<PAGE>

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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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

                       COMMISSION FILE NUMBER 001-11911

                      STEINWAY MUSICAL INSTRUMENTS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                       35-1910745
      (State or Other Jurisdiction of                        (I.R.S. Employer
       Incorporation or Organization)                       Identification No.)
800 South Street, Suite 425, Waltham, Massachusetts                02154
  (Address of Principal Executive Offices)                       (Zip Code)

Registrant's telephone number including area code:     (781) 894-9770

                                      and

                           THE SELMER COMPANY, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                       95-4432228
      (State or Other Jurisdiction of                        (I.R.S. Employer
       Incorporation or Organization)                       Identification No.)
600 Industrial Parkway, Elkhart, Indiana                           46516
  (Address of Principal Executive Offices)                       (Zip Code)

Registrant's telephone number including area code:     (219) 522-1675

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

           Title of each class        Name of each exchange on which registered
Ordinary Common Shares, $.001 par value       New York Stock Exchange

         Securities registered pursuant Section 12(g) of the Act:  None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of the Form 10-K or any 
amendment to this Form 10-K.  [X]

The aggregate market value of the Common Stock held by non-affiliates of the 
registrant was $182,209,905 as of March 4, 1998.

<TABLE>
<S>                                                                   <C>         <C>
Number of shares of Common Stock outstanding as of March 4, 1998:     Class A       477,953
                                                                      Ordinary    8,886,441
                                                                                  ---------
                                                                      Total       9,364,394
</TABLE>

Documents incorporated by reference: Part III - Items 10-13 - Definitive 
Proxy Statement of the Registrant to be filed pursuant to Regulation 14A, 
Parts I-IV - Final Prospectus of the Registrant dated August 1, 1996 filed 
pursuant to Rule 424(b).
-------------------------------------------------------------------------------


<PAGE>

                                    PART I


ITEM 1         BUSINESS

GENERAL

     The Company, through its Steinway and Selmer subsidiaries, is one of the 
world's leading manufacturers of musical instruments. Steinway produces the 
highest quality piano in the world and has one of the most widely recognized 
and prestigious brand names. For more than a century, the Steinway concert 
grand has been the piano of choice for the world's greatest and most popular 
pianists.  More than 90% of all concert piano performances worldwide were on 
Steinway grand pianos during the 1997 concert season. Selmer is the leading 
domestic manufacturer of band and orchestral instruments and related 
accessories, including a complete line of brasswind, woodwind, percussion and 
stringed instruments. SELMER PARIS saxophones, BACH trumpets and trombones 
and LUDWIG snare drums are considered by many to be the finest such 
instruments in the world.  The Company's net sales of $278 million for the 
year ended December 31, 1997 were comprised of Steinway piano sales of $145 
million and Selmer band and orchestral instrument sales of $133 million.

     Steinway concentrates on the high-end grand piano segment of the 
industry. Steinway also offers vertical pianos as well as a full mid-priced 
line of pianos under the Boston brand name.  Steinway hand crafts its pianos 
in New York and Germany and sells them worldwide through approximately 200 
independent piano dealers and five Steinway-operated retail showrooms located 
in New York, New Jersey, London, Hamburg and Berlin.  In 1997, approximately 
60% of Steinway's sales were in the United States, 28% in Europe and the 
remaining 12% primarily in Asia.

     Selmer has the leading domestic market share in virtually all of its 
product lines, with such widely recognized brand names as SELMER PARIS, BACH, 
GLAESEL, WILLIAM LEWIS, LUDWIG and MUSSER. Selmer's products are made by a 
highly skilled workforce at manufacturing facilities in Indiana, North 
Carolina, Ohio and Illinois, and sold through approximately 1,600 independent 
dealers.  Beginner instruments accounted for 74% of Selmer's unit sales and 
51% of instrument revenues in 1997 with advanced and professional instruments 
representing the balance.  In 1997, approximately 82% of Selmer's sales were 
in the United States.

     Through selected acquisitions and internal growth, the Company has 
expanded into a full-line musical instrument manufacturer. The Company 
acquired Emerson Musical Instruments, Inc., a manufacturer of flutes and 
piccolos, on January 15, 1997.

     Certain statements contained throughout this annual report are 
"forward-looking statements" within the meaning of Section 21E of the 
Securities Exchange Act of 1934, as amended.  These forward-looking 
statements represent the Company's present expectations or beliefs concerning 
future events.  The Company cautions that such statements are necessarily 
based on certain assumptions which are subject to risks and uncertainties, 
including, but not limited to, changes in general economic conditions, 
exchange rate fluctuations, and the availability of production capacity which 
could cause actual results to differ materially from those indicated herein.  
Further information on these factors is included in the Company's Final 
Prospectus filed in August 1996, particularly the section therein entitled 
"Risk Factors".

                                       2
<PAGE>

PRODUCTS

     The Company offers pianos, band and orchestral instruments and services 
through the following subsidiaries and operating divisions:

     STEINWAY AND SONS offers two premium-priced product lines: grand pianos 
and vertical pianos.  Steinway pianos differ from all others in design 
specifications, materials used and the assembly process.  All of Steinway's 
patented designs and innovations provide the unique sound and quality of the 
Steinway piano.

     Grand pianos historically have accounted for the bulk of Steinway's 
production.  Steinway offers eight models of the grand piano ranging from the 
5'1" baby grand to the largest 9' concert grand.  The smaller grands are sold 
to both individual and institutional customers, while the concert grands are 
sold primarily to institutions.  Steinway grand pianos are premium pianos in 
terms of quality and price, with retail prices generally ranging from $30,300 
to $118,800 in the United States.  In 1997, Steinway sold 3,134 grand pianos, 
with 2,277 units shipped from its New York facility and 857 units shipped 
from its German facility.

     Vertical pianos offer dealers a complete line of quality pianos to 
satisfy the needs of institutions and other customers who are constrained by 
space limitations but unwilling to compromise on quality.  Steinway also 
provides services, such as restoration, repair, replacement part sales, 
tuning and regulation of pianos, at locations in New York, London, Hamburg 
and Berlin. Restoration services range from minor damage repairs to complete 
restorations of old pianos.  Over the past few years, Steinway has expanded 
its restoration capacity to accommodate an increased focus on the procurement 
and resale of used Steinway pianos.

     BOSTON PIANO COMPANY, which offers a complete line of grand and vertical 
pianos designed by Steinway and produced by a Japanese manufacturer, provides 
Steinway dealers with pianos priced in the upper end of the mid-priced piano 
market. The line provides dealers with an opportunity to realize better 
margins in the mid-market price range while capturing sales that would have 
otherwise gone to a competitor. The product line increases Steinway's 
business with its dealers, making Steinway the dealers' primary supplier in 
many instances. Furthermore, because historically 75% of Steinway customers 
have previously owned a piano, the Boston piano provides an entry-level 
product for future Steinway grand piano customers.  The Boston line is 
comprised of nine upright and grand piano models, with retail prices ranging 
from $5,195 to $33,310.

     SELMER DIVISION manufactures brasswind and woodwind instruments, 
including clarinets, flutes, piccolos, trumpets, cornets, trombones, 
saxophones, oboes and bassoons, at its facilities in Elkhart, Indiana.  The 
division also manufactures mouthpieces and distributes accessories such as 
oils, lubricants, polishes, stands, batons, sax straps, mutes and reeds. The 
division's products are manufactured under the SELMER, BACH, BUNDY and SIGNET 
brand names and are sold to student, amateur and professional musicians. 
Suggested retail prices generally range from $600 to $700 for student 
instruments and from $2,000 to $6,000 for step-up and professional 
instruments.  Products sold to professional musicians are often customized to 
meet specific design options or sound characteristics. The Company believes 
that specialization of products helps Selmer maintain a competitive edge in 
quality and product design.

     Selmer owns the exclusive U.S. distribution rights for SELMER PARIS 
products. The SELMER PARIS saxophone is generally considered to be one of the 
best in the world. SELMER PARIS, in turn, has exclusive distribution rights 
to Selmer's woodwind and brasswind products in France. Selmer expects to 
renew the 99 year SELMER PARIS distribution rights agreement when it expires 
in 1998. SELMER PARIS products represented 


                                       3
<PAGE>

approximately 7% of Selmer's sales in 1997. While the extension of these 
distribution rights is expected, the Company believes that the failure to 
extend such rights would not have a material adverse effect on Selmer's 
operating results.

     LUDWIG/MUSSER DIVISION manufactures acoustical and tuned percussion 
instruments, including outfit drums, marching drums, concert drums, marimbas, 
xylophones, vibraphones, orchestra bells, chimes, mallets and accessories. 
This division manufactures its products in Monroe, North Carolina and 
LaGrange, Illinois under the LUDWIG and MUSSER brand names.  LUDWIG is 
considered a leading brand name in drums and MUSSER has the dominant market 
share of tuned percussion products.

     GLAESEL/WILLIAM LEWIS DIVISION manufactures and distributes stringed 
instruments, including violins, violas, cellos and basses, and accessories 
such as bridges, covers, mutes, pads, chin rests, rosins, strings, bows, 
cases and instrument care products.  Components are primarily imported from 
several European and Asian suppliers and are assembled at the factory in 
Cleveland, Ohio.

     VINCENT BACH INTERNATIONAL, LTD. ("VBI"), located in London, England, is 
a wholly-owned subsidiary of Selmer.  VBI distributes Selmer's products, in 
addition to other products that do not compete directly with Selmer's 
products, in the United Kingdom.  Selmer also exports products to Europe and 
other parts of the world under its trademark name of VINCENT BACH 
INTERNATIONAL.

     EMERSON MUSICAL INSTRUMENTS, INC. ("EMERSON"), located in Elkhart, 
Indiana, manufactures a complete line of flutes and piccolos.  Emerson's 
instruments are sold to student, amateur and professional musicians.  Product 
offerings include student model flutes and piccolos, alto, bass and other 
background flutes, and professional model flutes made of sterling silver or 
gold.


CUSTOMERS

     Steinway's core customer base consists of professional artists and 
amateur pianists, as well as institutions such as concert halls, 
conservatories, colleges, universities and music schools.  Customers purchase 
Steinway pianos either through one of the Company's five retail stores or 
through independently owned dealerships.  Approximately 85% of Steinway piano 
sales in the United States are to individuals.  In other countries, sales to 
individuals are a smaller percentage.  Steinway pianos primarily are 
purchased by affluent individuals with incomes in excess of $100,000 per 
year.  The typical customer is over 45 years old and has a serious interest 
in music. Steinway's largest dealer accounted for approximately 5% of sales 
in 1997, while the top 15 accounts represented 29% of sales.

     The majority of Selmer's net sales are to dealers supplying instruments 
to students in elementary and high school.  Traditionally, students join 
school bands or orchestras at age 10 or 11 and learn on beginner level 
instruments. After several years, they progress to an advanced or 
professional level instrument.  In addition, certain large instruments 
typically are purchased directly by school systems.  Selmer products are also 
used by professional players.  Selmer's customers include approximately 1,600 
musical instrument dealers.  Selmer's largest customer accounted for 
approximately 6% of sales in 1997, while the top 15 accounts represented 
approximately 30% of sales.


                                       4
<PAGE>

SALES AND MARKETING

     Steinway distributes its products primarily on a wholesale basis through 
approximately 200 select dealers around the globe. The New York manufacturing 
facility supplies dealers in North and Latin America, while the Hamburg plant 
manufactures pianos for sale through dealers in Europe, Africa and Asia.  The 
New York plant manufactured approximately 73% of Steinway pianos sold in 1997.

     Approximately 88% of Steinway unit sales were sold on a wholesale basis 
in 1997.  The remaining 12% were sold directly by Steinway at one of its five 
company-operated retail locations in New York, New Jersey, London, Hamburg 
and Berlin. Steinway's West 57th Street store in New York City, known as 
Steinway Hall, is one of the largest and most famous piano stores in the 
world.

     In the first quarter of 1997, Steinway established a Japanese 
subsidiary, Steinway & Sons Japan Ltd., to increase its market share in 
Japan, particularly at the consumer level.  Steinway pianos, previously sold 
in Japan exclusively through a single retailer, are now offered by 23 dealers.

     STEINWAY ARTISTS.  For years Steinway has successfully used renowned 
artists in its marketing programs.  This form of marketing has helped 
solidify brand-name recognition as well as clearly demonstrate that Steinway 
pianos surpass all other brands in quality.  The most effective of these is 
the "Steinway Artists" program - the endorsement of world class pianists who 
voluntarily select the Steinway piano.  Steinway's program is unique, and in 
sharp contrast to typical modern marketing practices. Steinway does not pay 
artists to endorse its instruments.  Indeed, to become a Steinway Artist a 
pianist must not only meet certain performance and professional criteria, he 
or she must first own a Steinway piano.  The Steinway Artist roster currently 
includes over 1,000 of the world's finest pianists. Steinway Artists play 
only on Steinway.  In return for their endorsements, Steinway Artists are 
provided with access to the Piano Bank described below.

     THE CONCERT AND ARTIST PIANO BANK.  Virtually all major venues 
throughout the world own a Steinway piano.  However, to ensure all pianists, 
and especially Steinway Artists, have a broad selection of instruments to 
meet each individual's touch and tonal preferences, Steinway maintains the 
famed Concert and Artist Piano Bank (the "Piano Bank").  The Piano Bank 
includes approximately 350 instruments worldwide.  Of these instruments, 
approximately 285 are located in the United States.  In New York City, the 
Steinway concert department has approximately 112 concert grands available 
for various occasions.  The balance of the domestic-based pianos are leased 
to dealers around the country who actively support the Steinway Artists 
program.  In addition to promoting Steinway's products in the music industry, 
the Piano Bank provides Steinway with feedback on the quality and performance 
of the instruments from its most critical customer, the professional pianist. 
Since the average age of the instruments in the Piano Bank is less than 
4 years, Steinway receives continuous feedback on recently produced 
instruments. Generally, the Piano Bank instruments are sold after five years 
and are replaced with new pianos.

     DISTRIBUTION, SALES AND MARKETING OF THE BOSTON PIANO LINE.  The Boston 
piano line is targeted at the high end of the mid-priced segment of the 
market. The line was introduced to provide a broader product offering for 
dealers and provide an entry-level product for future Steinway grand piano 
customers. With certain limited exceptions, Steinway allows only Steinway 
dealers to carry the Boston piano line and thus ensures that the pianos will 
be marketed as a complementary product line.  Increased traffic generated by 
the Boston piano creates current and future customers for Steinway.  The 
introduction of a lower-priced alternative has not negatively impacted the 
sales of other Steinway pianos.  The Boston piano line profits from the 
"spillover" effect created by the marketing efforts supporting Steinway's 
main product lines.


                                       5
<PAGE>

     BAND AND ORCHESTRAL INSTRUMENTS.  Band, orchestral and percussion 
instruments and related accessories are marketed in the U.S. and Canada by 
district sales managers and independent sales representatives who are 
responsible for sales within assigned geographic territories.  Each district 
sales manager is also responsible for developing relationships with 
elementary, junior high, high school and college band and orchestral 
educators and professional players.  These individuals are the primary 
influence in the choice of an instrument brand.  In general, band directors 
refer students to designated dealers for the purchase of instruments.  
Management believes that its well established, long standing relationships 
with these music influencers are an important component of its distribution 
strategy.

     Internationally, products are sold through distributors located in each 
major country.  Distributors establish their own dealer networks and service 
them with their own sales representatives.  Selmer employs an international 
representative to help distributors market the Company's products.

     Dealers and distributors are supported through incentive programs, 
advertising and promotional activities.  Trade shows, print media, direct 
mail, telemarketing, the internet and personal sales calls are the primary 
methods of reaching customers.  The Company actively advertises in consumer, 
educator and trade magazines and publications.  In addition, Selmer 
executives attend several trade shows each year providing extensive 
opportunities to interface directly with customers.

     The Company's educational director travels extensively, lecturing and 
motivating students, educators and parents on the value of music in a child's 
development.  The Company also provides educational materials, catalogs and 
product specifications to students, educators, dealers and distributors.


MUSICAL INSTRUMENT INDUSTRY

     PIANOS. The overall piano industry can be best analyzed when subdivided 
into three categories: high end grand pianos, where Steinway realizes the 
vast majority of its profit; mid/low end grand pianos; and vertical pianos.  
Grand piano sales are affected by economic cycles, with the high end pianos 
tending to lag in both the entry and recovery phases of the cycle.  
Consistent with this, the unit volume of Steinway's domestic sales has 
increased steadily during the current U.S. economic expansion.  The overall 
decline in domestic piano sales has been driven primarily by a sharp decrease 
in vertical pianos which have been impacted by the increase in competition 
stemming from electronic alternatives and lower-cost, smaller, mass produced 
grand pianos. Since only a small percentage of Steinway's profits are derived 
from sales of vertical pianos, management believes this trend will not have a 
material adverse effect on Steinway's operating results.

