CVS CORP, 424B1, 1998-05-22

CVS CORP
424B1, 1998-05-22
DRUG STORES AND PROPRIETARY STORES

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This Prospectus is being filed
pursuant to Rule 424(b)(1)
Registration Statement No. 333-52055
Registration Statement No. 333-53221

3,162,405 Shares

CVS

CVS Corporation

Common Stock
(par value $.01 per share)

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This Prospectus relates to an aggregate of up to 3,162,405
shares of Common Stock of the Company beneficially owned by the Selling
Stockholder identified under the heading "Selling Stockholder" that may be
delivered by the CVS Automatic Common Exchange Security Trust (the "Trust") to
holders of the Trust Automatic Common Exchange Securities of the Trust (the
"Automatic Common Exchange Securities") upon exchange of such securities on
May 15, 2001 (3,636,765 shares assuming that the Underwriters' exercise the
over-allotment option in full). The Company will receive no portion of the
proceeds of the sale of the Automatic Common Exchange Securities. The
Automatic Common Exchange Securities are being sold by the Trust in an
offering described in the attached prospectus of the Trust (the "Trust
Prospectus"). See "Trust Prospectus".

The Common Stock is currently traded on the New York Stock
Exchange under the symbol "CVS". On May 19, 1998, the last reported sale
price for the Common Stock on the New York Stock Exchange Composite Tape was
$69 1/4 per share. See "Price Range of Common Stock".

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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Goldman, Sachs & Co.
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The date of this Prospectus is May 20, 1998.

[Map of CVS store locations as of April 25, 1998]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK OR THE AUTOMATIC COMMON EXCHANGE SECURITIES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". SUCH
STABILIZING ACTIVITIES MIGHT MAINTAIN THE MARKET PRICE OF SUCH SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

CVS Corporation ("CVS" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
7th Floor, New York, New York 10048. Copies of such materials may be obtained
from the web site that the Commission maintains at http://www.sec.gov. In
addition, such material may also be inspected and copied at the offices of the
New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New
York 10005.

The Company has filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed with the Commission
(file No. 1-1011) pursuant to the Exchange Act are incorporated herein by
reference:

1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "Company Form 10-K");

2. The Company's Quarterly Report on Form 10-Q for the first
quarter ended March 28, 1998 (the "Company Form 10-Q");

3. The Company's Current Reports on Form 8-K filed on February
11, 1998, March 4, 1998, March 27, 1998, April 3, 1998 and May 8, 1998;

4. The description of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") set forth in the Company's
Registration Statement on Form 8-B filed on November 4, 1996; and

5. All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the
Shares.

The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such information (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed
to Attention: Nancy R. Christal, Vice President, Investor Relations, CVS
Corporation, 670 White Plains Road, Suite 210, Scarsdale, New York, 10583,
(800) 201-0938.

Any statement contained in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified shall not be
deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute part of this
Prospectus.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus contains and incorporates by reference certain
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include information concerning: future results of
operations, revenue, sales growth, dispensing of retail prescriptions, cost
savings and synergies of the Company following the merger with Revco D.S.,
Inc. ("Revco") and the merger with Arbor Drugs, Inc. ("Arbor"); the ability of
the Company to elevate the performance level of Revco stores following the
merger with Revco; information concerning the ability of the Company to
continue to achieve significant sales growth; the Company's belief that it can
continue to improve operating performance by relocating existing stores to
freestanding locations; the Company's belief that it can continue to reduce
selling, general and administrative expenses as a percentage of net sales; the
Company's belief that it can reduce inventory levels by the end of 1998 and
the ability of the Company and its key vendors and suppliers to successfully
manage issues presented by the Year 2000; as well as those statements preceded
by, followed by or that otherwise include the words: "believes", "expects",
"anticipates", "intends", "estimates" or other similar expressions. For those
statements, CVS claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The following important factors, in addition to those discussed elsewhere in
this document and in the documents which are incorporated by reference, could
affect the future results of the Company and could cause those results to
differ materially from those expressed in the forward-looking statements:
materially adverse changes in economic conditions generally or in the markets
served by the Company; future regulatory and legislative actions affecting the
Company and/or the chain drugstore industry generally (such as the current
federal and state industry-wide inquiry into billing practices for Medicaid
prescriptions); competition from other drugstore chains, from alternative
distribution channels such as supermarkets, membership clubs, other retailers
and mail order companies, and from third party plans; and the continued
efforts of health maintenance organizations, managed care organizations,
patient benefit management companies and other third party payors to reduce
prescription drug costs. The forward-looking statements referred to above are
also subject to uncertainties and assumptions relating to the operations and
results of operations of the Company following the merger with Revco and the
merger with Arbor, including: risks relating to the Company's ability to
combine the businesses of three major corporations and maintain current
operating performance levels during the integration period and the challenges
inherent in diverting the Company's management focus and resources from other
strategic opportunities and from operational matters for an extended period of
time; the Company's ability to continue to secure suitable new store locations
on favorable lease terms as it seeks to open new stores and relocate a portion
of its existing store base to freestanding locations; the Company's ability to
continue to purchase inventory on favorable terms; the Company's ability to
attract, hire and retain suitable pharmacists and management personnel;
relationships with suppliers; and the impact of inflation.

THE COMPANY

Except as otherwise specified herein, the financial results of
the Company set forth below do not include the results of operations of Arbor.
In addition, none of the information contained herein reflects the two-for-
one stock split of the Common Stock declared on May 13, 1998. See "Recent
Developments".

General

CVS is a leader in the chain drugstore industry in the United
States. As of March 31, 1998, after giving effect to the merger with Arbor
discussed below, the Company operated approximately 4,100 stores in 25 states
in the Northeast, Mid-Atlantic, Midwest and Southeast regions and in the
District of Columbia, making CVS one of the largest drugstore chains in the
nation in terms of store count. The combined Company is expected to have
revenues of approximately $15 billion in 1998. The Company's stores are well
positioned, operating in 49 of the top 100 drugstore markets in the country.
CVS commands the number one or two share position in approximately 80% of
these markets. CVS is also among the industry leaders in terms of store
productivity and operating profit margin.

A primary focus of the Company's operations is its pharmacy
business, which represented approximately 54% of total sales for the year. In
1997, the Company dispensed over 225 million prescriptions, making it the
largest drugstore chain in the United States in terms of prescriptions filled
and pharmacy sales. The Company believes that its pharmacy operations will
continue to represent a critical part of its business and strategy due to
favorable trends, including an aging American population, greater
responsibility being borne by Americans for their healthcare, an increasing
demand for retail formats that provide easy access and convenience, discovery
of new and better drug therapies, and the need for cost effective healthcare
solutions.

In addition to prescription drugs and services, the Company
offers a broad selection of general merchandise, presented in a well-organized
fashion, in stores that are designed to be warm, inviting and easy to shop.
Merchandise categories include, among other things, over-the-counter drugs,
greeting cards, film and photo-finishing services, beauty and cosmetics,
seasonal merchandise and convenience foods. The Company also offers over
1,300 products under the CVS private label brand, which accounted for
approximately 11% of the Company's front store sales in 1997. Total front
store sales, which are generally higher margin than pharmacy sales,
represented approximately 46% of total sales for the year.

