<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-Q
 
    (MARK ONE)
          [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                                   15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
 
                                      OR
 
          [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
               FOR THE TRANSITION PERIOD FROM         TO
 
                       COMMISSION FILE NUMBER 333-41733
 
                       SALEM COMMUNICATIONS CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
             CALIFORNIA                                77-0121400
                                             (I.R.S. EMPLOYER IDENTIFICATION
   (STATE OR OTHER JURISDICTION OF                       NUMBER)
   INCORPORATION OR ORGANIZATION)
 
 
                                                          93012
   4880 SANTA ROSA ROAD, SUITE 300                     (ZIP CODE)
        CAMARILLO, CALIFORNIA
   (ADDRESS OF PRINCIPAL EXECUTIVE
              OFFICES)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400
 
  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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  YES [X]  NO [_]
 
  As of August 1, 1998 there were 81,672 shares of common stock of Salem
Communications Corporation outstanding.
 
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<PAGE>
 
                       SALEM COMMUNICATIONS CORPORATION


                                     INDEX
                                        
<TABLE>
<CAPTION>
                                                                                                              Page No.
                                                                                                              -------
 
<S>                                                                                                           <C>
COVER PAGE.................................................................................................         1
 
INDEX......................................................................................................         2
 
PART I-FINANCIAL INFORMATION...............................................................................         3
 
       Item 1.   Financial Statements (Unaudited)..........................................................         3
 
                 Condensed Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998......         3

                 Consolidated Statements of Operations for the three months and nine months ended
                   September 30, 1997 and 1998.............................................................         4

                Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 
                   and 1998................................................................................         5

                Notes to Condensed Consolidated Financial Statements.......................................         6

       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......         7

PART II--OTHER INFORMATION.................................................................................        12

       Item 1. Legal Proceedings...........................................................................        12

       Item 2. Changes in Securities.......................................................................        12

       Item 3. Defaults upon Senior Securities.............................................................        12

       Item 4. Submission of Matters to a Vote of Security Holders.........................................        12

       Item 5. Other Information...........................................................................        12

       Item 6. Exhibits and Reports on Form 8-K............................................................        12

SIGNATURES.................................................................................................        16
EXHIBIT INDEX
</TABLE>

                                                                               2
<PAGE>
 
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
 
                                                                                          DECEMBER 31      SEPTEMBER 30
                                                                                        --------------   ---------------
                                                                                             1997             1998
                                                                                        --------------   ---------------
<S>                                                                                     <C>              <C>
                                                                                                           (UNAUDITED)
                                        ASSETS
-------------------------------------------------------------------------------------
Current assets:
 Cash and cash equivalents...........................................................         $  1,645         $  1,343
 Accounts receivable (less allowance for doubtful accounts of $1,249 in 1997 and                                      
  $955 in 1998)......................................................................           12,227           13,134
 Other receivables...................................................................               81               51
 Prepaid expenses....................................................................              640              894
 Prepaid income taxes................................................................               48               30
 Deferred income taxes...............................................................            2,254            2,592
                                                                                              --------         --------
Total current assets.................................................................           16,895           18,044
Property, plant and equipment, net...................................................           36,638           42,323
Intangible assets, net...............................................................          120,083          142,163
Notes receivable from shareholders and accrued interest..............................               94               94
Bond issue costs, net................................................................            4,907            4,790
Other assets.........................................................................            6,196            1,544
                                                                                              --------         --------
Total assets.........................................................................         $184,813         $208,958
                                                                                              ========         ========
 
                       LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------
 
Current liabilities:
 Accounts payable....................................................................         $  1,050         $    727
 Accrued expenses....................................................................              476              547
 Accrued compensation and related....................................................            1,381            1,520
 Accrued interest....................................................................            3,804               49
 Income taxes........................................................................              341              118
                                                                                              --------         -------- 
Total current liabilities............................................................            7,052            2,961
Long-term debt.......................................................................          154,500          183,810
Deferred income taxes................................................................           12,122           11,801
Other liabilities....................................................................              457              879
Shareholders' equity:
 Common stock, no par value; authorized 100,000 shares; issued and
  Outstanding 81,672 shares..........................................................            5,832            5,832
 Retained earnings...................................................................            4,850            3,675
                                                                                              --------         -------- 
Total shareholders' equity...........................................................           10,682            9,507
                                                                                              --------         -------- 
Total liabilities and shareholders' equity...........................................         $184,813         $208,958
                                                                                              ========         ========
</TABLE>

                            See accompanying notes.

                                                                               3
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED SEPTEMBER 30   NINE MONTHS ENDED SEPTEMBER 30
                                                               -------------------------------   -----------------------------
                                                                   1997               1998           1997             1998
                                                               -------------      ------------   ------------      -----------
                                                                (UNAUDITED)       (UNAUDITED)    (UNAUDITED)       (UNAUDITED)
<S>                                                            <C>                <C>            <C>               <C>
Gross broadcasting revenue..................................        $18,584           $21,076        $54,471          $61,037
Less agency commissions.....................................          1,696             1,844          5,022            5,401
                                                                    -------           -------        -------          -------
Net broadcasting revenue....................................         16,888            19,232         49,449           55,636
                                                                                                              
Operating expenses:                                                                                           
  Station operating expenses................................          9,834            10,171         29,091           30,150
  Corporate expenses........................................          1,879             1,497          4,700            4,925
  Tax reimbursements to S corporation shareholders..........            294                 -          1,780                -
  Depreciation and amortization.............................          3,224             3,497          9,382           10,163
                                                                    -------           -------        -------          -------
  Operating expenses........................................         15,231            15,165         44,953           45,238
                                                                    -------           -------        -------          -------
Net operating income........................................          1,657             4,067          4,496           10,398
                                                                                                              
Other income (expense):                                                                                       
  Interest income...........................................             51                68            156              258
  Gain (loss) on disposal of assets.........................              2               270           (190)            (365)
  Interest expense..........................................         (3,113)           (3,953)        (8,548)         (11,544)
  Other expense.............................................            (85)             (101)          (288)            (306)
                                                                    -------           -------        -------          -------
Income (loss) before income taxes and extraordinary item....         (1,488)              351         (4,374)          (1,559)
Provision (benefit) for income taxes........................           (322)              167         (1,790)            (384)
                                                                    -------           -------        -------          -------
Income (loss) before extraordinary item.....................         (1,166)              184         (2,584)          (1,175)
Extraordinary loss on early extinguishment of debt..........         (1,090)                -         (1,090)               -
                                                                    -------           -------        -------          -------
Net income (loss)...........................................        $(2,256)          $   184        $(3,674)         $(1,175)
                                                                    =======           =======        =======          =======
                                                                                                              
                                                                                                              
Pro forma information (unaudited):                                                                            
Income (loss) before income taxes as reported above.........        $(1,488)          $   351        $(4,374)         $(1,559)
Add back tax reimbursements to S Corporation shareholders...            294                 -          1,780                -
                                                                    -------           -------        -------          -------
Pro forma income (loss) before income taxes                                                                   
  and extraordinary item....................................         (1,194)              351         (2,594)          (1,559)
Pro forma provision (benefit) for income taxes..............           (475)              167         (1,033)            (384)
                                                                    -------           -------        -------          -------
Pro forma income (loss) before extraordinary item...........           (719)              184         (1,561)          (1,175)
Extraordinary loss on early extinguishment of debt..........         (1,090)                -         (1,090)               -
                                                                    -------           -------        -------          -------
Pro forma net income (loss).................................        $(1,809)          $   184        $(2,651)         $(1,175)
                                                                    =======           =======        =======          =======
</TABLE>




                            See accompanying notes.