     Market size and volume trends are difficult to quantify for 
international markets as there is no single source for worldwide sales data.  
Korea, China and Japan are the three largest piano markets in the world.  
Steinway's strongest international markets outside the Americas are Germany, 
Japan, Switzerland, France and the United Kingdom.

     While adverse economic conditions in the Asian markets have slowed 
expansion opportunities in Japan, the Company believes that its long-term 
prospects remain good.  Japan is currently the second largest grand piano 
market in the world.  Steinway currently has less than 2% market share in 
Japan, compared to an average market share of 8% in other major markets.  The 
Company's distribution strategy is aimed at improving its market share.

     BAND AND ORCHESTRAL INSTRUMENTS.  The Company believes that the band and 
orchestral instrument industry has historically been impacted more by 
demographic trends and school budgeting than by 


                                       6
<PAGE>

macroeconomic cycles.  The band and orchestral instrument industry 
experienced moderate sales declines starting in the mid to late 1970s, which 
strongly correlated to a decline in eleven year old children during the same 
time period.  Since 1984, the industry has experienced steady growth, 
consistent with the increases in both student enrollment (grades K through 
12) and school expenditures.

     Recent cultural and social trends placing more importance on music 
education as a part of a child's development have also contributed positively 
to industry sales.  The Company believes that parents are encouraging their 
children to pursue musical instruments as a response to recent studies that 
show participation in music programs increase a student's ability to excel in 
other aspects of their education (e.g., college entrance test scores). 
Additionally, many school band directors are promoting band programs as 
social organizations rather than the first step of intensive music study.


COMPETITION

     The Company is one of the largest domestic producers of band and 
orchestral instruments.  New entrants have difficulty competing with the 
Company due to the long learning curve inherent in the production of musical 
instruments, cost of tooling, significant capital requirements, lack of 
name-brand recognition and an effective distribution system.

     The Company enjoys leading market shares in most of its product lines 
and holds a unique position at the top end of the market for grand pianos.  
Few manufacturers compete directly with Steinway, both in terms of quality 
and price.

     Management believes that used instruments provide significant 
competition within certain segments of the musical instrument industry.  
Because of the potential savings associated with buying a used Steinway 
piano, as well as the durability of the instrument, a relatively large market 
exists for used Steinways.  It is difficult to estimate the significance of 
used piano sales, since most are conducted in the private aftermarket.  The 
Company, however, believes that used Steinway pianos provide the most 
significant competition in its market segment.  To capitalize on this 
segment, Steinway has recently increased its emphasis on both its restoration 
services and the procurement, refurbishment and sale of used Steinway pianos. 
The effect of used instruments in the band and orchestral market is less 
significant since instruments are less durable.


PATENTS AND TRADEMARKS

     The Company has several trademarks and patents effective and pending in 
the United States and in several foreign countries for varying lengths of 
time, including the trademarks STEINWAY, STEINWAY & SONS, the Lyre symbol, 
STEINWAY THE INSTRUMENT OF THE IMMORTALS, BOSTON, DESIGNED BY STEINWAY & 
SONS, SELMER, BACH, BUNDY, SIGNET, WILLIAM LEWIS, LUDWIG, MUSSER and EMERSON. 
Steinway has pioneered the development of the modern piano with over 125 patents
granted since its founding.  Management considers its various trademarks and 
patents to be important and valuable assets.


                                       7
<PAGE>

MANUFACTURING PROCESS

     The manufacturing process for musical instruments involves essentially 
two main production phases: the production of component parts and instrument 
assembly.  Employees perform various forming, drilling, and cutting 
operations during the parts production phase.  Investment in new equipment in 
this area over the last three years has allowed the Company to increase its 
production capacity and improve quality.  Skilled craftsmen assemble 
component parts for the final assembly of the instruments.  Each instrument 
is tested or tuned and regulated to the Company's specifications.

     The manufacturing process for pianos takes up to nine months to achieve 
the high quality standards expected for Steinway pianos.  Raw materials are 
purchased primarily in the United States and Europe.

     The Company maintains a fairly constant production schedule for band and 
orchestral instruments in order to minimize labor disruptions and to keep 
work-in-process inventories relatively stable.  Raw materials used in the 
production of brasswind and woodwind instruments are purchased primarily in 
the United States.  Component parts are imported from Europe and Asia for 
stringed and percussion instruments.


LABOR

     As of December 31, 1997, the Company employed 2,058 people, consisting 
of 1,552 hourly and 506 salaried employees.  Of the 2,058 employees, 1,635 
were employed in the United States and the remaining 423 were employed in 
Europe.

     At the New York manufacturing and retail facilities, all employees 
except executives, supervisory employees and clerical, administrative and 
retail sales department employees are represented by the United Furniture 
Workers/IUE, AFL/CIO.  In October 1997, the Company entered into a new 
collective bargaining agreement with these workers which will expire in 
September 2000.  In Hamburg, Germany, manufacturing employees are represented 
by the workers' council, Gewerkschaft Holz und Kunststoff, which negotiates 
on their behalf.  In Germany, Steinway participates in a consortium with 
other local manufacturers in similar industries to negotiate labor rates.  
Wage increases tend to track those of the major unions in Germany.  The 
contract covering hourly German employees is negotiated annually.  The United 
Auto Workers and the United Brotherhood of Carpenters represent 680 members 
of Selmer's workforce.  In March 1997, the Company entered into new 
collective bargaining agreements with the United Auto Workers membership 
which will expire in February 2000.  The agreement covering the rest of its 
union membership expires in November 1999. The Company believes that its 
relationship with its employees is generally good.


                                       8
<PAGE>

ITEM 2         PROPERTIES

     The Company owns most of its manufacturing and warehousing facilities. 
All of the Steinway retail stores are leased.  Substantially all of the 
domestic real estate has been pledged to secure the Company's debt.  The 
following table lists the Company's owned and leased facilities.

<TABLE>
<CAPTION>
                                    APPROXIMATE
                                    FLOOR SPACE
LOCATION            OWNED/LEASED   (SQUARE FEET)   ACTIVITY
--------            ------------   -------------   --------
<S>                 <C>            <C>             <C>
New York, NY            Owned         449,900      Piano manufacturing; restoration center;
                                                   executive offices; training
                        Leased         38,750      Steinway Hall retail store/showroom
Hamburg, Germany        Owned         220,660      Piano manufacturing; executive offices; training
                        Leased         11,300      Steinway Haus retail store/showroom
Elkhart, IN             Owned         144,000      Brasswind manufacturing
                        Owned          77,000      Woodwind manufacturing
                        Owned          75,000      Warehouse
                        Owned          25,000      Executive offices
                        Leased         17,000      Flute manufacturing
LaGrange, IL            Owned          46,000      Percussion instrument manufacturing
                        Leased         18,000      Timpani production
Monroe, NC              Leased        147,000      Drum and case manufacturing
Cleveland, OH           Leased         52,000      Stringed instrument manufacturing
London, England         Leased         20,000      VBI office and warehouse
                        Leased          9,580      Steinway Hall retail store/showroom
                        Leased          5,780      Piano repair/restoration
Tokyo, Japan            Leased          6,040      Warehouse and selection center
                        Leased          1,040      Executive offices
Berlin, Germany         Leased          5,650      Steinway Haus retail store/showroom
Paramus, NJ             Leased          4,200      Steinway Hall West retail store
Waltham, MA             Leased          2,440      Executive offices
</TABLE>

     The Company spent approximately $5.6 million for capital expenditures in 
1997.  The majority of the expenditures were used for new machinery and 
building improvements.  The Company expects to increase its level of capital 
expenditures in the future as it modernizes its equipment and renovates its 
facilities in order to expand its production capacity and piano restoration 
services.


ITEM 3         LEGAL PROCEEDINGS

     The Company is involved in three legal proceedings regarding 
Environmental Matters, which are described below.  Further, in the ordinary 
course of business, the Company is party to various legal actions that 
management believes are routine in nature and incidental to the operation of 
its business. While the outcome of such actions cannot be predicted with 
certainty, management believes that, based on its experience in dealing with 
these matters, the ultimate resolution of these matters will not have a 
material adverse impact on the business, financial condition and results of 
operations or prospects of the Company.

     ENVIRONMENTAL MATTERS - The Company is subject to compliance with 
various federal, state, local and foreign environmental laws, including those 
relating to discharges to air, water and land, the handling 


                                       9
<PAGE>

and disposal of solid and hazardous waste and the cleanup of properties 
affected by hazardous substances. Certain environmental laws, such as the 
Comprehensive Environmental Response, Compensation, and Liability Act, as 
amended ("CERCLA"), impose strict, retroactive, joint and several liability 
upon persons responsible for releases of hazardous substances, which 
responsibility is broadly construed.

     On August 9, 1993, Philips Electronics North America Corporation 
("Philips") agreed to continue to indemnify the Company for any and all 
losses, damages, liabilities and claims relating to environmental matters 
resulting from certain activities of Philips occurring prior to December 29, 
1988 (the "Environmental Indemnity Agreement").  To date, Philips has fully 
performed its obligations under the Environmental Indemnity Agreement.  The 
Environmental Indemnity Agreement terminates on December 29, 2008.  Three 
matters covered by the Environmental Indemnity Agreement are currently 
pending.  For two of these sites, Philips has entered into Consent Orders 
with the Environmental Protection Agency ("EPA") or the North Carolina 
Department of Environment, Health and Natural Resources, as appropriate, 
whereby Philips has agreed to pay required response costs.  For the third 
site, the EPA has notified Selmer it intends to carry out the final 
remediation remedy itself.  The EPA estimates that this remedy has a present 
net cost of approximately $12 million.  Over 40 persons or entities have been 
named by the EPA as potentially responsible parties at this site.  This 
matter has been tendered to Philips pursuant to the Environmental Indemnity 
Agreement.  The potential liability of the Company at any of these sites is 
affected by several factors including, but not limited to, the method of 
remediation, the Company's portion of the materials in the site relative to 
the other named parties, the number of parties participating and the 
financial capabilities of the other potentially responsible parties once the 
relative share has been determined.  No assurance can be given, however, that 
additional environmental issues will not require additional, currently 
unanticipated investigation, assessment or remediation expenditures or that 
Philips will make payments that it is obligated to make under the 
Environmental Indemnity Agreement.

     The Company operates manufacturing facilities at locations where 
hazardous substances (including chlorinated solvents) were used.  The Company 
believes that an entity that formerly operated one such facility may have 
released hazardous substances at such location, which is leased by the 
Company.  The Company has not contributed to such release.  Further, the 
Company has a contractual indemnity from certain stockholders of such entity. 
Such facility is not the subject of a legal proceeding involving the Company 
and to the Company's knowledge, is not subject to investigation.  However, no 
assurance can be given that legal proceedings will not arise in the future 
and that such indemnitors would make the payments described in the indemnity.

     The matters described above and the Company's other liabilities and 
compliance costs arising under environmental laws are not expected to have a 
material impact on the Company's capital expenditures, earnings or 
competitive position.  However, some risk of environmental liability is 
inherent in the nature of the Company's current and former businesses and the 
Company might in the future incur material costs to meet current or more 
stringent compliance, cleanup or other obligations pursuant to environmental 
laws.


ITEM 4         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of the Company's security holders 
during the fourth quarter of the fiscal year ended December 31, 1997.


                                      10


<PAGE>

                                    PART II

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

     The ordinary common stock of the Company began trading in August 1996
(subsequent to an initial public offering) on the New York Stock Exchange
("NYSE") under the symbol "LVB".  The following table sets forth for the period
indicated, the high and low closing sales price per share of the ordinary
common stock as reported on the NYSE.  Prior to the offering in August 1996, no
established public trading market existed.

<TABLE>
<CAPTION>
                                        High       Low
                                        ----       ---
<S>                                    <C>        <C>
Fiscal Year Ended December 31, 1996
     Third Quarter                     $19.00     $16.38
     Fourth Quarter                     18.38      16.13


Fiscal Year Ended December 31, 1997
     First Quarter                     $19.88     $17.00
     Second Quarter                     19.63      15.25
     Third Quarter                      24.25      19.19
     Fourth Quarter                     25.00      22.00
</TABLE>

     The Company's common stock is comprised of two classes: Class A and
Ordinary.  With the exception of disparate voting power, both classes are
substantially identical.  Each share of Class A common stock entitles the
holder to 98 votes.  Holders of ordinary common stock are entitled to one vote
per share.  Class A common stock shall automatically convert to ordinary common
stock if, at any time, the Class A common stock is not owned by an original
Class A holder.  As of February 27, 1998, there were 276 holders of record of
the Company's ordinary common stock and two holders of record of the Class A
common stock.

     The Company has no plans to pay cash dividends on the common stock.  The
Company presently intends to retain earnings to reduce outstanding indebtedness
and to fund the growth of the Company's business.  The payment of any future
dividends will be determined by the Board of Directors in light of conditions
then existing, including the Company's results of operations, financial
condition, cash requirements, restrictions in financing agreements, business
conditions and other factors.

     The Company is restricted by the terms of its outstanding debt and
financing agreements from paying cash dividends on its common stock, and may in
the future enter into loan or other agreements that restrict the payment of
cash dividends on the common stock.


                                       11
<PAGE>

ITEM 6         SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth selected consolidated financial data of the
Company as of and for the five years ended December 31, 1997, derived from the
audited financial statements of the Company.  The table should be read in
conjunction with the audited consolidated financial statements of the Company,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.

<TABLE>
<CAPTION>

                                    Predecessor (1)                             Company
                                    ----------------  ---------------------------------------------------------------------
                                                Period                              Year Ended December 31,
(Dollars in thousands, except        -------------------------     --------------------------------------------------------
   per share information)               1/1/93 -      8/11/93 -
                                       8/10/93        12/31/93         1994         1995 (2)         1996          1997
                                     -----------     ----------    ----------      ----------     ---------     ---------
<S>                                  <C>             <C>           <C>             <C>            <C>           <C>
INCOME STATEMENT DATA:
Net sales                              $ 57,171      $  34,339     $  101,114      $ 189,805      $ 257,903     $ 277,848
Gross profit                             17,955          5,484         31,661         50,218         84,235        93,281
Earnings (loss) from operations           5,520         (1,640)        12,472         13,102         33,020        38,932
Net income (loss) before
      extraordinary item                  1,405         (3,109)         2,922         (2,074)         7,421        13,700
Income (loss) per share before
      extraordinary item:
      Basic                                   -          (2.07)          1.95          (1.36)          1.00          1.45
      Diluted                                 -          (2.07)          0.52          (1.36)          1.00          1.45

Weighted average shares:
      Basic                                   -      1,499,900      1,499,900      1,524,663      7,418,580     9,426,122
      Diluted                                 -      1,499,900      5,660,000      1,524,663      7,418,580     9,458,841

OTHER FINANCIAL DATA:
Adjusted gross profit (3)              $ 17,955      $  10,238     $   31,925      $  59,856      $  84,235     $  93,281
EBITDA (3) (4)                            8,522          4,597         16,638         30,479         44,520        50,175
Capital expenditures                        576            303          1,112          3,162          5,199         5,634
Cash flows from:
   Operating activities                  (8,565)        15,102         10,973          6,663          5,927        13,835
   Investing activities                    (577)       (94,413)        (1,202)      (107,702)        (5,039)       (8,968)
   Financing activities                   9,512         78,648         (9,549)       104,365           (865)       (3,440)

MARGINS:
Adjusted gross profit (3)                  31.4%          29.8%          31.6%          31.5%          32.7%         33.6%
EBITDA  (3) (4)                            14.9           13.4           16.5           16.1           17.3          18.1

BALANCE SHEET DATA (AT PERIOD END):     
Cash                                   $    716      $      53      $     380      $   3,706      $   3,277     $   5,271
Current assets                           69,563         56,736         56,265        132,380        140,353       151,622
Total assets                             95,349         88,970         85,524        263,796        265,366       266,708
Current liabilities                       9,907         10,174         13,388         41,767         37,720        40,429
Total debt                               65,053         71,369         62,057        174,039        118,391       115,457
Partners'/Stockholders' equity           17,999          4,226          7,253          5,828         67,878        75,761

</TABLE>


NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA:

(1)  On August 10, 1993, the Company purchased substantially all of the 
     assets and certain liabilities of The Selmer Company, L.P. (the 
     "Predecessor").

