<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, 1998

[ ]      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               02453
 (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. [ ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant was $142,424,434 as of February 26, 1999.

<TABLE>

<S>                                                                             <C>         <C>
Number of shares of Common Stock outstanding as of February 26, 1999:           Class A       477,953
                                                                                Ordinary    8,793,372
                                                                                            ---------
                                                                                Total       9,271,325

</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 the piano soloists performing during the 1998 concert season
chose Steinway grand pianos. 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
$293 million for the year ended December 31, 1998 were comprised of Steinway
piano sales of $161 million and Selmer band and orchestral instrument sales of
$132 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 1998, approximately 61% of Steinway's
sales were in the United States, 30% in Europe and the remaining 9% 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,
EMERSON, 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 50%
of instrument revenues in 1998 with advanced and professional instruments
representing the balance. In 1998, approximately 84% of Selmer's sales were in
the United States.

         The Company acquired the Kluge company, Europe's largest manufacturer
of piano keys, on December 28, 1998, for approximately $1.8 million. Steinway
has been a major customer of Kluge for many years. The vertical integration of
Kluge is expected to improve manufacturing efficiency and is consistent with the
Company's strategy of acquiring complementary businesses.

         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, increased competition, 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 $31,200 to $79,900
in the United States. In 1998, Steinway sold 3,326 grand pianos, of which 2,419
units were shipped from its New York facility to dealers in North and Latin
America. The remaining 907 units were shipped from its German facility to
Europe, Africa and Asia.

         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. Steinway expanded its restoration capacity in 1998 to accommodate an
increased focus on the procurement and resale of used Steinway pianos.

         BOSTON PIANO COMPANY offers a complete line of grand and vertical
pianos priced in the upper end of the mid-priced piano market. These pianos,
which are designed by Steinway and produced by a Japanese manufacturer, provide
Steinway dealers with an opportunity to realize better margins in this price
range while capturing sales that would have otherwise gone to a competitor. The
Boston line is comprised of nine upright and grand piano models, with retail
prices ranging from $5,495 to $33,310. The Boston piano provides an entry-level
product for future Steinway grand piano customers, since 75% of Steinway
customers have previously owned a piano. The product line also increases
Steinway's business with its dealers, making Steinway the dealer's primary
supplier in many instances.

         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 $800 for student instruments and from $1,500 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 is the exclusive U.S. distributor 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 PARIS products represented
approximately 7% of Selmer's sales in 1998.


                                       3
<PAGE>


         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 1998, while the top 15 accounts
represented 29% of sales.

         Musical instrument dealers sell the majority of Selmer instruments to
students enrolled in music education programs. Traditionally, students join
school bands or orchestras at age 10 or 11 and learn on beginner level
instruments, progressing to an advanced or professional level instrument after
several years. Selmer products are also sold to professional players and
institutions or groups, such as school systems or orchestras. Selmer's largest
dealer accounted for approximately 6% of sales in 1998, while the top 15
accounts represented approximately 31% of sales.


                                       4
<PAGE>


SALES AND MARKETING

         Steinway distributes its products primarily on a wholesale basis
through approximately 200 select dealers around the globe. These dealers
accounted for approximately 86% of Steinway units sold in 1998. The remaining
14% 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 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 20 dealers.

         Steinway employs seven district sales managers, four domestically and
three internationally, whose responsibilities include developing close working
partnerships with Steinway dealers. Through these highly experienced
professionals, Steinway provides sales training and technical support, as well
as sales and marketing programs for consumers and institutions. Steinway sales
managers are also responsible for promoting the Piano Bank and Steinway Artist
programs 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 their
individual 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 275 are located in
the United States. In New York City, the Steinway concert department has
approximately 110 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.

         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 "Steinway Artists" program, the
endorsement of world class pianists who voluntarily select the Steinway piano,
is unique in that Steinway does not pay artists to endorse its instruments. To
become a Steinway Artist, a pianist must not only meet certain performance and
professional criteria, he or she must also own a Steinway piano. The Steinway
Artist roster currently includes over 1,000 of the world's finest pianists who
perform only on Steinway pianos. In return for their endorsements, Steinway
Artists are provided with access to the Piano Bank described above.

         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 provides both a broader product offering for dealers and 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
benefits 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 distributed worldwide through
approximately 1,600 musical instrument dealers. These products 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. Band directors will generally
refer students to designated dealers for the purchase of instruments. Management
believes that its well established, long standing relationships with these
influential music educators 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 representatives attend
several trade shows each year providing 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, mid/low end grand pianos, and
vertical pianos. Domestic piano sales had been declining over the past two
decades primarily due to a decrease in vertical pianos. During this period,
verticals were impacted by the increase in competition stemming from electronic
alternatives and lower-cost, smaller, mass produced grand pianos. Since Steinway
realizes the vast majority of its profit from high end grand piano sales which
are generally more affected by economic cycles, the vertical piano decline did
not have a material adverse effect on Steinway's operating results. Over the
past two years, the industry has experienced growth in all categories of pianos.
Management believes this trend is attributable to the strong U.S. economy,
favorable demographics and a general resurgence in music interests.

         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, the United Kingdom, France and Switzerland.

         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 nearly 9% 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 domestic 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. While the overall trend continued in 1998, the weak Asian economy
did impact the domestic market for band and orchestral instruments. As
manufacturers experienced declines in shipments into foreign markets, their
products became available for distribution in the U.S., resulting in a highly
competitive domestic market where certain product lines experienced higher than
normal growth due to favorable pricing.

         The Company believes the outlook for continued steady growth remains
strong. Positive demographic trends and recent studies emphasizing the
importance of music education in a child's development are expected to
contribute to the industry's continued growth. 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). In addition, 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 sections 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, Steinway enlarged its restoration
facilities in 1998 to increase its emphasis on both 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, 1998, the Company employed 2,118 people, consisting
of 1,589 hourly and 529 salaried employees. Of the 2,118 employees, 1,643 were
employed in the United States and the remaining 475 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 671 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
Wilkow, Poland                 Owned              9,740       Piano key manufacturing
Monroe, NC                    Leased            147,000       Drum and case manufacturing
Cleveland, OH                 Leased             52,000       Stringed instrument manufacturing
Wuppertal, Germany            Leased             27,450       Piano key 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 $6.3 million for capital expenditures
in 1998. The majority of the expenditures were used for new machinery and
building improvements, including refurbishing the piano restoration center. The
Company expects to increase its level of capital expenditures in the future as
it continues to modernize its equipment and renovate its facilities in order to
improve its production efficiency.

         On January 28, 1999, the Company signed a letter of intent to purchase
the building which includes its Steinway Hall Showroom on West 57th Street in
New York City. The transaction will involve the purchase of the building coupled
with a 99-year land lease. A definitive purchase agreement is expected to be
signed by the end of the first quarter of 1999.


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


                                       9
<PAGE>


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 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. Four 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. On October 22, 1998, the Company was joined as defendant in an action
involving a site formerly occupied by a business acquired by the Company in
Illinois. The defense of this action has been accepted by Philips pursuant to
the terms of 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.


                                       10
<PAGE>


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, 1998.



                                     PART II

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

         The ordinary common stock of the Company is traded on the New York
Stock Exchange ("NYSE") under the symbol "LVB". The following table sets forth,
for the period indicated, the high and low sales price per share of the ordinary
common stock as reported on the NYSE.
<TABLE>
<CAPTION>
                                                  High                   Low
                                                  ----                   ---
<S>                                            <C>                   <C>
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


Fiscal Year Ended December 31, 1998
         First Quarter                         $  33.50              $  20.63
         Second Quarter                           35.00                 27.50
         Third Quarter                            32.38                 18.63
         Fourth Quarter                           26.00                 16.32

</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 March 8, 1999, there were 376 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, 1998, 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>

(Dollars in thousands, except                                   Year Ended December 31,
   per share information)             -----------------------------------------------------------------------------
                                          1994          1995 (1)          1996            1997            1998
                                      --------------  -------------   -------------   -------------   -------------
<S>                                     <C>             <C>             <C>              <C>            <C>      
INCOME STATEMENT DATA:
Net sales                               $  101,114      $ 189,805       $ 257,903        $ 277,848      $ 293,251
Gross profit                                31,661         50,218          84,235           93,281         98,479
Income from operations                      12,472         13,102          33,020           38,932         42,968
Income (loss) before
      extraordinary item                     2,922         (2,074)          7,421           13,700         16,651
Income (loss) per share before
      extraordinary item:
      Basic                                   1.95          (1.36)           1.00            1.45            1.78
      Diluted                                  .52          (1.36)           1.00            1.45            1.75

Weighted average shares:
      Basic                              1,499,900      1,524,663       7,418,580        9,426,122      9,339,896
      Diluted                            5,660,000      1,524,663       7,418,580        9,458,841      9,505,640

OTHER FINANCIAL DATA:
Adjusted gross profit (2)                $  31,925      $  59,856        $ 84,235       $   93,281     $   98,479
EBITDA (2) (3)                              16,638         30,479          44,520           50,175         54,072
Capital expenditures                         1,112          3,162           5,199            5,634          6,264
Cash flows from:
   Operating activities                     10,973          6,663           5,927           13,835         14,227
   Investing activities                     (1,202)      (107,702)         (5,039)          (8,968)        (5,289)
   Financing activities                     (9,549)       104,365            (865)          (3,440)        (1,718)

MARGINS:
Adjusted gross profit (2)                     31.6%          31.5%           32.7%          33.6%            33.6%
EBITDA  (2) (3)                               16.5           16.1            17.3           18.1             18.4

