<PAGE>
 
ADVO, INC.
              [Financial Contents]
-------------------------------------------------------------------------------



              Selected Financial Data  20
              Financial Report  21
              Consolidated Statements of Operations  26
              Consolidated Balance Sheets  27
              Consolidated Statements of Cash Flows  28
              Consolidated Statements of Changes in
                  Stockholders' Equity (Deficiency)  29
              Notes to Consolidated Financial Statements  30
              Report of Independent Auditors  38
              Financial Responsibility  38
<PAGE>
 
                                                                      Exhibit 13

ADVO, INC.

              Selected Financial Data




<TABLE> 
<CAPTION> 
                                                     Year ended     Year ended     Year ended     Year ended     Year ended
                                                    September 27,  September 28,  September 30,  September 24,  September 25,
(In millions, except per share data)                    1997           1996           1995           1994           1993
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>            <C>            <C> 
Summary of Operations                                                                          
Revenues                                              $1,016.5         $986.2       $1,011.9          $920.3        $856.6
Operating income                                          58.5           24.8(1)        46.3            39.7           2.3(2)
Income from continuing operations                         26.8           11.3           30.9            24.6           2.8
Net income                                                26.8            3.1           25.0            25.2           5.4
Earnings per share from continuing operations             1.09            .47           1.33            1.03           .11
Net earnings per share                                    1.09            .13           1.07(3)         1.05           .21
Cash dividends declared per share                           --         10.025(4)         .10            .095           .06
                                                                                                                    
Weighted average common and                                                                                         
  common equivalent shares                                24.7           24.1            23.3           23.9          25.4
-----------------------------------------------------------------------------------------------------------------------------
</TABLE> 


<TABLE> 
<CAPTION> 
                                                    September 27,  September 28,  September 30,  September 24,  September 25,
(In millions, except per share data)                    1997           1996           1995           1994           1993
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>            <C>            <C> 
Balance Sheet Data
Cash, cash equivalents and marketable securities       $  26.0        $  13.3       $  54.5        $  71.1        $  71.4
Total assets                                             208.6          185.1         234.2          225.7          226.5
Long-term debt                                           140.7          161.1            --             --             --
Stockholders' equity (deficiency)                        (59.9)         (85.2)        130.4          108.0          118.3
Book value per share                                     (2.46)         (3.54)         6.26           5.17           5.32
</TABLE> 



(1)  Reflects nonrecurring charges of $12.1 million. (See Note 12 to the
     consolidated financial statements).

(2)  Reflects a one-time restructuring charge to operations of $25.8 million.
     (See Note 13 to the consolidated financial statements).

(3)  Reflects a charge for cumulative effect of accounting change of $1.5
     million, net of tax, or $.07 per share. (See Note 9 to the consolidated
     financial statements).

(4)  Reflects a special $10 per share dividend declared in January of 1996. (See
     Note 7 to the consolidated financial statements).

Page 20
<PAGE>
 
ADVO, INC.

              Financial Report




This section should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto.


Basis of Presentation

In fiscal year 1995 the Company announced its plan to sell Marketing Force, its
in-store marketing segment. The sale of substantially all of the net assets of
this segment was completed in fiscal 1996. (See Note 3 to the consolidated
financial statements). The Company's results of operations have been presented
for the periods ended September 28, 1996 and September 30, 1995 to separately
reflect continuing and discontinued operations in the consolidated statements of
operations and cash flows. In addition, the results of operations discussed in
this Financial Report exclude the revenues, cost of sales, selling, and general
and administrative costs of the discontinued segment.


Financial Overview

Fiscal 1997 was an exceptional year for ADVO, Inc. ("ADVO" or the "Company").
The Company's record fiscal 1997 results are highlighted by a 59% increase in
operating income, a 40% increase in earnings per share from continuing
operations (both excluding nonrecurring charges) and a robust 9% increase in
pieces per packages, when compared to fiscal 1996. These achievements reflect
significant gains in unit volumes, improved sales force productivity and lower
cost of sales associated with favorable postage and paper prices.

   The strong operating results in fiscal 1997 indicate the solid progress the
Company has made to overcome the confluence of internal and external factors it
was confronted with during fiscal 1996. The factors which influenced the strong
performance included:

 .  Strong unit volume gains reflected by the Company's sales realignment and the
   change in sales compensation design, driving sales force productivity
   improvement.

 .  The implementation of the Enhanced Carrier-Route subclass for third class
   mail, which commenced during the last quarter of fiscal 1996. This subclass
   favorably impacted the Company's postage expense during fiscal 1997 by
   recognizing the price sensitivity and lower postal processing costs for
   efficient mailers like ADVO. In conjunction with this, lower paper prices
   also favorably impacted the Company's cost of sales.

 .  The first full year under the new `Clientizing' infrastructure, the Company's
   reengineering initiative. During fiscal 1996 the Company was reorganized
   along process lines creating a better aligned and more effective structure.
   The continued cost stabilization and savings from this initiative was
   reflected in the Company's strong financial performance in fiscal 1997.

In addition, the Company was able to pay down its credit agreement by $17.6
million. At the same time, supported by strong cash flow management, the Company
funded technology investments and initiated a stock buyback program. The credit
agreement entered into by the Company during fiscal 1996, with a syndicate of
lenders, financed the declaration of a $10 per share dividend (the "Special
Dividend") and the related transaction and recapitalization expenses which ended
the Company's `strategic alternatives' process. This credit agreement was
renegotiated subsequent to year end on September 29, 1997. The material features
of this amended agreement were an increase in available commitments from $250
million to $300 million, a decrease in interest rates, and an increased limit on
the Company's authorization to purchase its stock from $40 million to $100
million.

   Subsequent to year end an additional buyback program was announced by the
Company. The two programs combined increased the Company's total share buyback
commitment to 3.2 million shares. In connection with the announcement of the
second buyback program, the Company purchased approximately 1.9 million shares
on September 29, 1997 from Warburg Pincus Capital Partners, L.P. (See Note 7 to
the consolidated financial statements).

   The following table adjusts fiscal 1996 results for the Special Dividend
related nonrecurring charges (see Note 12 to the consolidated financial
statements) in order to present a normalized review of the Company's earnings.


Operating Results:
Comparative Analysis
<TABLE> 
<CAPTION> 
                                                              Reported         Adjustment        Adjusted
                                            Year ended       Year ended                         Year ended        Year ended
                                           September 27,    September 28,     Nonrecurring     September 28,    September 30,
(In millions, except per share data)           1997             1996             Charges           1996             1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>              <C>               <C>              <C>              <C>    
Revenues                                      $1,016.5           $986.2                             $986.2         $1,011.9
Gross profit                                     259.1            224.7                              224.7            247.7
Operating income                                  58.5             24.8            $12.1              36.9             46.3
Income from continuing operations                 26.8             11.3              7.4              18.7             30.9
Earnings per share from continuing operations     1.09              .47              .31               .78             1.33
---------------------------------------------------------------------------------------------------------------------------
</TABLE> 

                                                                         Page 21
<PAGE>
 
ADVO, INC.




Fiscal 1997 Compared to Fiscal 1996

Continuing Operations

Revenues  Fiscal 1997 revenues increased $30.3 million to a record $1,016.5
million over the comparable revenues of fiscal 1996. Volume gains were the
largest contributor to the 3.1% increase in revenues. The volume growth was
driven by the 8.8% increase in average shared mail pieces per package from 7.84
pieces in fiscal 1996 to 8.53 pieces in fiscal 1997. Offsetting these volume
gains to a degree was the strategically driven decision to discontinue the
second in-home date programs in specified markets and the closing of
unprofitable markets. Total shared mail packages for fiscal 1997 were 3,111
million, down 2.7%, and revenue per thousand pieces decreased 3.2% as compared
to fiscal 1996. The decline in revenue per thousand pieces was the result of
shifts in product mix, volume related declines in price and, earlier in the
year, a decrease in product weights associated with the Company's preprint
customers.


Operating Expenses  Cost of sales decreased $4.1 million from fiscal 1996. As a
percentage of revenues, cost of sales decreased 2.7% from 77.2% in fiscal 1996
to 74.5% in fiscal 1997. The decrease in cost of sales for the fiscal year
ending 1997 was equally attributable to both lower print and paper costs and
lower postage costs. Print and paper costs were lower in fiscal 1997 when
compared to fiscal 1996 as a result of reduced paper prices and the decline in
turnkey volume. Postage costs were favorably impacted by the postage
reclassification implemented by the United States Postal Service in July 1996
and to a lesser extent by the decline in preprint product weights. These postage
savings were offset to a degree by additional overweight postage costs incurred
with the volume gains, as demonstrated by the growth in shared mail pieces
distributed to 26.5 billion pieces, a 6.0% increase from the prior year.

   During fiscal 1997, selling expense, including the provision for bad debts,
increased $8.4 million over the prior fiscal period. Increases in commission
expense, sales support costs, and additional bad debt expense resulting from the
revenue growth were the major elements in the higher selling expense. As a
percentage of revenues, selling expense increased from 13.3% in fiscal 1996 to
13.7% in fiscal 1997.