On May 29, 1997, CVS merged with Revco in an exchange of stock
that was accounted for as a pooling of interests. The merger resulted in CVS
becoming one of the largest chain drugstore companies in the United States
based on store count. On March 31, 1998, CVS acquired Arbor in an exchange of
stock that will be accounted for as a pooling of interests (the "Merger with
Arbor"). Arbor stockholders received for each Arbor share 0.3182 shares of
Common Stock. Arbor is the leading drugstore chain in southeastern Michigan
in terms of store count and sales volume. The Merger with Arbor strengthened
CVS' position as one of the nation's leading chain drugstore companies by
bringing CVS into a high-growth, contiguous geographic market where CVS
previously had no presence.

The Company's principal executive offices are located at One
CVS Drive, Woonsocket, Rhode Island 02895, telephone (401) 765-1500.

Growth Strategies

The Company focuses on a number of initiatives as part of its
strategy to achieve continued growth and build shareholder value. These
initiatives are directed toward driving top-line revenue growth, improving
operating efficiencies and achieving appropriate returns on capital deployed,
and include the following:

Aggressive Store Development

To support growth in its existing stores, the Company has in
place an active remodeling and remerchandising program, which seeks to remodel
20% of the Company's existing stores each year and to remerchandise another
20% each year. In addition, as described more fully below, the Company is
actively seeking to relocate many of its strip shopping center locations to
freestanding sites. During 1997, the Company opened 287 new stores, including
116 relocations of existing stores, and in 1998 following the Merger with
Arbor, expects to open approximately 320 new stores, including approximately
150 relocations. In addition, over the longer term, the Company expects to
open 150 to 200 new stores in the Michigan market. During 1997, the Company
also began the process of converting all retained Revco stores into the CVS
store format. The conversion process consists of three elements: converting
the Revco point-of-sale and pharmacy computer systems to CVS' systems,
revising the Revco planograms to reflect the CVS merchandise mix and
remodeling the Revco stores to the "look and feel" of a CVS store. Both the
conversion of Revco's systems and the re-planograms have been completed, with
the exception of cosmetics, which will occur as the Revco stores are
remodeled. Approximately 900 Revco stores had been remodeled into the CVS
"look and feel" as of March 1998 and the Company expects to complete the Revco
store remodeling project by the end of November 1998.

The addition of new stores has played, and will continue to
play, a major role in the Company's continued growth. As new stores have been
opened, the Company has maintained its objective of securing strong positions
in each market that its stores serve. This provides the Company several
important advantages, including an ability to save on advertising and
distribution costs. It is also an important consideration for managed care
providers, who want to provide their members with convenient access to
pharmacy services. Management anticipates that most of the planned store
openings in 1998 will be based on CVS' 10,125 square foot freestanding
prototype, which includes a drive-through pharmacy. New sites will be selected
based on convenience, with an emphasis on freestanding locations at traffic
controlled intersections.

Management expects that relocations of existing in-line strip
shopping center stores to freestanding locations will account for
approximately 50% of store openings over the next several years.
Historically, as a result of their more convenient locations and larger size,
relocated stores have historically realized significant improvement in
customer count and revenues, driven largely by increased sales of higher margin
front store merchandise. Management expects this trend to continue; however,
there can be no assurance that similar improvements will be achieved in each
geographic market in which the Company operates. See "Cautionary Statement
Regarding Forwarding Looking Statements" above. Freestanding locations require
properties of approximately 1 1/4 acres to support parking for 40-60 cars. As
a result, site selection is also an important aspect of the Company's
relocation program.

Finally, the Company believes that achieving a critical mass in
terms of store count and locating stores in desirable geographic markets is
essential to competing effectively in the context of the current managed care
environment described more fully below. As a result, management believes that
the Company's store development program is an important element of its ability
to maintain its leadership position in the chain drugstore industry.

Integrated Health Care Provider

In 1997, pharmacy sales increased 23.6% to $6.9 billion,
representing approximately 54% of total sales for the year, compared to
pharmacy sales of $5.6 billion in 1996, representing approximately 51% of total
sales for such year. In 1997, CVS pharmacies filled an average of
approximately 1,200 prescriptions per store per week, which was significantly
higher than the average community pharmacy. For the reasons described above,
the Company believes that its pharmacy operations will continue to represent a
critical part of its business and strategy. See "--General" above.

CVS believes that the growth of its pharmacy business will
continue to be driven by the shift toward managed care plans as a means of
controlling healthcare costs. During fiscal 1997, approximately 80% of the
Company's pharmacy sales were attributable to payments by third party
providers under prescription drug plans, as compared to approximately 76% in
1996. The growth in managed care has substantially increased the use of
prescription drugs as managed care providers have (i) made the costs of
prescription drugs more affordable to a greater number of people and (ii)
supported prescription drug therapy as an alternative to more expensive forms
of treatment, such as surgery. In a typical third party payment plan, the
Company has a contract with a third party payor, such as an insurance company,
a prescription benefit management company, a governmental agency, a private
employer, a health maintenance organization or other managed care provider,
which agrees to pay for all or a portion of a customer's eligible prescription
purchases in exchange for reduced prescription rates. Although third party
payment plans provide a high volume of prescription drug sales, such sales
typically generate lower gross margins than other prescription drug sales due
to the cost containment efforts of these large third party payors and the
increasing competition among pharmacies for this business. During 1997, the
top 5 third party providers accounted for approximately 36% of CVS' pharmacy
sales. Any significant loss of third party provider business could have a
material adverse affect on the Company's business and results of operations.

CVS' experience in providing solutions to managed care
providers, and its existing store base which affords easy access and
convenience to consumers, are factors that should contribute to the Company's
continued ability to attract and maintain third party business. In addition,
the Company's Rx2000 pharmacy computer system facilitates the management of
third party healthcare plans and enables CVS to provide managed care providers
with a level of information which the Company believes is unmatched by
competitors. By analyzing this data, CVS and its managed care partners are
able to evaluate treatment outcomes with an eye toward improving care and
containing costs. The Company's emphasis on customer service extends from the
expert advice and service that individual customers receive from CVS
pharmacists to the managed care portion of the Company's business, where
Managed Care Service Teams are responsible for ensuring the high level of
service that CVS' managed care partners receive.

The Company's pharmacy business also continues to benefit from
an "independent file buy" program, in which CVS purchases prescription files
from one or more independent pharmacies. During 1997, CVS purchased 190
prescription files, each containing an average weekly prescription count of
nearly 500, from independent pharmacies. The Company believes that
independent file buys are productive investments. In many cases, the
independent pharmacist will move to CVS, thereby providing continuity in the
pharmacist-patient relationship.

CVS is committed to being part of an integrated healthcare
approach that brings together industry participants such as physicians,
pharmaceutical companies, managed care providers and pharmacies in order to
provide patients with the best possible care at the lowest cost. The
Company's efforts to date have concentrated primarily on two main areas: (i)
the operation and expansion of PharmaCare, the Company's prescription benefit
management subsidiary, and (ii) the creation of strategic alliances with
healthcare partners.