BALANCE SHEET DATA (AT YEAR END):
Cash                                   $       380     $    3,706      $    3,277       $    5,271     $   12,460
Current assets                              56,265        132,380         140,353          151,622        170,381
Total assets                                85,524        263,796         265,366          266,708        283,927
Current liabilities                         13,388         41,767          37,720           40,429         42,243
Total debt                                  62,057        174,039         118,391          115,457        117,028
Stockholders' equity                         7,253          5,828          67,878           75,761         91,757

</TABLE>


NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA:

(1)  The Company acquired Steinway in May 1995.
(2)  Adjusted gross profit and EBITDA under the captions "Other Financial Data"
     and "Margins" for the years ending 1994 and 1995 reflect positive
     adjustments of $264 and $9,638, respectively, relating to purchase
     accounting adjustments to inventory for the acquisitions of Selmer in 1993
     and Steinway in 1995.
(3)  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 income from operations improved 5.5% and 10.4%, respectively, for 1998
compared to 1997. The Company believes that these operating performance
improvements have resulted from the Company's strategy to capitalize on its
strong brand names, leading market positions, and emphasis on quality products.
The Company's net sales of $293 million for the year ended December 31, 1998
were comprised of Steinway piano sales of $161 million and Selmer band and
orchestral instrument sales of $132 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
(3,326 sold in 1998), 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 1995 to
1998, largely attributable to the strong U.S. economy 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 and Asian economies. In 1998, approximately 61% of
Steinway's sales were in the United States, 30% in Europe and the remaining 9%
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 50% of instrument revenues in 1998 with advanced
and professional instruments representing the balance.

         Selmer student instrument sales were affected by the weak foreign
markets in 1998. The strong U.S. economy attracted both domestic and foreign
manufacturers who were experiencing declines in international shipments during
the year. This created an oversupply of instruments which, coupled with pricing
pressures, resulted in a highly competitive domestic market. The decrease in
foreign shipments, as well as the increased domestic competition, resulted in an
overall 3% decline in Selmer's unit shipments in 1998. Despite this decline,
Selmer's unit shipments and sales have grown an average of 1% and 6% per year,
since 1995. 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.

         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 28% of consolidated
sales, with


                                       13
<PAGE>


Steinway's international sales accounting for over 75% 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
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 believes the introduction of the Euro over the next
three years will have a positive long-term impact on its business, as consistent
prices throughout Europe will create a more favorable selling environment for
its products.

         The Company's effective tax rates vary depending on the relative
proportion of foreign to U.S. income (foreign income generally, and German
income in particular, bear higher rates of tax) and absorption of foreign tax
credits in the U.S.. In 1998, German income decreased relative to total income
and the rate of credit absorption increased. This shift in income combined with
certain tax saving strategies reduced the Company's effective tax rate from 48%
in 1997 to 46% in 1998.

         The Company has historically grown through strategic acquisitions of
complementary businesses. Recent acquisitions have included Emerson Musical
Instruments in January 1997 and the Kluge group of companies in December 1998.
The following discussion includes each of these businesses since its date of
acquisition.


RESULTS OF OPERATIONS

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

         NET SALES - Net sales increased $15.4 million (5.5%) to $293.3 million
in 1998. Piano sales increased $15.8 million (10.9%). Total piano shipments
increased nearly 12%, comprised of a 17% increase in Boston units and a 7%
increase in Steinway units. Band and orchestral instrument sales remained
essentially flat in 1998. A decline in foreign shipments and a highly
competitive domestic market caused a 3% decrease in band and orchestral
instrument shipments for the year.

         GROSS PROFIT - Gross profit increased $5.2 million (5.6%) to $98.5
million. Gross margins remained flat at 33.6% in both years. Piano margins
improved to 35.4% in 1998 from 33.4% in 1997. 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 $1.7 million. Band instrument margins were negatively impacted by
manufacturing inefficiencies experienced with the introduction of a new student
saxophone, resulting in a decline in margins from 33.7% in 1997 to 31.3% in
1998.

         OPERATING EXPENSES - Operating expenses increased only $1.2 million
(2.1%) to $55.5 million in 1998. Overall, operating expenses decreased as a
percentage of sales from 19.6% in 1997 to 18.9% in 1998.

         INCOME FROM OPERATIONS - Income from operations increased by $4.0
million (10.4%) to $43.0 million in 1998. These improved earnings resulted from
increased sales combined with firm control over operating expenses.


                                       14
<PAGE>


         NET INTEREST EXPENSE - Net interest expense decreased $0.9 million
(6.8%) to $11.9 million in 1998. This decrease represents the savings realized
from lower average outstanding balances on the Company's debt.


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. The acquisition of 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.

         INCOME FROM OPERATIONS - Income 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.


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.

         Cash provided by operations was $5.9 million in 1996, $13.8 million in
1997 and $14.2 million in 1998. Cash provided by the Company's initial public
offering in 1996 was used to repay $54.6 million of Senior Secured Notes and
related prepayment penalties of $4.5 million. Cash used for the acquisitions of
Emerson and Kluge was $1.6 million in 1997 and $1.3 million in 1998,
respectively.

         Capital expenditures in 1996, 1997 and 1998 were $5.2 million, $5.6
million and $6.3 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 continues to modernize its equipment and renovate its facilities in order to
improve its production efficiency.


                                       15
<PAGE>


         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 $60-65 million in
August and September, and lows of approximately $30-35 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 financing company, on a full
     recourse basis. The Company's current arrangement, which allows the
     financing company to purchase, at its option, up to an aggregate amount
     outstanding at any time of $15.0 million of notes receivable, expires in
     2000. Net notes receivable sales generated approximately $15.1 million and
     $14.9 million in cash in 1997 and 1998, 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 "Credit Facility"). The Credit 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,
1998, no amounts were outstanding, and availability was approximately $56.4
million. The Credit 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, 1998, the Company's total outstanding indebtedness
amounted to $117.0 million, consisting of $110.0 million of 11% Senior
Subordinated Notes and $7.0 million of notes payable to foreign banks. Cash
interest paid was $13.5 million and $13.0 million in 1997 and 1998,
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.

         The Company's share repurchase program authorizes management to make
discretionary repurchases of its ordinary common stock up to a limit of $25
million. Repurchased shares are being held as treasury shares to be used for
corporate purposes. The Company repurchased 85,900 shares at a cost of $1.9
million in 1997 and 151,500 shares at a cost of $3.7 million in 1998.

         Management believes that cash on hand, together with cash flow
anticipated from operations and available borrowings under the Credit 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.


                                       16
<PAGE>


         YEAR 2000 COMPLIANCE - The Year 2000 issue is the result of computer
programs being written using two digits rather than four digits to define the
applicable year. Computer programs and hardware that are date sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000. The
Company's products, which are finely crafted instruments, do not contain
software programs and therefore their functionality will not be affected by this
issue. However, it could cause some disruptions of internal operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities.

         The Company has focused its Year 2000 review in the following areas:
(1) information technology ("IT") systems such as hardware and software; (2)
non-IT systems such as manufacturing, distribution and facility equipment
containing embedded microprocessors; and (3) the readiness of third-parties such
as suppliers and customers. An inventory of all IT and non-IT systems has been
taken and efforts are underway to insure that the appropriate testing and
remediation or replacement occurs.

         Virtually all of the Company's critical manufacturing and accounting
information systems have been tested for Year 2000 compliance. Many of the
critical information systems were replaced over the past two years with Year
2000 compliant programs in the normal course of business. The Company intends to
replace or upgrade non-compliant IT hardware and software systems by the end of
the third quarter of 1999.

         Preliminary testing of non-IT systems and equipment indicates that many
of these systems rely on time intervals rather than dates in their operation.
The Company is contacting the manufacturers of the non-IT equipment used in
production to obtain assurances as to whether the manufacturers' systems are
Year 2000 compliant. Testing and remediation of these systems will continue
throughout 1999.

         The Company has communicated with major suppliers and customers to
determine the extent to which the Company may be vulnerable if a supplier fails
to correct their own Year 2000 issue. Most suppliers and customers who have
replied to our inquiries indicated that they expect to be Year 2000 compliant on
a timely basis. There can be no assurance, however, that third parties will
address the Year 2000 issue in a timely manner.

         Based on its review to date, the Company believes the Year 2000 problem
will not pose significant internal operational disruptions. Events beyond the
Company's reasonable control could adversely affect the Company's ability to
produce and deliver its products in a timely manner. These events could include
failure of infrastructure systems, including power, heat and water; disruptions
in distribution channels; or the inability of suppliers and customers to engage
in normal business activities. In the third quarter of 1999, the Company will
develop a contingency plan based on the magnitude and probability that
operational disruptions may still occur on January 1, 2000. The Company
currently believes that the risk of disruption will be minimal since its
operations are geographically dispersed and rely on a large supplier and
customer base.

         The Company does not expect the costs associated with its Year 2000
compliance to be material. Internal employees, whose salaries and wages are
included in normal operating expenses, have modified many of the Company's
information technology systems. Less than $1 million has been spent to date and
future costs are not anticipated to be material to its financial position or
results of operations.


                                       17
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. This statement requires that all derivatives be recognized at fair
value in the balance sheet, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
The statement will be effective for the Company in fiscal 2000. Management is
currently evaluating the effect of adopting SFAS No. 133 on the consolidated
financial statements.