(2)  The Company acquired Steinway in May 1995.

(3)  Adjusted gross profit and EBITDA under the captions "Other Financial 
     Data" and "Margins" for the period August 11, 1993 to December 31, 1993 
     and for the years ending 1994 and 1995 reflect positive adjustments of 
     $4,754, $264 and $9,638, respectively, relating to purchase accounting 
     adjustments to inventory for the acquisitions of Selmer in 1993 and 
     Steinway in 1995.

(4)  EBITDA represents earnings before depreciation and amortization, net 
     interest expense, other expenses (including certain management fees and 
     bank fees) and income tax expense (benefit), adjusted to exclude 
     non-recurring charges.  While EBITDA should not be construed as a 
     substitute for operating income or a better indicator of liquidity than 
     cash flow from operating activities, which are determined in accordance 
     with generally accepted accounting principles, it is included herein to 
     provide additional information with respect to the ability of the 
     Company to meet its future debt service, capital expenditure and working 
     capital requirements which the Company believes certain investors find 
     to be useful.  EBITDA is not necessarily a measure of the Company's 
     ability to fund its cash needs.


                                       12
<PAGE>

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

INTRODUCTION

     The following discussion provides an assessment of the results of
operations and liquidity and capital resources for the Company and should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere in this report.

OVERVIEW

     The Company, through its Steinway and Selmer subsidiaries, is one of the
world's leading manufacturers of musical instruments.  The Company's net sales
and earnings from operations improved 7.7% and 17.9%, respectively, for 1997
compared to 1996.  The Company believes that these operating performance
improvements have resulted from implementation of the Company's strategy to
capitalize on its strong brand names and leading market positions.  The
Company's net sales of $278 million for the year ended December 31, 1997 were
comprised of Steinway piano sales of $145 million and Selmer band and
orchestral instrument sales of $133 million.

     Steinway's piano sales are influenced by general economic conditions in
the United States and Europe, demographic trends and general interest in music
and the arts.  Steinway's operating results are primarily affected by grand
piano sales.  Given the total number of grand pianos sold by Steinway in any
year (3,134 sold in 1997), a decrease of a relatively few number of units being
sold by Steinway can have a material impact on the Company's business and
operating results.  Domestic grand piano unit shipments have increased 27% from
1994 to 1997, largely attributable to the economic recovery in the United
States as well as increased selling and marketing efforts.  Grand piano unit
shipments to international markets have remained relatively flat over the same
period reflecting the weakness of the European economies.  In 1997,
approximately 60% of Steinway's sales were in the United States, 28% in Europe
and the remaining 12% primarily in Asia.

     Selmer student instrument sales are strongly influenced by trends in
school enrollment and general attitudes toward music and the arts.  The school
instrument business is generally resistant to macroeconomic cycles and strongly
correlated to the number of school children in the United States, which is
expected to grow steadily through 2005.  Beginner instruments accounted for 74%
of Selmer's unit shipments and 51% of instrument revenues in 1997 with advanced
and professional instruments representing the balance.

     Band and orchestral instrument unit shipments have grown an average of 4%
a year, and sales have grown an average of 10% a year, since 1994.  The unit
and sales growth is the result of management's efforts to capitalize on the
favorable demographic trends and the generally positive attitudes towards music
education by parents.  Efforts have included increasing production capacity to
meet the growing demand for its products and directing marketing programs
toward the school age population.

     Although the Company cannot accurately predict the precise effect of
inflation on its operations, it does not believe that inflation has had a
material effect on sales or results of operations in recent years.  Sales to
customers outside the United States represent approximately 30% of consolidated
sales, with Steinway's international sales accounting for over 71% of these
international sales.  A significant portion of Steinway's international sales
originate from its German manufacturing facility, resulting in sales, cost of
sales and related operating expenses denominated in deutsche marks.  While
currency translation has 


                                       13
<PAGE>

affected international sales, cost of sales and related operating expenses, 
it has not had a material impact on operating income.  The Company utilizes 
financial instruments such as forward exchange contracts and currency options 
to reduce the impact of exchange rate fluctuations on firm and anticipated 
cash flow exposures and certain assets and liabilities denominated in 
currencies other than the functional currency.  The Company does not purchase 
currency related financial instruments for purposes other than exchange rate 
risk management.

     The Company's effective tax rates vary depending on the relative 
proportion of foreign to U.S. income (foreign income generally bears higher 
rates of tax) and absorption of foreign tax credits in the U.S.  In 1997, 
U.S. income increased relative to foreign income and the rate of credit 
absorption increased slightly.  This shift in income combined with certain 
tax saving strategies reduced the Company's effective tax rate from 53% in 
1996 to 48% in 1997.

RESULTS OF OPERATIONS

     In May 1995, Selmer acquired Steinway for approximately $104.0 million.
The acquisition was accounted for as a purchase for financial reporting
purposes.  The consolidated financial statements of the Company as of and for
the year ending December 31, 1995 include the effects of the acquisition as
well as the results of operations for Steinway for the period May 25, 1995 to
December 31, 1995.

     In August 1996, the Company completed an initial public offering of its
ordinary common stock which raised approximately $63.1 million.  After
deducting expenses of approximately $2.3 million, the Company used the net
proceeds from the offering to repay $54.6 million of Senior Secured Notes and
related prepayment penalties of $4.5 million.

     In January 1997, the Company acquired Emerson for approximately 
$2.0 million, including assumed liabilities of $0.4 million.  The acquisition 
was accounted for as a purchase for financial reporting purposes.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

     NET SALES - Net sales increased $19.9 million (7.7%) to $277.8 million in
1997.  Piano sales increased $8.9 million (6.6%) despite the negative impact of
$7.9 million from foreign currency translation.  Total piano shipments
increased nearly 19%, comprised of a 33% increase in Boston units and a 6%
increase in Steinway units.  Band and orchestral instrument sales increased
$11.0 million (9.0%) in 1997.  Emerson contributed $2.9 million of the band
sales increase.  Total instrument shipments increased 5% for the year.

     GROSS PROFIT - Gross profit increased $9.0 million (10.7%) to $93.3
million.  Gross margins increased to 33.6% in 1997 compared to 32.7% in 1996.
This improvement is primarily due to greater efficiencies associated with
higher levels of piano production combined with a Yen driven reduction in costs
of the Boston piano line of approximately $2.1 million.

     OPERATING EXPENSES - Operating expenses increased $3.1 million (6.1%) to
$54.3 million in 1997. Additional operating costs associated with new
subsidiaries totaled $1.6 million in 1997.  After adjusting for these
additional expenses, operating costs increased only 3.1% over 1996.  Overall,
operating expenses decreased as a percentage of sales from 19.9% in 1996 to
19.6% in 1997.


                                       14
<PAGE>

     EARNINGS FROM OPERATIONS - Earnings from operations increased by 
$5.9 million (17.9%) to $38.9 million in 1997.  These improved earnings 
resulted from increased sales combined with improved gross profit margins and 
firm control over operating expenses.

     NET INTEREST EXPENSE -  Net interest expense decreased $4.3 million
(25.3%) to $12.8 million in 1997.  This decrease represents the savings
realized from the retirement of the Company's Senior Secured Notes in 
September 1996.


FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

     NET SALES - Net sales increased $68.1 million (35.9%) to $257.9 million in
1996.  Steinway sales contributed $55.4 million of this increase, reflecting
the impact of a full year's results in 1996 versus the seven months included in
1995.  Selmer sales increased $12.7 million (11.6%) with instrument unit growth
of 4.1% representing $2.8 million of the increase.  The balance of the increase
relates to price increases and a favorable mix of higher priced instruments.

     GROSS PROFIT - Gross profit increased $34.0 million (67.7%) to 
$84.2 million.  Steinway contributed $26.6 million of this increase, the 
majority of which is attributable to the full year's sales impact noted 
above.  In addition, 1995 results were affected by $9.6 million in additional 
cost of sales relating to the fair value adjustment of Steinway's inventory 
effected upon its acquisition.  Selmer gross profit increased $7.5 million 
(22.1%) in 1996, reflecting the increase in sales.  Gross margins increased 
to 32.7% in 1996 compared to 26.5% in 1995 primarily as a result of having 
fully absorbed the $9.6 million Steinway inventory acquisition adjustment 
during 1995.

     OPERATING EXPENSES - Operating expenses increased $14.1 million (38.0%) to
$51.2 million in 1996.  Steinway operating expenses accounted for $12.7 million
of the increase.  Selmer operating expenses increased $1.2 million (6.3%) to
$20.7 million, but decreased as a percentage of sales from 17.8% in 1995 to
17.0% in 1996.  Overall, operating expenses remained under 20.0% of sales for
both 1995 and 1996.

     EARNINGS FROM OPERATIONS - Earnings from operations increased by 
$19.9 million (152.0%) to $33.0 million in 1996.  The impact of Steinway's 
full year results in 1996 combined with the negative effect on 1995 earnings 
associated with the $9.6 million inventory acquisition adjustment accounted 
for $13.7 million of this improvement.  The remaining $6.2 million increase 
in earnings represents the contribution from Selmer's increased sales level.

     NET INTEREST EXPENSE -  Net interest expense increased $2.8 million
(19.3%) to $17.1 million in 1996.  This increase was a product of the
additional five months that the $110 million in Steinway acquisition debt was
outstanding offset by the savings realized from the early extinguishment of 
$55 million in senior secured notes accomplished with the proceeds of the 
Company's initial public offering in August 1996.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has relied primarily upon cash provided by operations,
supplemented as necessary by seasonal borrowings under its working capital
line, to finance its operations, repay long-term indebtedness and fund capital
expenditures.


                                       15
<PAGE>

     Cash provided by operations was $6.7 million in 1995, $5.9 million in 1996
and $13.8 million in 1997.  Major acquisitions have been financed through the
issuance of long-term debt.  Cash provided from the issuance of $105.0 million
of Senior Subordinated Notes funded the Steinway acquisition in 1995.

     Capital expenditures in 1995, 1996 and 1997 were $3.2 million, 
$5.2 million and $5.6 million, respectively.  These capital expenditures were 
primarily used for purchasing new machinery and building improvements.  The 
Company expects to increase its level of capital expenditures in the future 
as it modernizes its equipment and renovates its facilities in order to 
expand its production capacity and piano restoration services.

     Consistent with industry practice, Selmer sells band instruments almost
entirely on credit utilizing the two financing programs described below.  These
programs create large working capital requirements during the year when band
instrument receivable balances reach highs of approximately $55-60 million in
August and September, and lows of approximately $25-30 million in January and
February.  The financing options, intended to assist dealers with the
seasonality inherent in the industry and to facilitate the rent-to-own programs
offered to students by many retailers, also allow Selmer to match its
production and delivery schedules.  Selmer offers the following two forms of
financing to qualified band instrument dealers:

a)   RECEIVABLE DATING: Purchases made from January through September have
     payment due in October.  Purchases made from October to December have 
     payment due in January.  Dealers are offered discounts for early payment.

b)   NOTE RECEIVABLE FINANCING:  Qualified dealers may convert open accounts to 
     a note payable to Selmer.  The note program is offered in January and 
     October, and coincides with the receivable dating program.  The note 
     receivable is secured by dealer inventories and receivables.  The 
     majority of notes receivable are purchased by a third-party financial 
     institution, on a full recourse basis.  The Company's current 
     arrangement, which allows the financial institution to purchase, at 
     its option, up to an aggregate of $15.0 million of notes receivable 
     per year, expires in 2000.  Net notes receivable sales generated 
     approximately $11.8 million and $15.1 million in cash in 1996 and 
     1997, respectively.

     Unlike many of its competitors in the piano industry, Steinway does not 
provide extended financing arrangements to its dealers.  To facilitate 
long-term financing required by some dealers, Steinway has arranged for 
financing through a third-party provider which generally involves no 
guarantee by Steinway.

     The Company's domestic, seasonal borrowing requirements are accommodated 
through a committed, revolving credit facility with a domestic bank (the 
"Facility").  The Facility provides the Company with a potential borrowing 
capacity of up to $60.0 million, based on eligible accounts receivable and 
inventory.  Borrowings are secured by a first lien on the Company's domestic 
inventory, receivables, and fixed assets.  As of December 31, 1997, no 
amounts were outstanding, and availability was approximately $50.3 million.  
The Facility currently bears interest at the Eurodollar rate plus 2.5% and 
expires March 31, 2000.  Open account loans with foreign banks also provide 
for borrowings by Steinway's foreign subsidiaries of up to 25 million 
deutsche marks.

     At December 31, 1997, the Company's total outstanding indebtedness 
amounted to $115.5 million, consisting of $110.0 million of 11% Senior 
Subordinated Notes and $5.5 million of notes payable to foreign banks.  Cash 
interest paid was $17.7 million and $13.5 million in 1996 and 1997, 
respectively.  All of the Company's debt agreements contain covenants that 
place certain restrictions on the Company, including its ability to incur 
additional indebtedness, to make investments in other entities, and to pay 
cash dividends.


                                       16
<PAGE>

     The Board of Directors of the Company approved a share repurchase 
program in November 1997.  The program authorizes management to make 
discretionary repurchases of its ordinary common stock up to a limit of 
$25 million.  Shares purchased will be held as treasury shares to be used for 
corporate purposes. During 1997, 85,900 shares were repurchased under the 
program at a cost of $1.9 million.

     The Company has conducted a review of its computer systems to identify
those areas that could be affected by the "Year 2000" issue.  The Company
presently believes the Year 2000 problem will not pose significant operational
problems and the cost of remediating any identified problems is not anticipated
to be material to its financial position or results of operations either in the
aggregate or in any given year.

     Management believes that cash on hand, together with cash flow 
anticipated from operations and available borrowings under the Facility, will 
be adequate to meet debt service requirements, fund continuing capital 
requirements and satisfy working capital and general corporate needs through 
the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

     In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share".  Prior to 1997, the Company computed
income (loss) per common share using the methods outlined in Accounting
Principles Board Opinion No. 15, Earnings Per Share, and its interpretations.
Previously reported income (loss) per common share for years prior to 1997 did
not differ materially from that computed using SFAS 128.

     In June 1997, the Financial Accounting Standards Board (FASB) released
SFAS No. 130, "Reporting Comprehensive Income", which the Company will be
required to adopt in 1998.  SFAS 130 requires that the Company provide a
prominent display of the components of items of other comprehensive income.
The only item that the Company currently records as other comprehensive income
is the change in cumulative translation adjustment resulting from changes in
exchange rates and the effect of those changes upon translation of the
financial statements of the Company's foreign operations.  Adoption will not
have an effect on reported results of operations or financial position.

     In June 1997, the FASB released SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information".  SFAS 131 requires that a company
disclose segmented information about its businesses based upon the way in which
management oversees and evaluates the results of such businesses.  The Company
has elected to early adopt the provisions of SFAS 131 in 1997.

     In February 1998, the FASB released SFAS No. 132, "Employer's 
Disclosures about Pensions and Other Postretirement Benefits", which the 
Company will be required to adopt in 1998.  SFAS 132 will require additional 
disclosure concerning changes in the Company's pension obligations and assets 
and eliminates certain other disclosures no longer considered useful.  
Adoption will not have any effect on reported results of operations or 
financial position.


                                       17
<PAGE>

ITEM 7A        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS:

     Consolidated Balance Sheets as of December 31, 1996 and 1997
     Consolidated Statements of Operations for the Years Ended December 31,
       1995, 1996 and 1997
     Consolidated Statements of Stockholders' Equity for the Years Ended
       December 31, 1995, 1996 and 1997
     Consolidated Statements of Cash Flows for the Years Ended December 31,
       1995, 1996 and 1997
     Notes to Consolidated Financial Statements


                                       18
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Steinway Musical Instruments, Inc.


We have audited the accompanying consolidated financial statements of  Steinway
Musical Instruments, Inc. and subsidiaries as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997, listed on
page 18.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of  Steinway Musical Instruments, 
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of 
their operations and their cash flows for each of the three years in the 
period ended December 31, 1997 in conformity with generally accepted 
accounting principles.


DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 27, 1998


                                       19
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1996 AND 1997
                   (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                           December 31,  December 31,
                                                                               1996          1997
                                                                           ------------  ------------
<S>                                                                        <C>           <C>
ASSETS
Current assets:
   Cash                                                                      $  3,277      $  5,271
   Accounts, notes and leases receivable, net of allowance for
      bad debts of $7,120 and $7,504 in 1996 and 1997, respectively            45,563        47,377
   Inventories                                                                 82,950        87,954
   Prepaid expenses and other current assets                                    2,867         4,832
   Deferred tax asset                                                           5,696         6,188
                                                                             --------      --------
Total current assets                                                          140,353       151,622

Property, plant and equipment, net                                             62,101        58,629
Other assets, net                                                              26,291        22,891
Cost in excess of fair value of net assets acquired, net of accumulated
      amortization of $1,894 and $2,734 in 1996 and 1997, respectively         36,621        33,566
                                                                             --------      --------
TOTAL ASSETS                                                                 $265,366      $266,708
                                                                             --------      --------
                                                                             --------      --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable and current portion of long-term debt                       $  2,354      $  3,338
   Accounts payable                                                             6,453         5,668
   Other current liabilities                                                   28,913        31,423
                                                                             --------      --------
Total current liabilities                                                      37,720        40,429

Long-term debt                                                                116,037       112,119
Deferred taxes                                                                 30,003        26,279
Non-current pension liability                                                  13,728        12,120
                                                                             --------      --------
Total liabilities                                                             197,488       190,947

Commitments and Contingent Liabilities

Stockholders' equity:
   Class A Common Stock, $.001 par value, authorized 5,000,000 shares,
      477,953 shares issued and outstanding                                         -             -
   Common stock, $.001 par value, authorized 90,000,000 shares, 8,944,984
      and 8,889,641 shares outstanding in 1996 and 1997, respectively               9             9
   Additional paid-in capital                                                  68,729        69,206
   Retained earnings                                                              792        14,492
   Accumulated translation adjustment                                          (1,652)       (6,030)
   Treasury stock                                                                   -        (1,916)
                                                                             --------      --------
     Total stockholders' equity                                                67,878        75,761
                                                                             --------      --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $265,366      $266,708
                                                                             --------      --------
                                                                             --------      --------
</TABLE>

See notes to consolidated financial statements.


                                       20
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                          1995           1996         1997
                                                       ----------     ----------    ----------
<S>                                                    <C>            <C>           <C>
Net sales                                              $  189,805     $  257,903    $  277,848
Cost of sales                                             139,587        173,668       184,567
                                                       ----------     ----------    ----------
Gross profit                                               50,218         84,235        93,281

Operating expenses:
   Sales and marketing                                     21,001         29,206        32,441
   Provision for doubtful accounts                            797            760           742
   General and administrative                              11,612         16,363        17,531
   Amortization                                             3,041          4,388         3,869
   Other expense                                              665            498          (234)
                                                       ----------     ----------    ----------
Total operating expenses                                   37,116         51,215        54,349
                                                       ----------     ----------    ----------
Earnings from operations                                   13,102         33,020        38,932

Other (income) expense:
   Other income, principally interest and late charges       (583)          (763)         (728)
   Interest and amortization of debt discount              14,923         17,870        13,504
                                                       ----------     ----------    ----------
Other expense, net                                         14,340         17,107        12,776
                                                       ----------     ----------    ----------
Income (loss) before income taxes                          (1,238)        15,913        26,156

Provision for income taxes                                    836          8,492        12,456
                                                       ----------     ----------    ----------
Income (loss) before extraordinary item                    (2,074)         7,421        13,700

Extraordinary item - Early extinguishment
   of debt (net of tax benefit of $2,640)                                  4,368             -
                                                       ----------     ----------    ----------
Net income (loss)                                      $   (2,074)    $    3,053    $   13,700
                                                       ----------     ----------    ----------
                                                       ----------     ----------    ----------
Basic income (loss) per share:
   Income (loss) before extraordinary item             $    (1.36)    $     1.00    $     1.45
   Extraordinary item                                                       (.59)
                                                       ----------     ----------    ----------
   Net income (loss)                                   $    (1.36)    $      .41    $     1.45
                                                       ----------     ----------    ----------
                                                       ----------     ----------    ----------
Diluted income (loss) per share:
   Income (loss) before extraordinary item             $    (1.36)    $     1.00    $     1.45
   Extraordinary item                                                       (.59)
                                                       ----------     ----------    ----------
   Net income (loss)                                   $    (1.36)    $      .41    $     1.45
                                                       ----------     ----------    ----------
                                                       ----------     ----------    ----------
Weighted average shares:
   Basic                                                1,524,663      7,418,580     9,426,122
   Diluted                                              1,524,663      7,418,580     9,458,841

</TABLE>


See notes to consolidated financial statements.


                                       21
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                            Additional     Retained     Accumulated
                                    Preferred     Common                      Paid in      Earnings     Translation      Treasury
                                      Stock       Stock        Warrants       Capital      (Deficit)     Adjustment       Stock
                                    ---------     ------       --------     ----------    ----------    -----------      --------
<S>                                 <C>           <C>          <C>          <C>           <C>           <C>              <C>

Balance, January 1, 1995             $  1          $ -         $ 2,335       $ 4,999      $  (187)       $   105         $     -

Net loss                                                                                   (2,074)

Foreign currency translation
    adjustment                                                                                                19

Issuance of 297,150 shares of
    common stock                                     -                           630
                                     -----         ---         -------       -------      --------       --------        --------
Balance, December 31, 1995               1           -           2,335         5,629       (2,261)           124               -

Net income                                                                                  3,053

Foreign currency translation
    adjustment                                                                                            (1,776)

Issuance of 3,570,000 shares
    of common stock                                  4                        60,769

Conversion of preferred stock
    and warrants                        (1)          5          (2,335)        2,331
                                     -----         ---         -------       -------      --------       --------        --------
Balance, December 31, 1996               -           9               -        68,729          792         (1,652)              -

Net income                                                                                 13,700

Foreign currency translation
    adjustment                                                                                            (4,378)

Issuance of 30,557 shares of
    common stock                                                                 477

Purchase of 85,900 shares of      
    treasury stock                                                                                                        (1,916)
                                     -----         ---         -------       -------      --------       --------        --------
Balance, December 31, 1997           $   -         $ 9         $     -       $69,206      $14,492        $(6,030)        $(1,916)
                                     -----         ---         -------       -------      --------       --------        --------
                                     -----         ---         -------       -------      --------       --------        --------
</TABLE>

See notes to consolidated financial statements.


                                       22
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                           1995            1996         1997
                                                       ----------       ---------    ----------
<S>                                                    <C>              <C>          <C>
Cash flows from operating activities:
  Net income (loss)                                    $   (2,074)      $  3,053     $  13,700
  Adjustments to reconcile net income (loss) to cash
    flows from operating activities:
    Depreciation and amortization                           7,739         10,970        10,581
    Provision for doubtful accounts                           797            760           742
    Deferred tax benefit                                   (5,083)        (3,123)       (3,012)
    Early extinguishment of debt                                           4,368
    Other                                                     370            274           143
    Changes in operating assets and liabilities:
      Accounts, notes and leases receivable                (4,203)        (4,606)       (3,098)
      Inventories                                           7,664         (5,786)       (7,298)
      Prepaid expense and other current assets               (701)          (127)         (909)
      Accounts payable                                      1,354         (1,712)         (685)
      Accrued expenses                                        800          1,856         3,671
                                                       ----------       ---------    ----------
    Cash flows from operating activities                    6,663          5,927        13,835

Cash flows from investing activities:
  Capital expenditures                                     (3,162)        (5,199)       (5,634)
  Proceeds from disposals of fixed assets                      51             51            44
  Changes in other assets                                  (1,801)           109        (1,772)
  Business acquisition (net of cash acquired)            (102,790)             -        (1,606)
                                                       ----------       ---------    ----------
    Cash flows from investing activities                 (107,702)        (5,039)       (8,968)

Cash flows from financing activities:
  Borrowing under lines of credit                         147,993        195,222       227,185
  Repayments under lines of credit                       (148,486)      (196,754)     (228,304)
  Proceeds from issuance of long-term debt                110,000          4,717
  Proceeds from issuance of stock                             630         60,773           477
  Purchase of treasury stock                                                            (1,916)
  Repayments of long-term debt                             (5,772)       (64,823)         (882)
                                                       ----------       ---------    ----------
    Cash flows from financing activities                  104,365           (865)       (3,440)

Effects of foreign exchange rate changes on cash                -           (452)          567
                                                       ----------       ---------    ----------

Increase (decrease) in cash                                 3,326           (429)        1,994
Cash, beginning of year                                       380          3,706         3,277
                                                       ----------       ---------    ----------

Cash, end of year                                      $    3,706       $  3,277     $   5,271
                                                       ----------       ---------    ----------
                                                       ----------       ---------    ----------

Supplemental Cash Flow Information
    Interest paid                                      $   13,399       $  17,665    $  13,508
    Income taxes paid                                  $    5,532       $  11,145    $  13,751

</TABLE>


See notes to consolidated financial statements.


                                       23
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

(1)  NATURE OF BUSINESS

     Steinway Musical Instruments, Inc. and subsidiaries (the "Company") is 
one of the world's leading manufacturers of musical instruments.  The 
Company, through its wholly-owned subsidiaries The Steinway Piano Company, 
Inc. (Steinway) and The Selmer Company, Inc. (Selmer), manufactures and 
distributes products within the musical instrument industry.  Steinway 
produces the highest quality piano in the world and has one of the most 
highly recognized and prestigious brand names.  Selmer is the leading 
domestic manufacturer of band and orchestral instruments and related 
accessories, including a complete line of brasswind, woodwind, percussion and 
stringed instruments.  Selmer Paris saxophones, Bach trumpets and trombones 
and Ludwig snare drums are considered by many to be the finest such 
instruments in the world.  In May 1995, Selmer purchased the assets of 
Steinway for approximately $104 million.  In January 1997, the Company 
purchased the assets of Emerson Musical Instruments, Inc. for approximately 
$2.0 million.  Each acquisition has been accounted for as a purchase for 
financial reporting purposes.  The consolidated financial statements of the 
Company include the results of operations for each business since its date of 
acquisition.


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES - The preparation of financial statements in conformity 
with generally accepted accounting principles necessarily requires management 
to make estimates and assumptions that affect the reported amounts of assets 
and liabilities and the reported amounts of revenues and expenses during the 
reporting period.  Actual results could differ from those estimates.

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of 
the Company include the accounts of all of its direct and indirect 
wholly-owned subsidiaries, including Selmer and Steinway.  Significant 
intercompany balances have been eliminated in consolidation.

     REVENUE RECOGNITION - Revenue is generally recognized upon shipment.   
The Company provides for the estimated costs of warranties at the time of 
sale.

     INCOME TAXES - Income taxes are provided using an asset and liability 
approach to financial accounting and reporting for income taxes.  Deferred 
income tax assets and liabilities are computed annually for differences 
between the financial statement and tax bases of assets and liabilities that 
will result in taxable or deductible amounts in the future based on enacted 
tax laws and rates applicable to the periods in which the differences are 
expected to affect taxable income.  Valuation allowances are established when 
necessary to reduce deferred tax assets to the amount expected to be 
realized.  Income tax expense is the tax payable or refundable for the period 
plus or minus the change during the period in deferred tax assets and 
liabilities.

     INVENTORIES - Inventories are stated at the lower of cost, determined on 
a first-in, first-out basis, or market.  In May 1995, Steinway inventories 
were adjusted up by approximately $9,638 to reflect their fair market value 
on the date of acquisition.  Cost of sales for the year ended December 31, 
1995 included the impact of this adjustment.


                                      24
<PAGE>

     DEPRECIATION AND AMORTIZATION - Property, plant and equipment are 
recorded at cost or at fair value in the case of assets acquired through 
business acquisitions.  Depreciation is provided using the straight-line 
method over the estimated useful lives of the respective assets.  Leasehold 
improvements are amortized using the straight-line method over the estimated 
useful lives of the improvements or the remaining term of the respective 
lease, whichever is shorter.  Estimated useful lives are as follows:

<TABLE>
     <S>                                    <C>
     Building and improvements              15-30 years
     Leasehold improvements                  5-15 years
     Machinery, equipment and tooling        3-10 years
     Office furniture and fixtures           3-10 years
     Concert and artist and rental pianos      15 years
</TABLE>

     Cost in excess of fair value acquired is amortized over 40 years.  
Trademarks acquired are recorded at appraised value and are amortized over 10 
years. Deferred financing costs are amortized on a straight-line basis over 
the repayment periods of the underlying debt.

     The Company periodically evaluates the recoverability of its long-lived 
assets by comparison of the expected future undiscounted cash flows expected 
to be generated by those assets to their carrying value.  To date, no 
impairment losses have been noted or recorded as a result of this evaluation 
process.

     FOREIGN CURRENCY TRANSLATION - Assets and liabilities of non-U.S. 
operations are translated into U.S. dollars at year-end rates, and revenues 
and expenses at average rates of exchange prevailing during the year.  The 
resulting translation adjustments are reported as a separate component of 
stockholders' equity.  Foreign currency transaction gains and losses are 
recognized in income currently.

     FOREIGN EXCHANGE CONTRACTS - The Company enters into foreign exchange 
contracts as a hedge against foreign currency transactions.  Gains and losses 
arising from fluctuations in exchange rates are recognized at the end of each 
reporting period.  Such gains and losses directly offset the foreign exchange 
gains or losses associated with the hedged receivable or payable.  Gains and 
losses on foreign exchange contracts which exceed the related balance sheet 
or firm purchase commitment exposure are included in foreign currency gain or 
loss in the statement of operations.

     STOCK-BASED COMPENSATION - The Company accounts for stock-based awards 
to employees using the intrinsic value method in accordance with Accounting 
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to 
Employees".

     INCOME (LOSS) PER COMMON SHARE - In 1997, the Company adopted Statement 
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share".  
Prior to 1997, the Company computed income (loss) per common share using the 
methods outlined in APB Opinion No. 15, "Earnings Per Share", and its 
interpretations. Previously reported income (loss) per common share for years 
prior to 1997 did not differ materially from that computed using SFAS 128.

Under SFAS 128, basic income (loss) per common share is computed using the 
weighted average number of common shares outstanding during each year.  
Diluted income (loss) per common share reflects the effect of the Company's 
outstanding options (using the treasury stock method), except where such 
items would be antidilutive.


                                      25
<PAGE>

A reconciliation of weighted average shares used for the basic computation 
and that used for the diluted computation is as follows:

<TABLE>
<CAPTION>
                                                     1995        1996        1997
                                                  ---------   ---------   ---------
<S>                                               <C>         <C>         <C>
Weighted average shares for basic                 1,524,663   7,418,580   9,426,122
Dilutive effect of stock options and warrants             -           -      32,719
                                                  ---------   ---------   ---------
Weighted average shares for diluted               1,524,663   7,418,580   9,458,841
                                                  ---------   ---------   ---------
                                                  ---------   ---------   ---------
</TABLE>

     ENVIRONMENTAL MATTERS - Potential environmental liabilities are 
accounted for in accordance with SFAS No. 5, "Accounting for Contingencies", 
which requires a liability to be recorded when it is probable that a loss has 
been incurred and its amount can reasonably be estimated.  See Note 10.

     NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting 
Standards Board (FASB) released SFAS No. 130, "Reporting Comprehensive 
Income", which the Company will be required to adopt in 1998.  SFAS 130 
requires that the Company provide a prominent display of the components of 
items of other comprehensive income.  The only item that the Company 
currently records as other comprehensive income is the change in cumulative 
translation adjustment resulting from changes in exchange rates and the 
effect of those changes upon translation of the financial statements of the 
Company's foreign operations. Adoption will not have an effect on reported 
results of operations or financial position.

     In June 1997, the FASB released SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information".  SFAS 131 requires that a 
company disclose segmented information about its businesses based upon the 
way in which management oversees and evaluates the results of such 
businesses.  The Company has elected to early adopt the provisions of SFAS 
131 in 1997.  See Note 14.

     In February 1998, the FASB released SFAS No. 132, "Employer's 
Disclosures about Pensions and Other Postretirement Benefits", which the 
Company will be required to adopt in 1998.  SFAS 132 will require additional 
disclosure concerning changes in the Company's pension obligations and assets 
and eliminates certain other disclosures no longer considered useful.  
Adoption will not have any effect on reported results of operations or 
financial position.