PharmaCare was established in 1994 and offers managed care
providers a full range of prescription benefits management services, including
plan design and administration, formulary management, claims processing and
generic substitution, with a focus on providing integrated solutions to the
delivery of healthcare. PharmaCare has grown considerably and, at the end of
1997, provided managed healthcare services for approximately 5 million people
through a preferred national pharmacy network of approximately 40,000
pharmacies. In December 1997, PharmaCare merged with Revco's prescription
benefit management subsidiary, RxConnections, and assumed Revco's mail order
pharmacy operations, thereby strengthening and broadening PharmaCare's service
network.

One of the features that sets PharmaCare apart from other
prescription benefit management providers is its proprietary Clinical
Information Management System ("CIMS"). CIMS enables CVS pharmacists to work
more efficiently with physicians by facilitating communication and
information-sharing, with the objective of improving patient care and reducing
costs. Approximately 20,000 physicians are currently using CIMS, which began
with only 500 physicians in 1994. In addition, PharmaCare plays an increasing
role in healthcare management through integrated partnerships with several
large managed care providers.

CVS also pursues strategic alliances with healthcare partners
to develop products and services that create new opportunities for revenue and
profit growth. For example, CVS has entered into a joint venture called CVS
Health Connection, with Pfizer Health Solutions, Inc., a subsidiary of Pfizer,
Inc. Through this partnership, community health screening centers are
established in CVS store settings. The first CVS Health Connection center
opened in September 1997 in a New Bedford, Massachusetts CVS store. Harvard
Pilgrim Healthcare, one of the nation's largest and most progressive HMOs, has
contracted to offer health screening services to its members through this
center.

Effective Execution at Retail

The Company's front store merchandising strategies are designed
to improve customer satisfaction, selection and convenience, and establish CVS
stores as a destination for a growing number of front store merchandise
categories such as greeting cards, film and photo-finishing services, beauty
and cosmetics, seasonal merchandise, convenience foods and over-the-counter
drugs. CVS' 10,125 square-foot free-

standing prototype stores have helped enable the Company to improve store
layout, convenience and selection through the addition of product categories
and the enhancement of assortments within product categories. In addition,
over the past several years, the Company has made significant investments in
systems and technology to respond more effectively to customer needs, manage
inventory and control costs.

Through its point-of-sale scanning technology, CVS has
developed an advanced retail data base that has enabled the Company to adopt a
category management approach to front-end merchandising. Through category
management, CVS works in partnership with major suppliers to refine and tailor
assortments within product categories to the specific purchasing preferences
of customers within each market. Category management enables the Company to
analyze the impact of pricing, promotion and mix on a category's sales and
profitability and develop tactical merchandising plans for each category by
market.

The Company believes that effective category management
increases customer satisfaction and that its category management approach has
been a primary factor in its front store comparable sales gains and improved
gross margins. In addition, the Company believes that its ability to satisfy
customers through category management will be enhanced through its
implementation of supply chain management. Supply chain management is
designed to more effectively link CVS' stores and distribution centers with
suppliers to speed the delivery of merchandise to CVS stores in a manner that
both reduces out-of-stock positions and lowers CVS' investment in inventory.
The Company expects to see tangible benefits of its supply chain management
project beginning in 1998.

CVS strives to provide the highest levels of service to its
customers and partners. As a result, the Company devotes considerable time
and attention to people, systems and high service standards. The Company
places an emphasis on attracting and training friendly and helpful associates
to work both in CVS stores and throughout the CVS organization. Each CVS
store receives a formal customer service evaluation twice per year, based on a
mystery shopper program, customer letters and calls and market research. The
priority that CVS places on customer service extends into the managed care
portion of its business as well. In every market, a Managed Care Service Team
is responsible for ensuring that managed care partners are receiving high
levels of service. CVS pharmacists consistently rank at the top of the
industry on measurements of trust, relationship-building and accessibility.
This high level of service and expertise has played a key role in enabling the
growth of CVS' pharmacy operations.

Expected Benefits of the Mergers

The chain drugstore industry has recently undergone rapid
consolidation. In this environment, CVS management believes that achieving a
critical mass of stores in appropriate geographic markets is essential to
competing effectively in the chain drugstore industry as well as with
alternative distribution channels.

Revco. The integration of Revco has proceeded according to
management's expectations. CVS achieved the anticipated costs savings of $40
million in 1997 and management believes it is on track to achieve annual cost
savings of $100 million, beginning in 1998. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Revco Integration
Update".

Arbor. The Merger with Arbor presented an opportunity to
acquire a high-quality company in an industry where there is a diminishing
number of suitable acquisition candidates.

Importantly, the Merger with Arbor met each of CVS' three
criteria for strategic acquisitions: (i) acquisitions should be accretive to
earnings before one-time merger-related charges; (ii) acquisitions should
enable CVS to achieve a leadership position in new markets; and (iii) there
should exist upside potential to improve the operations and profitability of
an acquired business.

CVS expects that the Merger with Arbor will be accretive to
earnings (before one-time merger-related charges) in the first full year of
combined operations. CVS expects to achieve cost savings from the combined
operations of about $30 million annually, principally through the closing of
Arbor's headquarters, the achievement of economies of scale in advertising,
distribution and other operational areas, and the spreading of its investments
in information technology over a broader store base. See "Cautionary Statement
Regarding Forward-Looking Statements".

The Merger with Arbor also provided CVS with a leading presence
in the Detroit metropolitan area, the nation's fourth largest drug retail
market, where CVS previously had no presence and is expected to help position
the Company to sustain long-term growth.

CVS management also believes that upside potential exists in
the ability for each organization to learn from applying the strengths of the
other. For example, CVS believes that CVS' expertise in cosmetics and the
depth of CVS' private label can be applied to Arbor stores, and that Arbor's
expertise in photo-finishing and in seasonal and general merchandise can be
applied to CVS stores.

Both CVS and Arbor have similar business philosophies focusing
on high-quality real estate, strong personnel and taking care of the customer.
Management believes that the compatibility between the parties in
philosophies, culture, store size and format and merchandise strategy should
facilitate a relatively smooth integration of the companies.

RECENT DEVELOPMENTS

On May 13, 1998, the Board of Directors of CVS declared a
two-for-one stock split (the "Stock Split") of the Common Stock distributable
on June 15, 1998 to its stockholders of record on May 25, 1998. The Board of
Directors also increased the dividend rate on the Common Stock after the Stock
Split. In that regard, the Board declared a quarterly cash dividend of
$0.0575 per share, payable on August 1, 1998 to stockholders of record on July
23, 1998 ($0.23 per share on an annual post-split basis).

USE OF PROCEEDS

CVS will not receive any proceeds from the sale of the
Automatic Common Exchange Securities. All of the shares of Common Stock to be
delivered upon exchange of the Automatic Common Exchange Securities are
beneficially owned by the Selling Stockholder.

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the NYSE under the symbol "CVS".
The table below sets forth, for the calendar quarters indicated, the reported
high and low sale prices of the Common Stock as reported on the NYSE Composite
Transaction Tape and the cash dividends declared by the Company per share of
Common Stock. In October 1996, the Company distributed 100% of the common
stock of Footstar, Inc. ("Footstar"), formerly a wholly owned subsidiary of
CVS, in the form of a stock dividend, to its stockholders. The stock prices
shown in the table are actual trading prices and do not reflect adjustments
for the when-issued price of Footstar prior to October 16, 1996 (the date on
which Footstar common stock commenced trading regular way on the NYSE). See
"Recent Developments".