         In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires external and
internal indirect costs of developing or obtaining internal-use software to be
capitalized as a long-lived asset and also requires training costs included in
the purchase price of computer software and costs associated with research and
development to be expensed as incurred. SOP 98-1 will be effective for the
Company in fiscal 1999. Management is currently evaluating the effects of this
statement on the consolidated financial statements.



ITEM 7A           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 
                  MARKET RISK

         The Company is subject to market risk associated with changes in 
foreign currency exchange rates and interest rates. The Company mitigates its 
foreign currency exchange rate risk by holding forward foreign currency 
contracts. These contracts are used as a hedge against intercompany 
transactions and are not used for trading or speculative purposes. The fair 
value of the forward foreign currency exchange contracts is sensitive to 
changes in foreign currency exchange rates. As of December 31, 1998, a 10% 
adverse change in foreign currency exchange rates from market rates would 
decrease the fair value of the contracts by approximately $0.6 million. Gains 
and losses on the foreign currency exchange contracts are defined as the 
difference between the contract rate at its inception date and the current 
exchange rate. However, any such gains and losses would generally be offset 
by corresponding losses and gains, respectively, on the related hedged asset 
or liability.

         The Company's interest rate exposure is limited primarily to 
interest rate changes on its variable rate Credit Facility. The Credit 
Facility bears interest at rates which fluctuate with changes in the 
Eurodollar rate. As of December 31, 1998, a hypothetical 10% immediate 
increase in interest rates would not have a material effect on the Company's 
interest expense. To date, the Company has not entered into interest rate 
swap agreements to fix the interest rate on its short-term borrowings.

         Substantially all of the Company's long-term debt, approximately 
$117.0 million at December 31, 1998, is at fixed interest rates. Accordingly, 
there would be no immediate impact on the Company's interest expense 
associated with its long-term debt due to fluctuations in market interest 
rates. However, based on a hypothetical 10% immediate decrease in market 
interest rates, the fair value of the Company's long-term debt, which would 
be sensitive to such interest rate changes, would be increased by 
approximately $0.8 million as of December 31, 1998.  Such fair value changes 
may affect the Company's determination as to whether to retain, replace or 
retire its long-term debt.

                                       18
<PAGE>


ITEM 8            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEPENDENT AUDITORS' REPORT

CONSOLIDATED FINANCIAL STATEMENTS:

         Consolidated Balance Sheets as of December 31, 1997 and 1998 
         Consolidated Statements of Operations for the Years Ended December 31,
         1996, 1997 and 1998 

         Consolidated Statements of Stockholders' Equity for the Years Ended 
         December 31, 1996, 1997 and 1998 

         Consolidated Statements of Cash Flows for the Years Ended December 31,
         1996, 1997 and 1998 

         Notes to Consolidated Financial Statements
 
         Schedule II - Valuation and Qualifying Accounts












                                       19
<PAGE>


INDEPENDENT AUDITORS' REPORT



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



We have audited the accompanying consolidated balance sheets of Steinway 
Musical Instruments, Inc. and subsidiaries as of December 31, 1997 and 1998, 
and the related consolidated statements of operations, stockholders' equity 
and cash flows for each of the three years in the period ended December 31, 
1998. Our audits also included the financial statement schedule listed in the 
Index at Item 14(a)(1). These financial statements and financial statement 
schedule are the responsibility of the Company's management. Our 
responsibility is to express an opinion on the financial statements and 
financial statement schedule 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.










/s/  DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 23, 1999





                                       20
<PAGE>

               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1998
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,        DECEMBER 31,
                                                                                     1997                1998
                                                                                ---------------     ---------------
<S>                                                                                     <C>                 <C>   
ASSETS
Current assets:
   Cash                                                                         $        5,271        $     12,460
   Accounts, notes and leases receivable, net of allowance for
        bad debts of $7,504 and $7,512 in 1997 and 1998, respectively                   47,377              52,451
   Inventories                                                                          87,954              96,527
   Prepaid expenses and other current assets                                             4,832               2,323
   Deferred tax asset                                                                    6,188               6,620
                                                                                ---------------     ---------------
Total current assets                                                                   151,622             170,381

Property, plant and equipment, net                                                      58,629              60,194
Other assets, net                                                                       22,891              19,754
Cost in excess of fair value of net assets acquired, net of accumulated
        amortization of $2,734 and $3,728 in 1997 and 1998, respectively                33,566              33,598
                                                                                ---------------     ---------------

TOTAL ASSETS                                                                     $     266,708       $     283,927
                                                                                ---------------     ---------------
                                                                                ---------------     ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable and current portion of long-term debt                          $        3,338       $       5,658
   Accounts payable                                                                      5,668               6,793
   Other current liabilities                                                            31,423              29,792
                                                                                ---------------     ---------------
Total current liabilities                                                               40,429              42,243

Long-term debt                                                                         112,119             111,370
Deferred taxes                                                                          26,279              25,146
Non-current pension liability                                                           12,120              13,411
                                                                                ---------------     ---------------
Total liabilities                                                                      190,947             192,170
                                                                                ---------------     ---------------

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,  8,889,641
      and 8,793,372 shares outstanding in 1997 and 1998, respectively                        9                   9
   Additional paid-in capital                                                           69,206              70,245
   Retained earnings                                                                    14,492              31,143
   Accumulated other comprehensive income                                               (6,030)             (3,976)
   Treasury stock, at cost (85,900 and 237,400 shares at December 31, 1997
      and 1998, respectively)                                                           (1,916)             (5,664)
                                                                                ---------------     ---------------
Total stockholders' equity                                                              75,761              91,757
                                                                                ---------------     ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $      266,708       $     283,927
                                                                                ---------------     ---------------
                                                                                ---------------     ---------------
</TABLE>


See notes to consolidated financial statements.

                                       21
<PAGE>


               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
            (DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                            1996            1997           1998
                                                                        -------------   -------------  -------------
<S>                                                                      <C>             <C>            <C>       
Net sales                                                                $  257,903      $   277,848    $  293,251
Cost of sales                                                               173,668          184,567       194,772
                                                                        -------------   -------------  -------------

Gross profit                                                                 84,235           93,281        98,479

Operating expenses:
   Sales and marketing                                                       29,206           32,441        35,132
   Provision for doubtful accounts                                              760              742           401
   General and administrative                                                16,363           17,531        16,761
   Amortization                                                               4,388            3,869         3,850
   Other operating (income) expense                                             498             (234)         (633)
                                                                        -------------   -------------  -------------
Total operating expenses                                                     51,215           54,349        55,511
                                                                        -------------   -------------  -------------

Income from operations                                                       33,020           38,932        42,968

Other (income) expense:
   Other income, principally interest and late charges                         (763)            (728)       (1,071)
   Interest and amortization of debt discount                                17,870           13,504        12,982
                                                                        -------------   -------------  -------------
Other expense, net                                                           17,107           12,776        11,911
                                                                        -------------   -------------  -------------

Income before income taxes                                                   15,913           26,156        31,057

Provision for income taxes                                                    8,492           12,456        14,406
                                                                        -------------   -------------  -------------

Income before extraordinary item                                              7,421           13,700        16,651

Extraordinary item - early extinguishment
   of debt (net of tax benefit of $2,640)                                     4,368
                                                                        -------------   -------------  -------------

Net income                                                               $    3,053      $    13,700    $   16,651
                                                                        -------------   -------------  -------------
                                                                        -------------   -------------  -------------
Basic income per share:
   Income before extraordinary item                                      $     1.00      $      1.45    $     1.78
   Extraordinary item                                                          (.59)
                                                                        -------------   -------------  -------------

   Net income                                                            $      .41      $      1.45    $     1.78
                                                                        -------------   -------------  -------------
                                                                        -------------   -------------  -------------
Diluted income per share:
   Income before extraordinary item                                      $     1.00      $      1.45    $     1.75
   Extraordinary item                                                          (.59)
                                                                        -------------   -------------  -------------
   Net income                                                            $      .41      $      1.45    $     1.75
                                                                        -------------   -------------  -------------
                                                                        -------------   -------------  -------------

Weighted average shares:
   Basic                                                                   7,418,580       9,426,122     9,339,896
   Diluted                                                                 7,418,580       9,458,841     9,505,640

</TABLE>

See notes to consolidated financial statements.

                                       22
<PAGE>


               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                  Preferred                                                Accumulated
                                   Stock               Additional  Retained                   Other        Total
                                    and      Common     Paid-In    Earnings    Treasury    Comprehensive Stockholders'
                                  Warrants    Stock     Capital    (Deficit)     Stock       Income        Equity
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------
<S>                               <C>        <C>       <C>         <C>         <C>         <C>           <C>
Balance, January 1, 1996           $ 2,336   $    --    $ 5,629    $ (2,261)    $    --      $    124     $  5,828
                                                                                                         -----------


Comprehensive income:
    Net income                                                        3,053                                  3,053
    Foreign currency translation
       adjustment                                                                              (1,776)      (1,776)
                                                                                                         -----------
Total comprehensive income                                                                                   1,277
                                                                                                         -----------

Issuance of 3,570,000 shares
    of common stock                                4     60,769                                             60,773
                                                                                                         -----------

Conversion of preferred
    stock and warrants              (2,336)        5      2,331                                                 --
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------

Balance, December 31, 1996              --         9     68,729         792           --       (1,652)      67,878
                                                                                                         -----------

Comprehensive income:
    Net income                                                       13,700                                 13,700
    Foreign currency translation
       adjustment                                                                              (4,378)      (4,378)
                                                                                                         -----------
Total comprehensive income                                                                                   9,322
                                                                                                         -----------

Issuance of 30,557 shares
    of common stock                                         477                                                477
                                                                                                         -----------

Purchase of 85,900 shares
    of treasury stock                                                             (1,916)                   (1,916)
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------

Balance, December 31, 1997              --         9     69,206      14,492       (1,916)      (6,030)      75,761
                                                                                                         -----------

Comprehensive income:
    Net income                                                       16,651                                 16,651
    Foreign currency translation
        adjustment                                                                              2,054        2,054
                                                                                                         -----------
Total comprehensive income                                                                                  18,705
                                                                                                         -----------

Issuance of 55,231 shares
    of common stock                                        1,039                                             1,039
                                                                                                         -----------

Purchase of 151,500 shares
    of treasury stock                                                             (3,748)                   (3,748)
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------

Balance, December 31, 1998        $     --      $  9    $ 70,245   $ 31,143    $  (5,664)    $ (3,976)    $ 91,757
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------
                                  ---------  --------  ----------  ----------  ----------  ------------  -----------
</TABLE>

See notes to consolidated financial statements.