                                                                               4
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
 
                                                                                                        NINE MONTHS ENDED
                                                                                                    -------------------------
                                                                                                          SEPTEMBER 30
                                                                                                    -------------------------
                                                                                                       1997          1998
                                                                                                    -----------   -----------
                                                                                                    (UNAUDITED)   (UNAUDITED)
<S>                                                                                                 <C>           <C>
OPERATING ACTIVITIES
Net loss.........................................................................................     $ (3,674)      $(1,175)
Adjustments to reconcile net loss to net cash provided by operating activities:
  Depreciation and amortization..................................................................        9,382        10,163
  Amortization of bank loan fees.................................................................          165            32
  Amortization of bond issue costs...............................................................           --           398
  Deferred income taxes..........................................................................       (2,570)         (659)
  Loss on sale of assets.........................................................................          190           365
  Loss on early extinguishment of debt...........................................................        1,845            --
  Changes in operating assets and liabilities:
    Accounts receivable..........................................................................         (365)         (877)
    Prepaid expenses and other current assets....................................................         (798)         (236)
    Accounts payable and accrued expenses........................................................       (2,065)       (3,868)
    Other liabilities............................................................................          (25)          422
    Income taxes.................................................................................         (157)         (223)
                                                                                                      --------       -------
Net cash provided by operating activities........................................................        1,928         4,342
 
INVESTING ACTIVITIES
  Capital expenditures...........................................................................       (5,502)       (5,739)
  Purchases of radio stations....................................................................      (18,806)      (33,887)
  Deposits on radio station acquisitions.........................................................           --          (135)
  Proceeds from disposal of property, plant and equipment and intangible assets..................          133         1,333
  Expenditures for tower construction project held for sale......................................       (2,943)           --
  Other assets...................................................................................          526         4,755
                                                                                                      --------       -------
Net cash used in investing activities............................................................      (26,592)      (33,673)
 
FINANCING ACTIVITIES
  Proceeds from issuance of long-term debt and notes payable to shareholders.....................      222,710        42,310
  Payments of long-term debt and notes payable to shareholders...................................     (182,500)      (11,000)
  Payments of bank loan fees.....................................................................       (1,003)           --
  Payments of costs related to debt refinancing..................................................         (418)           --
  Payments of bond issue costs...................................................................       (4,638)         (281)
  Repayments (additions) of shareholder notes and
   repayment of accrued interest receivable--net.................................................       (1,872)       (2,000)
  Distributions to shareholders..................................................................       (7,474)           --
                                                                                                      --------       -------
  Net cash provided by financing activities......................................................       24,805        29,029 
                                                                                                      --------       -------
  Net (decrease) increase in cash and cash equivalents...........................................          141          (302)
  Cash and cash equivalents at beginning of year.................................................        1,962         1,645
                                                                                                      --------       -------
Cash and cash equivalents at end of period.......................................................     $  2,103       $ 1,343
                                                                                                      ========       =======
 
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest.....................................................................................     $  9,288       $14,817
    Income taxes.................................................................................          221           499
</TABLE>

                            See accompanying notes.

                                                                               5
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

     Information with respect to the three and nine months ended September 30,
1998 and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
interim financial statements contain all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position,
results of operations and cash flows of Salem Communications Corporation and
Subsidiaries (the "Company"), for the periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
of operations for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Salem
Communications Corporation and Subsidiaries' Special Financial Report filed
pursuant to Rule 15d-2 promulgated under the Securities Exchange Act of 1934, as
amended, under cover of Form 10-K for the year ended December 31, 1997.

NOTE 2. MUSIC LICENSING FEE CREDIT

     The Company recorded a one-time credit of approximately $453,000 during the
quarter ended September 30, 1998 related to music licensing fees (the Music 
Licensing Fee Credit). The amount represents the proceeds of a settlement 
between the Company and the two largest performance rights organizations.

NOTE 3. RADIO STATION ACQUISITIONS AND DISPOSITIONS

     In August 1998, the Company purchased the assets of radio station KIEV-AM,
Glendale, California, for $33.4 million, $30.4 million of which was paid to the
seller at closing. The remaining $3 million is for real estate and is not
payable until 18 months after the date of closing. The Company entered into a
lease for the real estate. The Company recorded the $3 million purchase price
plus the lease payments less imputed interest as a $2.8 million capital lease
obligation. The Company borrowed $26 million under its Credit Agreement (and
paid the balance of the purchase price from available cash) to close the
purchase.

     In August 1998, the Company purchased the assets of radio station KKMO-AM, 
Tacoma, Washington, for $500,000. The Company paid for the station from 
available cash.

     In August 1998, the Company sold the assets of radio station KTSL-FM, 
Spokane, Washington, for $1.3 million.

NOTE 4. SUBSEQUENT EVENTS

     In August 1998, the Company agreed to sell the assets of radio station
KAVC-FM, Lancaster, California, for $1.6 million. The Company anticipates
that the sale will close in November 1998.

     In October 1998, the Company purchased the assets of radio stations 
KTEK-AM, Houston, Texas and KYCR-AM, Minneapolis, Minnesota, for $2.7 million.  
The Company borrowed $1 million under its Credit Agreement (and paid the 
balance of the purchase price from available cash) to close the purchase.

                                                                               6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

 
  The following discussion of the financial condition and results of
operations of the Salem Communications Corporation, a California corporation
(the "Company"), should be read in conjunction with the consolidated financial
statements and related notes thereto.
 
  The Company is a radio broadcast company that focuses on serving the
religious/conservative listening audience. The Company's two primary businesses
include the ownership and operation of religious format radio stations and the
development and expansion of a national radio network (the "Network") offering
talk programming, news and music to affiliated stations. At September 30, 1998,
the Company owned and/or operated 44 stations concentrated in 27 geographically
diverse markets across the United States.
 
  The Company was incorporated in California in 1986 in connection with a
combination of most of the radio station holdings of the principal
shareholders of the Company, Edward G. Atsinger III and Stuart W. Epperson
(the "Principal Shareholders"). Each of the Principal Shareholders owned 50%
of the Company's outstanding common stock. New Inspiration Broadcasting
Company, Inc. ("New Inspiration"), the licensee of KKLA-FM, Los Angeles, and
Golden Gate Broadcasting Company, Inc. ("Golden Gate"), the licensee of KFAX-
AM, San Francisco, were owned by the Principal Shareholders and Mr. Epperson's
wife, Nancy A. Epperson. New Inspiration and Golden Gate were both "S
corporations," as that term in defined in the Internal Revenue Code of 1986,
as amended. In August 1997, the Company, New Inspiration and Golden Gate
effected a reorganization (the "Reorganization") pursuant to which New
Inspiration and Golden Gate became wholly owned subsidiaries of the Company.
The S corporation status of New Inspiration and Golden Gate was terminated in
the Reorganization. As a result of the Reorganization the outstanding common
stock of the Company is owned by Mr. Atsinger (50%), Mr. Epperson (36.8%) and
Mrs. Epperson (13.2%).
 
  In September 1997, the Company issued and privately placed $150 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007 (the "Notes").
In March 1998, the Company consummated an offer for all outstanding Notes (the
"Old Notes"), which were subject to certain restrictions on transfer, in
exchange for Notes registered pursuant to the Securities Act of 1933, as
amended (the "New Notes") and thus not subject to such transfer restrictions
(the "Exchange Offer"). Pursuant to the Exchange Offer, the $150 million in
principal amount of New Notes were issued and like amount of the Old Notes
were canceled. Reference in this report to the Notes includes both the New
Notes and the Old Notes.
 