   General and administrative costs increased $4.4 million or 7.7% in fiscal
1997 over fiscal 1996. As a percentage of revenues, general and administrative
costs were 6.0% for fiscal 1997 versus 5.7% for fiscal 1996. Continued cost
savings associated with the Company's reengineering effort were offset by
increases in severance and incentive wages, as well as investments in
technological improvements.


Operating Income  As a result of the aforementioned, the Company reported a
58.7% increase in operating income from $36.9 million (excluding nonrecurring
charges) in fiscal 1996 to $58.5 million in fiscal 1997. Operating income as a
percentage of revenue increased to 5.8% in fiscal 1997 versus 3.7% in the prior
year (excluding nonrecurring charges).


Interest Expense  Interest expense relating to the Company's credit facilities
totaled $14.8 million for fiscal 1997. In the prior year, at the onset of the
facilities, interest expense totaled $9.7 million.


Interest Income and Other Expense  Interest income results primarily from the
investment of excess cash and amounted to $.7 million in fiscal 1997 versus $1.3
million in fiscal 1996. The decrease was a result of the liquidation of
available-for-sale securities during fiscal 1996. Other expense increased
slightly to $.7 million in fiscal 1997.


Income Taxes  The effective tax rate was approximately 39% for the Company's
continuing operations in both fiscal 1997 and fiscal 1996.


Earnings per Share  Earnings per share from continuing operations increased from
$.47 in fiscal 1996 to $1.09 in fiscal 1997. Adjusting for the nonrecurring
charges in fiscal 1996, earnings per share from continuing operations would have
been $.78 in fiscal 1996 versus $1.09 in fiscal 1997. This 39.7% increase was a
result of the Company's improved operating results.


Fiscal 1996 Compared to Fiscal 1995

Continuing Operations

Revenues  Revenues from continuing operations for fiscal 1996 of $986.2 million
decreased 2.5% or $25.7 million over fiscal 1995. The revenue decline during the
year was caused by decreases in volume and price, as well as shifts in product
weight and mix, which were a direct result of higher postage and paper costs
that resulted in increased mailing costs to our clients. The price deterioration
was primarily caused by a decrease in shared mail product weights, which was the
result of a continued reduction in advertising pages mailed by the Company's
larger preprint customers. Pieces per package for the year decreased to 7.84 in
fiscal 1996 from 7.88 in fiscal 1995. Packages mailed were 3,196.9 million
during fiscal 1996 versus 3,240.1 million during the prior year. The decrease
was primarily due to the discontinuance of our second in home date in Chicago
and Texas.

 
Operating Expenses  Cost of sales as a percentage of revenue increased from
75.5% in fiscal 1995 to 77.2% in fiscal 1996.

Page 22
<PAGE>
 
ADVO, INC.




The increase was due to the volume declines in pieces per package and piece
weight declines which affected postage absorption and hence increased cost of
sales as a percentage of revenue. These volume and piece weight declines were
primarily caused by client reactions to the pass through of higher paper and
postage costs. Cost of sales, in absolute terms, decreased $2.7 million. This
decline was attributable to lower postage expense due to fewer mailings made by
the Company as evidenced by the reduction in pieces per package and shared mail
package distribution and also the implementation of lower postal rates which
commenced on July 1, 1996. These declines were somewhat offset by higher postal
rates which occurred during the first quarter of fiscal year 1996 when compared
with the same quarter of fiscal 1995. As a result of the lower volume, print and
paper expenditures decreased $1.6 million which also contributed to the decline
in cost of sales.

   Selling expense, including the provision for bad debts, increased 1.6% over
fiscal 1995 to $131.1 million in fiscal 1996. Selling expense as a percentage of
revenue increased to 13.3% in the current year from 12.7% in the prior year. The
increase in selling expense resulted from the transition to the Company's new
sales margin based compensation system and the Company's realignment of the
regional general manager function into a role with more of an emphasis on sales.

   As a percentage of revenues, general and administrative costs were 5.7% for
year ended 1996 versus 7.2% for year ended 1995. General and administrative
costs decreased $15.8 million or 21.8% in fiscal 1996 over fiscal 1995. The
significant reduction in general and administrative expenses were the direct
result of the Company's ongoing reengineering program to streamline and improve
efficiencies in its processes, operations, and systems; the realignment of its
administrative functions; and strict cost controls implemented during the fiscal
year 1996. As a result of the reengineering effort, at September 28, 1996
headcount had been reduced by 440 associates in all areas of the Company since
June of 1995, which was the start of the reengineering program.


Operating Income  As a result of the aforementioned, the Company reported a $9.4
million decrease in operating income (excluding nonrecurring charges) to $36.9
million when comparing fiscal 1996 to fiscal 1995.


Gain on Sale of Business Lines  During the first quarter of fiscal 1996, the
Company recognized a pretax gain of $2.7 million ($1.7 million after tax or $.07
per share) on the sale of its MidCoast Press operation, a commercial web offset
printer. In the first quarter of fiscal 1995, the Company recognized a $2.2
million pretax gain ($1.4 million after tax, or $.06 per share) on the sale of
its 50 percent ownership in InfoBase Services, a data base joint venture.


Interest Income  Interest income results primarily from the investment of excess
cash. Interest income was $1.3 million in fiscal 1996 versus $2.8 million in
fiscal 1995. The $1.5 million decrease was due to the liquidation of the
available-for-sale securities in connection with payment of the Special
Dividend.


Interest Expense  The Company obtained credit facilities totaling $250 million
during the second quarter of fiscal 1996 in connection with the payment of the
Special Dividend. Interest expense and commitment fees related to the debt
totaled $9.7 million ($5.9 million after tax or $.24 per share) for the year
ended September 28, 1996.


Income Taxes  The effective tax rate was approximately 39% for the Company's
continuing operations in both fiscal 1996 and fiscal 1995.

Earnings per Share  Earnings per share from continuing operations decreased to
$.47 in fiscal 1996 from $1.33 in fiscal 1995. Earnings per share for fiscal
1996 was negatively impacted by the transactions associated with the Special
Dividend and the interest expense. Adjusting for both the nonrecurring charges
and interest expense, earnings per share from continuing operations would have
been $1.02 in fiscal 1996 versus $1.33 in fiscal 1995.


Financial Position

Working Capital  The Company's working capital ratio at September 27, 1997 was
approximately 1.00 versus 1.04 in the prior year. Increases in current assets of
$11.9 million were more than offset by increases in current liabilities of $15.5
million and resulted in the decline of working capital. The driving forces
behind the change in current assets were an improvement in cash and cash
equivalents generated mainly from the Company's operating results, and an
increase in accounts receivable as a result of the revenue growth and the timing
of customer payments. The main sources of change in current liabilities were
trade payable increases primarily due to the timing of vendor payments and
increases in accrued compensation and benefits related to the associate
incentive plan reflecting the Company's improved results.


Property, Plant and Equipment  Investments in property, plant and equipment for
the year ended September 27, 1997 totaled approximately $28.6 million, which was
approximately $10.9 million greater than prior year additions. During the
current fiscal year the Company continued to implement its plan to upgrade and
enhance technology throughout all Company 

                                                                         Page 23
<PAGE>
 
ADVO, INC.




processes. Machinery and equipment purchases reflected the transition to new
computerized mail sorters that are expected to achieve efficiencies in targeting
specific groups, and the replacement of other existing production equipment at
the Company's production facilities. The Company also continued to roll out
personal computers and peripherals to the sales force to allow for a greater
focus on customer service. Computer hardware was also upgraded in other areas of
the Company to meet the needs of financial and operational software currently
being developed by the Company. The developed software is expected to improve
operating efficiency and reduce overhead.

   The Company's current capital plan calls for fiscal 1998 expenditures to be
slightly less than fiscal 1997 expenditures. Cash provided by operating
activities was sufficient to cover fiscal 1997 capital additions and continues
to be the expected source of financing for the planned fiscal 1998 capital
investments.


Stockholders' Deficiency  Stockholders' deficiency decreased $25.3 million from
the prior year to a net deficiency of $59.9 million. The decrease was
essentially related to the Company's fiscal 1997 net income of $26.8 million and
$2.9 million of employee stock plan activity and related tax benefits relating
to the vesting of restricted stock and exercise of stock options. Slightly
offsetting these increases was $4.7 million of common stock purchases for
treasury primarily related to the buyback program announced by the Company in
April 1997. Subsequent to year end, on September 29, 1997, the Company purchased
1.9 million shares at a total purchase price of $34.8 million from Warburg
Pincus Capital Partners L.P., the Company's largest shareholder at September 27,
1997. The Company financed this transaction through available credit commitments
under its renegotiated credit agreement. After this transaction there are
approximately one million shares approved for purchase under the buyback
program.


Liquidity  Cash flow is generated from operating activities and is the Company's
primary resource for funding working capital, capital investments and other
operating requirements. The Company also has available commitments under its
renegotiated credit agreement, which may be used to fund operating activities.

   Cash provided by operating activities increased over the prior year by $22.6
million. The year over year increase was largely related to the $15.5 million
growth in operating results, as compared to an $18.1 million decrease in
operating results in the prior year. Year over year changes in accounts
receivable and accounts payable due to the timing of cash receipts and cash
disbursements, respectively, the increases in accrued incentive compensation as
a result of the improved operating results and the variance in paper inventory
as a result of the Company's change in its inventory purchasing strategy were
also major components affecting the cash provided by operating activities.