                                       23
<PAGE>


               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1996         1997         1998
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
  Net income                                               $   3,053    $  13,700    $  16,651
  Adjustments to reconcile net income to cash 
    flows from operating activities:
    Depreciation and amortization                             10,970       10,581       10,630
    Provision for doubtful accounts                              760          742          401
    Deferred tax benefit                                      (3,123)      (3,012)      (2,509)
    Early extinguishment of debt (net of tax benefit)          4,368
    Other                                                        274          143          (21)
    Changes in operating assets and liabilities:
      Accounts, notes and leases receivable                   (4,606)      (3,098)      (4,734)
      Inventories                                             (5,786)      (7,298)      (6,406)
      Prepaid expense and other current assets                  (127)        (909)         775
      Accounts payable                                        (1,712)        (685)         925
      Accrued expenses                                         1,856        3,671       (1,485)
                                                           ---------    ---------    ---------
    Cash flows from operating activities                       5,927       13,835       14,227

Cash flows from investing activities:
  Capital expenditures                                        (5,199)      (5,634)      (6,264)
  Proceeds from disposals of fixed assets                         51           44          137
  Changes in other assets                                        109       (1,772)       2,175
  Business acquisition (net of cash acquired)                              (1,606)      (1,337)
                                                           ---------    ---------    ---------
    Cash flows from investing activities                      (5,039)      (8,968)      (5,289)

Cash flows from financing activities:
  Borrowing under lines of credit                            195,222      227,185      245,774
  Repayments under lines of credit                          (196,754)    (228,304)    (243,918)
  Proceeds from issuance of long-term debt                     4,717
  Repayments of long-term debt                               (64,823)        (882)        (865)
  Proceeds from issuance of stock                             60,773          477        1,039
  Purchase of treasury stock                                               (1,916)      (3,748)
                                                           ---------    ---------    ---------
    Cash flows from financing activities                        (865)      (3,440)      (1,718)

Effects of foreign exchange rate changes on cash                (452)         567          (31)
                                                           ---------    ---------    ---------

Increase (decrease) in cash                                     (429)       1,994        7,189
Cash, beginning of year                                        3,706        3,277        5,271
                                                           ---------    ---------    ---------

Cash, end of year                                          $   3,277    $   5,271    $  12,460


Supplemental Cash Flow Information
    Interest paid                                          $  17,665    $  13,508    $  12,991
    Income taxes paid                                      $  11,145    $  13,751    $  16,469

</TABLE>

See notes to consolidated financial statements.

                                       24
<PAGE>


               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                    (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. The Company purchased the
assets of Emerson Musical Instruments, Inc. in January 1997 for approximately
$2.0 million, and the Kluge group of companies on December 28, 1998 for
approximately $1.8 million. Each acquisition has been accounted for as a
purchase for financial reporting purposes and the purchase prices have been
allocated to the acquired assets and liabilities based on their relative fair
values. The consolidated financial statements of the Company include the results
of operations for each acquired business since its date of acquisition.


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     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.

     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.

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

     INVENTORIES - Inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or market.

     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>

                                       25
<PAGE>


     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.

     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.

     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 comprehensive
income. Foreign currency transaction gains and losses are recognized in the
statements of operations 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 PER COMMON SHARE - Basic income per common share is computed using
the weighted average number of common shares outstanding during each year.
Diluted income per common share reflects the effect of the Company's outstanding
options (using the treasury stock method), except where such items would be
antidilutive.

A reconciliation of the weighted average shares used for the basic and diluted
computations is as follows for the years ended December 31:
<TABLE>
<CAPTION>

                                                                    1996             1997              1998
                                                                    ----             ----              ----
<S>                                                               <C>               <C>              <C>
Weighted average shares for basic income per share                7,418,580         9,426,122        9,339,896
Dilutive effect of stock options and warrants                                          32,719          165,744
                                                                -----------      ------------      -----------
Weighted average shares for diluted income per share              7,418,580         9,458,841        9,505,640
                                                                -----------      ------------      -----------
                                                                -----------      ------------      -----------
</TABLE>

                                       26
<PAGE>


     ENVIRONMENTAL MATTERS - Potential environmental liabilities are accounted
for in accordance with Statement of Financial Accounting Standards ("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 7.

     SEGMENT REPORTING - The Company has determined that it has two distinct
reportable segments: the piano segment and the band and orchestral instrument
segment. The Company considers these two segments reportable as they are managed
separately and the operating results of each segment are regularly reviewed and
evaluated separately by the Company's senior management.

     COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income" and as a result,
has reported comprehensive income and its components in the statements of
stockholders' equity for all periods presented. Currently, in addition to net
income, the only item included in comprehensive income is foreign currency
translation adjustments. No provision for U.S. income and foreign withholding
taxes has been made because it is expected that the earnings which gave rise to
such translation adjustments will be reinvested indefinitely.

     RETIREMENT PLANS - Effective December 31, 1998, the Company adopted SFAS
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits". SFAS No. 132 supersedes the disclosure requirements in SFAS No. 87,
"Employers' Accounting for Pensions", and SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". The overall objective of SFAS
No. 132 is to improve and standardize disclosures about pensions and other
postretirement benefits and to make the required information more
understandable. The adoption of SFAS No. 132 did not affect the results of
operations or financial position, but did affect the disclosures for pensions
and other postretirement benefits. See Note 8.

     NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board released SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes new standards of accounting
and reporting for derivative instruments and hedging activities. This statement
requires that all derivatives be recognized at fair value in the balance sheet,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. The statement will be effective for the
Company in fiscal 2000. Management is currently evaluating the effect of
adopting SFAS No. 133 on the consolidated financial statements.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires external and
internal indirect costs of developing or obtaining internal-use software to be
capitalized as a long-lived asset and also requires training costs included in
the purchase price of computer software and costs associated with research and
development to be expensed as incurred. SOP 98-1 will be effective for the
Company in fiscal 1999. Management is currently evaluating the effects of this
statement on the consolidated financial statements.


                                       27
<PAGE>

(3)  CONSOLIDATED FINANCIAL STATEMENT DETAILS

   INVENTORIES

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                <C>                <C>
     Raw materials                                                                      $11,944            $15,266
     Work in process                                                                     35,309             35,010
     Finished goods                                                                      40,701             46,251
                                                                                   -------------     -------------
     Total                                                                              $87,954            $96,527
                                                                                   -------------     -------------
                                                                                   -------------     -------------

</TABLE>

   PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                <C>               <C>
     Land                                                                                $16,914           $17,343
     Building and improvements                                                            19,691            22,117
     Leasehold improvements                                                                1,318             1,392
     Machinery, equipment and tooling                                                     22,036            26,594
     Office furniture and fixtures                                                         5,629             6,459
     Concert and artist and rental pianos                                                 10,740            10,964
     Construction in progress                                                              1,832             1,172
                                                                                   -------------     -------------
                                                                                          78,160            86,041
     Less accumulated depreciation and amortization                                       19,531            25,847
                                                                                   -------------     -------------
     Total                                                                               $58,629           $60,194
                                                                                   -------------     -------------
                                                                                   -------------     -------------

</TABLE>

   OTHER ASSETS, NET

<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                <C>               <C>
     Trademarks                                                                          $20,146           $20,887
     Deferred financing costs                                                              8,504             8,504
     Other assets                                                                          2,897             2,195
                                                                                   -------------     -------------
                                                                                          31,547            31,586
     Less accumulated amortization                                                         8,656            11,832
                                                                                   -------------     -------------
     Total                                                                               $22,891           $19,754
                                                                                   -------------     -------------
                                                                                   -------------     -------------

</TABLE>

   OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                <C>               <C>
     Accrued payroll and related benefits                                                $13,118           $13,020
     Current portion of pension liability                                                  1,978             1,170
     Accrued promotional expenses                                                          2,600             2,914
     Accrued warranty expense                                                              2,102             2,413
     Accrued income taxes                                                                  1,622               864
     Accrued interest                                                                      1,513             1,513
     Other accrued expenses                                                                8,490             7,898
                                                                                   -------------     -------------
                                                                                   -------------     -------------
     Total                                                                               $31,423           $29,792
                                                                                   -------------     -------------
                                                                                   -------------     -------------
</TABLE>

