1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business - Minnesota Public Radio (the Organization or MPR) is a not-for-profit corporation organized under the laws of the State of Minnesota. The mission of Minnesota Public Radio is to enrich the mind and nourish the spirit through radio, related technology, and services.

MPR is the parent organization of The Fitzgerald Theater Company (FTC), a not-for-profit corporation whose purpose is to renovate and operate the Fitzgerald Theater in Saint Paul, Minnesota. MPR has the ability to elect the Trustees of the FTC Board.

Minnesota Communications Group (MCG) is the not-for-profit parent support organization of MPR. MCG's primary purpose is to provide financial and management support services to MPR and FTC. MCG has the ability to elect or approve the election of a majority of the MPR Board of Trustees. MCG also owns all of the stock of Greenspring Company (Greenspring), a for-profit holding company. Greenspring has several wholly owned, for-profit subsidiaries which engage principally in direct marketing (Rivertown Trading Company), commercial news network (The MNN Radio Networks) and publishing activities (Minnesota Monthly Publications).

The Organization and FTC each maintain the following funds:

Operating Fund - To account for general purpose contributions, grants and other revenues and to account for expenses associated with the operations of the Organization and FTC, respectively.

Property Fund - To acquire and account for all buildings, building improvements and equipment owned by the Organization and FTC and to account for certain activities related to the 25th Anniversary Capital Campaign (see Note 2).

Designated Fund - To acquire and account for funds intended to assure the long-term financial health of the Organization and FTC, as designated by the Board of Trustees. The MPR Designated Fund also receive grants and bequests related to MPR's Planned Giving efforts, disburses funds related to such grants and bequests, receives payments of royalties from sources designated from time-to-time by the Board of Trustees, and makes payments to WGBH Educational Foundation under a licensing agreement related to the Signals catalog. Funds donated to MPR and designated for payment into The MPR Endowment Funds of the Minnesota Foundation are classified as permanently restricted until the actual transfer has been made. Interest and dividends received by MPR and FTC from investments held in their Designated Fund are credited directly to their respective Operating Fund. Cash balances in the Designated Fund - Unrestricted are available to the Operating Fund to provide for cash flow needs.

Basis of Financial Statement Presentation - These consolidated financial statements include the accounts of the Organization and FTC. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Organization and FTC are charged and reimbursed for certain estimated costs incurred by and benefits accrued by MCG. In addition, the Organization receives royalties from some of Greenspring's subsidiaries based on sales through certain catalogs or certain advertising but, in Rivertown Trading Company's case, limited by after tax performance of certain catalogs. The above charges and reimbursements may not necessarily be indicative of the actual costs that would have been incurred nor of the actual benefits that would have been accrued had the Organization and FTC operated independently.

Net assets, revenues and gains and losses are classified based on donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows:

Unrestricted - Unrestricted resources are those over which the Board of Trustees has discretionary control. Designated amounts represent those revenues which the Board has set aside for a particular purpose. All property, equipment and related debt are considered unrestricted.

Temporarily Restricted - Temporarily restricted resources are those subject to donor-imposed restrictions which will be satisfied by actions of the Organization or passage of time.

Permanently Restricted - Permanently restricted resources are those resources subject to donor-imposed restrictions. The restriction requires that the resources be maintained by the Organization. In the absence of donor specifications that income and gains on donated funds be restricted, such income and gains are reported as income of unrestricted net assets.

The Organization has elected to present temporarily restricted contributions, whose restrictions are fulfilled in the same time period, within the unrestricted net assets class.

Donor-Restricted Gifts - Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. The gifts are reported as temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When the donor restriction expires, (that is, when a stipulated time restriction ends or purpose restriction is accomplished) temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statement of activities as net assets released from restriction.