(3)  INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             --------------------
                                                               1996        1997
                                                             -------      -------
     <S>                                                     <C>          <C>
     Raw materials                                           $12,114      $11,944
     Work in process                                          33,428       35,309
     Finished goods                                           37,408       40,701
                                                             -------      -------
     Total                                                   $82,950      $87,954
                                                             -------      -------
                                                             -------      -------
</TABLE>

                                      26
<PAGE>

(4)  PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             --------------------
                                                              1996         1997
                                                             -------      -------
     <S>                                                     <C>          <C>
     Land                                                    $17,835      $16,914
     Building and improvements                                20,080       19,691
     Leasehold improvements                                      779        1,318
     Machinery, equipment and tooling                         19,526       22,036
     Office furniture and fixtures                             5,033        5,629
     Concert and artist and rental pianos                     11,470       10,740
     Construction in progress                                  1,282        1,832
                                                             -------      -------
                                                              76,005       78,160
     Less accumulated depreciation and amortization           13,904       19,531
                                                             -------      -------
     Total                                                   $62,101      $58,629
                                                             -------      -------
                                                             -------      -------
</TABLE>

(5)  OTHER ASSETS, NET

     Other assets consist of the following:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             --------------------
                                                              1996         1997
                                                             -------      -------
     <S>                                                     <C>          <C>
     Trademarks                                              $21,746      $20,146
     Deferred financing costs                                  8,504        8,504
     Other assets                                              2,044        2,897
                                                             -------      -------
                                                              32,294       31,547
     Less accumulated amortization                             6,003        8,656
                                                             -------      -------
     Total                                                   $26,291      $22,891
                                                             -------      -------
                                                             -------      -------
</TABLE>

(6)  OTHER CURRENT LIABILITIES

     Other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             --------------------
                                                              1996         1997
                                                             -------      -------
     <S>                                                     <C>          <C>
     Accrued payroll and related benefits                    $12,547      $13,118
     Current portion of pension liability                      1,823        1,978
     Accrued promotional expenses                              2,834        2,600
     Accrued warranty expense                                  1,855        2,102
     Accrued income taxes                                      1,547        1,622
     Accrued interest                                          1,512        1,513
     Other accrued expenses                                    6,795        8,490
                                                             -------      -------
     Total                                                   $28,913      $31,423
                                                             -------      -------
                                                             -------      -------
</TABLE>


                                       27
<PAGE>

(7)  INCOME TAXES

     The components of the provision for income tax are as follows:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                ---------------------------------
                                                  1995          1996        1997
                                                --------      --------    --------
     <S>                                        <C>           <C>         <C>
     U.S. Federal:
          Current                               $ 2,439       $ 5,726     $ 9,361
          Deferred                               (1,684)         (935)     (1,114)
     U.S. State and local:
          Current                                   574           712       1,256
          Deferred                                 (321)         (197)       (147)
     Foreign:
          Current                                 2,906         5,177       4,851
          Deferred                               (3,078)       (1,991)     (1,751)
                                                --------      --------    --------
     Total                                      $   836       $ 8,492     $12,456
                                                --------      --------    --------
                                                --------      --------    --------
</TABLE>

     The Company's provision for income tax differed from that using the 
     statutory U.S. federal rate as follows:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                               ---------------------------------
                                                                1995          1996        1997
                                                              -------        ------      -------
     <S>                                                       <C>           <C>         <C>
     Statutory federal rate applied to earnings before
          income taxes                                        $ (433)        $5,570      $ 9,155
     Increase (decrease) in income taxes resulting from:
          Foreign income taxes (net of federal benefit)         (172)         2,092        2,040
          State income taxes (net of federal benefit)            (49)           477          726
          Valuation allowance on foreign tax credits           1,277 
          Other                                                  213            353          535
                                                              -------        ------      -------
     Provision for income tax                                 $  836         $8,492      $12,456
                                                              -------        ------      -------
                                                              -------        ------      -------
</TABLE>

     The components of net deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                       ----------------------
                                                                        1996         1997
                                                                       ---------    ---------
     <S>                                                               <C>          <C>
     Deferred tax assets:
          Uniform capitalization adjustment to inventory               $  2,084     $  2,453
          Allowance for doubtful accounts                                 1,198        1,538
          Accrued expenses and other current assets and liabilities       4,357        4,484
          Foreign tax credits                                            18,777       14,488
          Other                                                             130            -
          Valuation allowances                                          (15,113)     (12,091)
                                                                       ---------    ---------
               Total deferred tax assets                                 11,433       10,872

     Deferred tax liabilities
          Pension contributions                                          (1,586)      (1,635)
          Fixed assets                                                  (21,570)     (18,770)
          Intangibles                                                   (12,584)     (10,558)
                                                                       ---------    ---------
               Total deferred tax liabilities                           (35,740)     (30,963)
                                                                       ---------    ---------

     Net deferred taxes                                                $(24,307)    $(20,091)
                                                                       ---------    ---------
                                                                       ---------    ---------
</TABLE>


                                       28
<PAGE>

    Valuation allowances provided relate to excess foreign tax credits generated
over expected credit absorption.  Of these valuation allowances, $6,373 relate
to the acquisition of Steinway.  Should the related tax benefits be recognized
in the future, the effect of removing the valuation allowances would generally
be a decrease in goodwill.  During 1996, changes in valuation allowances were
caused in part by the write-off of $3,842 of expired foreign tax credits and a
reduction of $345 caused by foreign currency translation, offset by additional
valuation allowances of $2,566 for current year credits generated for which
realization does not appear likely.  During 1997, valuation allowances
decreased primarily due to the write-off of expired foreign tax credits.
Foreign tax credit carryforwards expire in varying amounts through 2002.


(8)  NOTES PAYABLE AND LONG TERM DEBT

     Notes payable and long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                            ---------------------
                                                                               1996        1997
                                                                            ---------    --------
     <S>                                                                    <C>          <C>
     Senior Debt, bearing interest at the Eurodollar rate plus 2.5% due
          March 31, 2000  (8.65% and 8.45%)                                 $  2,573     $      -
     11% Senior Subordinated Notes, due May 15, 2005 (see Note 17)           110,000      110,000
     Note payable to a foreign bank, due in monthly installments
          of principal and interest of DM 127 ($71 at the
          December 31, 1997 exchange rate) through June 1, 2001
          at an interest rate of 6.25%                                         4,454        2,967
     Open account loans, payable on demand to a foreign bank                   1,364        2,490
                                                                            ---------    --------
     Total                                                                   118,391      115,457
     Less current portion                                                      2,354        3,338
                                                                            ---------    --------
     Long-term debt                                                         $116,037     $112,119
                                                                            ---------    --------
                                                                            ---------    --------
</TABLE>

     Scheduled maturities of long-term debt as of December 31, 1997 are as 
follows:

<TABLE>
<CAPTION>
                                                                    Amount
                                                                   --------
           <S>                                                     <C>
           1998                                                    $  3,338
           1999                                                         848
           2000                                                         848
           2001                                                         423
           2002                                                           -
           Thereafter                                               110,000
                                                                   --------
           Total                                                   $115,457
                                                                   --------
                                                                   --------
</TABLE>

     The open account loans provide for borrowings by foreign subsidiaries of 
up to DM 25,000 ($14,000 at the December 31, 1997 exchange rate) payable on
demand.  A portion of the open account loan can be converted into a maximum of
1,000 GBP ($1,650 at the December 31, 1997 exchange rate) for use by the
Company's UK subsidiary and 363,000 Yen ($2,780 at the December 31, 1997
exchange rate) for use by the Company's Japanese subsidiary.  Demand borrowings
bear interest at rates of 6.0 to 6.5% for the deutsche mark loans, 8.0% for
British pounds sterling loans, and 1.45% for Japanese yen loans.  Term
borrowings bear interest at Libor plus .75%.


                                       29
<PAGE>

     The Company's domestic, seasonal borrowing requirements are accommodated 
through a senior revolving credit facility with a domestic bank (the 
"Facility").  The Facility provides the Company with a potential borrowing 
capacity of up to $60.0 million, based on eligible accounts receivable and 
inventory balances.  The Facility, as amended on January 1, 1997, bears 
interest at the Eurodollar rate plus 2.5%.  Borrowings are collateralized by 
the Company's domestic accounts receivable, inventory and fixed assets. As of 
December 31, 1997, no amounts were outstanding, and availability was 
approximately $50.3 million.

     In August 1996, the Company completed an initial public offering of its 
ordinary common stock which raised approximately $63.1 million.  After 
deducting expenses of approximately $2.3 million, the Company used the net 
proceeds from the offering to repay $54.6 million of Senior Secured Notes and 
related prepayment penalties of $4.5 million.

     All of the Company's debt agreements contain certain financial covenants 
which, among other things, require the maintenance of certain financial 
ratios and net worth, place certain limitations on additional borrowings and 
capital expenditures, and prohibit the payment of cash dividends.  The 
Company is in compliance with all such covenants.

(9)  STOCKHOLDERS' EQUITY

     In August 1996, the Company completed an initial public offering of 
3,570,000 shares of its ordinary common stock.  In conjunction with the 
offering, all of the Company's outstanding preferred stock was converted to 
ordinary common stock and the expiration date for exercising outstanding 
warrants was accelerated, so that no preferred stock or warrants remained 
outstanding on December 31, 1996.

     The Company's common stock is comprised of two classes: Class A and 
Ordinary. With the exception of disparate voting power, both classes are 
substantially identical.  Each share of Class A common stock entitles the 
holder to 98 votes. Holders of ordinary common stock are entitled to one vote 
per share.  Class A common stock shall automatically convert to ordinary 
common stock if, at any time, the Class A common stock is not owned by an 
original Class A holder.

     EMPLOYEE STOCK PURCHASE PLAN - Under the 1996 employee stock purchase 
plan (the "Purchase Plan"), the Company is authorized to issue over a period 
of ten years up to 500,000 shares of ordinary common stock to its employees, 
nearly all of whom are eligible to participate.  Under the terms of the 
Purchase Plan, the Board may make an annual offering to employees allowing 
them to have up to 5% of their annual base earnings withheld through periodic 
payroll deductions to purchase the stock.  The purchase price of the stock is 
equal to 85% of the lower of the market value at the date of offering or at 
the end of each twelve month offering period.  During 1997, the Company 
issued 29,557 shares under the Purchase Plan.

     STOCK PLAN - The 1996 stock plan (the "Stock Plan") provides for the 
granting of stock options (including incentive stock options and 
non-qualified stock options), stock appreciation rights, and other stock 
awards to certain key employees, consultants and advisors of the Company and 
its subsidiaries. Common stock reserved for issuance under the Stock Plan is 
778,250 shares.


                                       30
<PAGE>

     Activity under the Stock Plan and the Purchase Plan as of December 31, 
1996 and 1997, and changes during the years ending on those dates is as 
follows:

<TABLE>
<CAPTION>
                                              1996                     1997
                                      --------------------     --------------------
                                                  Weighted                 Weighted
                                      Number      Average      Number       Average
                                        of        Exercise       of        Exercise
                                      Options      Price       Options      Price
                                      --------------------     --------------------
<S>                                   <C>         <C>          <C>         <C>
Outstanding at beginning of year            -                  566,990      $18.94
Granted                               566,990      $18.94       65,297       19.15
Exercised                                   -                  (30,557)      15.62
Canceled, forfeited or expired              -                  (15,000)      19.00
                                      -------                  -------       
Outstanding at end of year            566,990       18.94      586,730       19.14
                                      -------                  -------       
                                      -------                  -------       
Options exercisable at year end             -                  108,300

Weighted average fair value of
  options granted during the year       $6.11                    $5.99

</TABLE>

     The following table sets forth information regarding options outstanding 
at December 31, 1997:

<TABLE>
<CAPTION>
                                                              Weighted Average
                                                 --------------------------------------------
                  Range of         Number                                      Exercise Price
Number            Exercise        Currently      Exercise      Remaining       for Currently
of Options         Prices        Exercisable      Price       Life (Years)      Exercisable
----------        --------       -----------     --------     ------------     --------------
<S>            <C>               <C>             <C>          <C>              <C>
  12,730       $18.30                    -        $18.30           .6                  -
 574,000       $18.65 to 21.94     108,300         19.16          8.6             $19.00
 -------                           -------
 586,730                           108,300         19.14          8.4              19.00
 -------                           -------
 -------                           -------

</TABLE>

     STOCK-BASED COMPENSATION EXPENSE - As described in Note 2, the Company 
uses the intrinsic value method to measure compensation expense associated 
with grants of stock options to employees.  Had the Company used the fair 
value method to measure compensation, reported net income and net income per 
share would have been as follows:

<TABLE>
<CAPTION>
                                       1996       1997
                                      ------     -------
<S>                                   <C>        <C>
Income before extraordinary item      $7,126     $13,005
Net income                             2,758      13,005

Basic income per common share:
  Before extraordinary item           $  .96     $  1.38
  Net income                             .37        1.38

Diluted income per common share:
  Before extraordinary item           $  .96     $  1.37
  Net income                             .37        1.37

</TABLE>


                                       31
<PAGE>

     The fair value of options on their grant date, including the valuation 
of the option feature implicit in the Purchase Plan, was measured using the 
Black/Scholes option pricing model.  Key assumptions used to apply this 
pricing model are as follows:

<TABLE>
<CAPTION>
                                                             1996             1997
                                                         ------------     -------------
<S>                                                      <C>              <C>
Range of risk-free interest rates                        5.64 - 6.36%     5.57% - 6.18%
Range of expected life of option grants (in years)       1 to 6           1 to 6
Expected volatility of underlying stock                  16.4%            16.4%

</TABLE>

     The fair value of option grants made in 1996 and 1997 pursuant to the 
Stock Plan were $6.15 and $7.61, respectively, per option.  The fair value of 
grants made pursuant to the Purchase Plan, including the option feature, were 
$4.04 and $4.95 in 1996 and 1997, respectively.

     It should be noted that the option pricing model was designed to value 
readily tradable options with relatively short lives.  The options granted to 
employees are not tradable and have contractual lives of up to ten years. 
However, management believes that the assumptions used to value the options 
and the model applied yield a reasonable estimate of the grants' "fair value" 
as that term is defined by SFAS No. 123 "Accounting for Stock-Based 
Compensation".

(10) COMMITMENTS AND CONTINGENT LIABILITIES

     LEASE COMMITMENTS - The Company has entered into various operating 
leases for certain facilities and equipment, some of which have noncancelable 
terms, expiring at various times through 2016 with various renewal options.  
Minimum lease payments under noncancelable leases for the years ending 
December 31, are as follows:

<TABLE>
<CAPTION>
                          Amount
                          -------
      <S>                 <C>
      1998                $ 2,891
      1999                  3,392
      2000                  3,266
      2001                  3,012
      2002                  2,742
      Thereafter           13,950
                          -------
      Total               $29,253
                          -------
                          -------

</TABLE>

     Rent expense was $2,202, $3,176 and $3,145 for the years ended December 
31, 1995, 1996 and 1997, respectively.

     NOTES RECEIVABLE SOLD WITH RECOURSE - The Company sells notes receivable 
on a recourse basis to a commercial finance company under a three-year 
facility. Pursuant to the terms of the facility, the commercial finance 
company may, at its option, purchase at any one time up to an aggregate 
principal amount of $15 million of the Company's notes receivable.  The 
Company received proceeds of approximately $11.8 and $15.1 million from the 
sales of such notes for the years ended December 31, 1996 and 1997, 
respectively.  Approximately $7.1 and $9.2 million of these notes remain 
outstanding as of December 31, 1996 and 1997, respectively.


                                       32
<PAGE>

     ENVIRONMENTAL MATTERS - Certain environmental matters are pending 
against the Company, which might result in monetary damages, the amount of 
which, if any, cannot be determined at the present time.  Philips 
Electronics, a previous owner of the Company, has agreed to hold the Company 
harmless from any financial liability arising from these environmental 
matters which were pending as of December 29, 1988.  Management believes that 
these matters will not have a material adverse impact on the Company's 
results of operations or financial condition.

     LITIGATION - In the ordinary course of its business, the Company is 
party to various legal actions that management believes are routine in nature 
and incidental to the operation of its business.  While the outcome of such 
actions cannot be predicted with certainty, management believes that, based 
on the experience of the Company in dealing with these matters, the ultimate 
resolution of these matters will not have a material adverse impact on the 
business, financial condition and results of operations or prospects of the 
Company.

(11) RETIREMENT PLANS

     DOMESTIC PLANS - The Company has a noncontributory defined benefit 
pension plan (the "Selmer Plan") in which all eligible employees may 
participate.  On December 31, 1995, Steinway's defined benefit pension plan 
was merged with the Selmer Plan.  The Company's funding policy is to 
contribute the minimum required contribution for each plan year by the 
fifteenth day of the month following each quarter plus the balance of the 
minimum required contribution for the plan year by the following September 
15.  Plan assets are invested primarily in common stocks and fixed income 
securities.