                                       28
<PAGE>

(4)  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ------------------------------------------------
                                                                      1996             1997              1998
                                                                  -------------    -------------     -------------
<S>                                                               <C>              <C>               <C>
     U.S. Federal:
          Current                                                   $   5,726        $   9,361          $ 10,210
          Deferred                                                       (935)          (1,114)             (870)
     U.S. State and local:
          Current                                                         712            1,256             1,420
          Deferred                                                       (197)            (147)             (124)
     Foreign:
          Current                                                       5,177            4,851             5,076
          Deferred                                                     (1,991)          (1,751)           (1,306)
                                                                   ----------        ---------          --------
     Total                                                         $    8,492        $  12,456          $ 14,406
                                                                   ----------        ---------          --------
                                                                   ----------        ---------          --------

</TABLE>

   The components of income before income taxes are as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ------------------------------------------------
                                                                      1996             1997              1998
                                                                  -------------    -------------     -------------
<S>                                                                 <C>              <C>                <C>
     U.S. operations                                                $  10,452        $  20,457          $ 24,151
     Non-U.S. operations                                                5,461            5,699             6,906
                                                                  -------------    -------------     -------------
     Total                                                          $  15,913        $  26,156          $ 31,057
                                                                  -------------    -------------     -------------
                                                                  -------------    -------------     -------------

</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,
                                                                  ------------------------------------------------
                                                                      1996             1997              1998
                                                                  -------------    -------------     -------------
<S>                                                                 <C>              <C>               <C>
     Statutory federal rate applied to earnings before
          income taxes                                              $   5,570        $    9,155        $  10,870
     Increase in income taxes resulting from:
          Foreign income taxes (net of federal benefit)                 2,092             2,040            2,084
          State income taxes (net of federal benefit)                     477               726              933
          Other                                                           353               535              519
                                                                  -------------    -------------     -------------
     Provision for income tax                                       $   8,492         $  12,456        $  14,406
                                                                  -------------    -------------     -------------
                                                                  -------------    -------------     -------------
</TABLE>

     At December 31, 1998, accumulated retained earnings of non-U.S. 
subsidiaries totaled $1,671.  No provision for U.S. income and foreign 
withholding taxes has been made because it is expected that such earnings 
will be reinvested indefinitely.

                                       29
<PAGE>


   The components of net deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                 <C>               <C>
     Deferred tax assets:
          Uniform capitalization adjustment to inventory                            $    2,453        $    2,629
          Allowance for doubtful accounts                                                1,538             1,615
          Accrued expenses and other current assets and liabilities                      4,484             4,553
          Foreign tax credits                                                           14,488            17,004
          Valuation allowances                                                         (12,091)          (14,687)
                                                                                   -------------     -------------
               Total deferred tax assets                                                10,872            11,114

     Deferred tax liabilities
          Pension contributions                                                         (1,635)           (1,478)
          Fixed assets                                                                 (18,770)          (18,612)
          Intangibles                                                                  (10,558)           (9,550)
                                                                                   -------------     -------------
               Total deferred tax liabilities                                          (30,963)          (29,640)
                                                                                   -------------     -------------

     Net deferred taxes                                                              $ (20,091)        $ (18,526)
                                                                                   -------------     -------------
                                                                                   -------------     -------------

</TABLE>

     Valuation allowances provided relate to excess foreign tax credits 
generated over expected credit absorption. Of these valuation allowances, 
$6,373 and $6,226 relate to the acquisition of Steinway as of December 31, 
1997 and 1998, respectively. Should the related tax benefits be recognized in 
the future, the effect of removing the valuation allowances associated with 
the acquisition of Steinway would generally be a decrease in goodwill. During 
1997, the valuation allowance decreased by $3,022 primarily due to the 
write-off of expired foreign tax credits.  During 1998, the valuation 
allowance increased by $2,596 due to the generation of additional excess 
foreign tax credits.  Foreign tax credit carryforwards expire in varying 
amounts through 2002.

(5)  NOTES PAYABLE AND LONG TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------

<S>                                                                                <C>               <C>
   11% Senior Subordinated Notes, due May 15, 2005 (see Note 14)                       $ 110,000         $ 110,000
   Note payable to a foreign bank, due in monthly installments
        of DM 127 ($76 at the December 31, 1998 exchange rate)
        through June 1, 2001, at an interest rate of 6.25%                                 2,967             2,283
   Open account loans, payable on demand to a foreign bank                                 2,490             4,745
                                                                                   -------------     -------------
   Total                                                                                 115,457           117,028
   Less current portion                                                                    3,338             5,658
                                                                                   -------------     -------------
   Long-term debt                                                                       $112,119          $111,370
                                                                                   -------------     -------------
                                                                                   -------------     -------------
</TABLE>

                                       30
<PAGE>

   Scheduled maturities of long-term debt as of December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
                                                     Amount
                                                   ------------
                        <S>                        <C>
                        1999                           $ 5,658
                        2000                               913
                        2001                               457
                        2002
                        2003
                        Thereafter                     110,000
                                                   ------------
                        Total                        $ 117,028
                                                   ------------
                                                   ------------
</TABLE>

     The 11% Senior Subordinated Notes may be redeemed at the Company's 
option, in whole or in part, at the following redemption prices (expressed as 
percentages of the principal amount) plus accrued and unpaid interest and 
liquidated damages, as defined, thereon to the applicable redemption date, if 
redeemed during the twelve-month period beginning on June 1 of the years 
indicated below:

<TABLE>
<CAPTION>
                        <S>                          <C>
                        2000                         104.125%
                        2001                         102.75%
                        2002                         101.375%
                        2003 and thereafter          100.00%
</TABLE>

     The open account loans provide for borrowings by foreign subsidiaries of up
to DM 25,000 ($15,000 at the December 31, 1998 exchange rate) payable on demand.
A portion of the open account loan can be converted into a maximum of
(pound)1,083 ($1,798 at the December 31, 1998 exchange rate) for use by the
Company's UK subsidiary and (Y)340,000 ($2,997 at the December 31, 1998 exchange
rate) for use by the Company's Japanese subsidiary. Demand borrowings bear
interest at rates of 5.875 to 6.0% for the Deutsche mark loans, 6.75% for
British pounds sterling loans, and 1.31% for Japanese yen loans. Term borrowings
bear interest at Libor plus .75%.

     The Company's domestic, seasonal borrowing requirements are accommodated
through a senior revolving credit facility with a domestic bank (the "Credit
Facility"). The Credit Facility provides the Company with a potential borrowing
capacity of up to $60.0 million, based on eligible accounts receivable and
inventory balances. The Credit 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, 1998, no amounts were outstanding, and availability was
approximately $56.4 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.


(6)  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.

                                       31
<PAGE>

     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 - The Company has an employee stock 
purchase plan (the "Purchase Plan") under which substantially all employees 
may purchase common stock through payroll deductions at a purchase price 
equal to 85% of the lower of the fair market values as of the beginning or 
end of each twelve month offering period. Stock purchases under the Purchase 
Plan are limited to 5% of an employee's annual base earnings. During 1997 and 
1998, 29,557 and 30,431 shares, respectively, were issued under the Purchase 
Plan. Of the 500,000 shares originally reserved for issuance under the 
Purchase Plan, 440,012 shares remain reserved for future issuance as of 
December 31, 1998.

     STOCK PLAN - The 1996 stock plan (the "Stock Plan") provides for the
granting of 778,250 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 was
752,450 shares as of December 31, 1998.

     Option activity for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                               1996                        1997                        1998
                                      ------------------------    ------------------------    -----------------------
                                                   Weighted                    Weighted                   Weighted
                                        Number      Average        Number      Average         Number      Average
                                          of       Exercise          of        Exercise          of       Exercise
                                       Options       Price         Options      Price          Options      Price
                                      ----------- ------------    ---------- -------------    ---------- ------------
<S>                                   <C>          <C>             <C>       <C>              <C>        <C>
Outstanding at beginning of year                                    566,990     $  18.94         586,730    $  19.14
Granted                                 566,990      $  18.94        65,297        19.15          41,645       20.72
Exercised                                                           (30,557)       15.62         (55,231)      18.61
Canceled, forfeited or expired                                      (15,000)       19.00         (10,800)      19.00
                                      -----------                 ----------                  ----------
Outstanding at end of year              566,990         18.94       586,730        19.14         562,344       19.31
                                      -----------                 ----------                  ----------
                                      -----------                 ----------                  ----------

Exercisable at end of year                                          108,300      $ 19.00         207,700    $  19.09

</TABLE>

     The following table sets forth information regarding outstanding and
exercisable options at December 31, 1998:

<TABLE>
<CAPTION>
                                                Options Outstanding                         Options Exercisable
                                  -------------------------------------------------    -------------------------------
                                                       Weighted         Weighted                           Weighted
                                      Number            Average          Average           Number          Average
                                        of             Remaining        Exercise             of            Exercise
RANGE OF EXERCISE PRICES             Options         Contract Life        Price           Options           Price
                                  ---------------    --------------    ------------    ---------------   -------------
<S>                               <C>                <C>               <C>             <C>                <C>
$24.15                                   10,944             .6 years       $24.15
$18.65 to 21.94                         551,400            7.6              19.21            200,700         $19.09
                                  ---------------                                      ---------------
                                        562,344            7.5              19.31            200,700          19.09
                                  ---------------                                      ---------------
                                  ---------------                                      ---------------

</TABLE>

                                       32
<PAGE>


     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, as required by SFAS No. 123 "Accounting for Stock-Based
Compensation", reported net income and net income per share would have been as
follows for the years ended December 31:

<TABLE>
<CAPTION>

                                                         1996              1997              1998
                                                     --------------    -------------     -------------
<S>                                                  <C>               <C>               <C>
     Income before extraordinary item                        $7,126          $13,005           $15,929
     Net income                                               2,758           13,005            15,929

     Basic income per share:
         Before extraordinary item                            $.96             $1.38             $1.71
         Net income                                            .37              1.38              1.71

     Diluted income per share:
         Before extraordinary item                            $.96             $1.37             $1.68
         Net income                                            .37              1.37              1.68

</TABLE>


     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              1998
                                                                 ---------------    ---------------   ---------------
<S>                                                              <C>                <C>               <C>
Range of risk-free interest rates                                  5.64-6.36%         5.57-6.18%        4.66-5.35%
Range of expected life of option grants (in years)                   1 to 6             1 to 6            1 to 6
Expected volatility of underlying stock                              16.4%               16.4%             26.4%

</TABLE>


The weighted average fair value of options on their grant date, including the
valuation of the option feature implicit in the Purchase Plan is as follows:
<TABLE>
<CAPTION>
                                                                      1996               1997              1998
                                                                 ---------------    ---------------   ---------------
<S>                                                              <C>                 <C>               <C>
   Stock Plan                                                        $6.15               $7.61             $7.69
   Purchase Plan                                                     $4.04               $4.95             $7.41

</TABLE>


     It should be noted that the Black-Scholes option pricing model was designed
to value readily tradable options with relatively short lives and no vesting
restrictions. In addition, option valuation models require the input of highly
subjective assumptions including the expected price volatility. Because the
options granted are not tradable and have contractual lives of up to ten years,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the options
issued under the Company's Stock Plan and Purchase Plan.


                                       33
<PAGE>


(7)  COMMITMENTS AND CONTINGENT LIABILITIES

     LEASE COMMITMENTS - The Company leases various facilities and equipment
under noncancelable operating lease arrangements. These leases expire at various
times through 2016 with various renewal options. Rent expense was $3,176, $3,145
and $3,638 for the years ended December 31, 1996, 1997 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases for the years
ending December 31 are as follows:
<TABLE>
<CAPTION>

                                                                 Amount
                                                              -------------
             <S>                                              <C>
             1999                                                  $ 3,683
             2000                                                    3,501
             2001                                                    3,337
             2002                                                    2,995
             2003                                                    2,833
             Thereafter                                             11,806
                                                              -------------
             Total minimum lease payments                         $ 28,155
                                                              -------------
                                                              -------------
</TABLE>


     NOTES RECEIVABLE SOLD WITH RECOURSE - The Company sells notes receivable 
on a recourse basis to a financing company under a three-year facility. 
Pursuant to the terms of the facility, the financing company may, at its 
option, purchase up to an aggregate principal amount outstanding at any time 
of $15 million of the Company's notes receivable. The Company received 
proceeds of approximately $15.1 and $14.9 million from the sales of such 
notes during the years ended December 31, 1997 and 1998, respectively. Other 
current liabilities include a recourse obligation of $1.3 and $1.4 million 
as of December 31, 1997 and 1998, respectively for the notes sold with recourse.

     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 financial
condition or results of operations of the Company.


(8)  RETIREMENT PLANS

     The Company has defined benefit pension plans covering the majority of its
employees, including certain employees in foreign countries. Plan assets are
invested primarily in common stocks and fixed income securities. The Company
makes contributions generally equal to the minimum amounts required by federal
laws and regulations. Foreign plans are funded in accordance with the
requirements of regulatory bodies governing each plan.


                                       34
<PAGE>

          The following table sets forth the funded status and amounts
     recognized as of December 31, 1997 and 1998 for the Company's domestic and
     foreign defined benefit pension plans:

<TABLE>
<CAPTION>
                                                            Domestic Plans                     Foreign Plans
                                                         1997             1998             1997              1998
                                                     -------------    -------------    --------------    -------------
<S>                                                   <C>              <C>              <C>               <C>       
Change in benefit obligation:
     Benefit obligation, beginning of year            $   15,620       $   20,678       $   17,270        $   15,200
       Service cost                                          943            1,155              464               456
       Interest cost                                       1,355            1,437            1,025             1,014
       Plan participants' contribution                        22               22
       Amendments                                          1,428
       Actuarial (gain) loss                               1,953            1,009             (576)              984
       Foreign currency exchange rate changes                                               (2,160)              987
       Benefits paid                                        (643)            (702)            (823)             (856)
                                                     -------------    -------------    --------------    -------------
     Benefit obligation, end of year                      20,678           23,599           15,200            17,785
                                                     -------------    -------------    --------------    -------------

Change in plan assets:
     Fair value of plan assets, beginning of year         14,884           19,066            2,730             3,001
       Return on plan assets                               3,153            3,062              379               548
       Employer contribution                               1,650            1,600              772               799
       Employee contributions                                 22               22               39                41
       Foreign currency exchange rate changes                                                  (96)               15
       Benefits paid                                        (643)            (702)            (823)             (856)
                                                     -------------    -------------    --------------    -------------
     Fair value of plan assets, end of year               19,066           23,048            3,001             3,548
                                                     -------------    -------------    --------------    -------------

     Funded status                                        (1,612)            (551)         (12,199)          (14,237)

     Unrecognized net actuarial (gain) loss               (1,051)          (1,632)            (617)               45
     Unrecognized prior service cost                       2,010            1,794
                                                     -------------    -------------    --------------    -------------
     Net amount recognized                           $      (653)     $      (389)      $  (12,816)       $  (14,192)
                                                     -------------    -------------    --------------    -------------
                                                     -------------    -------------    --------------    -------------

Amounts recognized in the balance sheet consist of:
     Accrued benefit liability                       $    (1,282)     $      (389)      $  (12,816)       $  (14,192)
     Intangible asset                                        629
                                                     -------------    -------------    --------------    -------------
     Net amount recognized                           $      (653)     $      (389)      $  (12,816)       $  (14,192)
                                                     -------------    -------------    --------------    -------------
                                                     -------------    -------------    --------------    -------------
</TABLE>

   The components of net pension expense for the year ended December 31 are as
follows:

<TABLE>
<CAPTION>
                                                                      1996             1997              1998
                                                                  -------------    -------------     -------------
<S>                                                                <C>               <C>               <C>
   Domestic Plans:
     Service cost                                                  $      837        $     943         $   1,155
     Interest cost                                                      1,102            1,355             1,437
     Expected return on plan assets                                    (1,776)          (1,249)           (1,490)
     Amortization of prior service cost                                   814              194               216
     Recognized actuarial loss                                                               3                18
                                                                  -------------    -------------     -------------
     Net pension expense                                            $     977        $   1,246         $   1,336
                                                                  -------------    -------------     -------------
                                                                  -------------    -------------     -------------

   Foreign Plans:
     Service cost                                                  $      497        $     464        $      456
     Interest cost                                                      1,157            1,025             1,014
     Expected return on plan assets                                      (175)            (248)             (289)
     Amortization of prior service cost                                   (47)
                                                                  -------------    -------------     -------------
     Net pension expense                                            $   1,432        $   1,241         $   1,181
                                                                  -------------    -------------     -------------
                                                                  -------------    -------------     -------------
</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>

                                                             Domestic Plans                  Foreign Plans
                                                          1997           1998            1997            1998
                                                       -----------    ------------    ------------    ------------
<S>                                                    <C>            <C>             <C>             <C>
Weighted average assumptions as of December 31
     Discount Rate                                           7.5%           7.0%        6.5-7.25%      5.5-6.5%
     Expected return on assets                               8.5            8.5              9.5           6.5
     Rate of compensation increase                           4.0            4.0          2.5-5.5       2.5-4.0

</TABLE>


     The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $32,616, $31,120 and $19,065, respectively, as of
December 31, 1997 and $19,556, $18,440 and $4,392, respectively, as of December
31, 1998.

     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.

     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,
                                                                                   -------------------------------
                                                                                       1997              1998
                                                                                   -------------     -------------
<S>                                                                                <C>               <C>
Change in benefit obligation:
   Benefit obligation, beginning of year                                              $  1,012          $  1,266
     Service cost                                                                           37                39
     Interest cost                                                                          86                87
     Amendments                                                                            119               (25)
     Actuarial loss                                                                         59                23
     Benefits paid                                                                         (47)              (47)
                                                                                   -------------     -------------
   Benefit obligation, end of year                                                       1,266             1,343

   Fair value of plan assets                                                                --                --
                                                                                   -------------     -------------

   Funded status                                                                        (1,266)           (1,343)
   Unrecognized net actuarial gain                                                          (3)               (5)
   Unrecognized prior service cost                                                         803               753
                                                                                   -------------     -------------
   Net amount recognized                                                             $    (466)        $    (595)
                                                                                   -------------     -------------
                                                                                   -------------     -------------
</TABLE>


     The assumed weighted average discount rate as of December 31, 1997 and 1998
was 7.0% and 6.75%, respectively. 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
1999 and is assumed to decrease gradually to 4.5% in 2008, and remain at that
level thereafter.