<TABLE>
<CAPTION>
Market Price Cash
----------------------- Dividends
High Low Declared
---- --- ---------
<S> <C> <C> <C>
1996
First Quarter..................................... $36 3/8 $27 1/4 $0.11
Second Quarter.................................... 44 1/2 35 1/4 0.11
Third Quarter..................................... 46 36 5/8 0.11
Fourth Quarter.................................... 44 3/4 36 3/8 0.11
1997
First Quarter..................................... $48 $39 $0.11
Second Quarter.................................... 53 3/4 44 1/4 0.11
Third Quarter..................................... 60 50 7/8 0.11
Fourth Quarter.................................... 70 54 5/8 0.11
1998
First Quarter..................................... 77 13/16 60 7/8 $0.11
Second Quarter (through May 19, 1998)............. 80 66 1/8 0.11
</TABLE>

On May 19, 1998, the last reported sale price of the Common
Stock was $69 1/4. As of March 28, 1998, there were approximately 9,900
holders of record of the Common Stock.

DIVIDEND POLICY

Future dividends on the Common Stock will depend upon the
Company's results of operations, financial condition, capital expenditure
program and other factors, some of which are beyond the Company's control.
The Company's Board of Directors recently increased the dividend rate on the
Common Stock. There can be no assurance, however, as to whether or when the
Company's Board of Directors will again change the current policy regarding
dividends. See "Recent Developments" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(In millions, except per share amounts and operating data)

The following table sets forth selected consolidated financial
and operating data for CVS and its subsidiaries. The audited consolidated
financial statements of the Company for the three years ended December 31,
1997 have been audited by KPMG Peat Marwick LLP ("KPMG"), independent public
accountants, whose audit report is also incorporated herein by reference. The
selected unaudited data presented below for the three months ended March 28,
1998 and March 29, 1997, and as of March 28, 1998, are derived from the
unaudited consolidated condensed financial statements of the Company, to which
KPMG Peat Marwick LLP has reported that it has applied limited procedures in
accordance with professional standards for a review of such information. The
unaudited consolidated condensed financial statements as of March 28, 1998,
and for the three months ended March 28, 1998 and March 29, 1997, and the
review report thereon, are incorporated by reference in this Prospectus. The
selected historical consolidated financial and operating data should be read
in conjunction with the consolidated financial statements and related notes
thereto incorporated herein by reference to the Company Form 10-K and the
consolidated condensed financial statements and notes thereto incorporated
herein by reference to the Company Form 10-Q and are not necessarily
indicative of future results. The following selected historical consolidated
financial and operating data does not reflect the Merger with Arbor.

<TABLE>
<CAPTION>
Fiscal Year ended December 31, Three Months ended
--------------------------------------------- ----------------------------
March 29, March 28,
1995 1996 1997 1997 1998
--------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
(unaudited)
Results of Operations: ---------------------------
Net sales........................ $9,763.4 $10,944.8 $12,738.2 $3,160.8 $3,333.6
Gross margin..................... 2,746.9 3,052.1 3,439.7 900.1 931.8
Comparable gross margin(1)....... 2,746.9 3,052.1 3,514.7 900.1 931.8
Operating profit................. 230.7 540.8 199.8 161.1 221.6
Comparable operating
profit(2)(4)................... 445.7 553.6 717.5 192.1 221.6
Earnings from continuing
operations before
extraordinary item............. 57.8 340.8 37.3 82.6 121.3
Comparable earnings from
continuing operations
before extraordinary
item(3)(4)..................... 184.7 275.2 380.1 101.7 121.3
Net earnings (loss).............. (572.8) 176.6 37.7 82.7 121.3
Net earnings (loss) available
to common shareholders......... (589.8) 162.1 24.0 79.2 117.9
Dividends declared............... 184.3 68.6 82.2 11.7 19.4

Per Common Share:
Earnings from continuing
operations before
extraordinary item:
Basic....................... $0.25 $1.97 $0.14 $0.48 $0.68
Diluted..................... 0.25 1.92 0.14 0.47 0.67
Comparable earnings from
continuing operations
before extraordinary
item:(3)(4)
Basic....................... 1.02 1.58 2.16 0.59 0.68
Diluted..................... 1.02 1.55 2.12 0.58 0.67
Net earnings (loss):
Basic....................... (3.60) 0.98 0.14 0.48 0.68
Diluted..................... (3.59) 0.98 0.14 0.47 0.67
Dividends........................ 1.52 0.44 0.44 0.11 0.11
Percentage of Net Sales:
Gross margin..................... 28.1% 27.9% 27.0% 28.5% 28.0%
Comparable gross margin(1)....... 28.1 27.9 27.6 28.5 28.0
Operating profit................. 2.4 4.9 1.6 5.1 6.6
Comparable operating
profit(2)(4)................... 4.6 5.1 5.6 6.1 6.6
Earnings from continuing
operations before
extraordinary item............. 0.6 3.1 0.3 2.6 3.6
Comparable earnings from
continuing operations
before extraordinary
item(3)(4)..................... 1.9 2.5 3.0 3.2 3.6
Net earnings (loss).............. (5.9) 1.6 0.3 2.6 3.6
Balance Sheet Data:
Net working capital.............. $1,317.7 $1,406.1 $830.0 $1,525.8 $930.8
Total assets..................... 6,335.6 5,693.7 5,636.9 5,632.4 5,794.6
Total long-term debt............. 1,027.6 1,184.3 272.6 1,177.5 272.6
Total shareholders' equity.. 2,392.8 2,196.4 2,361.4 2,291.2 2,480.1
Operating Data:
Number of stores (at last period
end)........................ 3,520 4,014 3,888 4,008 3,856
Same store sales increase(5) 8.8% 8.7% 9.8% 13.1% 7.3%
Pharmacy same store sales
increase(5)................. 13.9% 13.3% 16.7% 18.4% 14.4%
</TABLE>

- ----------

(1) Comparable gross margin excludes the pre-tax effect of the $75.0 million
($49.9 million after-tax) non- recurring charge in fiscal 1997 related to
the markdown of non-compatible Revco merchandise (the "Revco Inventory
Markdown").

(2) Comparable operating profit excludes the pre-tax effect of the following
non-recurring charges: (i) in fiscal 1997, the $411.7 million ($273.7
million after-tax) CVS/Revco Restructuring Charge (as defined below) related
to the merger with Revco, the Revco Inventory Markdown discussed in Note (1)
above, and $31.0 million ($19.1 million after-tax) related to the
restructuring of Big B, Inc. (the "Big B Restructuring Charge"), (ii) in
fiscal 1996, $12.8 million ($6.5 million after-tax) related to the failed
merger of Rite Aid Corporation and Revco and (iii) in fiscal 1995, $165.5
million ($97.7 million after-tax) related to the CVS Strategic Restructuring
Program and the early adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and $49.5 million ($29.1
million after-tax) related to the Company changing its policy from
capitalizing internally developed software cost to expensing the costs as
incurred, outsourcing certain technology functions and retaining certain
employees until their respective job functions were transitioned. See
"--Management's Discussion and Analysis of Financial Condition and Results
of Operations".