  The performance of a radio group, such as the Company, is customarily
measured by the ability of its stations to generate Broadcast Cash Flow and
EBITDA. Broadcast Cash Flow is defined as net broadcasting revenue less
station operating expenses (excluding depreciation and amortization). EBITDA
is defined as Broadcast Cash Flow less corporate expenses. Although Broadcast
Cash Flow and EBITDA are not measures of performance calculated in accordance
with generally accepted accounting principles, and should be viewed as a
supplement to and not a substitute for the Company's results of operations
presented on the basis of generally accepted accounting principles, the
Company believes that Broadcast Cash Flow and EBITDA are useful because they
are generally recognized by the radio broadcasting industry as a measure of
performance and are used by analysts who report on the performance of
broadcast companies.
 
  The principal sources of the Company's revenue are (i) the sale of block
program time, both to national and local program producers, (ii) the sale of
broadcast time on its radio stations for advertising, both to national and
local advertisers, and (iii) the sale of broadcast time for advertising on the
Network.
 
  The Company's revenue is affected primarily by the program and advertising
rates its radio stations and the Network charge. Correspondingly, the rates
for block program time are based upon the stations' ability to attract
audiences that will support the program producers through contributions and
purchases of their products. Advertising rates are based upon the demand for
on-air inventory, which in turn is based on the stations' and the Network's
ability to produce results for its advertisers. Each of the Company's stations
and the Network have a
 
                                                                               7
<PAGE>
 
general pre-determined level of on-air inventory that it makes available for
block programs and advertising, which may vary at different times of the day
and tends to remain stable over time. Much of the Company's selling activity
is based on demand for its radio stations' and the Network's on-air inventory.
 
  The Company's revenue and cash flow are also affected by the transition
period experienced by stations acquired by the Company that previously
operated with formats other than religious formats. During the transition
period when the Company develops its program customer and listener base, such
stations typically do not generate significant cash flow from operations. The
Company's quarterly revenue varies throughout the year, as is typical in the
radio broadcasting industry. Quarterly revenue from the sale of block program
time does not tend to vary, however, since program rates are generally set
annually.
 
  In the broadcasting industry, radio stations often utilize trade (or barter)
agreements to exchange advertising time for goods or services (such as other
media advertising, travel or lodging), in lieu of cash. In order to preserve
most of its on-air inventory for cash advertising, the Company generally
enters into trade agreements only if the goods or services bartered to the
Company will be used in the Company's business. The Company has minimized its
use of trade agreements and has generally sold over 90% of its advertising
time for cash. In addition, it is the Company's general policy not to preempt
advertising spots paid for in cash with advertising spots paid for in trade.
 
  The primary operating expenses incurred in the ownership and operation of
the Company's radio stations include employee salaries and commissions, and
facility expenses (e.g., rent and utilities). The Company also incurs and will
continue to incur significant depreciation, amortization and interest expense
as a result of completed and future acquisitions of stations, and due to
existing borrowings and future borrowings. The Company's consolidated
financial statements tend not to be directly comparable from period to period
due to the Company's acquisition activity.
 
  The consolidated statements of operations of the Company for periods prior
to August 13, 1997 include an operating expense called "tax reimbursements to
S corporation shareholders." These amounts represent the income tax liability
of the shareholders created by the income of New Inspiration and Golden Gate,
which prior to the recent Reorganization were each S corporations. Management
considers the nature of this operating expense to be essentially equivalent to
an income tax provision and has excluded this expense from the calculation of
Broadcast Cash Flow and EBITDA for periods prior to August 13, 1997. Commencing
August 13, 1997, pretax income of New Inspiration and Golden Gate is included in
the Company's consolidated income tax return and in the Company's computation of
the income tax provision included in its consolidated statement of operations.

RESULTS OF OPERATIONS

  Net Revenue.   Net revenue increased approximately $2.3 million or 13.6% to
$19.2 million for the quarter ended September 30, 1998 from $16.9 million for
the same quarter of the prior year. Net revenue increased approximately $6.2
million or 12.6% to $55.6 million for the nine month period ended September 30,
1998 from $49.4 million for the same period of the prior year. The inclusion of
revenue from the acquisitions of radio stations and revenue generated from local
marketing agreements ("LMAs") entered into during 1998 and 1997 provided
approximately $300,000 of the increase for the quarter ended September 30, 1998
over the same quarter of the prior year, and approximately $600,000 for the nine
month period ended September 30, 1998 over the same period of the prior year.
For stations and networks owned and operated over the comparable period in 1997
and 1998, net revenue improved approximately $2.0 million or 11.9% to $18.8
million for the quarter ended September 30, 1998 from $16.8 million for the same
quarter of the prior year, and approximately $5.6 million or 11.3% to $55.0
million for the nine month period ended September 30, 1998 from $49.4 million
for the same period of the prior year due primarily to increases in on-air
inventory and improved selling efforts and to a lesser extent to program rate
increases.

  Station Operating Expenses.   Station operating expenses increased
approximately $400,000 or 4.1% to $10.2 million for the quarter ended September
30, 1998 from $9.8 million for the same quarter of the prior year. Station
operating expenses increased approximately $1.1 million or 3.8% to $30.2 million
for the nine month period ended September 30, 1998 from $29.1 million for the
same period of the prior year. The Company recorded the Music Licensing Fee
Credit of $453,000 during the quarter ended September 30, 1998. The inclusion of
expenses from the acquisitions of radio stations and expenses incurred for LMAs
entered into during 1998 and 1997 provided approximately $253,000 of the
increase for the quarter ended September 30, 1998 over the same quarter of the
prior year, and approximately $400,000 for the nine month period ended September
30, 1998 over the same period of the prior year. For stations and networks owned
and operated over the comparable period in 1997 and 1998, and excluding the
Music Licensing Fee Credit, station operating expenses increased approximately
$600,000 or 6.1% to $10.4 million for the quarter ended September 30, 1998 from
$9.8 million for the same quarter of the prior year, and approximately $1.2
million or 4.1% to $30.2 million for the nine month period ended September 30,
1998 from $29.0 million for the same period of the prior year due primarily to
expenses incurred to produce the increased revenue in the nine month period, as
described above.


                                                                               8
<PAGE>
 

  Broadcast Cash Flow.   Broadcast Cash Flow increased approximately $2.0
million or 28.2% to $9.1 million for the quarter ended September 30, 1998 from
$7.1 million for the same quarter of the prior year. Broadcast Cash Flow
increased approximately $5.1 million or 25.0% to $25.5 million for the nine
month period ended September 30, 1998 from $20.4 million for the same period of
the prior year. As a percentage of net revenue, Broadcast Cash Flow increased to
47.1% for the quarter ended September 30, 1998 from 41.2% for the same quarter
of the prior year. As a percentage of net revenue, Broadcast Cash Flow increased
to 45.8% for the nine month period ended September 30, 1998 from 41.2% for the
same period of the prior year. The increases are primarily attributable to the
Music Licensing Fee Credit and the improved performance of stations acquired in
1996 and 1997 that previously operated with formats other than religious
formats. These acquired and reformatted stations typically produce lower margins
during the early phase of the transition period from a non-religious format to a
religious format. Broadcast Cash Flow margins improve as the Company implements
scheduled program rate increases and increases spot advertising revenue on the
stations.

  Corporate Expenses.   Corporate expenses decreased approximately $400,000 or
26.7% to $1.5 million for the quarter ended September 30, 1998 from $1.9 million
for the same quarter of the prior year. The decrease is primarily attributable
to costs incurred for potential acquisitions which were abandoned and expensed
in the quarter ended September 30, 1997. Corporate expenses increased
approximately $200,000 or 4.3% to $4.9 million for the nine month period ended
September 30, 1998 from $4.7 million for the same period of the prior year. The
increase is primarily attributable to additional personnel and overhead costs
associated with station acquisitions in 1997 and 1998.