   Overall cash and cash equivalents increased $12.7 million over fiscal 1996.
Cash flows from operating activities were offset in part by cash expenditures
primarily related to property and equipment purchases of $28.6 million and debt
repayments of $17.6 million. In the prior fiscal year the payment of the Special
Dividend and the related debt transactions were the primary reasons for the
overall $10.5 million decrease in cash and cash equivalents.

   During fiscal 1996, the Company entered into a ten-year agreement with
Integrated System Solutions Corporation, now known as IBM Global Services, to
provide systems development and technical support to the Company. The contract
allows for cancellation after the completion of the third year, subject to
termination charges ranging between $3.1 million and $.5 million depending on
the year in which the cancellation becomes effective. During fiscal 1997 the
Company incurred $15.9 million in fees related to the contract, half of which
related to software development. Future commitments for the noncancellable
portion of the agreement, excluding termination fees and the cost of living
adjustments are $14.9 million and $10.7 million for fiscal years 1998 and 1999,
respectively. The Company anticipates funding these fees through continuing
operations.


Financing Arrangements  On September 29, 1997, the Company renegotiated the
terms of its credit agreement dated March 4, 1996. The more significant
amendments made to the agreement (the "Amended Agreement") were an increase in
available commitments from $250 million to $300 million, a decrease in interest
rates and an increase in the authorized amount of the Company's capital stock
that it may purchase from $40 million to $100 million.

   The Amended Agreement provides for credit facilities consisting of a $135
million term loan and a $165 million reducing revolving line of credit, both
maturing at various dates through September 2003. Available commitments under
the Amended Agreement, including fiscal 1998 additional net borrowings of $37
million through November 1997 totaled approximately $102 million.

   The debt bears interest at either the London Interbank Offered Rate ("LIBOR")
or at the bank's "base rate", whichever the Company chooses for each tranche due
at various maturity dates, plus an "applicable margin" (based on certain
financial ratios). The "applicable margin" under the Amended Agreement ranges
from .50% to 1.50% on the LIBOR rate and 0% to

Page 24
<PAGE>
 
ADVO, INC.




 .25% on the base rate versus the applicable margin under the March 4, 1996
agreement of 1.50% to 3.00% and .25% to 1.75%, respectively. Interest is payable
quarterly or upon the maturity of the LIBOR contracts, whichever period is
shorter.

   The Company is required to maintain certain financial ratios under the
Amended Agreement. In addition, the Amended Agreement also places restrictions
on disposal of assets, mergers and acquisitions, dividend payments, investments
and additional debt.

   In connection with the Amended Agreement, the Company is required to maintain
Interest Rate Protection Agreements to protect itself against three month LIBOR
rates exceeding 8.0% per annum as to a notional principal amount equal to the
lesser of $100 million or 50% of the aggregate principal amount of the loans
made on the effective date, for a period of at least two years. During the prior
year, the Company entered into two separate two year Interest Rate Collar
Agreements to hedge notional amounts totaling $150 million. The cap rates range
from 7.39% to 8.0% with the floor rate ranging from 5.0% to 5.5%. These
agreements entitle the Company to pay no more or less than the specified limits
plus applicable margin, as defined. The Company believes the interest rate
collar agreements limit substantial risk should interest rates fluctuate. The
interest rate collar agreements had no effect on interest expense in either
fiscal 1997 or 1996.

   During fiscal 1997, the Company repaid $17.6 million of the fiscal 1996 long
term debt balance with funds generated from continuing operations. As defined by
the March 4, 1996 agreement, $11.0 million of the 1997 repayments related to a
fiscal 1996 "Excess Cash Flow" calculation. No excess cash flow payment is
required for fiscal 1997 or under the Amended Agreement. The total fiscal 1998
maturities of long-term debt of $10.1 million, as well as future scheduled
repayments, are expected to be paid through funds generated from ongoing
operations.


Year 2000 Compliance  The Company recently put in place a team of individuals
dedicated to analyzing the issues associated with the year 2000 compliance. The
costs and effects on financial results of year 2000 compliance are unknown by
the Company at this time.


Forward Looking Statements  Except for the historical information stated herein,
the matters discussed in this Financial Report contain forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such forward looking statements are accompanied by cautionary
factors which would cause the Company's actual results to differ materially from
those in the forward looking statements. Such factors include but are not
limited to changes in customer demand; postal and paper prices; the realization
of benefits associated with the Company's reengineering initiative; possible
governmental regulation or legislation affecting aspects of the Company's
business; the risk of damage to the Company's data centers and telecommunication
lines; the efficiencies achieved with technology upgrades; the amount of shares
the Company will purchase in the future under its buyback program; the
evaluation of the impact of year 2000 costs; and other general economic factors.

                                                                         Page 25
<PAGE>
 
ADVO, INC.

                     Consolidated Statements of Operations

<TABLE> 
<CAPTION> 
                                                                     Year ended           Year ended          Year ended
                                                                    September 27,        September 28,       September 30,
(In thousands, except per share data)                                   1997                 1996                1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>                 <C> 
Revenues                                                             $1,016,492            $986,162           $1,011,904
Costs and expenses:
   Cost of sales                                                        757,413             761,506              764,198
   Selling, general and administrative                                  195,196             184,084              198,496
   Nonrecurring charges                                                      --              12,082                   --
   Provision for bad debts                                                5,374               3,701                2,953
--------------------------------------------------------------------------------------------------------------------------
Operating income                                                         58,509              24,789               46,257
Gain on sale of business lines                                               --               2,687                2,243
Interest income (1)                                                         687               1,285                2,817
Interest expense                                                         14,820               9,669                   --
Other expense                                                               660                 556                  772
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                               43,716              18,536               50,545
Provision for income taxes                                               16,918               7,229               19,596
--------------------------------------------------------------------------------------------------------------------------
Income from continuing operations                                        26,798              11,307               30,949

Discontinued operations:
   Loss from discontinued operations, net of tax                             --                  --               (3,522)
   Loss on disposal of discontinued operations, net of tax                   --              (8,199)                (931)
--------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change                     26,798               3,108               26,496
Cumulative effect of change in accounting for postemployment
   benefits, net of tax                                                      --                  --               (1,545)
--------------------------------------------------------------------------------------------------------------------------
Net income                                                           $   26,798            $  3,108           $   24,951
--------------------------------------------------------------------------------------------------------------------------

Earnings per share:
     Earnings from continuing operations                             $     1.09            $    .47           $     1.33
     Discontinued operations:
        Loss from discontinued operations, net of tax                        --                  --                 (.15)
        Loss on disposal of discontinued operations, net of tax              --                (.34)                (.04)
     Cumulative effect of change in accounting for postemployment
        benefits, net of tax                                                 --                  --                 (.07)
--------------------------------------------------------------------------------------------------------------------------
        Net earnings per share                                       $     1.09            $    .13           $     1.07

   Dividends declared per share                                      $       --            $ 10.025           $      .10

Weighted average common and common equivalent shares                     24,688              24,126               23,286
--------------------------------------------------------------------------------------------------------------------------
</TABLE> 

(1) Includes interest income from related party of $458,000, $1,219,000 and
    $2,757,000 in fiscal 1997,1996 and 1995, respectively.

See accompanying Notes to Consolidated Financial Statements

Page 26
<PAGE>
 
ADVO, INC.

                   Consolidated Balance Sheets

<TABLE> 
<CAPTION> 
                                                                                         September 27,       September 28,
(In thousands, except share data)                                                            1997                1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                 <C> 
Assets
Current assets:
   Cash and cash equivalents (1)                                                          $  25,963            $  13,303
   Accounts receivable, less allowances of $5,160 in 1997 and $4,226 in 1996                 66,664               62,668
   Inventories                                                                                4,149                7,518
   Prepaid expenses and other current assets                                                  4,759                4,512
   Deferred income taxes                                                                     14,248               15,839
--------------------------------------------------------------------------------------------------------------------------
     Total Current Assets                                                                   115,783              103,840
Property, plant and equipment-net                                                            76,092               64,175
Other assets                                                                                 16,678               17,111
--------------------------------------------------------------------------------------------------------------------------
     Total Assets                                                                         $ 208,553            $ 185,126


Liabilities and Stockholders' Deficiency 
Current liabilities:
   Current portion of long-term debt                                                      $  10,125            $   7,225
   Accounts payable                                                                          44,644               37,868
   Accrued compensation and benefits                                                         29,245               22,892
   Customer advances                                                                          3,409                5,960
   Federal and state income taxes payable                                                     7,080                5,877
   Accrued other expenses                                                                    21,080               20,257
--------------------------------------------------------------------------------------------------------------------------
     Total Current Liabilities                                                              115,583              100,079
Long-term debt                                                                              140,666              161,125
Deferred income taxes                                                                         9,589                6,618
Other liabilities                                                                             2,636                2,509
Stockholders' deficiency:
   Series A Convertible Preferred Stock, $.01 par value
   (Authorized 5,000,000 shares, none issued)                                                    --                   --
   Common Stock, $.01 par value (Authorized 40,000,000 shares,
     Issued 28,428,952 in 1997 and 27,900,756 in 1996)                                          284                  279
   Additional paid-in capital                                                               163,317              160,704
   Accumulated deficit                                                                     (155,113)            (181,914)
   Less shares of common stock held in treasury at cost,
     4,077,371 in 1997 and 3,804,363 in 1996                                                (68,409)             (64,274)
--------------------------------------------------------------------------------------------------------------------------
     Total Stockholders' Deficiency                                                         (59,921)             (85,205)
--------------------------------------------------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Deficiency                                       $ 208,553            $ 185,126
--------------------------------------------------------------------------------------------------------------------------
</TABLE> 

(1)  Includes cash and cash equivalents invested with related party of
     $11,613,000 at September 27, 1997 and $5,362,000 at September 28, 1996.