Pledges Receivable-Capital Campaign - Outstanding pledge contributions from various corporations, foundations and individuals were as follows at June 30:

                                  1997         1996
Pledges due:
  In less than one year           $ 249,000    $ 693,000
  In one to five years               84,000       75,000
                                   --------     --------
    Total pledges receivable      $ 333,000    $ 768,000

Pledges receivable are comprised of $242,000 and $434,000 temporarily restricted pledges and $91,000 and $334,000 permanently restricted pledges for the years ended June 30, 1997 and 1996, respectively.

Cash and Cash Equivalents - Cash and cash equivalents represent cash on hand and cash invested in short-term certificates of deposit, with original maturities of three months or less, held by MCG on behalf of MPR. The funds held by MCG represent actual funds on hand at MCG and are available to MPR at any time.

Depreciation and Amortization - The cost of equipment is depreciated over estimated useful lives (five to twenty years) of the related assets using the straight-line method. The original cost and capital improvements of the building are depreciated over an estimated useful life of 31.5 to 40 years. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful life of the asset. Costs incurred in connection with the issuance of the Commercial Development Revenue Notes are amortized over the terms of the notes using a method which approximates the effective interest method. Costs incurred to acquire broadcast licenses are amortized over a period of 40 years using the straight-line method.

Income Tax Status - Both MPR and FTC are organized as not-for-profit organizations under Chapter 317 of Minnesota Statutes. The Internal Revenue Service has determined that MPR is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (the Code) and is not a private foundation as it qualifies under Section 509(a)(1) as an organization defined under Section 170(b)(1)(A)(vi) of the Code. The Internal Revenue Service has also determined that FTC is a tax-exempt organization under Section 501(c)(3) of the Code and is not a private foundation as it qualifies under Section 509(a)(2) of the Code. The Minnesota Department of Revenue has determined that MPR and FTC are both tax-exempt from Minnesota income taxes under Section 290.05 Subdivision 9 of Minnesota Statutes.

MPR and FTC are engaged in certain activities which result in unrelated business income. For the years ended June 30, 1997 and 1996, no income tax expense resulted from these activities.

Summarized Financial Information for the Year Ended June 30, 1996 - The financial information for the year ended June 30, 1996, presented for comparative purposes, is not intended to be a complete financial statements presentation.

Use of Estimates - Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.

Investments - On July 1, 1996, the Organization adopted Financial Accounting Standards Board SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. SFAS No. 124 requires that investments in debt and equity securities with readily determinable fair values be reported at fair value, with gains and losses reported in the statement of financial activities. The adoption of SFAS No. 124 did not have a significant impact on the consolidated financial statements.

Reclassifications - Certain reclassifications have been made to the fiscal year 1996 financial statements to conform to the classifications used in fiscal year 1997. These reclassifications had no effect on change in net assets or net assets as previously reported.

2. 25TH ANNIVERSARY CAPITAL CAMPAIGN

MPR's Board of Trustees approved a capital campaign project (The 25th Anniversary Capital Campaign) totaling $11 million. The funds raised through this campaign are designated for various projects, including part of the repayment of the indebtedness to acquire the 99.5 FM license and capital to increase distribution of MPR's news and information service, to rebuild and upgrade MPR's production facilities, to endow "issue units" within the news and information division, and to engage in other technical and programmatic efforts. As of June 30, 1997, MPR had received unconditional grant commitments restricted to the purposes of this campaign of $11,595,000. This amount, net of collections of $11,262,000, is included in pledges receivable at June 30, 1997.

3. INVESTMENTS

Investments consisted of the following at June 30:

                                 1997           1996

MPR Designated Fund              $    30,000    $ 3,053,000
MPR Capital Campaign                 740,000        703,000
MPR Major Item         
  Replacement Reserve                397,000        252,000
MPR Operating Fund                    72,000         68,000
District Heating notes payable:
  Reserve Fund - FTC                  36,000         36,000
  Reserve Fund - MPR                  13,000         13,000
                                   ---------      ---------
                                 $ 1,288,000    $ 4,125,000

Investments consist primarily of money market accounts, short-term certificates of deposit, treasury bills and mutual fund investments.