(3) Comparable earnings from continuing operations before extraordinary item
and comparable earnings per common share from continuing operations before
extraordinary item exclude the after-tax effect of the charges discussed in
Note (1) and Note (2) above and the $121.4 million ($72.1 million after-tax)
gain on sale of securities in fiscal 1996.

(4) For the three months ended March 29, 1997, comparable operating profit
excludes the pre-tax effect of the Big B Restructuring Charge discussed in
Note 2 above and comparable earnings from continuing operations before
extraordinary item and comparable earnings per common share from continuing
operations before extraordinary item exclude the after-tax effect of the
Big B Restructuring Charge.

(5) Same store sales data is calculated based on the change in sales
commencing after a new store has been opened twelve months. The first
twelve months a store is open are not included in the same store
calculation. Relocations are included in same store sales. The increase
in same store sales for 1995 excludes the impact of Revco sales.

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

Except where otherwise specified, the following discussion
reflects the Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company Form 10-K and the Company Form
10-Q. As a result, the following discussion does not reflect the results of
operations of Arbor except as otherwise specified herein. In addition, all
references to the Notes to the consolidated financial statements refer to the
Company's consolidated financial statements and related notes thereto
incorporated herein by reference to the Company Form 10-K and the consolidated
condensed financial statements and notes thereto incorporated herein by
reference to the Company 10-Q.

Merger with Arbor

The Merger with Arbor established CVS as the nation's top chain
drug retailer based on store count and prescriptions dispensed. The combined
company is expected to have revenues of approximately $15 billion in 1998 and
approximately 4,100 stores in 25 states and the District of Columbia, and is
expected to dispense approximately 12% of the retail prescriptions in the
United States. CVS acquired Arbor in an exchange of stock that will be
accounted for as a pooling of interests transaction, tax free to Arbor
shareholders. See "The Company--General".

In the second quarter of 1998, the Company expects to record a
non-recurring after-tax charge of approximately $114.0 million in connection
with the Merger with Arbor.

Merger with Revco

On May 29, 1997, CVS completed a merger with Revco, pursuant
to which approximately 60.3 million shares of CVS Common Stock were issued in
exchange for all of the outstanding common stock of Revco. Each outstanding
share of Revco common stock was exchanged for 0.8842 of a share of CVS Common
Stock. In addition, outstanding Revco employee stock options were converted
at the same exchange ratio into options to purchase approximately 3.3 million
shares of CVS Common Stock.

Subsequent to the merger with Revco, and pursuant to a consent
decree with the Federal Trade Commission entered into in connection with the
merger with Revco, the Company divested 120 Revco stores, primarily in the
Richmond and Tidewater area of Virginia.

Accounting Treatment For the Merger with Revco

The merger with Revco, which constituted a tax-free
reorganization, has been accounted for as a pooling of interests under
Accounting Principles Board ("APB") Opinion No. 16, "Accounting For Business
Combinations". Accordingly, all prior period financial statements presented
have been restated to include the combined results of operations, financial
position and cash flows of Revco as if it had always been part of CVS.

Prior to the merger with Revco, Revco's fiscal year ended on
the Saturday closest to May 31. In recording the business combination, Revco's
consolidated financial statements for the fiscal years ended June 1, 1996 and
June 3, 1995 have been restated to reflect a December 31 year-end, to conform
with CVS' fiscal year-end.

Revco's cost of sales and inventories have been restated from
the last-in, first-out method to the first-in, first-out method in order to
conform to CVS' accounting method for inventories. The impact of the
restatement was to increase earnings from continuing operations by $13.5
million in 1996 and $11.9 million in 1995.

There were no material transactions between CVS and Revco prior
to the merger with Revco. Certain reclassifications have been made to Revco's
historical consolidated financial statements to conform to CVS' presentation.

In accordance with Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)", the Company recorded a charge to operating expenses of $411.7
million in the second quarter of 1997 for direct and other merger-related
costs pertaining to the merger transaction and certain restructuring
activities (the "CVS/Revco Restructuring Charge").

Following is a summary of the significant components of the
CVS/Revco Restructuring Charge:

CVS/Revco
Restructuring Utilized Balance at
Charge in 1997 12/31/97
------ ------- --------
(in millions)
Merger transaction costs. $ 35.0 $ 32.1 $ 2.9
Restructuring costs:
Employee severance.... 89.8 37.4 52.4
Exit costs............ 286.9 126.1 160.8
------ ------ ------
$411.7 $195.6 $216.1
====== ====== ======

Merger transaction costs related to the merger with Revco
primarily include fees for investment bankers, attorneys, accountants,
financial printers and other related charges. Restructuring activities
primarily relate to the consolidation of administrative functions. These
actions resulted in the reduction of approximately 1,000 employees, primarily
in Revco's Twinsburg, Ohio headquarters, and will include the consolidation and
closure of certain facilities. Exit costs primarily relate to activities such
as the cancellation of lease agreements, closing of certain facilities and the
write-down of unutilized fixed assets.

Asset write-offs included in the above charge totaled $53.7
million. The balance of the pre-tax charge, $358.0 million, will require cash
outlays of which $164.8 million had been incurred as of December 31, 1997.
The remaining balance, $193.2 million, which primarily includes
non-cancellable operating lease commitments and severance, is expected to be
incurred in 1998 and beyond.

The Company also recorded a $75 million charge to cost of goods
sold in the second quarter of 1997 to reflect markdowns on non-compatible
Revco merchandise.

See Note 1 to the consolidated financial statements for further
information about the merger with Revco.

Revco Integration Update

CVS is pleased to report that the integration of Revco is
proceeding according to expectations. Specifically:

o CVS has completed the conversion of all of Revco's back-end systems to
CVS' back-end systems, enabling all merchandising and purchasing
decisions to be made from CVS' headquarters.

o CVS has completed the conversion of all of Revco's store systems, both
point-of-sale and pharmacy, to CVS' store systems.

o CVS has remodeled approximately 700 Revco stores to "look and feel" like
a CVS store. The Company expects to have the remaining Revco stores
remodeled before the end of 1998.

o With the exception of cosmetics, CVS has converted the inventory in all
Revco stores to the CVS merchandise mix. The Company expects to
complete the conversion of cosmetics in the remodeled Revco stores
during the first half of 1998, following the receipt of tailored
cosmetics fixtures from vendors. The Company expects to complete the
remaining Revco stores as they are remodeled during 1998.

o The former Revco headquarters in Twinsburg, Ohio has been closed.

o CVS achieved the anticipated costs savings of $40 million in 1997 and
believes it is on track to achieve annual cost savings of $100 million,
beginning in 1998. The achievement of future costs savings is subject
to the uncertainties discussed in the "Cautionary Statement Regarding
Forward Looking Statements" section above.

Acquisition of Big B, Inc.

