that the CWA requires the defendants to obtain a
permit from the North Coast Water Board before beginning timber harvesting and
road construction activities in the Bear Creek watershed, and is seeking to
enjoin these activities until such permit has been obtained. The plaintiff also
seeks civil penalties of up to $27,000 per day for the defendant's alleged
continued violation of the CWA. The Company believes that the requirements under
the HCP are adequate to ensure that sediment and pollutants from its harvesting
activities will not reach levels harmful to the environment. Furthermore, EPA
regulations specifically provide that such activities are not subject to CWA
permitting requirements. The Company believes that it has strong legal defenses
in this matter; however, there can be no assurance that this lawsuit will not
have a material adverse effect on its consolidated financial condition or
results of operations.

      HUNSAKER ACTION

      With respect to the Hunsaker Action, on July 9, 2001, the U.S. Ninth
Circuit Court of Appeals affirmed the District Court's dismissal of the case.


ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K

A.    EXHIBITS:

        4.1     Second Amendment, dated June 15, 2001, to the Scotia LLC Line of
                Credit (incorporated herein by reference to Exhibit 4.1 to the
                Scotia LLC June 2001 Form 10-Q; File No. 333-63825)

      *4.2      Loan Agreement, dated as of June 28, 2001, between Lakepointe
                Assets LLC and Legg Mason Real Estate Services, Inc.

      *4.3      Promissory Note, dated as of June 28, 2001, between Lakepointe
                Assets LLC and Legg Mason Real Estate Services, Inc.

      *10.1     Lease Agreement, dated as of June 28, 2001, between Lakepointe
                Assets LLC and Fluor Enterprises Inc.

      *10.2     Guarantee of Lease dated as of June 28, 2001, between Fluor
                Corporation and Lakepointe Assets LLC

      *99.1     Item 3. to the Kaiser June 2001 Form 10-Q

   * Included with this filing.

B.      REPORTS ON FORM 8-K:

      None.


                                   SIGNATURES


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




                                           MAXXAM GROUP HOLDINGS INC.





Date: August 13, 2001    By:   /S/             PAUL N. SCHWARTZ
                              ----------------------------------------------------
                                                Paul N. Schwartz
                              Vice President, Chief Financial Officer and Director
                                         (Principal Financial Officer)




Date: August 13, 2001    By:   /S/             ELIZABETH D. BRUMLEY
                              ----------------------------------------------------
                                              Elizabeth D. Brumley
                                                   Controller
                                         (Principal Accounting Officer)


                                                                      APPENDIX A


                            GLOSSARY OF DEFINED TERMS


Bear Creek lawsuit: An action entitled Environmental Protection Information
Association v. Pacific Lumber, Scotia Pacific Company LLC (No. C01-2821), filed
July 24, 2001, in the U.S. District Court in the Northern District of California

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

CDF:  California Department of Forestry and Fire Protection

CESA:  California Endangered Species Act

Company:  MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM

CWA:  Federal Clean Water Act

Environmental Plans:  The HCP and the SYP

EPA:  Environmental Protection Agency

EPIC-SYP/Permits lawsuit: An action entitled Environmental Protection
Information Association, Sierra Club v. California Department of Forestry and
Fire Protection, California Department of Fish and Game, The Pacific Lumber
Company, Scotia Pacific Company LLC, Salmon Creek Corporation, et al. (No.
99CS00639) filed March 31, 1999 in the Superior Court of Sacramento County

Equity Fund Partnership: A partnership investing in equity securities in which
the Company holds a limited partnership interest

ERF lawsuit: An action entitled Ecological Rights Foundation, Mateel
Environmental v. Pacific Lumber (No. 97-0292) which was filed in the U.S.
District Court in the Northern District of California on January 28, 1997

ESA:  The federal Endangered Species Act

Form 10-K: The Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 2000

HCP: The habitat conservation plan covering multiple species approved on March
1, 1999, in connection with the consummation of the Headwaters Agreement

Headwaters Agreement: The September 28, 1996, agreement between Pacific Lumber,
Scotia LLC, Salmon Creek, the United States and California which provided the
framework for the acquisition by the United States and California of the
Headwaters Timberlands

Headwaters Timberlands: Approximately 5,600 acres of Pacific Lumber timberlands
consisting of two forest groves commonly referred to as the Headwaters Forest
and the Elk Head Springs Forest which were sold to the United States and
California on March 1, 1999

Hunsaker Action: An action entitled William Hunsaker, et al. v. Charles E.
Hurwitz, Pacific Lumber, MAXXAM Group Inc., MXM Corp., Federated Development
Company and Does 1-50 (No. C 98-4515) filed in the United States District Court
for the Northern District of California on November 24, 1998

Kaiser: Kaiser Aluminum Corporation, an equity investee of the Company engaged
in aluminum operations

Kaiser Shares: 27,938,250 shares of the common stock of Kaiser, of which
23,443,953 shares are pledged as collateral for the MGHI Notes

Lakepointe Assets: Lakepointe Assets Holdings LLC, a limited liability company,
and its subsidiaries, all of which are indirect wholly owned subsidiaries of the
Company

Lakepointe Notes:  Lakepointe Assets'  $122.5 million of 7.56% notes due June 8, 2021

MAXXAM:  MAXXAM Inc.

MGHI Notes:  12% Senior Secured Notes of the Company due August 1, 2003

MGI:  MAXXAM Group Inc., a wholly owned subsidiary of the Company

North Coast Water Board:  North Coast Regional Water Quality Control Board

Pacific Lumber:  The Pacific Lumber Company, a wholly-owned subsidiary of MGI

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

Permits: The incidental take permits issued by the United States and California
pursuant to the HCP

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

SAR Account: Funds held in a reserve account to support principal payments on
the Timber Notes

Scheduled Amortization: The amount of principal which Scotia LLC must pay
through each Timber Note payment date in order to avoid prepayment or deficiency
premiums

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

Scotia LLC Line of Credit: The agreement between a group of lenders and Scotia
LLC pursuant to which it may borrow in order to pay up to one year's interest on
the Timber Notes

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

SYP: The sustained yield plan approved on March 1, 1999, in connection with the
consummation of the Headwaters Agreement

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

Timber Notes: Scotia LLC's $867.2 million original aggregate principal amount of
6.55% Series B Class A-1 Timber Collateralized Notes, 7.11% Series B Class A-2
Timber Collateralized Notes and 7.71% Series B Class A-3 Timber Collateralized
Notes due July 20, 2028

Timber Notes Indenture:  The indenture governing the Timber Notes

TMDLs:  Total maximum daily load limits

USWA lawsuit: An action entitled United Steelworkers of America, AFL-CIO, CLC,
and Donald Kegley v. California Department of Forestry and Fire Protection, The
Pacific Lumber Company, Scotia Pacific Company LLC and Salmon Creek Corporation
(No. 99CS00626) filed March 31, 1999 in the Superior Court of Sacramento
County

Wrigley lawsuit: An action entitled Kristi Wrigley, et al. v. Charles Hurwitz,
John Campbell, Pacific Lumber, MAXXAM Group Holdings Inc., Scotia Pacific
Holding Company, MAXXAM Group Inc., MAXXAM Inc., Scotia Pacific Company
LLC and Federated Development Company (No. 9700399) filed December 2, 1997 in
the Superior Court of Humboldt County