See accompanying Notes to Consolidated Financial Statements

                                                                         page 27
<PAGE>
 
ADVO, INC.

                     Consolidated Statements of Cash Flows

<TABLE> 
<CAPTION> 
                                                                     Year ended           Year ended          Year ended
                                                                    September 27,        September 28,       September 30,
(In thousands)                                                          1997                 1996                1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>                 <C> 
Cash flows from continuing operating activities:
   Net income                                                          $ 26,798           $   3,108             $ 24,951
   Less: Loss from discontinued operations                                   --              (8,199)              (4,453)
--------------------------------------------------------------------------------------------------------------------------
Income from continuing operations (includes accounting change)           26,798              11,307               29,404
Adjustments to reconcile net income to
  net cash flows from continuing operating activities:
     Cumulative effect of change in accounting
        for postemployment benefits                                          --                  --                1,545
     Cashless option exercises and option repricing                          --               8,747                   --
     Depreciation                                                        16,150              12,967               11,641
     Amortization                                                         2,096               2,203                2,690
     Deferred income taxes                                                4,562              (2,275)               4,232
     Provision for bad debts                                              5,374               3,701                2,953
     Gain on sale of business lines                                          --              (2,687)              (2,243)
     Other                                                                  528                   1                  361
Change in operating assets and liabilities, net of 
 effects of acquisitions:
     Accounts receivable                                                 (9,370)             (5,280)             (16,188)
     Inventories                                                          3,369                 470               (3,533)
     Prepaid expenses and other current assets                             (247)                539                  131
     Other assets                                                        (1,367)                332                  458
     Accounts payable                                                     6,776              13,401                 (157)
     Accrued compensation and benefits                                    6,353              (2,815)              (2,232)
     Customer advances                                                   (2,551)             (4,350)              (2,890)
     Federal and state income taxes payable                               1,732               4,486                  904
     Other liabilities                                                      950              (2,155)             (12,367)
--------------------------------------------------------------------------------------------------------------------------
     Net cash provided by continuing operating activities                61,153              38,592               14,709

Cash flows from continuing investing activities:
   Proceeds from sale of business lines                                      --                 742                9,000
   Acquisitions, net of cash acquired                                        --                  --               (2,448)
   Expenditures for property, plant and equipment                       (28,615)            (17,679)             (20,315)
   Proceeds from disposals of property and equipment                         18                  10                   11
   Available-for-sale securities - purchases                                 --             (49,604)             (55,899)
   Available-for-sale securities - sales and maturities                      --              80,482               56,355
--------------------------------------------------------------------------------------------------------------------------
     Net cash (used) provided by continuing investing activities        (28,597)             13,951              (13,296)

Cash flows from continuing financing activities:
   Proceeds from long-term borrowings - term loans                           --             155,000                   --
   Payments on long-term borrowings - term loans                        (17,559)             (1,650)                  --
   Revolving line of credit - net                                            --              15,000                   --
   Payment of debt issue costs                                               --              (5,458)                  --
   Proceeds from exercise of warrants                                        --               7,200                   --
   Proceeds from exercise of stock options                                2,323               2,473                1,811
   Purchases of common stock for treasury                                (4,660)               (741)              (4,260)
   Cash dividends paid                                                       --            (240,561)              (2,078)
--------------------------------------------------------------------------------------------------------------------------
     Net cash used in continuing financing activities                   (19,896)            (68,737)              (4,527)
--------------------------------------------------------------------------------------------------------------------------
     Net cash provided (used) by discontinued operations                     --               5,648              (12,785)
--------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                         12,660             (10,546)             (15,899)
Cash and cash equivalents at beginning of year                           13,303              23,849               39,748
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                               $ 25,963           $  13,303             $ 23,849
--------------------------------------------------------------------------------------------------------------------------
</TABLE> 

See accompanying Notes to Consolidated Financial Statements

page 28
<PAGE>
 
ADVO, INC.

    Consolidated Statements of Changes in Stockholders' Equity (Deficiency)

<TABLE> 
<CAPTION> 
                                                                                            Unrealized
                                                                                           gains (losses)
                                                                              Additional    on available-  Accumulated    Total
(In thousands, except              Common stock        Treasury stock          paid-in      for-sale        earnings      equity
per share data)                  Shares     Amount    Shares    Amount         capital      securities      (deficit)   (deficiency)

-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>      <C>        <C>           <C>          <C>           <C>            <C>  
Balance --
   September 24, 1994            24,393      $244    (3,521)    $(59,273)      $134,881      $  0         $32,146        $107,998
Purchase of common
   stock for treasury                                  (238)      (4,260)                                                  (4,260)
Grants of restricted stock           11
Exercise of stock options           179         2                                 1,809                                     1,811
Tax effect --
   employee stock plans                                                             699                                       699
Amortization of deferred
   compensation (1)                                                               1,346                                     1,346
Cash dividends declared
   ($.10 per share)                                                                                        (2,077)         (2,077)
Unrealized losses on
   available-for-sale
   securities                                                                                 (62)                            (62)
Net Income                                                                                                 24,951          24,951
-----------------------------------------------------------------------------------------------------------------------------------

Balance --
   September 30, 1995            24,583      $246    (3,759)    $(63,533)      $138,735      $(62)        $55,020        $130,406
Purchase of common
   stock for treasury                                   (45)        (741)                                                    (741)
Cancellation of restricted stock     (5)
Exercise of stock options
   and warrants                   3,323        33                                18,387                                    18,420
Tax effect--
   employee stock plans                                                           2,973                                     2,973
Amortization of deferred
   compensation (1)                                                                 609                                       609
Cash dividends declared
   ($10.025 per share)                                                                                   (240,042)       (240,042)
Unrealized gains on
   available-for-sale
   securities                                                                                  62                              62
Net Income                                                                                                  3,108           3,108
-----------------------------------------------------------------------------------------------------------------------------------

Balance --
   September 28, 1996            27,901      $279    (3,804)    $(64,274)      $160,704      $  0       $(181,914)       $(85,205)
Purchase of common
   stock for treasury                                  (304)      (4,660)                                                  (4,660)
Grants of restricted stock           31                  30          506           (506)
Exercise of stock options           497         5         1           19          2,299                                     2,323
Tax effect --
   employee stock plans                                                             529                                       529
Amortization of deferred
   compensation and other (1)                                                       291                         3             294
Net Income                                                                                                 26,798          26,798
-----------------------------------------------------------------------------------------------------------------------------------

Balance --
   September 27, 1997            28,429      $284    (4,077)    $(68,409)      $163,317      $  0       $(155,113)       $(59,921)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

(1)  Unamortized deferred compensation at September 27, 1997, September 28, 1996
     and September 30, 1995 was $780,000, $140,000 and $836,000, respectively.

See accompanying Notes to Consolidated Financial Statements

                                                                         page 29
<PAGE>
 
ADVO, INC.

                  Notes to Consolidated Financial Statements





Note 1  Summary of Accounting Policies

Organization ADVO, Inc. ("ADVO"or the "Company") is a direct marketing firm
primarily engaged in soliciting and processing printed advertising from
retailers, manufacturers and service companies for targeted distribution by both
shared and solo mail to consumer households in the United States on a national,
regional and local basis. Founded in 1929 as a hand delivery company, ADVO
entered the direct mail industry as a solo mailer in 1946 and began its shared
mail program in 1980. The Company currently is the largest commercial user of
third-class mail in the United States.

   ADVO's direct mail products and services include shared mail and solo mail.
ADVO also provides certain transportation and ancillary services in conjunction
with its direct mail programs. The Company's predominant source of revenue is
from its shared mail programs. In these programs, the advertisements of several
advertisers are combined in a single mail package. This offers the features of
penetration and targeted marketing at a significant cost reduction when compared
to mailing on an individual or solo mail basis. The Company's client base
consists of national and local grocers, fast food chains, drug stores and local
retailers.

Principles of Consolidation The consolidated financial statements include the
accounts of ADVO and its subsidiaries. All significant intercompany transactions
and balances among ADVO and its subsidiaries have been eliminated. Certain
reclassifications have been made in the fiscal 1996 and 1995 financial
statements to conform with the fiscal 1997 presentation. ADVO's fiscal closing
date is the last Saturday in September. The fiscal year includes operations for
a 52-week period in 1997 and 1996 and a 53-week period in 1995.