In November 1996, the Company completed a cash tender offer
(the "Offer") for the common stock of Big B, Inc. ("Big B") resulting in the
Company owning approximately 85% of Big B's common stock. In December 1996,
the Company completed a second step acquisition in which all of the remaining
Big B common stock was acquired at the same cash price paid in the Offer. The
aggregate transaction value, including the assumption of $49.3 million of Big
B debt, was $423.2 million.

The acquisition of Big B was accounted for as a purchase
business combination under APB Opinion No. 16. The purchase price was
allocated to assets acquired and liabilities assumed based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase
price over net assets acquired ("Goodwill") of approximately $249 million,
which is being amortized on a straight-line basis over 40 years. Big B's
results of operations have been consolidated with the Company's results of
operations beginning November 16, 1996.

See Note 5 to the consolidated financial statements for further
information about the Big B acquisition.

CVS Strategic Restructuring Program

In November 1997, the Company completed the final phase of its
comprehensive strategic restructuring plan (the "CVS Strategic Restructuring
Program"), first announced in October 1995 and subsequently refined in May
1996 and June 1997. The restructuring plan included, among other things:

o The sale of four operating businesses (completed during 1995 and 1996).

o The spin-off of Footstar, Inc. ("Footstar") (completed in October 1996).

o The initial public offering of 67.5% of the shares of common stock of
Linens 'n Things, Inc. (completed in December 1996).

o The sale of Bob's Stores (completed in November 1997).

o The elimination of certain corporate overhead costs (completed during
1995 and 1996).

In June 1997, the Company sold its remaining 32.5% ownership
interest in Linens 'n Things, Inc.

The CVS Strategic Restructuring Program was completed without
significant changes to the plan approved by the Board of Directors. As part
of completing this program, the Company recorded, as a component of
discontinued operations, a pre-tax charge of approximately $35 million during
the second quarter of 1997 to finalize certain liabilities accrued for in the
1996 Restructuring Charge (as defined below).

See Note 3 to the consolidated financial statements for further
information about the CVS Strategic Restructuring Program.

Results of Operations

The following discussion should be read in conjunction with the
Company's consolidated financial statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997
which are incorporated herein by reference to the Company Form 10-K and the
consolidated condensed financial statements and notes thereto incorporated
herein by reference to the Company Form 10-Q.

As discussed above, the merger with Revco has been accounted
for as a pooling of interests under APB Opinion No. 16. Accordingly, all
prior period financial statements presented have been restated to include the
combined results of operations, financial position and cash flows of Revco as
if it had always been part of CVS.

The results of operations of the Company's former footwear,
apparel and toys and home furnishings segments have been classified as
discontinued operations in the accompanying consolidated condensed statements
of operations for all periods presented. See " --CVS Strategic Restructuring
Program" above and Note 3 to the consolidated financial statements for further
information. The following discussion, therefore, focuses primarily on
continuing operations.

Three Months Ended March 28, 1998 versus Three Months Ended March 29, 1997

Net sales for the first quarter of 1998 increased $172.8
million or 5.5% to $3.3 billion, compared to net sales of $3.2 billion in the
first quarter of 1997. Same store sales, consisting of sales from stores that
have been open for more than one year, rose 7.3%, with pharmacy same store
sales increasing 14.4%. Pharmacy sales were 57% of total sales in the first
quarter of 1998, compared to 54% of total sales in the first quarter of 1997.
Third party prescription sales were 82% of pharmacy sales in the first quarter
of 1998, compared to 79% of pharmacy sales in the first quarter of 1997. Such
increases in net sales and same store sales for the first quarter of 1998
occurred despite the negative impact of the shift in the Easter selling season
from the first quarter in 1997 to the second quarter in 1998. In addition,
net sales were further negatively impacted by a reduction in total store count
from 4,008 at March 29, 1997 to 3,856 at March 28, 1998 which resulted
primarily from the divestiture of 120 stores pursuant to a consent decree with
the Federal Trade Commission entered into in connection with the merger of CVS
and Revco.

Gross margin for the first quarter of 1998 increased $31.7
million or 3.5% to $931.8 million, compared to $900.1 million in the first
quarter of 1997. Gross margin as a percentage of net sales for the first
quarter of 1998 was 28.0%, compared to 28.5% of net sales in the first quarter
of 1997. The decline in gross margin as a percentage of sales in 1998 was
primarily due to the continued increase in lower gross margin third party
prescription sales and the increase in pharmacy sales as a percentage of total
sales.

In recent years, the Company has experienced a reduction in
pharmacy gross margin due to the efforts of managed care organizations and
other third party payors to reduce prescription drug costs. To address this
trend, in certain circumstances, the Company has declined to participate in
certain third party programs that failed to satisfy minimum profitability
standards. In the event this trend continues and the Company decides to
decline participation in additional third party programs and/or terminate
programs that fall below minimum profitability standards, the Company may be
unable to sustain its current rate of sales growth.

Total operating expenses for the first quarter of 1998 were
$710.2 million or 21.3% of net sales, compared to $739.0 million or 23.4% of
net sales in the first quarter of 1997. Excluding the $31.0 million charge
recorded during the first quarter of 1997 for certain non-capitalizable costs
associated with the restructuring of Big B Inc. (the "Big B Restructuring
Charge"), comparable operating expenses were $708.0 million or 22.4% of net
sales in the first quarter of 1997. The improvement in operating expenses as a
percentage of net sales was primarily due to the benefits derived from: (i)
sales in the Company's existing store base growing at a faster rate than
operating costs, (ii) the consolidation of CVS' and Revco's administrative
functions, (iii) store operating improvements and (iv) key technology
investments such as the Company's Rx2000 Pharmacy System, CVS Rapid Refill
System, Pharmacy Data Warehouse, Point-of-Sale-System, Retail Data Warehouse and
Field Management System.

Operating profit for the first quarter of 1998 increased $60.5
million to $221.6 million, compared to $161.1 million in the first quarter of
1997. Excluding the Big B Restructuring Charge in 1997, comparable operating
profit was $192.1 million, in the first quarter of 1997. Comparable operating
profit as a percentage of net sales was 6.6% in the first quarter of 1998,
compared to 6.1% in the first quarter of 1997.

Interest expense, net for the first quarter of 1998 decreased
$1.6 million to $11.3 million, compared to $12.9 million in the first quarter
of 1997. Interest expense for the first quarter of 1998 decreased $6.4 million
to $12.7 million, compared to $19.1 million in the first quarter of 1997,
primarily due to reduced borrowing levels and lower weighted average borrowing
rates. Interest income for the first quarter of 1998 decreased $4.8 million
to $1.4 million, compared to $6.2 million in the first quarter of 1997.
Interest income in the first quarter of 1997 included interest realized on
notes receivable that were received as a portion of the proceeds from the sale
of certain operating businesses. These notes were sold during 1997.

Net earnings for the first quarter of 1998 increased $38.6
million to $121.3 million for $0.67 per diluted share, compared to $82.7
million or $0.47 per diluted share in the first quarter of 1997. Excluding
the Big B Restructuring Charge in 1997, comparable net earnings were $101.8
million or $0.58 per diluted share in the first quarter of 1997.

1997 versus 1996

Net sales for 1997 increased $1.8 billion or 16.4% to $12.7
billion, compared to $10.9 billion in 1996. Same store sales rose 9.8%, with
pharmacy same store sales increasing 16.7%. Pharmacy sales were 54% of total
sales in 1997, compared to 51% of total sales in 1996.