  EBITDA.   EBITDA increased approximately $2.4 million or 46.2% to $7.6 million
for the quarter ended September 30, 1998 from $5.2 million for the same quarter
of the prior year. EBITDA increased approximately $4.9 million or 31.2% to $20.6
million for the nine month period ended September 30, 1998 from $15.7 million
for the same period of the prior year. As a percentage of net revenue, EBITDA
increased to 39.6% for the quarter ended September 30, 1998 from 30.8% for the
same quarter of the prior year. As a percentage of net revenue, EBITDA increased
to 37.1% for the nine month period ended September 30, 1998 from 31.8% for the
same period of the prior year.

  Tax Reimbursements to S Corporation Shareholders.   There were no tax
reimbursements to S corporation shareholders for the nine month period ended
September 30, 1998 because of the Reorganization which took place in August
1997. New Inspiration and Golden Gate became wholly-owned subsidiaries of the
Company in August 1997 pursuant to the Reorganization. The S corporation status
of New Inspiration and Golden Gate was terminated in the Reorganization.

  Depreciation and Amortization.   Depreciation and amortization expense
increased approximately $300,000 or 9.4% to $3.5 million for the quarter ended
September 30, 1998 from $3.2 million for the same quarter of the prior year,
primarily due to radio station and network acquisitions consummated during 1997
and 1998. Depreciation and amortization expense increased approximately $800,000
or 8.5% to $10.2 million for the nine month period ended September 30, 1998 from
$9.4 million for the same period of the prior year, primarily due to radio
station and network acquisitions consummated during 1997 and 1998.

  Other Income (Expense).   Interest income was essentially unchanged for the
third quarter of 1998 and 1997, and for the nine month periods ended September
30, 1998 and 1997. Gain (loss) on disposal of assets increased approximately
$268,000 to $270,000 for the quarter ended September 30, 1998 compared to the
same quarter of the prior year, primarily due to the gain on sale of radio
station KTSL-FM in the third quarter of 1998. Gain (loss) on disposal of assets
increased approximately $(175,000) to $(365,000) for the nine month period ended
September 30, 1998 compared to the same period of the prior year, primarily due
to the write off of abandoned assets at one of the Company's radio stations in
the second quarter of 1998 offset in part by the gain on the sale of KTSL-FM in
the third quarter of 1998. Interest expense increased approximately $900,000 or
29.0% to $4.0 million for the quarter ended September 30, 1998 from $3.1 million
for the same quarter of the prior year. Interest expense increased approximately
$3.0 million or 35.3% to $11.5 million for the nine month period ended September
30, 1998 from $8.5 million for the same period of the prior year. The increases
in interest expense are primarily due to interest expense associated with
additional borrowings to fund acquisitions consummated during 1997 and 1998.
Other expense was essentially unchanged for the third quarter of 1998 and 1997,
and for the nine month periods ended September 30, 1998 and 1997.

  Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes as
a percentage of income (loss) before income taxes and extraordinary item (i.e.,
effective tax rate) was 47.6% for the quarter ended September 30, 1998 and
(21.6)% for the same quarter of the prior year, and (24.6)% for the nine month
period ended September 30, 1998 and (40.9)% for the same period of the prior
year. For the quarter and nine month period ended September 30, 1997, the
effective tax rate may differ from the federal statutory income tax rate of
34.0% because of the effect of state income taxes and the exclusion of federal
income taxes relating to the S corporations. The increases in the effective tax
rate are primarily due to an increase in state income taxes and the inclusion of
income from New Inspiration and Golden Gate, which were S corporations prior to
the Reorganization in August 1997.

  Net Income (Loss).   The Company recognized net income of approximately
$184,000 for the quarter ended September 30, 1998, compared to a net loss of
approximately ($2.3) million for the same quarter of the prior year. The Company
recognized a net loss of approximately ($1.2) million for the nine month period
ended September 30, 1998, compared to a net loss of approximately ($3.7) million
for the same period of the prior year. Included in the net loss for 1997 is a
$1.1 million extraordinary loss for the write off of deferred financing costs
and termination fees related to the repayment of the Company's prior credit
agreement which was repaid in full upon issuance of the Old Notes on September
25, 1997.

                                                                               9
 
<PAGE>
 

LIQUIDITY AND CAPITAL RESOURCES

  In the past, the Company principally financed acquisitions of radio stations
through borrowings, including borrowings under credit agreements with banks,
and, to a lesser extent, from cash flow from operations and selected asset
dispositions. In September 1997, the Company used the net proceeds from the sale
of the Notes to repay substantially all of its outstanding indebtedness under a
line of credit agreement, at which time such facility was canceled and the
Company entered into the current Credit Agreement.

  The Company anticipates funding future acquisitions from operating cash flow
and borrowings, including borrowings under the Credit Agreement. At September
30, 1998, $31.0 million was outstanding under the Company's Credit Agreement.
The maximum amount that the Company may borrow under the Credit Agreement is
limited by the Company's debt to cash flow ratio, adjusted for recent radio
station acquisitions as defined in the Credit Agreement (the "Adjusted Debt to
Cash Flow Ratio"). At September 30, 1998, the maximum Adjusted Debt to Cash
Flow Ratio allowed under the Credit Agreement was 6.75 to 1. The Company's
ability to borrow for the purpose of acquiring a radio station is further
limited by the Credit Agreement in that the Company may not borrow for an
acquisition if the Adjusted Debt to Cash Flow Ratio is greater than 6.0 to 1. At
September 30, 1998, the Adjusted Debt to Cash Flow Ratio was 6.22 to 1,
resulting in total borrowing availability of approximately $15.4 million, none
of which can currently be used for radio station acquisitions. In addition to
debt service requirements under the Credit Agreement, the Company is required to
pay approximately $14.3 million per annum in interest on the Notes.

  The Credit Agreement contains certain additional restrictive covenants
customary for credit facilities of the size, type and purpose contemplated
which, among other things, and with certain exceptions, limits the Company's
ability to enter into affiliate transactions, pay dividends, consolidate, merge
or effect certain asset sales, make certain investments or loans and change the
nature of its business. The Credit Agreement also requires the satisfaction by
the Company of certain financial covenants, which will require the maintenance
of specified financial ratios and compliance with certain financial tests,
including ratios for maximum leverage as described above (not greater than 6.75
to 1 at September 30, 1998), minimum interest coverage (not less than 1.25 to 1
at September 30, 1998), minimum debt service coverage (a static ratio of not
less than 1.10 to 1) and minimum fixed charge coverage (a static ratio of not
less than 1.10 to 1).

  Management believes that cash flow from operations and borrowings under the
Credit Agreement (as the Company anticipates the Credit Agreement will be
amended) should be sufficient to permit the Company to meet its financial
obligations and to fund its operations for at least the next twelve months.

                                                                              10


<PAGE>
 
YEAR 2000 COMPUTER SYSTEM COMPLIANCE

  The term "year 2000 issue" (the year 2000 referred to as "Y2K") is a general 
term used to describe the various problems that may result from the improper 
processing of dates and date-sensitive calculations by computers and other 
machinery as the year 2000 is approached and reached.  These problems generally 
arise from the fact that most of the world's computer hardware and software  
have historically used only two digits (instead of four) to identify the year 
in a date, often meaning that the computer will fail to distinguish dates in the
"2000's" from dates in the "1900's."  These problems may also arise from other 
sources as well, such as the use of special codes and conventions in software 
that make use of the date field.