Cash and Cash Equivalents Cash and cash equivalents include highly liquid
investment instruments with original maturities of three months or less when
purchased. These investments are valued at cost, which approximates market.

Inventories Inventories, which consist of raw materials, finished goods and
spare parts, are valued at the lower of cost (first-in, first-out method) or
market.

Property, Plant and Equipment Property, plant and equipment are recorded at cost
and include amounts associated with the development of software for internal
use. Depreciation and amortization are computed generally by the straight-line
method over the estimated useful lives of the respective assets (ranging from 2
to 35 years) or over the terms of the related leases for the leasehold
improvements.

Intangible Assets The excess of cost over net assets acquired (goodwill) and
other intangible assets related to acquisitions are being amortized over their
expected useful lives which range from 3 to 20 years. The Company continually
monitors its goodwill and its other intangibles to determine whether any
impairment of these assets has occurred. In making such determination, the
Company evaluates the performance, on an undiscounted basis, of the underlying
assets which gave rise to such amount.

Revenues Revenues are recognized when services are rendered and are presented in
the financial statements net of sales allowances and adjustments. The Company's
services are considered rendered when all printing, sorting, labeling and
ancillary services have been provided and the mailing material has been received
by the United States Postal Service.

Stock Based Compensation The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25") and related interpretations in accounting for its employee stock plans.

Earnings Per Share Earnings per share are computed based on the weighted average
number of common and common equivalent shares outstanding during the year.
Common share equivalents consist of the average number of shares issuable upon
the exercise of warrants and options. Primary and fully diluted earnings per
share are not significantly different.

Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ from those estimates.


Note 2  Acquisitions

In fiscal 1995, the Company acquired the Door Store, a local alternate delivery
company, for approximately $2.4 million. This acquisition has been accounted for
under the purchase method of accounting and, accordingly, the results of
operations of the acquired company have been included in the consolidated
statements of operations from its acquisition date. The acquired assets have
been recorded at their estimated fair values. This acquisition did not have a
material pro forma effect on operations for periods prior to the acquisition.

   The excess of the purchase price over the estimated fair values of net assets
acquired in connection with acquisitions by the Company amounted to $4.5 million
and $4.9 million, net of accumulated amortization and is reflected in other
assets at September 27, 1997 and September 28, 1996, respectively. Also included
in other assets at September 27,

page.30
<PAGE>
 
ADVO, INC.





1997 and September 28, 1996 is $2.8 million and $3.6 million, respectively, of
other intangible assets, net of accumulated amortization, which were acquired in
the acquisitions. As of September 27, 1997 and September 28, 1996, accumulated
amortization of goodwill and other intangibles was $7.8 million and $6.7
million, respectively.


Note 3  Discontinued Operations

In September 1995, the Company initiated a plan to sell its in-store marketing
segment. Through the date of the preparation of the fiscal 1995 financial
statements, the Company was in the process of negotiating the sale. At that
time, management estimated its loss on disposal to be $1.4 million ($.9 million
net of tax) consisting of a provision for anticipated operating losses during
the phase out period and other costs directly related to the sale.

   On March 1, 1996 the Company completed the sale of substantially all of the 
net operating assets of this segment. The net assets were sold at book value in
exchange for $5.0 million in cash and a long-term note receivable for $10.8
million. The operating results of the segment through the date of disposal were
worse than anticipated, which caused losses in excess of the estimates provided
in fiscal 1995. The additional losses affected the ultimate terms of the
transaction, including the terms of the related note, and caused substantial
doubt as to whether the note could be paid by the buyer. Accordingly, the
Company ultimately determined that the sales price should not reflect the note
and immediately wrote it off. This write off, together with the additional
operating losses, were reflected in the fiscal 1996 loss on disposal of
discontinued operations, net of tax. The Company did not provide any debt or
contract performance guarantees on behalf of the business sold.

   The results of the discontinued operations reflected in the consolidated
statements of operations are as follows:

<TABLE> 
<CAPTION> 
                                                 Year ended      Year ended   
                                                September 28,   September 30, 
(In thousands)                                      1996            1995      
------------------------------------------------------------------------------
<S>                                             <C>             <C> 
Revenues                                          $ 19,283       $ 57,668     
------------------------------------------------------------------------------
Loss before                                                                   
  income taxes                                          --       $ (5,361)    
Income tax                                                                    
  benefit                                               --         (1,839)    
------------------------------------------------------------------------------
Loss from discontinued                                                        
  operations, net of tax                                --       $ (3,522)    
------------------------------------------------------------------------------
Losses to disposal date                           $(13,827)      $ (1,432)    
Income tax benefit                                  (5,628)          (501)    
------------------------------------------------------------------------------
Loss on disposal                                                              
  of discontinued                                                             
  operations, net of tax                          $ (8,199)      $   (931)    
------------------------------------------------------------------------------
</TABLE> 


Note 4  Property, Plant and Equipment

Balances of major classes of property, plant and equipment and accumulated
depreciation and amortization are as follows:

<TABLE> 
<CAPTION> 
                                                September 27,    September 28,
(In thousands)                                      1997             1996     
------------------------------------------------------------------------------
<S>                                            <C>               <C> 
Land, buildings and building                                                  
  improvements                                   $  8,083        $   7,623    
Leasehold improvements                             11,867           12,014    
Machinery and equipment                            71,844           66,857    
Furniture and fixtures                             17,719           17,206    
Computer hardware                                  33,145           25,370    
Computer software and                                                         
  software development                             24,333           12,959    
------------------------------------------------------------------------------
  Total                                          $166,991        $ 142,029    
Less accumulated depreciation                                                 
  and amortization                                 90,899           77,854    
------------------------------------------------------------------------------
Property, plant and equipment-net                $ 76,092        $  64,175    
------------------------------------------------------------------------------
</TABLE> 


Note 5  Accrued Compensation and Benefits

The composition of accrued compensation and benefits is as follows:

<TABLE> 
<CAPTION> 
                                              September 27,      September 28,
(In thousands)                                    1997               1996     
------------------------------------------------------------------------------
<S>                                           <C>                <C> 
Employee compensation                           $18,316            $13,048    
Workers' compensation                             5,638              4,924    
Employee withholdings and                                                     
  other benefits                                  5,291              4,920    
------------------------------------------------------------------------------
  Total                                         $29,245            $22,892    
------------------------------------------------------------------------------
</TABLE> 

Note 6  Financing Arrangements

On September 29, 1997, the Company renegotiated the terms of its credit
agreement dated March 4, 1996. The more significant amendments made to the
agreement (the "Amended Agreement") were an increase in available commitments
from $250 million to $300 million, a decrease in interest rates and an increase
in the authorized amount of the Company's capital stock that the Company may
purchase from $40 million to $100 million. The Company paid a $1.3 million
arrangement fee in connection with the Amended Agreement. Also on September 29,
1997, the Company borrowed an additional $34.8 million to fund the purchase of
1,936,098 shares of its common stock from Warburg, Pincus Capital Partners, L.P.
(see Note 7).

   The Amended Agreement provides for credit facilities consisting of a $135
million term loan and a $165 million reducing revolving line of credit, both
maturing at various dates through September 2003. The commitment levels on the
revolving line range from a high of $165 million, from inception through
December 1999, to a low of $22.5 million, for the period June

                                                                         page.31
<PAGE>
 
ADVO, INC.





2003 through September 2003. Mandatory repayments of debt in defined amounts are
required in the event of certain triggering events including the sale of assets.
The Company and its subsidiaries have pledged all of their assets as collateral
for the credit agreement.

   The total outstanding credit facilities at September 27, 1997 and September
28, 1996 reflect the March 4, 1996 credit agreement. The current portion of long
term debt at September 27, 1997 reflects the repayment schedule of the Amended
Agreement.

   The outstanding facilities balance consists of the following:

<TABLE> 
<CAPTION> 
                                                 September 27,   September 28,
(In thousands)                                       1997            1996     
------------------------------------------------------------------------------
<S>                                              <C>             <C> 
Revolving line of credit                         $  15,000       $  15,000    
Term loan - A                                       52,165          63,600    
Term loan - B                                       83,626          89,750    
------------------------------------------------------------------------------
                                                   150,791         168,350    
Less: Current portion of                                                      
  long-term debt                                    10,125           7,225    
------------------------------------------------------------------------------ 
                                                 $ 140,666       $ 161,125    
------------------------------------------------------------------------------ 
</TABLE> 

The debt bears interest at either the London Interbank Offered Rate ("LIBOR") or
at the bank's "base rate", whichever the Company chooses for each tranche due at
various maturity dates, plus an "applicable margin" (based on certain financial
ratios). The "applicable margin" under the Amended Agreement ranges from .50% to
1.50% on the LIBOR rate and 0% to .25% on the base rate versus the applicable
margin under the March 4, 1996 agreement of 1.50% to 3.00% and .25% to 1.75%,
respectively. Interest is payable quarterly or upon the maturity of the LIBOR
contracts, whichever period is shorter. The interest rate at September 27, 1997
and September 28, 1996 was 7.21% and 7.57%, respectively, on the revolving line
of credit and on Term loan - A; and for Term loan - B, 8.71% and 8.57%,
respectively.