MPR's Designated Fund was established by the MPR Board of Trustees to receive and hold such income as designated by the Board of Trustees to provide for the long-term financial health of the Organization. The interest on the Designated Fund is available for use in operations. The principal of this fund is available for the purpose for which this fund was established, upon the approval of the MPR Board. Cash balances in this fund are available for cash flow needs.

MPR's Major Item Replacement Reserve, accounted for in the Property Fund, was established by the MPR Board of Trustees for the purpose of replacing existing equipment or facilities. These funds may be spent only upon approval of the MPR Board of Trustees.

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30:

                                        1997            1996
Cost:
  Land                                  $     508,000    $  1,250,000
  Building and leasehold improvements       6,893,000       7,675,000
  Building improvements                     3,420,000       3,346,000
  Equipment                                20,950,000      20,406,000
                                          -----------     -----------
                                           31,771,000      32,677,000
Less acculmulated depreciation
  and amortization                        (18,959,000)    (19,318,000)                      
                                          -----------     -----------
                                        $  12,812,000    $ 13,359,000

5. BROADCASTING LICENSE ACQUISITION COSTS

Broadcasting license acquisition costs consisted of the following at June 30:

                                 1997             1996

Cost                             $ 10,461,000     $ 10,461,000
Less accumulated amortization      (1,687,000)      (1,425,000)
                                  -----------      -----------
                                 $  8,774,000    $   9,036,000

6. LINE OF CREDIT

On October 17, 1996, MPR entered into a line of credit agreement to support its working capital needs. Borrowings under this line of credit were subject to interest of one percentage point in excess of the bank's prime rate through March 1997. During 1997, the agreement was renegotiated to extend the line of credit through June 1998 and lower the interest rate to one-half of one percentage point in excess of the bank's prime rate effective June 30, 1997. This line of credit is $700,000, is unsecured and contains no financial covenants. MPR had no borrowings under the line of credit at June 30, 1997.

7. LONG-TERM DEBT

Long-term debt consisted of the following at June 30:

                                               1997           1996

Commercial Development Revenue Note of 1991    $ 5,800,000    $ 7,000,000
City of St. Paul note payable                      250,000        250,000
District Heating notes payable to the
  Port Authority of the City of St. Paul           278,000        298,000
St. Paul Foundation note payable                   218,000        218,000
St. Paul Progress Corporation note payable         102,000        123,000
The MNN Radio Networks note payable                206,000        206,000
                                                 ---------      ---------
                                               $ 6,854,000    $ 8,095,000
Less amounts due within one year                (1,341,000)    (1,444,000)
                                                 ---------      ---------
                                               $ 5,513,000    $ 6,651,000

The Commercial Development Revenue Note of 1991 was issued to finance MPR's acquisition of the 99.5 FM broadcast license and certain additional assets. The note bears interest at rates of 5.20% to 6.90% and provides a repayment schedule which, including interest, is essentially level over the ten-year repayment period. Interest on the note is payable semiannually on June 1 and December 1, and annual principal payments are due June 1. The note is secured by a letter of credit from a bank, guaranty agreements from MCG and Greenspring, and a mortgage and security interest in various properties and assets of MPR, including the MPR building and the assets purchased in connection with the acquisition of the 99.5 FM broadcast license. The note agreement contains certain financial covenants that require MPR to maintain certain financial standards. The most significant of these requires MPR to maintain certain financial ratios and fund balances within MPR's Operating Fund and MPR's Designated Fund - Unrestricted. In addition, the note agreement requires that The MPR Endowment Funds at the Minnesota Foundation maintain a certain minimum fund balance.

The City of St. Paul note was used to assist in funding the Fitzgerald Theater renovation project and is secured by a mortgage on the Fitzgerald Theater building. Repayment of the borrowings, with interest at 3%, is contingent upon the sale or conveyance of the Fitzgerald Theater. Interest is forgiven each year that the Theater continues to operate at a deficit.