  In early 1998 the Company began implementing the assessment phase of its plan
to address the Y2K issue in each broadcast area and has substantially completed
a Y2K assessment phase of its computer, broadcast and environmental systems,
redundant power systems and other critical systems including: (i) digital audio
systems (ii) traffic scheduling and billing systems (iii) accounting and
financial reporting systems, and (iv) local area networking infrastructure. As
part of the assessment phase, the Company initiated formal communication with
all of its key business partners to identify their exposure to the Y2K issue.
This assessment will target potential external risks related to the Y2K issue
and is still in progress, but is expected to be completed by the end of the
first quarter of 1999. Key business partners include local and national
programmers and advertisers, suppliers of communication services, financial
institutions and suppliers of utilities. Amounts related to the assessment phase
are primarily internal costs, are expensed as incurred, and have not been
material to date and are not expected to be material through completion of the
phase.

  The remediation phase is the next step in the Company's plan to address the
Y2K issue. Activities during this phase are in progress and include, if
necessary, the actual repair, replacement, or upgrade of the Company's systems
based on the findings of the assessment phase. Systems which are Y2K ready
include local area networks, digital audio systems, and traffic scheduling and
billing systems. The Company currently is implementing a new accounting and
financial reporting system which is Y2K ready and should be completed by the end
of 1998. Costs related to this new system, expected to be approximately
$200,000, will be included in capital expenditures. The final plan phase, the
testing phase, will include the actual testing of the enhanced and upgraded
systems. This process will include internal and external user review
confirmation, as well as unit testing and integration testing with other system
interfaces. The testing schedule is being developed and will begin during the
first quarter of 1999 and is expected to be completed by the end of the second
quarter. Based on test results and assessment of outside risks, contingency
plans will be developed as determined necessary. The Company would expect to
complete such plans by the end of the third quarter of 1999. The Company
anticipates minimal business disruption from both external and internal factors.
However, possible risks include, but are not limited to, loss of power and
communication links which are not subject to the Company's control. The Company
believes that its Y2K compliance issues from all phases of its plan will be
resolved on a timely basis and that any related costs will not have a material
impact on the Company's operations, cash flows, or financial condition of future
periods.
 
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
 
  This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. All statements, other than statements of historical facts,
included in this report that address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, competitive
strengths, goals, expansion and growth of the Company's business and
operations, plans, references to future success and other such matters are
forward-looking statements. When used in this report, the words "anticipates,"
"believes," "expects," "intends," "forecasts," "plans," "future," "strategy,"
or words of similar import are intended to identify forward-looking
statements. The forward-looking statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances.
However, whether actual results and developments will conform to the Company's
expectations and predictions is subject to a number of risks: general
economic, market or business conditions; the opportunities (or lack thereof)
that may be presented to and pursued by the Company; competitive actions by
other companies; changes in laws or regulations; and other factors, many of
which are beyond the control of the Company. Consequently, all of the forward-
looking statements made in this report are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business operations. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are urged
to carefully review and consider the various disclosures made by the Company
to advise interested parties of certain risks and other factors that may
affect the Company's business and operating results, including the disclosures
made under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report.
 
                                                                              11
<PAGE>
 
                          PART II--OTHER INFORMATION
 
                       SALEM COMMUNICATIONS CORPORATION
 
ITEM 1. LEGAL PROCEEDINGS
 
  Neither the Company nor any of its subsidiaries is a party to any material
legal proceeding, other than ordinary routine litigation incidental to their
consolidated business operations.
 
ITEM 2. CHANGES IN SECURITIES
 
  Not applicable.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
  The Company has not had a material default in the payment of principal,
interest, a sinking or purchase fund installment, or any other material
default not cured within 30 days, with respect to any indebtedness of the
Company or any of its significant subsidiaries exceeding 5 percent of the
total assets of the Company and its consolidated subsidiaries.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters have been submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the period covered by this
report.
 
ITEM 5. OTHER INFORMATION
 
  Not applicable.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) EXHIBITS
 
    Set forth below is a list of exhibits included as part of this Quarterly
  Report:
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBITS
 -------                         -----------------------
 <C>     <S>
  *3.01  Articles of Incorporation of the Company.
  *3.02  Bylaws of the Company.
  *4.01  Indenture between the Company, the Guarantors and The Bank of New
         York, as Trustee, dated as of September 25, 1997, relating to the Old
         Notes and the Notes, including form of Note.
  *4.02  Form of Note (filed as part of Exhibit 4.01).
  *4.03  Form of Note Guarantee (filed as part of Exhibit 4.01).
 *10.01  Employment Agreement, dated as of August 1, 1997, between the Company
         and Edward G. Atsinger III.
 *10.02  Employment Agreement, dated as of August 1, 1997, between the Company
         and Stuart W. Epperson.
</TABLE>
                                                                              12
<PAGE>
 
<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                          DESCRIPTION OF EXHIBITS
    -------                         -----------------------
 <C>           <S>
 *10.03.01     Employment Contract, dated November 7, 1991, between the Company
               and Eric H. Halvorson.
 *10.03.02     First Amendment to Employment Contract, dated April 22, 1996,
               between the Company and Eric H. Halvorson.
 *10.03.03     Second Amendment to Employment Contract, dated July 8, 1997,
               between the Company and Eric H. Halvorson.
 *10.03.04     Deferred Compensation Agreement, dated November 7, 1991, between
               the Company and Eric H. Halvorson.
 *10.04.01     Employment Agreement, dated February 9, 1995, between Salem
               Radio Network Incorporated and Greg L Anderson.
 *10.04.02     Letter Agreement dated December 22, 1995, by Inspiration Media
               of Texas, Inc. re compensation of Greg L. Anderson under
               Employment Agreement with Salem Radio Network Incorporated.
 *10.04.03     First Amendment to Employment Agreement, dated August 1, 1997
               between Salem Radio Network Incorporated and Greg R. Anderson.
 *10.05.01     Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-
               AM/Akron, Ohio) and Messrs. Atsinger and Epperson expiring 2007.
 *10.05.02     Antenna/tower/studio lease between Caron Broadcasting, Inc.
               (WTSJ-AM/Cincinnati, Ohio) and Messrs. Atsinger and Epperson
               expiring 2007.
 *10.05.03     Antenna/tower lease between Caron Broadcasting, Inc. WHK-
               FM/Canton, Ohio) and Messrs. Atsinger and Epperson expiring
               2007.
 *10.05.04     Antenna/tower studio lease between Common Ground Broadcasting,
               Inc. (KKMS-AM/Eagan, Minnesota) and Messrs. Atsinger and
               Epperson expiring in 2006.
 **10.05.05    Antenna/tower lease between Common Ground Broadcasting, Inc.
               (WHK-AM/Cleveland, Ohio) and Messrs. Atsinger and Epperson
               expiring 2008.
 **10.05.06    Antenna/tower lease (KFAX-FM/Hayward, California) and Salem
               Broadcasting Company, a partnership consisting of Messrs.
               Atsinger and Epperson, expiring in 2003.
 **10.05.07    Antenna/tower/studio lease between Inland Radio, Inc. (KKLA-
               AM/San Bernardino, California) and Messrs. Atsinger and Epperson
               expiring 2002.
 **10.05.08    Antenna/tower lease between Inspiration Media, Inc. (KGNW-
               AM/Seattle, Washington) and Messrs. Atsinger and Epperson
               expiring in 2002.
 **10.05.09    Antenna/tower lease between Inspiration Media, Inc. (KLFE-
               AM/Seattle, Washington) and The Atsinger Family Trust and Stuart
               W. Epperson Revocable Living Trust expiring in 2004.
 **10.05.10    Antenna/tower lease between Oasis Radio, Inc. (KAVC-FM/Rosamond,
               California) and The Atsinger Family Trust under a lease expiring
               in 2002.
 **10.05.11.01 Antenna/tower/lease between Pennsylvania Media Associates, Inc.
               (WZZD-AM/WFIL-AM/ Philadelphia, Pennsylvania) and Messrs.
               Atsinger and Epperson, as assigned from WEAZ-FM Radio, Inc.,
               expiring 2004.
 **10.05.11.02 Antenna/tower/studio lease between Pennsylvania Media
               Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia, Pennsylvania)
               and The Atsinger Family Trust and Stuart W. Epperson Revocable
               Living Trust expiring 2004.
 **10.05.12    Antenna/tower lease between Radio 1210, Inc. (KPRZ-
               AM/Olivenhain, California) and The Atsinger Family Trust
               expiring in 2002.
 **10.05.13    Antenna/tower lease between Salem Media Corporation (WYLL-
               FM/Arlington Heights, Illinois) and Messrs. Atsinger and
               Epperson expiring in 2002.
</TABLE>
 