The growth in front store sales was primarily driven by
increases in categories such as greeting cards, film and photofinishing,
beauty and cosmetics, convenience foods, private label and seasonal
merchandise. Growth in pharmacy sales was driven primarily by (i) increased
penetration into managed care markets, (ii) the purchase of prescription files
from independent pharmacies and (iii) favorable trends, including an aging
American population, greater responsibility being borne by Americans for their
healthcare, an increasing demand for retail formats that provide easy access
and convenience, discovery of new and better drug therapies, and the need for
cost effective healthcare solutions (collectively, the "Pharmacy Sales
Factors"). Both front store and pharmacy sales were positively impacted by the
Big B acquisition effective November 16, 1996. Excluding the positive impact
of the Big B acquisition, net sales increased 11.1% in 1997, compared to 1996.

Gross margin for 1997 increased $387.6 million or 12.7% to $3.4
billion, compared to $3.1 billion in 1996. During the second quarter of 1997,
the Company recorded a charge of $75.0 million to cost of goods sold to
reflect markdowns on non-compatible Revco merchandise (the "Revco Inventory
Markdown"). Excluding the effect of the Revco Inventory Markdown, gross
margin increased $462.6 million or 15.2% to $3.5 billion.

Gross margin as a percentage of net sales for 1997 was 27.0%,
compared to 27.9% of net sales in 1996. Excluding the effect of the Revco
Inventory Markdown, gross margin as a percentage of net sales was 27.6% for
1997. The decline in comparable gross margin as a percentage of net sales was
primarily due to the continued increase in lower gross margin third party
prescription sales and the increase in pharmacy sales as a percentage of total
sales (collectively, the "Pharmacy Gross Margin Factors").

Total operating expenses for 1997 were $3.2 billion or 25.4% of
net sales, compared to $2.5 billion or 22.9% of net sales in 1996. In order
to properly evaluate the Company's total operating expenses in these periods,
it is important to note the following non-recurring charges:

o During the second quarter of 1997, the Company recorded the CVS/Revco
Restructuring Charge. For further information about this charge, see
"--Accounting Treatment For the Merger with Revco" above.

o During the first quarter of 1997, the Company recorded the $31.0 million
Big B Restructuring Charge. The significant components of this charge
included: $5.3 million for store, distribution and system conversion
costs, $18.7 million for store closing costs and $7.0 million for
duplicate headquarters and administration costs. In accordance with
EITF Issue No. 94-3, this charge includes accrued liabilities related to
certain exit plans for identified stores and duplicate corporate
facilities, such as the cancellation of lease agreements and the
write-down of unutilized fixed assets. These exit plans do not benefit
the future activities of the retained stores or corporate facilities.

o During the second quarter of 1996, the Company recorded a $12.8 million
charge upon Rite Aid Corporation's announcement that it had withdrawn
its tender offer to acquire Revco (the "Rite Aid Charge").

Excluding the CVS/Revco Restructuring Charge and the Big B
Restructuring Charge in 1997 and the Rite Aid Charge in 1996, comparable
operating expenses for 1997 were $2.8 billion or 22.0% of net sales, compared
to $2.5 billion or 22.8% of net sales in 1996. The improvement in comparable
operating expenses as a percentage of net sales was primarily due to the
benefits derived from: (i) sales in the Company's existing store base growing
at a faster rate than operating costs, (ii) the CVS Strategic Restructuring
Program, (iii) the consolidation of CVS' and Revco's administrative functions,
(iv) store operating improvements and (v) key technology investments such as
the Company's Rx2000 Pharmacy System, CVS Rapid Refill System, Pharmacy Data
Warehouse, Point-of-Sale System, Retail Data Warehouse and Field Management
System.

Operating profit for 1997 decreased $341.0 million to $199.8
million, compared to $540.8 million in 1996. Excluding the effect of the Revco
Inventory Markdown, the CVS/Revco Restructuring Charge and the Big B
Restructuring Charge in 1997 and the Rite Aid Charge in 1996 (collectively,
the "Noted Charges"), comparable operating profit increased $163.9 million or
29.6% to $717.5 million in 1997, compared to $553.6 million in 1996.
Comparable operating profit as a percentage of net sales was 5.6% for 1997,
compared to 5.1% of net sales in 1996.

Other (expense) income, net for 1997 amounted to an expense of
$44.8 million, compared to income of $51.3 in 1996. The decrease in 1997 was
primarily due to the $121.4 million gain that was realized during 1996 upon
the sale of certain equity securities that were received as part of the
proceeds from the sale of Marshalls to The TJX Companies, Inc. (the "TJX
Gain"). The effect of the TJX Gain in 1996 was offset, in part, by a $30.9
million decrease in net interest expense in 1997. The decrease in net
interest expense was primarily due to the lower average borrowing levels that
resulted primarily from the Revco Debt Retirement. For further discussion,
see "--Revco Debt Retirement" below.

Earnings from continuing operations before extraordinary item
for 1997 decreased $303.5 million to $37.3 million or $0.14 per diluted share,
compared to $340.8 million or $1.92 per diluted share in 1996. Excluding the
effect of the Noted Charges and the TJX Gain, comparable earnings from
continuing operations before extraordinary item increased $104.8 million or
38.1% to $380.1 million, or $2.12 per diluted share in 1997, compared to
$275.2 million, or $1.55 per diluted share in 1996.

Discontinued operations. During the second quarter of 1997, the
Company sold its remaining investment in Linens 'n Things, Inc. for total
proceeds of approximately $147 million, which resulted in a pre-

tax gain of approximately $65 million. This gain has been reflected in
discontinued operations. In conjunction with recording this gain, the Company
recorded a pre-tax charge of approximately $35 million in discontinued
operations to finalize certain liabilities accrued for as part of the CVS
Strategic Restructuring Program. During the second quarter of 1996, the
Company recorded, as a component of discontinued operations, a pre-tax charge
of $235.0 million (the "1996 Restructuring Charge") after receiving approval
from its Board of Directors to implement (i) a formal plan to separate Linens
'n Things, Inc. and Bob's Stores from the Company and (ii) a formal plan to
convert 80 - 100 Thom McAn's stores to the Footaction store format and to sell
or close the remaining Thom McAn stores, and thereby exit the Thom McAn
business by mid-1997. See "--CVS Strategic Restructuring Program" above and
Note 3 to the consolidated financial statements for further information about
the CVS Strategic Restructuring Program.

Extraordinary item represents a $17.1 million after-tax charge
that was recorded in the second quarter of 1997 as a result of the Revco Debt
Retirement. This charge includes early retirement premiums and the write-off
of unamortized finance costs. For further discussion, see "--Revco Debt
Retirement" below.

Net earnings for 1997 were $37.7 million, or $0.14 per diluted
share, compared to $176.6 million or $0.98 per diluted share, in 1996.

1996 versus 1995

Net sales for 1996 increased $1.2 billion or 12.1% to $10.9
billion, compared to $9.8 billion in 1995. Same store sales rose 8.7%, with
pharmacy same store sales increasing 13.3%. Pharmacy sales were 51% of total
sales in 1996 and 1995.