   The Company is required to maintain certain financial ratios under the
Amended Agreement. In addition, the Amended Agreement also places restrictions
on disposal of assets, mergers and acquisitions, dividend payments, investments
and additional debt.

   In connection with the Amended Agreement, the Company is required to maintain
Interest Rate Protection Agreements to protect itself against three month LIBOR
rates exceeding 8.0% per annum as to a notional principal amount equal to the
lessor of $100 million or 50% of the aggregate principal amount of the loans
made on the effective date, for a period of at least two years. During the prior
year, the Company entered into two separate two year Interest Rate Collar
Agreements to hedge notional amounts totaling $150 million. The cap rates range
from 7.39% to 8.0% with the floor rate ranging from 5.0% to 5.5%. These
agreements entitle the Company to pay no more or less than the specified limits
plus applicable margin, as defined. The Company believes the interest rate
collar agreements limit substantial risk should interest rates fluctuate. The
interest rate collar agreements had no effect on interest expense in either
fiscal 1997 or 1996.

   The Company pays fees on the unused commitments under the Amended Agreement
at a rate ranging from .175% to .375% depending on the Company's total debt
ratio, as defined. Commitment fees under the March 4, 1996 agreement were .375%
or .50% depending on the total debt ratio, as defined. As of September 27, 1997
and September 28, 1996, $70 million of the revolver was available for future
borrowings.

   Total maturities of long-term debt over the next five fiscal years and
thereafter at September 27, 1997 reflect the Amended Agreement and are as
follows:

<TABLE> 
<CAPTION> 
(In thousands)
-------------------------------------------------------------------------------
<S>                                                                  <C> 
1998                                                                  $ 10,125
1999                                                                    16,200
2000                                                                    20,250
2001                                                                    22,950
2002                                                                    27,002
Thereafter                                                              54,264
-------------------------------------------------------------------------------
Total maturities                                                      $150,791
-------------------------------------------------------------------------------
</TABLE> 

The revolving line of credit has been classified as long-term since management
has the intent and ability to maintain the September 27, 1997 outstanding
balance throughout fiscal 1998.

   The Company capitalized debt issue costs directly associated with the
issuance of the March 4, 1996 Agreement totaling $5.5 million. These costs are
included in other assets and are being amortized over the term of the debt
agreement. At September 27, 1997 and September 28, 1996 unamortized costs
totaled $4.4 million and $5.1 million, respectively.

   The Company has outstanding letters of credit totaling approximately $6.6
million under separate agreements primarily related to its workers' compensation
program.

   Carrying amounts of the financing arrangements approximate fair value.

Note 7 Stockholders' Equity (Deficiency) 
-------------------------------------------------------------------------------
On August 27, 1986, 2,301,780 warrants to purchase shares of ADVO common stock
were issued to Warburg, Pincus Capital Partners, L.P. ("Warburg"), Welsh,
Carson, Anderson & Stowe IV (WCAS IV) and WCAS Venture Partners (WCAS VP)
(together, the "Investors") for $1,000,000. On February 15, 1996, Warburg, who
was the Company's largest shareholder

page.32
<PAGE>
 
ADVO, INC.





at September 27, 1997, exercised the last outstanding warrants and purchased
2,666,667 shares of common stock at an exercise price of $2.70 per share.

   The Company has a Shareholder Protection Rights Plan (the "Rights Plan") to
protect shareholders from potential unfair hostile takeovers. Pursuant to the
Rights Plan, common shareholders have one Right for each share of common stock
held. The Rights become exercisable only in the event that any person acquires
or commences a tender offer to acquire 20% or more of the Company's common
stock, as defined.

   On January 17, 1996 the Company announced the declaration of a Special
Dividend of $10 per share of common stock to shareholders of record on February
20, 1996. The announcement was a result of the Company's initiative to explore
strategic alternatives aimed at increasing shareholder value, which began at the
end of fiscal 1995. Total shares outstanding as of the record date were
approximately 24 million resulting in dividends of approximately $240 million,
which were paid on March 5, 1996. The Company also recorded noncash compensation
expense totaling $8.8 million relating to the Special Dividend. (See Note 12.)

   On April 30, 1997, the Company announced a stock buyback program to purchase
up to 2 million shares of the Company's common stock. As of September 27, 1997,
the Company had purchased 208,600 shares for $3.4 million in connection with the
buyback program. On September 29, 1997, the Company increased its stock buyback
program authorization to 3.2 million shares. In connection with the increased
authorization, the Company purchased 1,936,098 shares of its common stock from
Warburg for $34.8 million.

   At September 27, 1997 there were 2,260,438 shares of common stock reserved
for issuance upon the exercise of stock options.

Note 8  Gain on Sale of Business Lines
-------------------------------------------------------------------------------
MidCoast Press, the Company's commercial web offset printer, was sold during the
first quarter of fiscal 1996 for $4.2 million, of which $3.5 million was in the
form of a non-recourse note. The note was structured to require interim interest
payments with a balloon payment to be paid in full on December 31, 2002. The
note will be paid off earlier if specific criteria are met regarding the cash
flows of the divested company. The note bears interest at the rate of 7% per
annum. The Company recognized a before tax gain of $2.7 million ($1.7 million
after tax or $.07 per share) in conjunction with the sale.

   During the first quarter of fiscal 1995, the Company sold its 50% ownership
in InfoBase Services and recognized a before tax gain on this transaction of
$2.2 million ($1.4 million after tax or $.06 per share).

Note 9  Postemployment Benefits
-------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112") in
accounting for short-term disability benefits and severance and related medical
benefits during the Company's first quarter of fiscal 1995. Under SFAS No. 112,
the Company accrues these benefits when it becomes probable that such benefits
will be paid and when sufficient information exists to make reasonable estimates
of the amounts to be paid. The Company previously recognized the cost of
providing these benefits on a cash basis. The cumulative effect of this change
in accounting for postemployment benefits resulted in a one-time after tax
charge of $1.5 million or $.07 per share.

Note 10  Savings Plans
-------------------------------------------------------------------------------
The Company has a savings plan for salaried employees which qualifies as a
profit sharing plan under the Internal Revenue Code of 1986, as amended, and
other non-qualified savings plans. All plans feature both employee and employer
matching contributions. The expense for matching contributions was $3.4 million,
$3.7 million and $3.8 million for fiscal 1997, 1996 and 1995, respectively.

Note 11  Stock Compensation Plans
-------------------------------------------------------------------------------
As of September 27, 1997 the Company has five stock based compensation plans,
three are fixed stock option plans (the 1986 Stock Option Plan, the 1988 Stock
Option Plan and the 1995 Non-Employee Directors' Stock Option Plan) and two are
nonvested stock plans (the 1986 Employee Restricted Stock Plan and the 1990
Non-Employee Directors' Restricted Stock Plan). The Company applies APB Opinion
No. 25 in accounting for its plans. Since all options are granted with an
exercise price equal to the fair market value on the date of the grant, no
compensation cost has been recognized for the fixed option stock grants. The
market value of shares at the date of the nonvested stock award in excess of
cash consideration received is charged to operations over the stock award's
restriction period. The compensation costs associated with the nonvested stock
plans are disclosed below.

   Pro forma information regarding net income and earnings per share is required
by SFAS No. 123 "Accounting for Stock-Based Compensation"("SFAS No. 123"), and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of the statement. The fair value of the
fixed stock options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997
and 1996, respectively:

                                                                         page.33
<PAGE>
 
ADVO, INC.





dividend yield of zero percent for both years; volatility factor of expected
market price of the Company's common stock of .32 and .36; risk-free interest
rates ranging from 4.8 to 7.3 percent and 5.4 to 6.3 percent; and the expected
life of an option ranging from 1.5 years to 7 years for both years. The weighted
average fair value of options granted in 1997 and 1996 was $4.61 for both years.

<TABLE> 
<CAPTION> 

                                                 September 27,   September 28,
(In thousands, except per share amounts)             1997            1996
-------------------------------------------------------------------------------
<S>                                              <C>             <C> 
Pro forma net income                                 $25,386       $  2,802
Pro forma net earnings per share                     $  1.04       $    .12
-------------------------------------------------------------------------------
</TABLE> 

For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the fixed stock options vesting period
ranging from 1 to 4 years. The pro forma information during the initial phase-in
period, as required by SFAS No. 123, was based on fixed stock options granted
during fiscal 1996 and fiscal 1997. Therefore, the pro forma information may not
be indicative of the effects of compensation cost on pro forma net income and
net earnings per share in future years since the options vest over several years
and new grants are possible.

Fixed Stock Option Plans  The 1986 Stock Option Plan and the 1988 Stock Option
Plan provide for the granting of non-qualified options for the purchase of up to
5,425,000 shares of common stock to key employees. The terms of the options may
not exceed ten years, and the option prices shall not be less than the fair
market value of the common stock on the date of grant. Options generally are
exercisable 25% each year, cumulatively, beginning one year from date of grant.
Certain grants also stipulate that the market price of the Company's common
stock must reach certain levels before the options become exercisable in
addition to the 25% per year time vesting provisions. These options will become
exercisable for 90 days at six years from the grant date if the market price
provision is not met.