                                                                              13
<PAGE>
 
<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                          DESCRIPTION OF EXHIBITS
    -------                         -----------------------
 <C>           <S>
 **10.05.14    Antenna/tower/studio leases between Salem Media Corporation
               (KLTX-AM/Long Beach and Paramount, California) and Messrs.
               Atsinger and Epperson expiring in 2002
 **10.05.15    Antenna/tower lease between Salem Media of Colorado, Inc. (KNUS-
               AM/Denver-Boulder, Colorado) and Messrs. Atsinger and Epperson
               expiring 2006.
 **10.05.16    Antenna/tower lease between Salem Media of Ohio, Inc. (WRFD-
               AM/Columbus, Ohio) and Messrs. Atsinger and Epperson expiring
               2002.
 **10.05.17.01 Studio Lease between Salem Media of Oregon. Inc. (KPDQ-
               AM/FM/Portland, Oregon) and Edward G. Atsinger III, Mona J.
               Atsinger, Stuart W. Epperson and Nancy K. Epperson expiring
               2002.
 **10.05.17.02 Antenna/tower lease between Salem Media of Oregon, Inc. (KPDQ-
               AM/Raleigh Hills, Oregon and Messrs. Atsinger and Epperson
               expiring 2002.
 **10.05.18    Antenna/tower lease between Salem Media of Pennsylvania, Inc.
               (WORD-FM/WPIT-AM/ Pittsburgh, Pennsylvania) and The Atsinger
               Family Trust and Stuart W. Epperson Revocable Living Trust
               expiring 2003.
 **10.05.19    Antenna/tower lease between Salem Media of Texas, Inc. (KSLR-
               AM/San Antonio, Texas) and Epperson-Atsinger 1983 Family Trust
               expiring 2007.
 **10.05.20    Antenna/tower lease between South Texas Broadcasting, Inc.
               (KENR-AM/KKHT-FM/ Houston-Galveston, Texas) and Atsinger Family
               Trust and Stuart W. Epperson Revocable Living Trust expiring
               2005.
 **10.05.21    Antenna/tower lease between Vista Broadcasting, Inc. (KFIA-
               AM/Sacramento, California) and The Atsinger Family Trust and
               Stuart W. Epperson Revocable Living Trust expiring 2005.
 **10.06.01    Asset Purchase Agreement dated as of June 5, 1996 by and between
               Radio 94 of Phoenix Limited Partnership and Salem Media of
               Arizona, Inc. (KOOL-AM, Phoenix, Arizona).
 **10.06.02    Asset Purchase Agreement dated as of September 3, 1996 by and
               between Caron Broadcasting, Inc. and Mortenson Broadcasting
               Company of Canton, LLC and Mortenson Broadcasting Company of
               Akron, LLC (WTOF-FM, Canton, Ohio and WHLO-AM, Akron, Ohio).
 **10.06.03.01 Asset Purchase Agreement dated March 28, 1996 by and between
               American Radio Assistance Corporation and Common Ground
               Broadcasting, Inc. (KDBX-FM, Banks, Oregon).
 **10.06.03.02 First Amendment to Asset Purchase Agreement dated as of July 22,
               1996 by and between American Radio Systems Corporation and
               Common Ground Broadcasting, Inc. (KDBX-FM, Banks, Oregon).
 **10.06.04.01 Asset Purchase Agreement dated as of April 23, 1996 by and
               between OmniAmerica Group and WHK License Partnership and
               Inspiration Media of Ohio, Inc. (WHK-AM, Cleveland, Ohio).
 **10.06.04.02 First Amendment to the Asset Purchase Agreement dated as of July
               23, 1996 by and between OmniAmerica Group and WHK License
               Partnership and Inspiration Media of Ohio, Inc. (WHK-AM,
               Cleveland, Ohio).
 **10.06.04.03 Second Amendment to Asset Purchase Agreement dated as of August
               12, 1996 by and between OmniAmerica Group and WHK License
               Partnership and Inspiration Media of Ohio, Inc. WHK-AM,
               Cleveland, Ohio).
 **10.06.05    Asset Purchase Agreement dated as of September 30, 1996 by and
               between Infinity Broadcasting Corporation of Dallas and
               Inspiration Media of Texas. Inc. (KEWS, Arlington, Texas; KDFX,
               Dallas, Texas).
 **10.06.06.01 Asset Purchase Agreement dated as of December 4, 1996 by and
               between Backbay Broadcasters, Inc. and New England Continental
               Media, Inc. (WBNW-AM, Boston, Massachusetts).
</TABLE>
 
                                                                              14
<PAGE>
 
<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                          DESCRIPTION OF EXHIBITS
    -------                         -----------------------
 <C>           <S>
 **10.06.06.02 First Amendment to the Asset Purchase Agreement dated as of
               February, 1997 by and between Backbay Broadcasters, Inc. and New
               England Continental Media, Inc. (WBNW-AM, Boston,
               Massachusetts).
 **10.06.07    Asset Purchase Agreement dated June 2, 1997 by and between New
               England Continental Media, Inc. and Hibernia Communications,
               Inc. (WPZE-AM, Boston, Massachusetts).
 **10.06.08    Option to Purchase dated as of August 18, 1997 by and between
               Sonsinger, Inc. and Inspiration Media, Inc. (KKOL-AM, Seattle,
               Washington).
 **10.07.01    Tower Purchase Agreement dated August 22, 1997 by and between
               the Company and Sonsinger Broadcasting Company of Houston, L.P.
 *10.07.02     Amendment to the Tower Purchase Agreement dated November 10,
               1997 by and between the Company and Sonsinger Broadcasting
               Company of Houston, L.P.
 **10.07.03    Promissory Note dated November 11, 1997 made by Sonsinger
               Broadcasting Company of Houston, L.P. payable to the Company.
 **10.07.04    Promissory Note dated December 24, 1997 made by the Company
               payable to Edward G. Atsinger III.
 **10.07.05    Promissory Note dated December 24, 1997 made by the Company
               payable to Stuart W. Epperson.
 *10.08.01     Local Programming and Marketing Agreement dated June 13, 1997
               between Sonsinger, Inc. and Inspiration Media, Inc.
 *10.08.02     Local Programming and Marketing Agreement and Put/Call Agreement
               dated October 23, 1997 by and between Cherokee Broadcasting Co.,
               Inc. and Salem Media of Georgia, Inc.
 *10.09.01     Evidence of Key man life insurance policy no. 2256440M insuring
               Edward G. Atsinger III in the face amount of $5,000,000.
 *10.09.02     Evidence of Key man life insurance policy no. 2257474H insuring
               Edward G. Atsinger III in the face amount of $5,000,000.
 *10.09.03     Evidence of Key man life insurance policy no. 2257476B insuring
               Stuart W. Epperson in the face amount of $5,000,000.
 +10.10.01     Credit Agreement, dated as of September 25, 1997, among the
               Company, the several Lenders from time to time parties thereto,
               and The Bank of New York, as administrative agent for the Lenders
               (previously filed as Exhibit 4.07).
 +10.10.02     Borrower Security Agreement, dated as of September 25, 1997, by
               and between the Company and The Bank of New York, as
               Administrative Agent of the Lenders (previously filed as Exhibit
               4.08).
 +10.10.03     Subsidiary Guaranty and Security Agreement dated as of September
               25, 1997, by and between the Company, the Guarantors, and The
               Bank of New York, as Administrative Agent (previously filed as
               Exhibit 4.09).
 27.01        Financial Data Schedule.