     The components of net pension expense are as follows:

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                   ------------------------------
                                                    1995       1996        1997
                                                   ------     -------     -------
<S>                                                <C>        <C>         <C>
Service cost - benefits earned during the year     $  651     $   837     $   943
Interest cost on projected benefit obligation         739       1,102       1,355
Return on plan assets                                (993)     (1,776)     (3,121)
Net amortization                                      621         814       2,069
                                                   ------     -------     -------
Net pension expense                                $1,018     $   977     $ 1,246
                                                   ------     -------     -------
                                                   ------     -------     -------

</TABLE>

     The funded status of the pension plan is as follows:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                               ------------------
                                                                1996       1997
                                                               -------    -------
<S>                                                            <C>        <C>
Accumulated benefit obligation (including vested benefit
  obligation of approximately $14,175 and $17,469 at
  December 31, 1996 and 1997, respectively)                    $14,711    $19,683
                                                               -------    -------
                                                               -------    -------
Projected benefit obligation                                   $15,620    $20,678
Plan assets at fair value                                       14,883     19,066
                                                               -------    -------
Projected benefit obligation in excess of plan assets              737      1,612
Unrecognized net gain                                            1,097      1,051
Unrecognized prior service cost                                   (776)    (2,010)
Recognition of minimum liability                                              629
                                                               -------    -------
Net accrued pension cost                                         1,058      1,282
Less amount currently payable                                    1,058      1,282
                                                               -------    -------
Net long-term accrued pension cost                             $     -    $     -
                                                               -------    -------
                                                               -------    -------

</TABLE>


                                       33
<PAGE>

     The projected benefit obligation was determined using an assumed 
discount rate of 7.5% and 7.0% in 1996 and 1997, respectively.  The assumed 
long-term rate of compensation increase was 4%.  The assumed long-term rate 
of return on plan assets was 8.5%.

     The Company also sponsors 401(k) retirement savings plans for eligible 
employees.  Discretionary employer contributions, as determined annually by 
the Board of Directors, are made to one of these plans.  The 1996 and 1997 
contribution approximated $327 and $368, respectively.

     The Company provides postretirement health care and life insurance 
benefits to eligible hourly retirees and their dependents.  The health care 
plan is contributory, with retiree contributions adjusted every three years 
as part of a union contract agreement.  The plans are unfunded and the 
Company pays part of the health care premium and the full amount of the life 
insurance cost.

     Effective January 1, 1994 the Company adopted SFAS No. 106, "Employers' 
Accounting for Postretirement Benefits Other Than Pensions".  SFAS No. 106 
requires recognition, during employees' service with the Company, of the cost 
of their retiree health and life insurance benefits.  In accordance with the 
Statement, the Company has elected to recognize this change in accounting 
over a twenty-year period.

     Net postretirement benefit costs are as follows:

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                               ------------------------
                                               1995      1996      1997
                                               -----     -----     ----
<S>                                            <C>       <C>        <C>
Service cost                                   $ 32      $ 31      $ 37
Interest cost                                    79        72        86
Amortization of transition obligation            50        50        50
Net amortization and deferral                    (6)       (8)        -
                                               -----     -----     ----
Net postretirement benefit cost                $155      $145      $173
                                               -----     -----     ----
                                               -----     -----     ----

</TABLE>

     The following table sets forth the funded status of the Company's 
postretirement benefit plans and accrued postretirement benefit cost 
reflected in the Company's balance sheet at year end:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                   -----------------
                                                                    1996       1997
                                                                   ------     ------
<S>                                                                <C>        <C>
Accumulated Postretirement Benefit Obligation:
   Retirees                                                        $  274     $  388
   Active Employees                                                   738        878
                                                                   ------     ------
                                                                    1,012      1,266
Unrecognized net obligation at date of adoption of SFAS No. 106      (853)      (803)
Unrecognized net gain                                                 181          3
                                                                   ------     ------
Accrued postretirement benefit cost, included
   in other current liabilities                                    $  340     $  466
                                                                   ------     ------
                                                                   ------     ------

</TABLE>

     The annual assumed rate of increase in the per capita cost of covered 
health care benefits is 9.5% for retirees under age 65 in 1998 and is assumed 
to decrease gradually to 4.5% in 2008, and remain at that level thereafter.

     The effect of increasing the assumed health care cost trend by 1 
percentage point in each year would increase the accumulated postretirement 
benefit obligation as of December 31, 1997 by $71 and the aggregate of the 
service and interest cost components of the net periodic postretirement 
benefit cost for the year then ended by $9.


                                       34
<PAGE>

     The discount rate used in determining the accumulated postretirement 
benefit obligation as of January 1 and the net periodic postretirement 
benefit cost was 7.5% in 1996 and 1997.  The December 31 liability was 
determined using an assumed discount rate of 7.5% and 7.0% in 1996 and 1997, 
respectively.

     FOREIGN PLANS - The foreign divisions of the Company's Steinway 
subsidiary have separate pension plans which provide retirement benefits for 
all hourly and certain salaried employees.  Unfunded accrued pension costs 
are included in liabilities.  The plans are funded in accordance with the 
requirements of regulatory bodies governing each plan.

     The components of net pension cost for the Company's foreign divisions 
are as follows:

<TABLE>
<CAPTION>
                                                                1996       1997
                                                               ------     ------
<S>                                                            <C>        <C>
Service cost - benefits earned during the period               $  497     $  464
Interest cost on projected benefit obligation                   1,157      1,025
Return on plan assets                                            (175)      (248)
Net amortization and deferral                                     (47)         -
                                                               ------     ------
Net pension cost                                               $1,432     $1,241
                                                               ------     ------
                                                               ------     ------

</TABLE>

     The following table sets forth the funded status and obligations of the 
plans for the foreign divisions as of December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                              1996        1997
                                                             -------     -------
<S>                                                          <C>         <C>
Accumulated benefit obligation (including vested benefit
  obligation of approximately $15,049 and $13,072 at
  December 31, 1996 and 1997, respectively)                  $15,813     $13,918

Projected benefit obligation                                 $17,270     $15,200
Plan assets at fair value                                      2,730       3,001
                                                             -------     -------
Projected benefit obligation in excess of plan assets         14,540      12,199
Unrecognized net gain (loss)                                     (47)        617
                                                             -------     -------
Net accrued pension cost                                      14,493      12,816
Less amount currently payable                                    765         696
                                                             -------     -------
Net long-term accrued pension cost                           $13,728     $12,120
                                                             -------     -------
                                                             -------     -------

</TABLE>

     The weighted average discount rates and rates of increase in future 
compensation levels used in determining the actuarial present value of the 
projected benefit obligation ranged from 6.5% to 7.25% and from 2.5% to 5.5%, 
respectively.  The expected long-term rate of return on assets was 9.5%.


                                      35
<PAGE>

(12) FOREIGN EXCHANGE CONTRACTS

     At December 31, 1996, the Company's German divisions, whose functional 
currency is the deutsche mark, had forward contracts maturing at various 
dates through October 1997 to purchase 1,000 British pounds sterling as a 
hedge against intercompany transactions.

     At December 31, 1997, these instruments, maturing at various dates 
through December 1998, consisted of forward contracts and purchased options 
to sell 430,900 Japanese Yen and 1,060 British pounds sterling and to buy 
3,195 U.S. dollars.  The Company uses only purchased options as part of this 
hedging program.

(13) RELATED PARTY TRANSACTIONS

     The principals of Kirkland Messina LLC, a merchant banking firm, control 
84% of the voting power of the Company's common stock.  Kirkland Messina LLC 
received payments of $750 in 1995 for arranging the financing and acting as 
financial advisor to the Company in connection with the Steinway acquisition 
and $1.0 million in 1996 for arranging, negotiating and obtaining waivers and 
other required consents in connection with the Company's initial public 
offering.  In addition, beginning in 1996, Kirkland Messina LLC and its 
principals received annual payments of $400 for ongoing management and other 
services to the Company.


                                       36
<PAGE>

(14) SEGMENT INFORMATION

     The Company has elected to early adopt the provisions of SFAS No. 131 
"Disclosures about Segments of an Enterprise and Related Information" in 
1997. SFAS 131 requires that a company disclose segmented information about 
its businesses based upon the way in which management oversees and evaluates 
the results of such businesses.  Consistent with this approach, the Company 
has identified two distinct and reportable segments: the piano segment and 
the band and orchestral instrument segment.  The Company considers these two 
segments reportable under SFAS 131 criteria as they are managed separately 
and the operating results of each segment are regularly reviewed and 
evaluated separately by the Company's senior management.

     The accounting policies of each segment are the same as those described 
in Note 2.  Intercompany transactions are generally recorded at cost plus a 
predetermined markup.

The following tables present information about the Company's operating 
segments:

<TABLE>
<CAPTION>

1995                                       Piano Segment                    Band and Orchestral Segment
                                --------------------------------------      ---------------------------     Other &     Consol
                                  US       Germany    Other      Total         US      Other     Total       Elim        Total
                                ------     ------     -----     -------     -------    -----    -------    --------     -------
<S>                             <C>        <C>        <C>       <C>         <C>        <C>      <C>        <C>          <C>
Revenues from external
  customers                     43,352     33,718     3,828      80,898     104,917    3,990    108,907           -     189,805
Interest revenue                     -         21         1          22         561        -        561           -         583
Interest expense                 5,209        426       138       5,773       9,150        -      9,150           -      14,923
Depreciation and amortization    2,650      1,864        79       4,593       3,146        -      3,146           -       7,739
Income tax expense (benefit)    (2,014)       222        69      (1,723)      2,530       29      2,559           -         836
Segment net income (loss)       (4,057)    (1,346)      131      (5,272)      3,138       60      3,198           -      (2,074)
Capital expenditures               810        603        70       1,483       1,639       40      1,679           -       3,162
Segment assets                  93,613     80,101     3,682     177,396     190,101    3,496    193,597    (107,197)    263,796

</TABLE>

<TABLE>
<CAPTION>

1996                                       Piano Segment                    Band and Orchestral Segment
                                --------------------------------------      ---------------------------     Other &     Consol
                                  US       Germany    Other      Total         US      Other     Total       Elim        Total
                                ------     ------     -----     -------     -------    -----    -------    --------     -------
<S>                             <C>        <C>        <C>       <C>         <C>        <C>      <C>        <C>          <C>
Revenues from external
  customers                     77,245     52,538     6,531     136,314     118,030    3,559    121,589           -      257,903
Interest revenue                     -         60         4          64       8,888        -      8,888      (8,189)         763
Interest expense                 8,904        750      (127)      9,527      19,257        -     19,257     (10,914)      17,870
Depreciation and amortization    4,553      3,070       126       7,749       3,205       15      3,220           1       10,970
Income tax expense (benefit)      (838)     3,501       276       2,939       4,611       17      4,628         925        8,492
Segment net income (loss)
  before extraordinary items    (1,458)     1,234       407         183       5,548       26      5,574       1,664        7,421
Extraordinary items                  -          -         -           -       4,368        -      4,368           -        4,368
Capital expenditures             1,832        264        59       2,155       3,044        -      3,044           -        5,199
Segment assets                  91,451     75,117     4,866     171,434     260,353    3,057    263,410    (169,478)     265,366

</TABLE>

<TABLE>
<CAPTION>

1997                                       Piano Segment                    Band and Orchestral Segment
                                --------------------------------------      ---------------------------     Other &     Consol
                                  US       Germany    Other      Total         US      Other     Total       Elim        Total
                                ------     ------     -----     -------     -------    -----    -------    --------     -------
<S>                             <C>        <C>        <C>       <C>         <C>        <C>      <C>        <C>          <C>
Revenues from external
  customers                     91,173     40,575     13,531    145,279     128,780    3,789    132,569           -     277,848
Interest revenue                     -        141         20        161         567        -        567           -         728
Interest expense                 9,269        225        283      9,777      19,228        -     19,228     (15,501)     13,504
Depreciation and amortization    4,577      2,621        164      7,362       3,173       14      3,187          32      10,581
Income tax expense               1,544      2,358        430      4,332       2,492       61      2,553       5,571      12,456
Segment net income (loss)         (577)     2,018        721      2,162       2,277      110      2,387       9,151      13,700
Capital expenditures             1,919        389        276      2,584       3,013        -      3,013          37       5,634
Segment assets                  89,502     60,595      9,046    159,143     273,651    2,721    276,372    (168,807)    266,708

</TABLE>


                                       37
<PAGE>

(15) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following disclosures of the estimated fair values of financial 
instruments are made in accordance with the requirements of SFAS No. 107 
"Disclosures about Fair Values of Financial Instruments".  The estimated fair 
values have been developed using appropriate methodologies; however, 
considerable judgment is required to develop these estimates.  Accordingly, 
the estimates presented herein are not necessarily indicative of amounts that 
could be realized in a current market exchange.  Use of different assumptions 
or methodologies could have a significant effect on these estimates.

<TABLE>
<CAPTION>
                                                  1996                        1997
                                        -------------------------   -------------------------
                                        Net Carrying   Estimated    Net Carrying   Estimated
                                            Value      Fair Value       Value      Fair Value
                                        ------------   ----------   ------------   ----------
<S>                                     <C>            <C>          <C>            <C>
Financial liabilities
  Notes payable and long term debt        $118,391      $128,401      $115,457      $125,266
  Foreign currency contracts                     0          (143)            0           350

</TABLE>

     The carrying amount of cash, accounts, notes and leases receivable, and 
accounts payable approximate fair value because of the short maturity of 
these instruments.

     The estimated fair value of existing notes payable and long-term debt is 
based on rates currently available to the Company for debt with similar terms 
and remaining maturities.

     The estimated fair value of foreign currency contracts (used for hedging 
purposes) has been determined as the difference between the current spot rate 
and the contract rate multiplied by the notional amount of the contract or 
upon the estimated fair value of purchased option contracts.  The net 
carrying value of these contracts approximates zero as any gains or losses on 
the contracts is generally offset by losses or gains on the related hedged 
asset or liability.

(16) SUMMARIZED FINANCIAL INFORMATION

     The Company is a holding company whose only material asset consists of 
its investment in its wholly-owned subsidiary, The Selmer Company, Inc.  
Summarized financial information for The Selmer Company, Inc. and 
subsidiaries is as follows:

<TABLE>
<CAPTION>
                             1995         1996         1997
                           --------     --------     --------
<S>                        <C>          <C>          <C>
Current assets             $132,380     $140,335     $149,022
Total assets                263,796      265,348      263,725
Current liabilities          41,767       37,673       46,664
Stockholder's equity          5,198       68,718       78,302
Net sales                   189,805      257,903      275,037
Gross profit                 50,218       84,235       92,641
Net income (loss)            (2,074)       2,988       13,962

</TABLE>


                                       38
<PAGE>

(17) SUMMARY OF MERGER AND GUARANTEES

     On May 25, 1995, Selmer acquired Steinway pursuant to an Agreement and 
Plan of Merger dated as of April 11, 1995.  The total purchase price of 
approximately $104 million, including fees and expenses, was funded by 
Selmer's issuance of $105 million of 11% Senior Subordinated Notes due 2005 
and available cash balances of the Company.

     Selmer's payment obligations under the Senior Subordinated Notes are 
fully and unconditionally guaranteed on a joint and several basis by the 
Company as Parent (the "Guarantor Parent"), and by Steinway and certain 
wholly-owned subsidiaries of Steinway, each a direct or indirect wholly-owned 
subsidiary of the Company and each a "Guarantor" (the "Guarantor 
Subsidiaries").  These subsidiaries, together with the operating divisions of 
Selmer, represent all of the operations of the Company conducted in the 
United States.  The remaining subsidiaries, which do not guarantee the Notes, 
represent foreign operations (the "Non Guarantor Subsidiaries").

     The following condensed consolidating supplementary data illustrates the 
composition of the combined Guarantors.  Separate complete financial 
statements of the respective Guarantors would not provide additional material 
information which would be useful in assessing the financial composition of 
the Guarantors. No single Guarantor has any significant legal restrictions on 
the ability of investors or creditors to obtain access to its assets in event 
of default on the Guarantee other than its subordination to senior 
indebtedness.

     Investments in subsidiaries are accounted for by the parent on the cost 
method for purposes of the supplemental consolidating presentation.  Earnings 
of subsidiaries are therefore not reflected in the parent's investment 
accounts and earnings.  The principal elimination entries eliminate 
investments in subsidiaries and intercompany balances and transactions.