                                       36
<PAGE>


Net postretirement benefit costs are as follows:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ------------------------------------------------
                                                                      1996             1997              1998
                                                                  -------------    -------------     -------------
<S>                                                                <C>              <C>               <C>
   Service cost                                                       $    31          $    37           $    39
   Interest cost                                                           72               86                87
   Amortization of transition obligation                                   50               50                50
   Net amortization and deferral                                           (8)
                                                                  -------------    -------------     -------------
   Net postretirement benefit cost                                     $  145           $  173            $  176
                                                                  -------------    -------------     -------------
                                                                  -------------    -------------     -------------

</TABLE>


Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>

                                                                                     1%               1%
                                                                                  Increase         Decrease
                                                                                  --------         --------
<S>                                                                               <C>             <C>
     Effect on total of service and interest cost components                        $  7            $  (7)
     Effect on the postretirement benefit obligation                                  53              (47)

</TABLE>

     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 1997 and 1998
contribution approximated $368 and $433, respectively.


(9)  FOREIGN EXCHANGE CONTRACTS

     At December 31, 1997, the Company's German divisions, whose functional
currency is the Deutsche mark, had forward contracts and purchased options to
sell (Y)430,900 and (pound)1,060 and to buy $3,195 in order to manage any
currency exchange fluctuations on its intercompany transactions. These
instruments matured at various dates through December 31, 1998.

     At December 31, 1998, these instruments, maturing at various dates through
October 1999, consisted of forward contracts and purchased options to sell
(Y)460,000 and (pound)700 and to buy $1,300. The Company's only use of purchased
options is to manage currency exchange fluctuations.


(10) 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 $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, Kirkland Messina LLC and its principals 
received annual payments of $400 in 1996, 1997 and 1998 for ongoing 
management and other services to the Company.

                                       37
<PAGE>


(11) 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. The net
carrying value and estimated fair value of the Company's financial instruments
is as follows at December 31:

<TABLE>
<CAPTION>

                                                                 1997                              1998
                                                     ------------------------------    -----------------------------
                                                    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                 $115,457       $125,266           $117,028      $124,046
        Foreign currency contracts                                           350                             (176)

</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.




                                       38
<PAGE>


(12) SEGMENT INFORMATION

     As discussed in Note 2, 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 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>

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
Other income                                 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
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
Total 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
Other income                                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
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
Total assets                    89,502   60,595     9,046   159,143  273,651     2,721   276,372  (168,807) 266,708

</TABLE>


<TABLE>


1998                                     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                  104,209   40,753    16,162   161,124  127,943     4,184   132,127            293,251
Other income                                 31        19        50      824                 824       197    1,071
Interest expense                 8,887      221       227     9,335   19,597              19,597   (15,950)  12,982
Depreciation and amortization    4,427    2,573       186     7,186    3,392        14     3,406        38   10,630
Income tax expense               3,884    2,707       696     7,287    1,025        37     1,062     6,057   14,406
Net income                       3,008    2,405     1,004     6,417      485        57       542     9,692   16,651
Capital expenditures             3,164      387        36     3,587    2,663               2,663        14    6,264
Total assets                   123,171   35,563     9,556   168,290  277,107     2,962   280,069  (164,432) 283,927

</TABLE>




                                       39
<PAGE>


(13) 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>

                                                                  1996               1997              1998
                                                              --------------     --------------    --------------
<S>                                                              <C>                <C>              <C>
     Current assets                                              $ 140,335          $ 149,022        $ 167,938
     Total assets                                                  265,348            263,725          280,991
     Current liabilities                                            37,673             46,664           53,712
     Stockholder's equity                                           68,718             78,302           97,080
     Net sales                                                     257,903            275,037          290,948
     Gross profit                                                   84,235             92,641           97,776
     Net income                                                      2,988             13,962           16,724

</TABLE>


(14) 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 (the "Notes") due 2005 and
available cash balances of the Company.

     Selmer's payment obligations under the 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.



                                       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 LIABILITIES AND                                                                                      
STOCKHOLDERS' EQUITY                        $  72,531   $ 272,243    $ 117,496     $ 72,628   $(268,190)    $ 266,708
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                           ----------- -----------  -----------  -----------  -----------  -----------

</TABLE>



                                       41
<PAGE>


               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                DECEMBER 31, 1998
                             (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                                    $       --   $   2,998    $  8,048     $  1,414       $    --     $ 12,460
   Accounts, notes and leases receivable,  
     net                                                   37,034       5,357       10,060                     52,451
   Inventories                                             38,598      31,973       26,878         (922)       96,527
 Prepaid expenses and other current      
   assets                                         124       1,486         407          306                      2,323
   Deferred tax asset                                       1,050       2,819        3,724         (973)        6,620
                                           ----------- -----------  -----------  -----------  -----------  -----------
Total current assets                              124      81,166      48,604       42,382       (1,895)      170,381
                                                                                                           
Property, plant and equipment, net                 99      14,869      28,373       16,853                     60,194
Investment in subsidiaries                     71,143     169,387      25,449                  (265,979)           --
Other assets, net                                 613       1,235      12,060        7,395       (1,549)       19,754
Cost in excess of fair value                                                                               
    of net assets acquired, net                             9,367      11,160       13,071                     33,598
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                                                                                           
TOTAL ASSETS                                $  71,979   $ 276,024    $125,646     $ 79,701    $(269,423)     $283,927
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                                                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                       
Current liabilities:                                                                                       
   Notes payable and current                                                                               
      portion of long-term debt            $       --   $      --    $    --     $   5,658    $      --      $  5,658
   Accounts payable                                         1,705       3,616        1,472                      6,793
   Other current liabilities                  (10,954)     10,786      22,198       10,093       (2,331)       29,792
                                           ----------- -----------  -----------  -----------  -----------  -----------
Total current liabilities                     (10,954)     12,491      25,814       17,223       (2,331)       42,243
                                                                                                           
Long-term debt                                    235     110,000        (235)       1,370                    111,370
Intercompany                                   18,406      67,529     (87,065)       1,130                         --
Deferred taxes                                              2,161       9,792       13,193                     25,146
Non-current pension liability                                 102                   13,647         (338)       13,411
                                           ----------- -----------  -----------  -----------  -----------  -----------
Total liabilities                               7,687     192,283     (51,694)      46,563       (2,669)      192,170
                                                                                                           
Stockholders' equity                           64,292      83,741     177,340       33,138     (266,754)       91,757
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                                                                                           
TOTAL LIABILITIES AND                                                                                      
STOCKHOLDERS' EQUITY                        $  71,979   $ 276,024    $125,646    $  79,701    $(269,423)    $ 283,927
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                           ----------- -----------  -----------  -----------  -----------  -----------
                                                                                                           

</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 operating (income) expense                         211          (638)          753          172          498
                                       -----------  -----------  -----------  ------------ ------------  -----------
Total operating expenses                      135       19,963        17,514        13,603           --       51,215
                                       -----------  -----------  -----------  ------------ ------------  -----------

Income (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 (income) 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 operating (income) expense         (2,287)           54        2,016          (180)         163         (234)
                                       -----------  -----------  -----------  ------------ ------------  -----------
Total operating expenses                      776        19,708       20,378        13,487           --       54,349
                                       -----------  -----------  -----------  ------------ ------------  -----------

Income (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 (income) 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            (512)        2,491        7,681         2,849          (53)      12,456
taxes
                                       -----------  -----------  -----------  ------------ ------------  -----------
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 OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998
                             (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                             $    --        $ 127,261      $ 113,785      $  61,099      $  (8,894)     $ 293,251
Cost of sales                                           87,482         75,875         39,977         (8,562)       194,772
                                      ---------      ---------      ---------      ---------      ---------      ---------

Gross profit                               --           39,779         37,910         21,122           (332)        98,479

Operating expenses:
  Sales and marketing                                   13,105         14,146          8,016           (135)        35,132
  Provision for doubtful accounts                           85            175            141                           401
  General and administrative              2,892          5,726          3,955          4,188                        16,761
  Amortization                                             459          2,072          1,319                         3,850
  Other operating (income) expense       (2,497)            18          1,746            (35)           135           (633)
                                      ---------      ---------      ---------      ---------      ---------      ---------
Total operating expenses                    395         19,393         22,094         13,629           --           55,511
                                      ---------      ---------      ---------      ---------      ---------      ---------

Income (loss) from operations              (395)        20,386         15,816          7,493           (332)        42,968

Other (income) expense:
  Other income                             (197)          (813)       (15,961)           (50)        15,950         (1,071)
  Interest expense                                      19,597          8,887            448        (15,950)        12,982
                                      ---------      ---------      ---------      ---------      ---------      ---------
Other (income) expense, net                (197)        18,784         (7,074)           398           --           11,911
                                      ---------      ---------      ---------      ---------      ---------      ---------

Income (loss) before income taxes          (198)         1,602         22,890          7,095           (332)        31,057

Provision for (benefit of) income           (99)         1,000         10,065          3,534            (94)        14,406
taxes
                                      ---------      ---------      ---------      ---------      ---------      ---------

Net income (loss)                     $     (99)     $     602      $  12,825      $   3,561      $    (238)     $  16,651
                                      ---------      ---------      ---------      ---------      ---------      ---------
                                      ---------      ---------      ---------      ---------      ---------      ---------

</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                                     $      65   $   1,276      $     137      $   1,667      $     (92)     $   3,053
  Adjustments to reconcile net income
  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
  Repayments of long-term debt                                 (59,096)                       (5,727)                      (64,823)
  Proceeds from issuance of stock                   60,773                                                                  60,773
  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)
  Repayments of long-term debt                                                                   (882)                         (882)
  Proceeds from issuance of stock                    477                                                                        477
  Purchase of treasury stock                      (1,916)                                                                    (1,916)
  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>