</TABLE>
--------
 * Incorporated by reference herein to the exhibit of the same number filed as
   an exhibit to the Company's Registration Statement on Form S-4 filed on
   December 8, 1997 (File No. 333-41733).
 + Incorporated by reference herein to the exhibit, numbered as noted in
   parentheses, filed as an exhibit to the Company's Registration Statement on
   Form S-4 filed on December 8, 1997 (File No. 333-41733).
** Incorporated by reference herein to the exhibit of the same number filed as
   an exhibit to Amendment No. 1 to the Company's Registration Statement on
   Form S-4 filed on January 29, 1998 (File No. 333-41733).
 
  (b) REPORTS ON FORM 8-K
 
    The Company filed a report on Form 8-K dated September 3, 1998, relating to
the acquisition of the assets of radio station KIEV-AM, Glendale, California.


                                                                              15
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, SALEM
COMMUNICATIONS CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
 
Date: Noverber 16, 1998                   Salem Communications Corporation
 
                                                /s/ Edward G. Atsinger III
                                          By: _________________________________
                                            Edward G. Atsinger III
                                            President and Chief Executive
                                            Officer
 
                                                     /s/ Dirk Gastaldo
Date: November 16, 1998                     ___________________________________
                                            Dirk Gastaldo
                                            Vice President and Chief Financial
                                            Officer (Principal Financial 
                                            Officer)
 
                                                                              16
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                         DESCRIPTION OF EXHIBITS
  -------                         -----------------------
 <C>        <S>
  *3.01     Articles of Incorporation of the Company.
  *3.02     Bylaws of the Company.
  *4.01     Indenture between the Company, the Guarantors and The Bank of New
            York, as Trustee, dated as of September 25, 1997, relating to the
            Old Notes and the Notes, including form of Note.
  *4.02     Form of Note (filed as part of Exhibit 4.01).
  *4.03     Form of Note Guarantee (filed as part of Exhibit 4.01).
 *10.01     Employment Agreement, dated as of August 1, 1997, between the
            Company and Edward G. Atsinger III.
 *10.02     Employment Agreement, dated as of August 1, 1997, between the
            Company and Stuart W. Epperson.
 *10.03.01  Employment Contract, dated November 7, 1991, between the Company
            and Eric H. Halvorson.
 *10.03.02  First Amendment to Employment Contract, dated April 22, 1996,
            between the Company and Eric H. Halvorson.
 *10.03.03  Second Amendment to Employment Contract, dated July 8, 1997,
            between the Company and Eric H. Halvorson.
 *10.03.04  Deferred Compensation Agreement, dated November 7, 1991, between
            the Company and Eric H. Halvorson.
 *10.04.01  Employment Agreement, dated February 9, 1995, between Salem Radio
            Network Incorporated and Greg L Anderson.
 *10.04.02  Letter Agreement dated December 22, 1995, by Inspiration Media of
            Texas, Inc. re compensation of Greg L. Anderson under Employment
            Agreement with Salem Radio Network Incorporated.
 *10.04.03  First Amendment to Employment Agreement, dated August 1, 1997
            between Salem Radio Network Incorporated and Greg R. Anderson.
 *10.05.01  Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-
            AM/Akron, Ohio) and Messrs. Atsinger and Epperson expiring 2007.
 *10.05.02  Antenna/tower/studio lease between Caron Broadcasting, Inc. (WTSJ-
            AM/Cincinnati, Ohio) and Messrs. Atsinger and Epperson expiring
            2007.
 *10.05.03  Antenna/tower lease between Caron Broadcasting, Inc. WHK-FM/Canton,
            Ohio) and Messrs. Atsinger and Epperson expiring 2007.
 *10.05.04  Antenna/tower studio lease between Common Ground Broadcasting, Inc.
            (KKMS-AM/Eagan, Minnesota) and Messrs. Atsinger and Epperson
            expiring in 2006.
 **10.05.05 Antenna/tower lease between Common Ground Broadcasting, Inc. (WHK-
            AM/Cleveland, Ohio) and Messrs. Atsinger and Epperson expiring
            2008.
 **10.05.06 Antenna/tower lease (KFAX-FM/Hayward, California) and Salem
            Broadcasting Company, a partnership consisting of Messrs. Atsinger
            and Epperson, expiring in 2003.
</TABLE>
 

<PAGE>
 
<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                          DESCRIPTION OF EXHIBITS
    -------                         -----------------------
 <C>           <S>
 **10.05.07    Antenna/tower/studio lease between Inland Radio, Inc. (KKLA-
               AM/San Bernardino, California) and Messrs. Atsinger and Epperson
               expiring 2002.
 **10.05.08    Antenna/tower lease between Inspiration Media, Inc. (KGNW-
               AM/Seattle, Washington) and Messrs. Atsinger and Epperson
               expiring in 2002.
 **10.05.09    Antenna/tower lease between Inspiration Media, Inc. (KLFE-
               AM/Seattle, Washington) and The Atsinger Family Trust and Stuart
               W. Epperson Revocable living Trust expiring in 2004.
 **10.05.10    Antenna/tower lease between Oasis Radio, Inc. (KAVC-FM/Rosamond,
               California) and The Atsinger Family Trust under a lease expiring
               in 2002.
 **10.05.11.01 Antenna/tower/lease between Pennsylvania Media Associates, Inc.
               (WZZD-AM/ WFIL-AM/Philadelphia, Pennsylvania) and Messrs.
               Atsinger and Epperson, as assigned from WEAZ-FM Radio, Inc.,
               expiring 2004.
 **10.05.11.02 Antenna/tower/studio lease between Pennsylvania Media
               Associates, Inc. (WZZD-AM/ WFIL-AM/Philadelphia, Pennsylvania)
               and The Atsinger Family Trust and Stuart W. Epperson Revocable
               Living Trust expiring 2004.
 **10.05.12    Antenna/tower lease between Radio 1210, Inc. (KPRZ
               AM/Olivenhain, California) and The Atsinger Family Trust
               expiring in 2002.
 **10.05.13    Antenna/tower lease between Salem Media Corporation (WYLL-
               FM/Arlington Heights, Illinois) and Messrs. Atsinger and
               Epperson expiring in 2002.
 **10.05.14    Antenna/tower/studio leases between Salem Media Corporation
               (KLTX AM/Long Beach and Paramount, California) and Messrs.
               Atsinger and Epperson expiring in 2002
 **10.05.15    Antenna/tower lease between Salem Media of Colorado, Inc. (KNUS-
               AM/Denver-Boulder, Colorado) and Messrs. Atsinger and Epperson
               expiring 2006.
 **10.05.16    Antenna/tower lease between Salem Media of Ohio, Inc.
               (WRFDAM/Columbus, Ohio) and Messrs. Atsinger and Epperson
               expiring 2002.
 **10.05.17.01 Studio Lease between Salem Media of Oregon. Inc. (KPDQ-
               AM/FM/Portland, Oregon) and Edward G. Atsinger III, Mona J.
               Atsinger, Stuart W. Epperson. and Nancy K. Epperson expiring
               2002.
 **10.05.17.02 Antenna/tower lease between Salem Media of Oregon, Inc. (KPDQ-
               AM/Raleigh Hills, Oregon and Messrs. Atsinger and Epperson
               expiring 2002.
 **10.05.18    Antenna/tower lease between Salem Media of Pennsylvania, Inc.
               (WORD-FM/WPIT-AM/ Pittsburgh, Pennsylvania) and The Atsinger
               Family Trust and Stuart W. Epperson Revocable Living Trust
               expiring 2003.
 **10.05.19    Antenna/tower lease between Salem Media of Texas, Inc.
               (KSLRAM/San Antonio, Texas) and Epperson-Atsinger 1983 Family
               Trust expiring 2007.
 **10.05.20    Antenna/tower lease between South Texas Broadcasting, Inc.
               (KENR-AM/KKHT-FM/Houston-Galveston, Texas) and Atsinger Family
               Trust and Stuart W. Epperson Revocable Living Trust expiring
               2005.
 **10.05.21    Antenna/tower lease between Vista Broadcasting, Inc. (KFIA-
               AM/Sacramento, California) and The Atsinger Family Trust and
               Stuart W. Epperson Revocable Living Trust expiring 2005.
 **10.06.01    Asset Purchase Agreement dated as of June 5, 1996 by and between
               Radio 94 of Phoenix Limited Partnership and Salem Media of
               Arizona, Inc. (KOOL-AM, Phoenix, Arizona).
 **10.06.02    Asset Purchase Agreement dated as of September 3, 1996 by and
               between Caron Broadcasting, Inc. and Mortenson Broadcasting
               Company of Canton, LLC and Mortenson Broadcasting Company of
               Akron, LLC (WTOF-FM, Canton, Ohio and WHLO-AM, Akron, Ohio).
</TABLE>
 