                                       39

<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATING BALANCE SHEETS
                               DECEMBER 31, 1996
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                            Non
                                               Guarantor     Issuer      Guarantor       Guarantor
                                                 Parent     of Notes    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                               ---------    ---------   ------------    ------------   ------------   ------------
<S>                                            <C>          <C>         <C>             <C>            <C>            <C>
ASSETS
Current assets:
   Cash                                        $     18     $   (350)     $  2,220      $   1,389       $       -      $  3,277
   Accounts, notes and leases receivable, net                 29,711         5,797         10,055                        45,563
   Inventories                                                34,707        25,321         23,391            (469)       82,950
   Prepaid expenses and other current assets                   1,460         1,090            317                         2,867
   Deferred tax asset                                            700         2,024          2,972                         5,696
                                               --------     ---------     ---------    ----------       ----------     --------
Total current assets                                 18       66,228        36,452         38,124            (469)      140,353

Property, plant and equipment, net                            15,103        27,509         19,489                        62,101
Investment in subsidiaries                       69,643      167,938        34,242            178        (272,001)            -
Intercompany                                                   1,272                                       (1,272)            -
Other assets, net                                              1,976        16,139          9,489          (1,313)       26,291
Cost in excess of fair value
    of net assets acquired, net                                9,908        11,773         14,940                        36,621
                                               --------     ---------     ---------    ----------       ----------     --------
TOTAL ASSETS                                   $ 69,661     $262,425      $126,115      $  82,220       $(275,055)     $265,366
                                               --------     ---------     ---------    ----------       ----------     --------
                                               --------     ---------     ---------    ----------       ----------     --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable and current
      portion of long-term debt                $      -     $      -      $      -      $   2,354       $       -      $  2,354
   Accounts payable                                            2,749         2,579          1,125                         6,453
   Other current liabilities                         47       10,301         8,963         10,194            (592)       28,913
                                               --------     ---------     ---------    ----------       ----------     --------
Total current liabilities                            47       13,050        11,542         13,673            (592)       37,720

Long-term debt                                               110,000         2,573          3,464                       116,037
Intercompany                                        811       63,853       (66,434)         3,042          (1,272)            -
Deferred taxes                                                 1,165        11,706         17,132                        30,003
Non-current pension liability                                    721                       13,728            (721)       13,728
                                               --------     ---------     ---------    ----------       ----------     --------
Total liabilities                                   858      188,789       (40,613)        51,039          (2,585)      197,488

Stockholders' equity                             68,803       73,636       166,728         31,181        (272,470)       67,878
                                               --------     ---------     ---------    ----------       ----------     --------
Total                                          $ 69,661     $262,425      $126,115      $  82,220       $(275,055)     $265,366
                                               --------     ---------     ---------    ----------       ----------     --------
                                               --------     ---------     ---------    ----------       ----------     --------

</TABLE>


                                       40
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATING BALANCE SHEETS
                               DECEMBER 31, 1997
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                            Non
                                               Guarantor     Issuer      Guarantor       Guarantor
                                                 Parent     of Notes    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                               ---------    ---------   ------------    ------------   ------------   ------------
<S>                                            <C>          <C>         <C>             <C>            <C>            <C>
ASSETS
Current assets:
   Cash                                        $      -     $  2,034      $  1,913        $  1,324     $        -       $  5,271
   Accounts, notes and leases 
     receivable, net                                          33,661         6,167           7,549                        47,377
   Inventories                                                37,887        28,756          21,901           (590)        87,954
   Prepaid expenses and other 
     current assets                                 684        1,604           357           2,187                         4,832
   Deferred tax asset                                          1,060         2,420           3,681           (973)         6,188
                                                -------     --------      --------       ---------     ----------       --------
Total current assets                                684       76,246        39,613          36,642         (1,563)        151,622

Property, plant and equipment, net                   91       15,313        27,142          16,083                        58,629
Investment in subsidiaries                       71,143      168,557        25,449                       (265,149)             -
Other assets, net                                   613        2,489        13,826           7,441         (1,478)        22,891
Cost in excess of fair value
    of net assets acquired, net                                9,638        11,466          12,462                        33,566
                                                -------     --------      --------       ---------     ----------       --------
TOTAL ASSETS                                   $ 72,531     $272,243      $117,496       $  72,628     $ (268,190)      $266,708
                                                -------     --------      --------       ---------     ----------       --------
                                                -------     --------      --------       ---------     ----------       --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable and current
     portion of long-term debt                 $      -     $      -      $      -       $   3,338     $        -       $  3,338
   Accounts payable                                 329        1,853         2,114           1,372                         5,668
   Other current liabilities                     (6,643)      13,648        15,125          10,637         (1,344)        31,423
                                                -------     --------      --------       ---------     ----------       --------
Total current liabilities                        (6,314)      15,501        17,239          15,347         (1,344)        40,429

Long-term debt                                       50      107,747         2,203           2,119                       112,119
Intercompany                                     11,695       63,074       (76,402)          1,633                             -
Deferred taxes                                                 1,787        10,741          13,751                        26,279
Non-current pension liability                                    995                        12,285         (1,160)        12,120
                                                -------     --------      --------       ---------     ----------       --------
Total liabilities                                 5,431      189,104       (46,219)         45,135         (2,504)       190,947

Stockholders' equity                             67,100       83,139       163,715          27,493       (265,686)        75,761
                                                -------     --------      --------       ---------     ----------       --------
Total                                          $ 72,531     $272,243      $117,496       $  72,628     $ (268,190)      $266,708
                                                -------     --------      --------       ---------     ----------       --------
                                                -------     --------      --------       ---------     ----------       --------
</TABLE>


                                       41
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                         YEAR ENDED DECEMBER 31, 1995
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                            Non
                                               Guarantor     Issuer      Guarantor       Guarantor
                                                 Parent     of Notes    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                               ---------    ---------   ------------    ------------   ------------   ------------
<S>                                            <C>          <C>         <C>             <C>            <C>            <C>
Net sales                                                   $106,498       $45,961         $41,536       $(4,190)       $189,805
Cost of sales                                                 73,787        37,003          32,923        (4,126)        139,587
                                                            --------       -------         -------       -------        --------
Gross profit                                                  32,711         8,958           8,613           (64)         50,218

Operating expenses:
  Sales and marketing                                         11,172         5,911           4,078          (160)         21,001
  Provision for doubtful accounts                                566            47             184                           797
  General and administrative                                   5,332         2,805           3,475                        11,612
  Amortization                                                   864         1,234             943                         3,041
  Other expense                                                  466          (188)            227           160             665
                                                            --------       -------         -------       -------        --------
Total operating expenses                                      18,400         9,809           8,907             -          37,116
                                                            --------       -------         -------       -------        --------

Earnings (loss) from operations                               14,311          (851)           (294)          (64)         13,102

Other (income) expense:
  Other income                                                (5,817)            -             (89)        5,323            (583)
  Interest expense                                            14,406         5,210             630        (5,323)         14,923
                                                            --------       -------         -------       -------        --------
Other expense, net                                             8,589         5,210             541             -          14,340
                                                            --------       -------         -------       -------        --------

Income (loss) before income taxes                              5,722        (6,061)           (835)          (64)         (1,238)

Provision for (benefit of) income taxes                        2,530        (2,014)            320                           836
                                                            --------       -------         -------       -------        --------
Net income (loss)                                           $  3,192       $(4,047)        $(1,155)      $   (64)       $ (2,074)
                                                            --------       -------         -------       -------        --------
                                                            --------       -------         -------       -------        --------
</TABLE>


                                       42
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                         YEAR ENDED DECEMBER 31, 1996
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                            Non
                                               Guarantor     Issuer      Guarantor       Guarantor
                                                 Parent     of Notes    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                               ---------    ---------   ------------    ------------   ------------   ------------
<S>                                            <C>          <C>         <C>             <C>            <C>            <C>
Net sales                                        $   -      $119,472       $81,418        $62,628        $ (5,615)       $257,903
Cost of sales                                                 78,885        57,301         43,005          (5,523)        173,668
                                                 ------     ---------      --------       --------       ---------       ---------
Gross profit                                         -        40,587        24,117         19,623             (92)         84,235

Operating expenses:
  Sales and marketing                                         12,312        10,246          6,820            (172)         29,206
  Provision for doubtful accounts                                600           103             57                             760
  General and administrative                       135         6,113         5,733          4,382                          16,363
  Amortization                                                   727         2,070          1,591                           4,388
  Other expense                                                  211          (638)           753             172             498
                                                 ------     ---------      --------       --------       ---------       ---------
Total operating expenses                           135        19,963        17,514         13,603               -          51,215
                                                 ------     ---------      --------       --------       ---------       ---------

Earnings (loss) from operations                   (135)       20,624         6,603          6,020             (92)         33,020

Other (income) expense:
  Other income                                    (244)       (8,888)       (2,481)           (78)         10,928            (763)
  Interest expense                                            19,257         8,904            637         (10,928)         17,870
                                                 ------     ---------      --------       --------       ---------       ---------
Other expense, net                                (244)       10,369         6,423            559               -          17,107
                                                 ------     ---------      --------       --------       ---------       ---------

Income before income taxes                         109        10,255           180          5,461             (92)         15,913

Provision for income taxes                          44         4,611            43          3,794                           8,492
                                                 ------     ---------      --------       --------       ---------       ---------

Net income before extraordinary item                65         5,644           137          1,667             (92)          7,421

Extraordinary item                                             4,368                                                        4,368
                                                 ------     ---------      --------       --------       ---------       ---------

Net income                                       $  65      $  1,276       $   137        $ 1,667        $    (92)       $  3,053
                                                 ------     ---------      --------       --------       ---------       ---------
                                                 ------     ---------      --------       --------       ---------       ---------
</TABLE>


                                       43
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                         YEAR ENDED DECEMBER 31, 1997
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            Non
                                               Guarantor     Issuer      Guarantor       Guarantor
                                                 Parent     of Notes    Subsidiaries    Subsidiaries   Eliminations   Consolidated
                                               ---------    ---------   ------------    ------------   ------------   ------------
<S>                                            <C>          <C>         <C>             <C>            <C>            <C>
Net sales                                       $     -     $127,175      $ 99,498        $57,895       $ (6,720)       $277,848
Cost of sales                                                 84,001        68,802         38,363         (6,599)        184,567
                                                --------    ---------     ---------       --------      ----------      ---------

Gross profit                                          -       43,174        30,696         19,532           (121)         93,281

Operating expenses:
  Sales and marketing                                         12,539        12,307          7,758           (163)         32,441
  Provision for doubtful accounts                                192           223            327                            742
  General and administrative                      3,063        6,464         3,760          4,244                         17,531
  Amortization                                                   459         2,072          1,338                          3,869
  Other expense                                  (2,287)          54         2,016           (180)            163           (234)
                                                --------    ---------     ---------       --------      ----------      ---------
Total operating expenses                            776       19,708        20,378         13,487               -         54,349
                                                --------    ---------     ---------       --------      ----------      ---------

Earnings (loss) from operations                    (776)      23,466        10,318          6,045            (121)        38,932

Other (income) expense:
  Other income                                                  (553)       (15,515)          (161)        15,501           (728)
  Interest expense                                            19,228          9,269            508        (15,501)        13,504
                                                --------    ---------     ---------       --------      ----------      ---------
Other expense, net                                    -       18,675         (6,246)           347              -         12,776
                                                --------    ---------     ---------       --------      ----------      ---------

Income (loss) before income taxes                  (776)       4,791         16,564          5,698           (121)        26,156

Provision for (benefit of) income taxes            (512)       2,491          7,681          2,849            (53)        12,456
                                                --------    ---------     ---------       --------      ----------      ---------
Net income (loss)                               $  (264)    $  2,300       $  8,883        $ 2,849      $     (68)      $ 13,700
                                                --------    ---------     ---------       --------      ----------      ---------
                                                --------    ---------     ---------       --------      ----------      ---------
</TABLE>


                                       44
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                         YEAR ENDED DECEMBER 31, 1995
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               Non
                                                    Guarantor    Issuer      Guarantor      Guarantor
                                                      Parent    of Notes    Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                                    ---------   ---------   ------------   ------------  ------------  ------------
<S>                                                 <C>         <C>         <C>            <C>           <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                   $   -     $   3,192      $ (4,047)      $(1,155)        $(64)      $  (2,074)
  Adjustments to reconcile net income (loss)
  to cash flows from operating activities:
    Depreciation and amortization                                   3,146         2,650         1,943                        7,739
    Provision for doubtful accounts                                   566            47           184                          797
    Deferred tax provision (benefit)                                  780        (2,785)       (3,078)                      (5,083)
    Other                                                             329            71           (30)                         370
    Changes in operating assets and liabilities:
      Accounts, notes and leases receivable                        (1,443)       (1,147)       (1,613)                      (4,203)
      Inventories                                                  (2,475)        6,438         3,637           64           7,664
      Prepaid expense and other current assets                       (120)         (587)            6                         (701)
      Accounts payable                                                596           323           435                        1,354
      Accrued expenses                                               (404)         (738)        1,942                          800
                                                       -----    ----------     ---------      --------        -----      ----------
Cash flows from operating activities                      -         4,167           225         2,271            -           6,663

Cash flows from investing activities:
  Capital expenditures                                             (1,639)         (810)         (713)                      (3,162)
  Proceeds from disposals of fixed assets                               3            11            37                           51
  Changes in other assets                                          (1,196)         (255)         (350)                      (1,801)
  Business acquisition (net of cash acquired)                    (104,461)        1,548           123                     (102,790)
                                                       -----    ----------     ---------      --------        -----      ----------
Cash flows from investing activities                      -      (107,293)          494          (903)           -        (107,702)

Cash flows from financing activities:
  Borrowing under lines of credit                                 105,187        42,441           365                      147,993
  Repayments under lines of credit                               (106,915)      (41,571)                                  (148,486)
  Proceeds from issuance of long-term debt                        110,000                                                  110,000
  Proceeds from issuance of stock                       630                                                                    630
  Repayments of long-term debt                                     (5,000)                       (772)                      (5,772)
  Intercompany dividends                                                          1,500        (1,500)                           -
  Intercompany                                         (630)          222        (1,463)        1,871                            -
                                                       -----    ----------     ---------      --------        -----      ----------
Cash flows from financing activities                      -       103,494           907           (36)           -         104,365

Effect of exchange rate changes on cash                   -

Increase in cash                                          -           368         1,626         1,332            -           3,326
Cash, beginning of year                                                (7)            -           387                          380
                                                       -----    ----------     ---------      --------        -----      ----------

Cash, end of year                                     $   -      $    361      $  1,626       $ 1,719         $  -       $   3,706
                                                       -----    ----------     ---------      --------        -----      ----------
                                                       -----    ----------     ---------      --------        -----      ----------
</TABLE>


                                       45
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                         YEAR ENDED DECEMBER 31, 1996
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               Non
                                                   Guarantor    Issuer       Guarantor      Guarantor
                                                     Parent    of Notes     Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                                   ---------   ----------   ------------   ------------  ------------  ------------
<S>                                                <C>         <C>          <C>            <C>           <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                $     65    $   1,276      $    137       $ 1,667         $(92)       $  3,053
  Adjustments to reconcile net income (loss)
  to cash flows from operating activities:
    Depreciation and amortization                                  3,205         4,554         3,211                       10,970
    Provision for doubtful accounts                                  600           103            57                          760
    Deferred tax provision (benefit)                                 285        (1,417)       (1,991)                      (3,123)
    Early extinguishment of debt                                   4,368             -             -                        4,368
    Other                                                            291             -           (17)                         274
    Changes in operating assets and liabilities:
      Accounts, notes and leases receivable                       (4,611)        1,604        (1,599)                      (4,606)
      Inventories                                                 (6,196)       (1,451)        1,769           92          (5,786)
      Prepaid expense and other current assets                      (352)          (71)          296                         (127)
      Accounts payable                                              (336)         (416)         (960)                      (1,712)
      Accrued expenses                                   47        2,198         1,810        (2,199)                       1,856
                                                   ---------   ----------     ---------      --------        -----       ---------
Cash flows from operating activities                    112          728         4,853           234            -           5,927

Cash flows from investing activities:
  Capital expenditures                                            (3,044)       (1,832)         (323)                      (5,199)
  Proceeds from disposals of fixed assets                             28             -            23                           51
  Changes in other assets                                            (63)          (28)          200                          109
                                                   ---------   ----------     ---------      --------        -----       ---------
Cash flows from investing activities                      -       (3,079)       (1,860)         (100)           -          (5,039)