   The Company amended these plans with respect to options granted under the
plans to make available reload options. The reload option feature allows for the
exercise of options in "stock-for-stock" transactions enabling the employee to
retain any further appreciation in the market value of shares traded in to pay
the exercise price of the options and to satisfy tax withholding requirements.
The expiration date of a reload option would be the same as that of the original
option unless otherwise determined by the Company's Compensation Committee or
Board of Directors. Reload options may be authorized with respect to options
that are themselves granted as reload options.

   In connection with the Special Dividend (see Note 7), the Company made
equitable adjustments to outstanding options. As a result, 2.1 million options
were repriced. The repriced options have retained their original vesting
schedules and expiration dates.

   The 1995 Non-Employee Directors' Stock Option Plan provides for the granting
of non-qualified options for the purchase of shares of common stock. The terms
of the options may not exceed ten years, and the option prices shall not be less
than the fair market value of the common stock on the date of grant. Options
generally are exercisable 25% each year, cumulatively, beginning one year from
date of grant.

   At September 27, 1997 and September 28, 1996 there were 588,769 and 413,709
options available for future grant under the fixed stock option plans,
respectively.

   The following tables summarize information about all of the Company's fixed
stock option plans:

<TABLE>     
<CAPTION> 
                                                             Weighted Average
                                              Shares          Exercise Price
------------------------------------------------------------------------------
<S>                                        <C>               <C>  
Outstanding at September 24, 1994           2,351,154           $ 14.703
Granted                                       632,096             18.071
Cancelled                                     (65,707)            18.189
Exercised                                    (212,335)            11.395
------------------------------------------------------------------------------
Outstanding at September 30, 1995           2,705,208             15.672
Granted                                     2,871,129              9.869
Cancelled                                  (2,296,127)            18.122
Exercised                                    (939,560)             7.514
------------------------------------------------------------------------------
Outstanding at September 28, 1996           2,340,650              9.425
Granted                                     1,222,227             13.665
Cancelled                                    (269,637)             9.619
Exercised                                  (1,032,802)             9.078
------------------------------------------------------------------------------
Outstanding at September 27, 1997           2,260,438            $11.853
------------------------------------------------------------------------------
</TABLE>      
                                    

                              Options Outstanding
<TABLE> 
<CAPTION> 
                                              Weighted-Average  
                          Outstanding as of      Remaining      Weighted-Average
Range of Exercise Prices  September 27, 1997  Contractual Life   Exercise Price
--------------------------------------------------------------------------------
<S>                       <C>                 <C>               <C>  
$ 5.000 - $ 7.625              84,202               5.5            $  6.937     
  8.000 -   8.625             486,536               4.7               8.285     
  9.100 -  12.250             575,279               6.6              11.735     
 12.625 -  12.875             545,809               2.3              12.847     
 13.500 -  14.125             456,800               9.3              14.094     
 16.437 -  19.250             111,812               8.1              17.677     
--------------------------------------------------------------------------------
                            2,260,438               5.7             $11.853     
--------------------------------------------------------------------------------
</TABLE> 

page.34
<PAGE>
 
ADVO, INC.





                              Options Exercisable

<TABLE> 
<CAPTION> 
                                        Exercisable as of    Weighted-Average
Range of Exercise Prices               September 27, 1997     Exercise Price
------------------------------------------------------------------------------
<S>                                    <C>                   <C> 
$ 5.000 - $ 7.625                          56,352               $  6.984
  8.000 -   8.625                          69,217                  8.355
  9.100 -  12.250                         127,422                 11.075
 12.625 -  12.875                              --                     --
 13.500 -  14.125                             800                 14.125
 16.437 -  19.250                           3,575                 17.944
------------------------------------------------------------------------------
                                          257,366               $  9.553
------------------------------------------------------------------------------
</TABLE> 
                           
Nonvested Stock Plans The 1986 Employee Restricted Stock Plan and 1990
Non-Employee Directors' Restricted Stock Plan provide for the granting of up to
2,592,500 shares of common stock to executives who, with certain exceptions, are
subject to specified periods of continuous employment (generally vesting
one-third per year over three years) and to directors. These shares are votable
by the holders, and the vesting period is determined by the Board of Directors
at the date of grant. The compensation cost charged against income over the
restriction period was $.3 million, $.6 million, and $1.3 million for the years
ended September 27, 1997, September 28, 1996 and September 30, 1995,
respectively. Unamortized deferred compensation was $.8 million at September 27,
1997. There were 143,588 and 144,255 shares available for future grant under
these plans at September 27, 1997 and September 28, 1996, respectively. The
weighted average grant price of shares granted during fiscal 1997 and fiscal
1995 was $18.431 and $18.238, respectively. There were no shares granted during
fiscal 1996.

   Certain participants in the 1986 Employee Restricted Stock Plan were given
the opportunity to reinvest the Special Dividend applicable to restricted shares
in the Company's common stock. Any such reinvestment will be distributed when
the restricted shares vest.

   Information with respect to the Company's nonvested stock plans is summarized
below:

<TABLE> 
<CAPTION> 
                                                                       Shares
------------------------------------------------------------------------------
<S>                                                                 <C> 
Outstanding at September 24, 1994                                   2,412,746
Granted                                                                10,500
------------------------------------------------------------------------------
Outstanding at September 30, 1995                                   2,423,246
Cancelled                                                              (5,001)
------------------------------------------------------------------------------
Outstanding at September 28, 1996                                   2,418,245
Granted                                                                31,000
Cancelled                                                                (333)
------------------------------------------------------------------------------
                                            
Outstanding at September 27, 1997                                   2,448,912
------------------------------------------------------------------------------
</TABLE> 

During fiscal 1997, 30,000 nonvested shares were awarded to an employee. These
shares take on the same characteristics as the shares in the 1986 Employee
Restricted Stock Plan.


Note 12  Nonrecurring Charges

In connection with the Special Dividend (see Note 7), the Company made equitable
adjustments to outstanding unexercised employee stock options. Generally, the
equitable adjustments were reductions in the exercise price of the outstanding
unexercised employee stock options equal to the $10 per share Special Dividend
payment. No modifications were made to any other terms of the options. This
repricing changed the intrinsic value of the outstanding options and resulted in
the Company recording $8.8 million of noncash compensation expense. Also
included as nonrecurring charges were $3.3 million in legal and various other
fees incurred as a result of the Company's exploration of strategic alternatives
to enhance shareholder value which resulted in the payment of the Special
Dividend.


Note 13  Restructure Reserve

In fiscal 1993, the Company recorded a $25.8 million charge for a plan of
restructuring. The plan included the shutdown/relocation of certain operating
facilities aimed at repositioning their location in more geographically
strategic areas, the reorganization and centralization of the Company's
operations and the discontinuance of certain unprofitable Micromarketing
initiatives.

   At September 27, 1997 the Company had remaining liabilities relating to its
plan of restructuring of $0.4 million, principally relating to obligations
existing under operating leases of exited business operations. These operating
leases provide for obligations extending through the year 2000. All significant
elements of the Company's plan of restructure were completed by the end of its
fiscal 1997 year.

   For fiscal 1997, 1996, and 1995, respectively, $1.6 million, $7.3 million and
$3.6 million were charged to the reserve for cash payments related to severance
costs and other termination based arrangements for exited activities and the
centralization of operations. For fiscal 1997, 1996, and 1995, $0.1 million,
$0.6 million and $3.6 million, respectively, were charged for cash payments
related to facility closure and downsizing costs and $0.1 million in fiscal 1995
was charged to the reserve for the write off of assets associated with exited
activities. For the three year period ending September 27, 1997, a total of 480
employees were terminated from all functions of the organization (representing
approximately 20% of the salaried workforce) under the restructuring plan.

                                                                         page.35
<PAGE>
 
ADVO, INC.