The proceeds of the District Heating notes payable to the Port Authority of the City of St. Paul were used to assist in funding the costs of new heating systems in the Fitzgerald Theater and MPR buildings. Repayment of the borrowing is made monthly, with interest at 6%.

The proceeds of the St. Paul Foundation note were used to fund the additional operating costs of the heating systems until operating savings are realized or until the maximum disbursement amount of $218,000 was realized. At the point operating savings begin to be realized, interest at 6% will begin to accrue and repayments in the amount of 75% of operating savings will be due annually, credited first to interest and then to principal.

The proceeds of the St. Paul Progress Corporation note were used to make improvements to the Fitzgerald Theater. The note bears interest at 75% of the First Bank National Association reference rate at the beginning of each calendar quarter and provides a repayment schedule of principal and interest over a period of seven years. The note is due immediately if, when and to the extent that FTC receives funds from the St. Paul Capital Cultural Improvement Fund for this project.

The MNN Radio Networks note arises from capital improvements which The MNN Radio Networks made on MPR's property at 1370 Davern in St. Paul. This note was originally payable upon the sale of the property which occurred during 1997. The note was renegotiated and is payable June 30, 2000, with interest at 5%.

The aggregate amounts of long-term debt maturities at June 30, 1997 are as follows:

Years ending June 30:
1998                     $ 1,341,000
1999                       1,441,000
2000                       1,748,000
2001                       1,641,000
2002                          36,000 
Thereafter                   647,000
                          ----------    
                         $ 6,854,000    

8. LEASES

The Organization leases office, studio and transmission facilities under noncancelable operating leases. Total rent expense charged to operations was $310,000 and $354,000 for the years ended June 30, 1997 and 1996, respectively.

Minimum future operating lease obligations are as follows:

Years ending June 30:
1998                     $   293,000
1999                         211,000
2000                         112,000
2001                          86,000
2002                          85,000 
Thereafter                   723,000
                          ----------    
                         $ 1,510,000    

9. COMMITMENTS AND CONTINGENCIES

During the ten-year period to June 30, 1997, MPR was awarded grants of approximately $1,553,000 from the United States Department of Commerce, National Telecommunications and Information Administration, under the Public Telecommunications Facilities Program. The terms of such grants provide for a ten-year period of federal interest, during which equipment purchased with grant funds may be repossessed under certain conditions which generally relate to a change in ownership from not-for-profit to commercial or to changes in the utilization of assets acquired with grant funds.

MPR is involved in various legal proceedings incidental to its business. Although it is difficult to predict the ultimate outcome of these cases, management believes that the resolution of such proceedings will not have a material adverse effect on the consolidated operations or the consolidated financial position of MPR.

10. RETIREMENT PLAN

MPR and FTC have a 403(b) tax deferred annuity plan which provides that qualified employees may contribute to the plan through payroll deductions, which are matched 100% by the respective employer up to 7.5% of their base compensation. Participation is voluntary after two years and is required after five years of employment or age 35, whichever is later. The employers' contributions totaled $444,000 and $431,000 for the years ended June 30, 1997 and 1996, respectively.

11. AFFILIATED ORGANIZATIONS

The Organization is charged by MCG for its estimated share of various accounting services, financing charges, personnel costs and insurance costs incurred on its behalf. For the years ended June 30, 1997 and 1996, these charges totaled $1,317,000 and $1,164,000, respectively, and are included in administrative expenses.

Minnesota Monthly Publications publishes a monthly magazine containing a programming guide, which is purchased by MPR and provided to individual members of MPR. MPR pays a specified amount to Minnesota Monthly Publications for each month an MPR member receives a magazine. Included in operating expenses is $460,000 and $294,000 charged under this arrangement for the years ended June 30, 1997 and 1996, respectively.

During the years ended June 30, 1997 and 1996, MPR charged The MNN Radio Networks $29,000 and $32,000, respectively, for providing various operational services. This is reflected in other earned revenue for MPR.

The Organization purchases various program-related products from Rivertown Trading Company. Total purchases for the years ended June 30, 1997 and 1996, were $39,000 and $56,000, respectively. These expenses are included in operating expenses.