               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1998
                             (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)                            $     (99)     $     602      $  12,825      $   3,561      $    (238)     $  16,651
  Adjustments to reconcile net income
   (loss) to cash flows from operating 
   activities:
    Depreciation and amortization                     35          3,334          4,488          2,773                        10,630
    Provision for doubtful accounts                                  85            175            141                           401
    Deferred tax provision (benefit)                                384         (1,348)        (1,545)                       (2,509)
    Other                                                            67             15           (103)                          (21)
    Changes in operating assets and
     liabilities:
    Accounts, notes and leases receivable                        (3,458)           635         (1,911)                       (4,734)
      Inventories                                    (29)          (711)        (3,555)        (2,443)           332         (6,406)
    Prepaid expense and other current assets         277            118            (50)           430                           775
      Accounts payable                              (329)          (148)         1,502           (100)                          925
      Accrued expenses                            (4,311)        (3,126)         7,073         (1,027)           (94)        (1,485)
                                               ---------      ---------      ---------      ---------      ---------      ---------
Cash flows from operating activities              (4,456)        (2,853)        21,760           (224)            --         14,227

Cash flows from investing activities:
  Capital expenditures                               (14)        (2,503)        (3,324)          (423)                       (6,264)
  Proceeds from disposals of fixed assets                             5                           132                           137
  Changes in other assets                            283            437                         1,455                         2,175
Business acquisition, net of cash acquired                                                     (1,337)                       (1,337)
                                               ---------      ---------      ---------      ---------      ---------      ---------
Cash flows from investing activities                 269         (2,061)        (3,324)          (173)          --           (5,289)

Cash flows from financing activities:
  Borrowing under lines of credit                    185        123,112        120,621          1,856                       245,774
  Repayments under lines of credit                             (120,859)      (123,059)                                    (243,918)
  Repayments of long-term debt                                                                   (865)                         (865)
  Proceeds from issuance of stock                  1,039                                                                      1,039
  Purchase of treasury stock                      (3,748)                                                                    (3,748)
  Intercompany dividends                                                           800           (800)                           --
  Intercompany                                     6,711          3,625        (10,663)           327                            --
                                               ---------      ---------      ---------      ---------      ---------      ---------
Cash flows from financing activities               4,187          5,878        (12,301)           518           --           (1,718)

Effect of exchange rate changes on cash                                                           (31)                          (31)

Increase in cash                                    --              964          6,135             90           --            7,189
Cash, beginning of year                                           2,034          1,913          1,324                         5,271
                                               ---------      ---------      ---------      ---------      ---------      ---------

Cash, end of year                              $    --        $   2,998      $   8,048      $   1,414      $    --          $12,460
                                               ---------      ---------      ---------      ---------      ---------      ---------
                                               ---------      ---------      ---------      ---------      ---------      ---------


</TABLE>



                                       48
<PAGE>



(15) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of unaudited results of operations (in thousands
except share and per share data) for the years ended December 31, 1997 and 1998.

<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 share                                   $     .36      $      .37        $      .29     $       .43
Diluted income per share                                       .36             .37               .28             .43

Weighted average 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>


<TABLE>
<CAPTION>

                                                                       Year Ended December 31, 1998
                                                       --------------------------------------------------------------
                                                          First           Second            Third          Fourth
                                                         Quarter          Quarter          Quarter         Quarter
                                                       ------------     ------------     ------------    ------------
<S>                                                      <C>             <C>               <C>             <C>      
Net sales                                               $   79,100      $   73,061        $   68,646      $   72,444
Gross profit                                                26,044          24,532            21,898          26,005
Net income                                                   4,467           4,285             3,299           4,600

Basic income per share                                  $      .48      $      .46         $     .35     $       .49
Diluted income per share                                       .47             .45               .35             .49

Weighted average shares:
     Basic                                               9,364,979       9,363,932         9,331,592       9,299,079
     Diluted                                             9,528,929       9,583,293         9,473,550       9,358,837


</TABLE>


(16) SUBSEQUENT EVENT

         On January 28, 1999, the Company signed a letter of intent to purchase
the building which includes its Steinway Hall Showroom on West 57th Street in
New York City. The transaction will involve the purchase of the building coupled
with a 99-year land lease. A definitive purchase agreement is expected to be
signed by the end of the first quarter of 1999.




                                       49
<PAGE>



               STEINWAY MUSICAL INSTRUMENTS, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                          Additions
                                                          Balance at      Charged to     Deductions      Balance at
                                                          Beginning       Costs and       and Other         End
                                                           of Year         Expenses     (See Note 1)      of Year
                                                         -------------   -------------  --------------  -------------
<S>                                                         <C>            <C>             <C>             <C>  
Reserves deducted from assets to which they apply: 
  Allowance for doubtful accounts:
     Year ended December 31, 1996                            $ 6,281            760           79  (2)      $ 7,120
     Year ended December 31, 1997                              7,120            742         (358) (2)        7,504
     Year ended December 31, 1998                              7,504            401         (393) (2)        7,512

  Inventory obsolescence:
     Year ended December 31, 1996                              2,781            934           (616)          3,099
     Year ended December 31, 1997                              3,099            845           (336)          3,608
     Year ended December 31, 1998                              3,608            400            (96)          3,912

Reserves included in other current liabilities: 
  Accrued warranty expense:
     Year ended December 31, 1996                              2,175            714         (1,034)          1,855
     Year ended December 31, 1997                              1,855          1,166           (919)          2,102
     Year ended December 31, 1998                              2,102          1,013           (768)          2,347

  Reserve for notes sold with recourse:
     Year ended December 31, 1996                                951                            23             974
     Year ended December 31, 1997                                974                           343           1,317
     Year ended December 31, 1998                              1,317                           118           1,435

</TABLE>

Note:    (1)  Includes foreign currency translation adjustments
         (2) Represents accounts written off, net of recoveries; and
             reclassifications to and from other accounts






                                       50
<PAGE>


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

                  Not applicable.



                                    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, 1998, 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, 1998, 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, 1998, 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, 1998, 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.



                                       51
<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                                                             20
              Consolidated Balance Sheets as of December 31, 1997 and 1998                             21
              Consolidated Statements of Operations for the
                  Years Ended December 31, 1996, 1997 and 1998                                         22
              Consolidated Statements of Stockholders' Equity for the
                  Years Ended December 31, 1996, 1997 and 1998                                         23
              Consolidated Statements of Cash Flows for the
                  Years Ended December 31, 1996, 1997 and 1998                                         24
              Notes to Consolidated Financial Statements                                               25
              Schedule II - Valuation and Qualifying Accounts                                          50

</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
-------                              -----------                                          -----------
<C>      <S>                                                                                <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 

</TABLE>

                                       52
<PAGE>

<TABLE>

<C>      <S>                                                                                <C>

         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)
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. (9)
10.11    Master Note Purchase and Repurchase Agreement, dated August 31, 1997,
         by and between Textron Financial Corporation and Emerson Musical
         Instruments, Inc. (9)
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

</TABLE>

                                       53
<PAGE>

<TABLE>

<C>      <S>                                                                                <C>

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>

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

(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.

(9)  Previously filed with the Commission on March 27, 1998 as an exhibit to
     the Registrant's Annual Report on Form 10-K.


(b)      Reports on Form 8-K

         The following report on Form 8-K was filed during the quarter ended
         December 31, 1998:

<TABLE>
<CAPTION>

         ITEM #     DESCRIPTION                                                  FILING DATE

         <S>        <C>                                                          <C>
         5, 7       A report announcing the acquisition of the Kluge companies  December 28, 1998


</TABLE>



                                       54
<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 30, 1999                                       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:

<TABLE>
<CAPTION>

         SIGNATURE                                      TITLE
         ---------                                      -----
         <S>                            <C>                                             <C> 
         /S/  DANA D. MESSINA           Director and Chief Executive Officer            March 30, 1999
         -----------------------          (Principal Executive Officer)
         Dana D. Messina                    


         /S/  DENNIS M. HANSON                 Chief Financial Officer                  March 30, 1999
         ---------------------              (Principal Financial Officer)
         Dennis M. Hanson                   


         /S/  MICHAEL R. VICKREY              Executive Vice President                  March 30, 1999
         -----------------------           (Principal Accounting Officer)
         Michael R. Vickrey     


         /S/  KYLE R. KIRKLAND                  Chairman of the Board                   March 30, 1999
         ------------------------
         Kyle R. Kirkland


         /S/  THOMAS T. BURZYCKI                      Director                          March 30, 1999
         -----------------------
         Thomas T. Burzycki


         /S/  BRUCE STEVENS                           Director                          March 30, 1999
         ------------------
         Bruce Stevens


         /S/  PETER MCMILLAN                          Director                          March 30, 1999
         -------------------
         Peter McMillan

</TABLE>


                                       55
<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 30, 1999                                          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:

<TABLE>
<CAPTION>

         SIGNATURE                                      TITLE
         <S>                                 <C>                                       <C> 

         /S/  THOMAS BURZYCKI                  Director, President and                  March 30, 1999
         -----------------------               Chief Executive Officer
         Thomas Burzycki                     (Principal Executive Officer)
                          

         /S/  MICHAEL R. VICKREY              Executive Vice President                  March 30, 1999
         -----------------------             and Chief Financial Officer
         Michael R. Vickrey                   (Principal Financial and
                                                 Accounting Officer)

         /S/  KYLE R. KIRKLAND                        Director                          March 30, 1999
         ------------------------
         Kyle R. Kirkland

         /S/  DANA D. MESSINA                         Director                          March 30, 1999
         -----------------------
         Dana D. Messina


</TABLE>


                                       56