Note 14  Income Taxes

The components of the provision for income taxes on continuing operations are as
follows:

<TABLE> 
<CAPTION> 
                                Year ended        Year ended       Year ended
                               September 27,    September 28,    September 30,
(In thousands)                     1997             1996             1995
------------------------------------------------------------------------------
<S>                            <C>              <C>              <C> 
Federal:                                                                      
  Current                         $10,660           $5,494        $ 12,910    
  Deferred                          3,844              505           3,429    
------------------------------------------------------------------------------
  Total Federal                    14,504            5,999          16,339    
                                                                              
State:                                                                        
  Current                           1,696              742           2,454    
  Deferred                            718              488             803    
------------------------------------------------------------------------------
  Total State                       2,414            1,230           3,257    
------------------------------------------------------------------------------
  Total Provision                 $16,918           $7,229         $19,596    
------------------------------------------------------------------------------
</TABLE> 

The Company's effective income tax rate for continuing operations differed from
the Federal statutory rate for the following reasons:

<TABLE> 
<CAPTION> 
                                     Year ended     Year ended      Year ended
                                    September 27,  September 28,   September 30,
                                        1997           1996            1995
-------------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>  
Federal statutory rate                  35.0%         35.0%           35.0%
State income taxes,                                                 
  net of federal benefit                 3.6           4.3             4.1
Targeted jobs tax credit                  --            --             (.2)
Other                                     .1           (.3)            (.1)
-------------------------------------------------------------------------------
Effective income tax rate               38.7%         39.0%           38.8%
-------------------------------------------------------------------------------
</TABLE> 

Significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE> 
<CAPTION> 
                                                  September 27,   September 28,
(In thousands)                                        1997            1996
-------------------------------------------------------------------------------
<S>                                               <C>             <C> 
Deferred Tax Assets:                   
  Reserve for deferred compensation               $  5,455         $  5,762 
  Reserve for employee benefits                      4,123            3,610 
  Loss due to discontinued operations                   --            2,948 
  Other                                              5,567            4,262  
-------------------------------------------------------------------------------
   Total deferred tax assets                        15,145           16,582
-------------------------------------------------------------------------------
Deferred Tax Liabilities:              
  Tax over book depreciation           
  and amortization                                 (10,486)          (7,361)
-------------------------------------------------------------------------------
Net federal and state deferred assets             $  4,659         $  9,221
-------------------------------------------------------------------------------
</TABLE> 

Note 15  Commitments and Contingencies

ADVO leases property and equipment under noncancellable operating lease
agreements which expire at various dates through 2007. The leases generally
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased assets. Rental commitments at September 27, 1997 under
long term noncancellable operating leases are as follows:

<TABLE> 
<CAPTION> 
(In thousands)
-------------------------------------------------------------------------------
<S>                                                                    <C> 
Fiscal year:                                    
1998                                                                   $12,710
1999                                                                    10,394
2000                                                                     7,657
2001                                                                     6,300
2002                                                                     5,109
Thereafter                                                               9,183
------------------------------------------------------------------------------- 
Total minimum lease payments                                           $51,353
------------------------------------------------------------------------------- 
</TABLE> 

Certain of these leases contain renewal options and certain leases also provide
for cost escalation payments. Rental expense for the years ended September 27,
1997, September 28, 1996 and September 30, 1995 was approximately $17.1 million,
$20.6 million and $22.8 million, respectively.

   During fiscal 1996, the Company entered into a ten-year agreement with
Integrated System Solutions Corporation, now known as IBM Global Services, to
provide systems development and technical support to the Company. The contract
allows for cancellation after the completion of the third year, subject to
termination charges ranging between $3.1 million and $.5 million depending on
the year in which the cancellation becomes effective. Total base charges under
the term of the agreement since inception through the year 2006 would be $106.0
million. The agreement also provides for the Company to pay a cost of living
adjustment due to inflation increases beginning in fiscal 1997. Cost of living
adjustments for fiscal 1997 totaled approximately $.3 million. Future
commitments for the noncancellable portion of the agreement, excluding
termination fees and the cost of living adjustments are $14.9 million and $10.7
million for fiscal years 1998 and 1999, respectively.

   ADVO is party to various legal proceedings and claims related to its normal
business operations, including several suits in which it is a defendant. In the
opinion of management, the Company has substantial and meritorious defenses for
these claims and proceedings in which it is a defendant, and believes these
matters will be ultimately resolved without material adverse effect on the
consolidated financial position, results of operations and liquidity of the
Company.

   Outstanding commitments for capital expenditures at September 27, 1997
totaled $9.6 million.


Note 16  Related Party Transactions

The Company invests in money market mutual funds through an investment advisor,
Warburg, Pincus Counsellors, Inc. ("Counsellors"). The general partner of
Warburg, Pincus Capital Partners, L.P.("Warburg"), the Company's largest
shareholder at September 27, 1997, owns a majority interest in Counsellors.
Income earned on investments managed by Counsellors was $.5 million, $1.2
million and $2.8 million in

page.36
<PAGE>
 
ADVO, INC.





fiscal 1997, 1996 and 1995, respectively. At September 27, 1997 and September
28, 1996, $11.6 million and $5.4 million, respectively, was being managed by
Counsellors. Two Directors of the Company are officers of Warburg and another
Director is a Director of the various Counsellors managed mutual funds.

   In addition, the Company purchased 1.9 million shares of its common stock
from Warburg subsequent to year end. (See Note 7).


Note 17 Supplemental Cash Flow Information 

Cash paid for income taxes was $11.0 million, $3.2 million and $11.8 million in
fiscal 1997, 1996 and 1995, respectively. Cash paid for interest expense in
fiscal 1997 and 1996 was $14.4 and $7.2 million, respectively. No interest
expense payments were made in fiscal year 1995.

   Excluded from continuing investing activities was the effect of a certain
noncash activity in which the Company received a note for $3.5 million in
conjunction with the sale of a business line in fiscal 1996. (See Note 8.)


Note 18  Recent Accounting Pronouncements

In February of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The Statement
establishes standards for computing and presenting earnings per share ("EPS").
The statement simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings Per Share", and makes them comparable to international
EPS standards. The statement requires the presentation of basic and diluted EPS.
Basic EPS excludes common stock equivalents, such as stock options, and is
computed by dividing net earnings by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if common stock equivalents, such as stock options, were
exercised. The Company will adopt this statement in the first quarter of fiscal
1998 and expects that there will not be a material dilution to the Company's
earnings per share as a result of the adoption.

   In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for the reporting of comprehensive income and
its components in a full set of general-purpose financial statements. The
financial statements are required to include certain components of net income,
as well as, other transactions affecting stockholders' equity. This statement is
effective for fiscal years beginning after December 15, 1997 and will be adopted
by the Company in fiscal 1999.

   In June of 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and interim financial stockholders' reports. The
Statement requires the Company to report information by operating segment or in
general on the basis which it uses internally for evaluating performance. The
effective date of the Statement is for periods beginning after December 15,
1997. The Company will adopt this Statement in fiscal 1999.


Note 19  Quarterly Financial Data (Unaudited)

<TABLE> 
<CAPTION> 
(In millions, except per share data)

Fiscal year ended            First       Second      Third        Fourth
September 27, 1997          Quarter     Quarter     Quarter      Quarter
-------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>          <C> 
Revenues                     $255.1      $242.5      $258.2       $260.7
Gross profit                   62.8        58.2        69.3         68.8
Operating income               14.0         8.0        19.1         17.4
Net income                      6.2         2.6         9.4          8.6
Earnings per share              .25         .11         .38          .35
Common stock price          
  High                           14 1/4      14 5/8      16 13/16     19 7/16
  Low                            11          11 5/8      11 3/8       15 5/8
-------------------------------------------------------------------------------
</TABLE> 
                            
<TABLE> 
<CAPTION> 
Fiscal year ended              First       Second      Third        Fourth
September 28, 1996            Quarter     Quarter     Quarter      Quarter
------------------------------------------------------------------------------
<S>                           <C>         <C>         <C>          <C> 
Revenues                       $256.5      $232.0      $245.7       $252.0
Gross profit                     56.6        46.7        55.5         65.9
Operating income (loss) (1)       8.3       (10.8)       11.7         15.6
Net income (loss)                 6.0       (14.4)        4.4          7.1
Earnings (loss) per share         .25        (.64)        .18          .29
Common stock price (2)     
  High                             27 1/2      26 1/8      11 3/4       11 5/8
  Low                              22 3/4       9 1/4       9 1/8        9 1/8
------------------------------------------------------------------------------
</TABLE> 

(1)  Operating income for the second quarter of fiscal 1996 includes
     nonrecurring charges of $12.1 million. (See Note 12.)

(2)  The decrease in the market price during the second quarter of fiscal 1996
     was reflective of the Special Dividend. (See Note 7.)

                                                                         page.37
<PAGE>
 
ADVO, INC.






Report of Independent Auditors

To the Board of Directors and Stockholders of ADVO, Inc.

We have audited the accompanying consolidated balance sheets of ADVO, Inc. at
September 27, 1997 and September 28, 1996, and the related consolidated
statements of operations, cash flows, and changes in stockholders' equity
(deficiency) for each of the three years in the period ended September 27, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ADVO, Inc. at
September 27, 1997 and September 28, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 27, 1997 in conformity with generally accepted accounting principles.


/s/ Ernst & Young LLP


Hartford, Connecticut
October 21, 1997




Financial Responsibility

To the Stockholders of ADVO, Inc.

The management of ADVO, Inc. is responsible for the integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. These statements have been prepared in accordance with generally
accepted accounting principles and necessarily include amounts based on
judgements and estimates by management.

   ADVO maintains internal accounting control policies and related procedures
designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with management's authorization and
properly recorded, and that accounting records may be relied upon for the
preparation of reliable published annual and interim financial statements and
other financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgement
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls and policies and procedures.

   The Company's consolidated financial statements have been audited by
independent auditors who have expressed their opinion with respect to the
fairness of these statements.

   The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with ADVO's management, internal auditors and
independent auditors to review matters relating to the quality of financial
reporting and internal accounting controls. Both the internal auditors and the
independent auditors have unrestricted access to the Committee.


/s/ Robert Kamerschen

Robert Kamerschen
Chairman and Chief Executive Officer
and acting Chief Financial Officer


/s/ Robert S. Hirst

Robert S. Hirst
Vice President and Controller


October 21, 1997

page.38