Under agreements with Greenspring's subsidiaries, MPR receives royalties from some of Greenspring's subsidiaries based on sales through certain catalogs or of certain advertising but, in Rivertown Trading Company's case, limited by after tax performance of certain catalogs. Included in earned revenue is $4,577,000 and $4,426,000 for the years ended June 30, 1997 and 1996, respectively, relating to royalties earned by MPR. MPR, by contractual agreement, accrued $1,726,000 and $1,300,000 in royalties to WGBH Educational Foundation related to the Signals catalog in the years ended June 30, 1997 and 1996, respectively, resulting in net royalty revenue from Greenspring subsidiaries of $2,851,000 and $3,126,000 in 1997 and 1996, respectively.

During fiscal 1996, Rivertown Trading Company and MPR entered into an agreement to defer payment of certain fiscal 1996 and fiscal 1997 royalties until fiscal 2000. The obligations represented by this agreement are subordinated to Greenspring's line of credit and notes payable. At June 30, 1997 and 1996, the deferred royalty and interest receivable was $5,419,000 and $2,525,000, respectively. An interest rate of 5% is earned on the deferred royalty. Principal and interest are due in fiscal 2000.

At June 30, 1997 and 1996, the Organization had the following net amounts due from (due to) affiliated organizations (excluding deferred royalties):

                                  1997           1996

Greenspring                       $ 1,698,000    $ 1,250,000
Minnesota Communications Group        270,000        (37,000)
                                   ----------     ----------
                                  $ 1,968,000    $ 1,213,000

12. PERMANENT EXTERNAL ENDOWMENTS

The Minnesota Foundation:

MPR is party to an agreement with Minnesota Foundation which established an irrevocable endowment fund called "The Minnesota Public Radio Endowment Funds." The agreement with Minnesota Foundation requires a minimum annual distribution to MPR of 6% of the sixteen-quarter moving average market value of the fund's assets. Gifts to the fund are irrevocable; however, the fund could revert to MPR in the event Minnesota Foundation liquidates. The fund is managed at the discretion of Minnesota Foundation, except that MPR may direct Minnesota Foundation to replace any investment counselor if the fund does not produce a reasonable return. The market value of the fund at June 30, 1997 and 1996, was approximately $16,050,000 and $13,102,000, respectively, and is not reported in the financial statements.

The Oakleaf Endowment Trust:

The Oakleaf Endowment Trust for Minnesota Public Radio (the Trust) was established by private donors on June 30, 1997 to maintain and enhance the quality of MPR. An annual distribution of funds will be made to MPR based on a formula specified in the Trust which is intended to assure that payments to MPR from its endowments do not exceed their earnings above inflation, but which may not be less than 1% of the fair market value of the Trust as of the end of the preceding year. Okabena Company manages the assets of the Trust. The market value of the Trust at June 30, 1997 was $1,000,000 and is not reported in the financial statements.

13. INTERFUND TRANSFERS Interfund transfers consisted of the following at June 30:

                                       1997           1996
From MPR Operating Fund     
to MPR Property Fund:  
  Capital Acquisitions                 $ 2,283,000    $1,745,000
  Capital Financing                         12,000        12,000

From MPR Property Fund
to MPR Operating Fund:  
  Capital Campaign Bridge Fund              12,000       192,000
  Capital Acquisitions                   1,122,000       853,000

From MPR Designated Fund
 to MPR Property Fund:
 Capital Financing                       1,747,000     1,742,000

From MPR Designated Fund    
to Minnesota Foundation: 
  Contribution to Irrevocable              640,000     1,011,000
  Endowment Fund 
From Fitzgerald Theater Operating Fund 
to Fitzgerald Theater Property Fund:
  Capital Acquisitions                       4,000         2,000
  Capital Financing                         62,000        63,000

From Fitzgerald Theater Designated Fund 
to Fitzgerald Theater Operating Fund:
  To fund current operations                 1,000         3,000