Cash flows from financing activities:
  Borrowing under lines of credit                                113,728        81,160           334                      195,222
  Repayments under lines of credit                              (116,519)      (80,235)                                  (196,754)
  Proceeds from issuance of long-term debt                                                     4,717                        4,717
  Proceeds from issuance of stock                    60,773                                                                60,773
  Repayments of long-term debt                                   (59,096)                     (5,727)                     (64,823)
  Intercompany dividends                                                         2,000        (2,000)                           -
  Intercompany                                      (60,867)      63,527        (5,324)        2,664                            -
                                                   ---------   ----------     ---------      --------        -----       ---------
Cash flows from financing activities                    (94)       1,640        (2,399)          (12)           -            (865)

Effect of exchange rate changes on cash                   -            -             -          (452)                        (452)

Increase (decrease) in cash                              18         (711)          594          (330)           -            (429)
Cash, beginning of year                                   -          361         1,626         1,719                        3,706
                                                   ---------   ----------     ---------      --------        -----       ---------

Cash, end of year                                  $     18   $     (350)      $ 2,220       $ 1,389          $  -       $  3,277
                                                   ---------   ----------     ---------      --------        -----       ---------
                                                   ---------   ----------     ---------      --------        -----       ---------
</TABLE>


                                       46
<PAGE>

              STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                         YEAR ENDED DECEMBER 31, 1997
                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                               Non
                                                   Guarantor    Issuer       Guarantor      Guarantor
                                                     Parent    of Notes     Subsidiaries   Subsidiaries  Eliminations  Consolidated
                                                   ---------   ----------   ------------   ------------  ------------  ------------
<S>                                                <C>         <C>          <C>            <C>           <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                $   (264)    $  2,300     $   8,883      $ 2,849          $(68)       $ 13,700
  Adjustments to reconcile net income (loss)
  to cash flows from operating activities:
    Depreciation and amortization                        29        3,136         4,617        2,799                        10,581
    Provision for doubtful accounts                                  192           223          327                           742
    Deferred tax provision (benefit)                                 262        (1,360)      (1,914)                       (3,012)
    Other                                                             59            92           (8)                          143
    Changes in operating assets and liabilities:
      Accounts, notes and leases receivable              25       (4,142)         (218)       1,237                        (3,098)
      Inventories                                       (13)      (3,180)       (2,309)      (1,917)          121          (7,298)
      Prepaid expense and other current assets         (454)        (144)          533         (844)                         (909)
      Accounts payable                                  291         (896)         (460)         380                          (685)
      Accrued expenses                               (7,441)       2,993         6,643        1,529           (53)          3,671
                                                   ---------   ----------     ---------      -------         -----       ---------
Cash flows from operating activities                 (7,827)         580        16,644        4,438             -          13,835

Cash flows from investing activities:
  Capital expenditures                                  (37)      (2,951)       (1,981)        (665)                       (5,634)
  Proceeds from disposals of fixed assets                              4             9           31                            44
  Changes in other assets                               (14)         (73)          (67)      (1,618)                       (1,772)
  Business acquisition, net of cash acquired         (1,730)        (619)          124          619                        (1,606)
                                                   ---------   ----------     ---------      -------         -----       ---------
Cash flows from investing activities                 (1,781)      (3,639)       (1,915)      (1,633)            -          (8,968)

Cash flows from financing activities:
  Borrowing under lines of credit                                118,969       106,762        1,454                       227,185
  Repayments under lines of credit                      (85)    (121,222)     (106,997)                                  (228,304)
  Proceeds from issuance of stock                       477                                                                   477
  Purchase of treasury stock                         (1,916)                                                               (1,916)
  Repayments of long-term debt                                                                 (882)                         (882)
  Intercompany dividends                                           7,203        (4,603)      (2,600)                            -
  Intercompany                                       11,114          493       (10,198)      (1,409)                            -
                                                   ---------   ----------     ---------      -------         -----       ---------
Cash flows from financing activities                  9,590        5,443       (15,036)      (3,437)            -          (3,440)

Effect of exchange rate changes on cash                   -            -             -          567                           567

Increase (decrease) in cash                             (18)       2,384          (307)         (65)             -          1,994
Cash, beginning of year                                  18         (350)        2,220        1,389                         3,277
                                                   ---------   ----------     ---------      -------         -----       ---------

Cash, end of year                                  $      -    $   2,034      $  1,913      $ 1,324          $  -        $  5,271
                                                   ---------   ----------     ---------      -------         -----       ---------
                                                   ---------   ----------     ---------      -------         -----       ---------
</TABLE>


                                       47
<PAGE>

(18) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of unaudited results of operations (in 
thousands except per share data) for the years ended December 31, 1996 and 
1997.

<TABLE>
<CAPTION>
                                                   Year Ended December 31, 1996
                                          ---------------------------------------------
                                            First      Second       Third      Fourth
                                           Quarter     Quarter     Quarter     Quarter
                                          ---------   ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>
Net sales                                 $  69,049   $  64,367   $  61,460   $  63,027
Gross profit                                 21,720      20,967      19,662      21,886

Net income before extraordinary item          1,581       1,710       1,200       2,930
Extraordinary item                                                   (4,368)
                                          ---------   ---------   ---------   ---------
Net income (loss)                             1,581       1,710      (3,168)      2,930

Income (loss) per common share,
  basic and diluted
    Income before extraordinary item      $     .27   $     .29   $     .14   $     .31
    Extraordinary item                                                 (.52)
                                          ---------   ---------   ---------   ---------
    Net income (loss)                     $     .27   $     .29   $    (.38)  $     .31

Weighted average common shares,
  basic and diluted                       5,957,127   5,957,127   8,337,127   9,422,937

</TABLE>

<TABLE>
<CAPTION>
                                                   Year Ended December 31, 1997
                                          ---------------------------------------------
                                            First      Second       Third      Fourth
                                           Quarter     Quarter     Quarter     Quarter
                                          ---------   ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>
Net sales                                 $  73,726   $  69,775   $  64,554   $  69,793
Gross profit                                 23,621      23,041      21,246      25,373
Net income                                    3,438       3,466       2,702       4,094

Basic income per common share             $     .36   $     .37   $     .29   $     .43
Diluted income per common share                 .36         .37         .28         .43

Weighted average common shares:
  Basic                                   9,422,937   9,422,937   9,438,852   9,419,763
  Diluted                                 9,422,937   9,422,937   9,504,485   9,527,650

</TABLE>


                                       48
<PAGE>

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

         None.

                                   PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information called for by this item is hereby incorporated by 
reference to the Registrant's definitive Proxy Statement for the fiscal year 
ended December 31, 1997, which Proxy Statement will be filed with the 
Securities and Exchange Commission no later than 120 days after the end of 
the fiscal year covered by this report.

ITEM 11  EXECUTIVE COMPENSATION

     The information called for by this item is hereby incorporated by 
reference to the Registrant's definitive Proxy Statement for the fiscal year 
ended December 31, 1997, which Proxy Statement will be filed with the 
Securities and Exchange Commission no later than 120 days after the end of 
the fiscal year covered by this report.

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by this item is hereby incorporated by 
reference to the Registrant's definitive Proxy Statement for the fiscal year 
ended December 31, 1997, which Proxy Statement will be filed with the 
Securities and Exchange Commission no later than 120 days after the end of 
the fiscal year covered by this report.

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called for by this item is hereby incorporated by 
reference to the Registrant's definitive Proxy Statement for the fiscal year 
ended December 31, 1997, which Proxy Statement will be filed with the 
Securities and Exchange Commission no later than 120 days after the end of 
the fiscal year covered by this report.


                                       49
<PAGE>

                                     PART IV

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

(a)   The following documents are filed as a part of this report:

<TABLE>
<CAPTION>
                                                                         Sequential
     (1)  Financial Statements                                           Page Number
          --------------------                                           -----------
     <S>                                                                 <C>
          Independent Auditors' Report                                        19
          Consolidated Balance Sheets as of December 31, 1996 and 1997        20
          Consolidated Statements of Operations for the
            Years Ended December 31, 1995, 1996 and 1997                      21
          Consolidated Statements of Stockholders' Equity for the
            Years Ended December 31, 1995, 1996 and 1997                      22
          Consolidated Statements of Cash Flows for the
            Years Ended December 31, 1995, 1996 and 1997                      23
          Notes to Consolidated Financial Statements                          24

</TABLE>

(3)   EXHIBITS:  The Exhibits listed below are filed as part of, or 
      incorporated by reference into this Report.

<TABLE>
<CAPTION>

      Exhibit                                                                    Sequential
        No.                            Description                               Page Number
      -------                          -----------                               -----------
     <S>       <C>                                                               <C>
       3.1     Restated Certificate of Incorporation of Registrant (8)
       3.2     Bylaws of Registrant (6)
       3.3     Amendment No. 1 to Bylaws of Registrant (6)
       4.1     Amended and Restated Revolving Credit, Term Loan and Security 
               Agreement, dated as of May 25, 1995, by and between The Selmer 
               Company, Inc., Selmer Industries, Inc., Steinway Musical 
               Properties, Inc., Steinway, Inc., Boston Piano Company, Inc. 
               and BNY Financial Corporation, including a list of Exhibits 
               and Schedules thereto (5)
       4.2     First Amendment, Consent, Waiver and Agreement, dated as of 
               December 31, 1996, to the Existing Credit Agreement, by and 
               among The Selmer Company, Inc., Steinway, Inc., Steinway 
               Musical Instruments, Inc., Steinway Musical Properties, Inc., 
               Boston Piano Company, Inc., The SMI Trust, S&B Retail, Inc.
               and BNY Financial Corporation (8)
       4.3     Second Amendment, dated as of January 1, 1997, to the Credit 
               Agreement, by and among The Selmer Company, Inc., Steinway, 
               Inc., Steinway Musical Instruments, Inc., Boston Piano 
               Company, Inc., The SMI Trust, S&B Retail, Inc. and BNY 
               Financial Corporation (8)
       4.4     Third Amendment, Consent, Waiver and Agreement, dated as 
               of January 31, 1997, to the Existing Credit Agreement, by 
               and among The Selmer Company, Inc., Steinway, Inc., Steinway 
               Musical Instruments, Inc., Boston Piano Company, Inc., The 
               SMI Trust, S&B Retail, Inc., Emerson Musical Instruments, 
               Inc., The Steinway Piano Company, Inc., and BNY Financial 
               Corporation (8)


                                       50
<PAGE>

       4.5     Registration Rights Agreement, dated as of August 9, 1993, 
               among Selmer Industries, Inc. and the purchasers of certain 
               equity securities (1)
       4.6     Indenture, dated as of May 25, 1995, among The Selmer Company, 
               Inc., Selmer Industries, Inc., Steinway Musical Properties, 
               Inc., Steinway, Inc., Boston Piano Company, Inc. and American 
               Bank National Association, as trustee, including the forms of 
               Notes and the Guarantee thereon (4)
       4.7     Exchange Registration Rights agreement, dated as of May 25, 
               1995, by and among The Selmer Company, Inc., Selmer 
               Industries, Inc., Steinway Musical Properties, Inc., 
               Steinway, Inc., Boston Piano Company, Inc. and Donaldson,
               Lufkin  & Jenrette Corporation (4)
       10.1    Employment Agreement, dated as of June 22, 1993, between The 
               Selmer Company, Inc. and Thomas Burzycki (1)
       10.2    Employment Agreement, dated May 8, 1989, between Steinway 
               Musical Properties, Inc. and Thomas Kurrer (5)
       10.3    Employment Agreement, dated as of May 1, 1995, between 
               Steinway Musical Properties, Inc. and Bruce Stevens (5)
       10.4    Employment Agreement Renewal and Amendment dated January 1, 
               1997 by and between Steinway Musical Instruments, Inc. 
               and Bruce Stevens (8)
       10.5    Employment Agreement, dated as of May 1, 1995, between Steinway
               Musical Properties, Inc. and Dennis Hanson (5)
       10.6    Employment Agreement Renewal and Amendment dated January 1, 
               1997 by and between Steinway Musical Instruments, Inc. 
               and Dennis Hanson (8)
       10.7    Agreement, dated as of August 1996, between the Registrant, 
               Kirkland Messina Inc., and Dana Messina (6)
       10.8    Agreement, dated as of August 1996, between the Registrant, 
               Kirkland Messina Inc., and Kyle Kirkland (6)
       10.9    Environmental Indemnification and Non-Competition Agreement, 
               dated as of August 9, 1993, between The Selmer Company, Inc. 
               and Philips Electronics North American Corporation (1)
       10.10   Master Note Purchase and Repurchase Agreement, dated 
               August 31, 1997, by and between Textron Financial Corporation 
               and The Selmer Company, Inc.
       10.11   Master Note Purchase and Repurchase Agreement, dated 
               August 31, 1997, by and between Textron Financial Corporation 
               and Emerson Musical Instruments, Inc.
       10.12   Distribution Agreement, dated November 1, 1952, by and 
               between H. & A. Selmer, Inc. and Henri Selmer & Cie (1)
       10.13   1996 Stock Plan of the Registrant (6)
       10.14   Form of Noncompete Agreement dated July 1996 between Steinway 
               Musical Instruments, Inc. and each of Thomas Burzycki, Bruce 
               Stevens, Dennis Hanson and Michael Vickrey (7)
       21.1    List of Subsidiaries of the Registrants
       23.1    Independent Auditors' Consent - Deloitte & Touche LLP
       27.1    Steinway Musical Instruments, Inc. - Financial Data Schedule
       27.2    The Selmer Company, Inc. - Financial Data Schedule

</TABLE>


                                        51
<PAGE>

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

      (1)  Previously filed with the Commission on February 8, 1994 as an 
           exhibit to the Registrant's Registration Statement on Form S-1.

      (2)  Previously filed with the Commission on April 28, 1994 as an 
           exhibit to the Registrant's Amendment No. 1 to Registration 
           Statement on Form S-1.

      (3)  Previously filed with the Commission on March 30, 1995, as an 
           exhibit to the Registrant's Annual Report on Form 10-K.

      (4)  Previously filed with the Commission on June 7, 1995 as an exhibit 
           to the Registrant's Current Report on Form 8-K.

      (5)  Previously filed with the Commission on June 7, 1995 as an exhibit 
           to the Registrant's Registration Statement on Form S-4.

      (6)  Previously filed with the Commission on May 14, 1996 as an exhibit 
           to the Registrant's Registration Statement on Form S-1.

      (7)  Previously filed with the Commission on July 25, 1996 as an 
           exhibit to the Registrant's Amendment No. 2 to Registration 
           Statement on Form S-1.

      (8)  Previously filed with the Commission on March 27, 1997 as an 
           exhibit to the Registrant's Annual Report on Form 10-K.


(b)   Reports on Form 8-K

      The Company did not file any current reports on Form 8-K during the 
      quarter ending December 31, 1997.


                                       52
<PAGE>

                                  SIGNATURES

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

                                      STEINWAY MUSICAL INSTRUMENTS, INC.



March 27, 1998                        By /s/ Dana D. Messina
--------------                        ----------------------
   (Date)                             Dana D. Messina


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


     SIGNATURE                            TITLE

     /s/  Dana D. Messina  Director and Chief Executive Officer  March 27, 1998
     --------------------     (Principal Executive Officer)
     Dana D. Messina


     /s/  Dennis M. Hanson        Chief Financial Officer        March 27, 1998
     ---------------------     (Principal Financial Officer)
     Dennis M. Hanson


     /s/  Michael R. Vickrey     Executive Vice President        March 27, 1998
     -----------------------  (Principal Accounting Officer)
     Michael R. Vickrey


     /s/  Kyle R. Kirkland        Chairman of the Board          March 27, 1998
     ---------------------
     Kyle R. Kirkland


     /s/  Thomas T. Burzycki             Director                March 27, 1998
     -----------------------
     Thomas T. Burzycki


     /s/  Bruce Stevens                  Director                March 27, 1998
     ------------------
     Bruce Stevens


     /s/  Peter McMillan                 Director                March 27, 1998
     -------------------
     Peter McMillan


                                       53
<PAGE>

                                  SIGNATURES

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


                                        THE SELMER COMPANY, INC.



March 27, 1998                          By  /s/  Dana D. Messina
--------------                              --------------------
  (Date)                                         Dana D. Messina


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

     SIGNATURE                           TITLE

     /s/  Thomas Burzycki        Director, President and         March 27, 1998
     --------------------        Chief Executive Officer
     Thomas Burzycki          (Principal Executive Officer)


     /s/  Michael R. Vickrey     Executive Vice President        March 27, 1998
     -----------------------   and Chief Financial Officer
     Michael R. Vickrey         (Principal Financial and
                                    Accounting Officer)


     /s/  Kyle R. Kirkland               Director                March 27, 1998
     ---------------------
     Kyle R. Kirkland


     /s/  Dana D. Messina                Director                March 27, 1998
     --------------------
     Dana D. Messina


                                       54