<PAGE>
 
<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                          DESCRIPTION OF EXHIBITS
    -------                         -----------------------
 <C>           <S>
 **10.06.03.01 Asset Purchase Agreement dated March 28, 1996 by and between
               American Radio Assistance Corporation and Common Ground
               Broadcasting, Inc. (KDBX-FM, Banks, Oregon).
 **10.06.03.02 First Amendment to Asset Purchase Agreement dated as of July 22,
               1996 by and between American Radio Systems Corporation and
               Common Ground Broadcasting, Inc. (KDBX-FM, Banks, Oregon).
 **10.06.04.01 Asset Purchase Agreement dated as of April 23, 1996 by and
               between OmniAmerica Group and WHK License Partnership and
               Inspiration Media of Ohio, Inc. (WHK-AM, Cleveland, Ohio).
 **10.06.04.02 First Amendment to the Asset Purchase Agreement dated as of July
               23, 1996 by and between OmniAmerica Group and WHK License
               Partnership and Inspiration Media of Ohio, Inc. (WHK-AM,
               Cleveland, Ohio).
 **10.06.04.03 Second Amendment to Asset Purchase Agreement dated as of August
               12, 1996 by and between OmniAmerica Group and WHK License
               Partnership and Inspiration Media of Ohio, Inc. WHK-AM,
               Cleveland, Ohio).
 **10.06.05    Asset Purchase Agreement dated as of September 30, 1996 by and
               between Infinity Broadcasting Corporation of Dallas and
               Inspiration Media of Texas. Inc. (KEWS, Arlington, Texas; KDFX,
               Dallas, Texas).
 **10.06.06.01 Asset Purchase Agreement dated as of December 4, 1996 by and
               between Backbay Broadcasters, Inc. and New England Continental
               Media, Inc. (WBNW-AM, Boston, Massachusetts).
 **10.06.06.02 First Amendment to the Asset Purchase Agreement dated as of
               February, 1997 by and between Backbay Broadcasters, Inc. and New
               England Continental Media, Inc. (WBNW-AM, Boston,
               Massachusetts).
 **10.06.07    Asset Purchase Agreement dated June 2, 1997 by and between New
               England Continental Media, Inc. and Hibernia Communications,
               Inc. (WPZE-AM, Boston, Massachusetts).
 **10.06.08    Option to Purchase dated as of August 18, 1997 by and between
               Sonsinger, Inc. and Inspiration Media, Inc. (KKOL-AM, Seattle,
               Washington).
 **10.07.01    Tower Purchase Agreement dated August 22, 1997 by and between
               the Company and Sonsinger Broadcasting Company of Houston, L.P.
 *10.07.02     Amendment to the Tower Purchase Agreement dated November 10,
               1997 by and between the Company and Sonsinger Broadcasting
               Company of Houston, L.P.
 **10.07.03    Promissory Note dated November 11, 1997 made by Sonsinger
               Broadcasting Company of Houston, L.P. payable to the Company.
 **10.07.04    Promissory Note dated December 24, 1997 made by the Company
               payable to Edward G. Atsinger III.
 **10.07.05    Promissory Note dated December 24, 1997 made by the Company
               payable to Stuart W. Epperson.
 *10.08.01     Local Programming and Marketing Agreement dated June 13, 1997
               between Sonsinger, Inc. and Inspiration Media, Inc.
 *10.08.02     Local Programming and Marketing Agreement and Put/Call Agreement
               dated October 23, 1997 by and between Cherokee Broadcasting Co.,
               Inc. and Salem Media of Georgia, Inc.
 *10.09.01     Evidence of Key man life insurance policy no. 2256440M insuring
               Edward G. Atsinger III in the face amount of $5,000,000.
 *10.09.02     Evidence of Key man life insurance policy no. 2257474H insuring
               Edward G. Atsinger III in the face amount of $5,000,000.
 +10.10.01     Credit Agreement, dated as of September 25, 1997, among the
               Company, the several Lenders from time to time parties thereto,
               and The Bank of New York, as administrative agent for the Lenders
               (previously filed as Exhibit 4.07).
 +10.10.02     Borrower Security Agreement, dated as of September 25, 1997, by
               and between the Company and The Bank of New York, as
               Administrative Agent of the Lenders (previously filed as Exhibit
               4.08).
 +10.10.03     Subsidiary Guaranty and Security Agreement dated as of September
               25, 1997, by and between the Company, the Guarantors, and The
               Bank of New York, as Administrative Agent (previously filed as
               Exhibit 4.09).
</TABLE>

<PAGE>
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                       DESCRIPTION OF EXHIBITS
  -------                      -----------------------
 <C>       <S>
 *10.09.03 Evidence of Key man life insurance policy no. 2257476B insuring
           Stuart W. Epperson in the face amount of $5,000,000.
  27.01    Financial Data Schedule.
</TABLE>
--------
 * Incorporated by reference herein to the exhibit of the same number filed as
   an exhibit to the Company's Registration Statement on Form S-4 filed on
   December 8, 1997 (File No. 333-41733).
 + Incorporated by reference herein to the exhibit, numbered as noted in
   parentheses, filed as an exhibit to the Company's Registration Statement on
   Form S-4 filed on December 8, 1997 (File No. 333-41733).
** Incorporated by reference herein to the exhibit of the same number filed as
   an exhibit to Amendment No. 1 to the Company's Registration Statement on
   Form S-4 filed on January 29, 1998 (File No. 333-41733).