The growth in front store sales was primarily driven by
increases in categories such as greeting cards, film and photo-finishing,
beauty and cosmetics, convenience foods, private label and seasonal
merchandise. Growth in pharmacy sales was primarily driven by the Pharmacy
Sales Factors defined in "--1997 versus 1996" above.

Gross margin for 1996 increased $305.2 million or 11.1% to $3.1
billion, compared to $2.7 billion in 1995.

Gross margin as a percentage of net sales for 1996 was 27.9%,
compared to 28.1% of net sales in 1995. The decline in 1996 was primarily due
to the Pharmacy Gross Margin Factors defined in "--1997 versus 1996" above.

Total operating expenses for 1996 were $2.5 billion or 22.9% of
net sales, compared to $2.5 billion or 25.8% of net sales in 1995. In order
to properly evaluate the Company's total operating expenses in these periods,
it is important to note the following non-recurring charges:

o During the second quarter of 1996, the Company recorded the $12.8
million Rite Aid Charge.

o During the fourth quarter of 1995, the Company recorded a pre-tax charge
of $872.0 million when its Board of Directors approved the CVS Strategic
Restructuring Program (the "1995 Restructuring Charge"). $160.6 million
of this charge pertained to continuing operations. The amount recorded
in continuing operations primarily includes costs associated with (i)
exiting certain geographic markets, (ii) closing duplicate warehouse
facilities and (iii) closing the Company's corporate headquarters in
Rye, New York. These costs primarily include asset write-offs, closed
store and warehouse lease liabilities and employee severance. The
balance of the charge, $711.4 million, was reflected as a component of
discontinued operations. See "--CVS Strategic Restructuring Program"
above and Note 3 to the consolidated financial statements for further
information about the CVS Strategic Restructuring Program.

o During the fourth quarter of 1995, the Company changed its policy from
capitalizing internally developed software costs to expensing the costs
as incurred and recorded a charge of $74.5 million (the "Accounting
Change"), $37.8 million of which pertained to continuing operations.
The effect of the change in accounting principle has been treated as a
change in accounting principle that is inseparable from the effect of
the change in accounting estimate. See "--Accounting Changes" below and
Note 2 to the consolidated financial statements for further information
about this charge.

o During the fourth quarter of 1995, the Company recorded, as a component
of operating expenses, the following non-recurring charges: (i) $11.6
million related to outsourcing certain technology functions and
retaining certain employees until their respective job functions were
transitioned, and (ii) $5.0 million related to the write-down of certain
fixed and intangible assets as a result of the Company's early adoption
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (collectively, the "Special
Charges"). See "--Accounting Changes" below and Note 2 to the
consolidated financial statements for further information about these
charges.

Excluding the Rite Aid Charge in 1996 and the 1995
Restructuring Charge, the Accounting Change and the Special Charges in 1995,
comparable operating expenses for 1996 were $2.5 billion or 22.8% of net
sales, compared to $2.3 billion or 23.6% of net sales in 1995. The
improvement in comparable operating expenses as a percentage of net sales was
primarily due to the benefits derived from: (i) sales in the Company's
existing store base growing at a faster rate than operating costs, (ii) the
CVS Strategic Restructuring Program, (iii) store operating improvements and
(iv) key technology investments.

Operating profit for 1996 increased $310.1 million to $540.8
million, compared to $230.7 million in 1995. Excluding the Rite Aid Charge in
1996 and the 1995 Restructuring Charge, the Accounting Change and the Special
Charges in 1995, comparable operating profit increased $107.9 million or 24.2%
to $553.6 million in 1996, compared to $445.7 million in 1995. Comparable
operating profit as a percentage of net sales was 5.1% for 1996, compared to
4.6% of net sales in 1995.

Other (expense) income, net for 1996 amounted to income of
$51.3 million, compared to an expense of $114.5 million in 1995. This
increase was primarily due to the TJX Gain in 1996. In addition, net interest
expense decreased $38.8 million in 1996 to $75.7 million, compared to $114.5
million in 1995. The decrease in net interest expense was primarily due to
lower average borrowing levels.

Earnings from continuing operations for 1996 increased $283.0
million to $340.8 million, compared to $57.8 million in 1995. Excluding the
Rite Aid Charge and the TJX Gain in 1996 and the 1995 Restructuring Charge,
the Accounting Change and the Special Charges in 1995, comparable earnings
from continuing operations increased $90.5 million or 49.0% to $275.2 million,
or $1.55 per diluted share in 1996, compared to $184.7 million, or $1.02 per
diluted share in 1995.

Discontinued operations. During the second quarter of 1996, the
Company recorded the 1996 Restructuring Charge. During the fourth quarter of
1995, the Company recorded the 1995 Restructuring Charge. See "--CVS
Strategic Restructuring Program" above and Note 3 to the consolidated financial
statements for further information.

Net earnings for 1996 were $176.6 million or $0.98 per diluted
share, compared to a net loss of $572.8 million or $3.59 per diluted share in
1995.

Seasonality

The Company's business normally generates higher revenue during
the holiday season in its fourth quarter. In each of the fiscal years ended
December 31, 1997, 1996 and 1995, the fourth quarter accounted for
approximately 26%, 28% and 28% of the Company's net sales, respectively.

Liquidity & Capital Resources

The following discussion should be read in conjunction with the
Company's consolidated financial statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997 and
the Company's unaudited consolidated condensed financial statements as of March
28, 1998 and for the three months ended March 28, 1998 and March 29, 1997.

For the three months ended March 28, 1998, cash and cash
equivalents decreased $56.3 million to $112.2 million. The decrease in 1998
was primarily attributable to the following:

Net cash used in operating activities increased $74.0 million
to $120.3 million during the first quarter of 1998, compared to $46.3 million
during the first quarter of 1997. The increase in 1998 was primarily due to
an increase in inventory and to cash outlays associated with the integration
of Revco. The increase in inventory was primarily the result of: (i)
improving the in-stock position of every day merchandise in the converted
Revco stores prior to initiating promotional name change events and (ii)
increasing inventory levels in the Company's distribution centers to: (a)
ensure that stores are properly serviced during upcoming realignment periods
and (b) enable the Company to reduce the level of lower gross margin product
being purchased from pharmacy wholesales rather than directly from
manufacturers. The Company believes that its current inventory level should
be reduced and intends to do so by the end of 1998 without incurring
significant markdowns. The Company intends to finance the temporary increase
in inventory with short-term borrowings and, as a result, expects to incur
additional interest expense. The Company believes, however, that the
additional interest expense will be offset by improved operating performance.

Net cash used in investing activities increased $17.5 million
to $67.0 million during the first quarter of 1998, compared to $49.5 million
in the first quarter of 1997. The increase was primarily due to higher
capital expenditures offset, in part, by the proceeds received from the sale
of assets during the first quarter of 1998. During the first quarter of 1998,
the Company opened 63 stores (including 36 relocations) and closed 59 stores.

During 1998, after giving effect to the Merger with Arbor the
Company expects to open approximately 320 stores, about half of which will be
relocations. As of March 28, 1998, the Company operated 3,856 stores in 24
states and the District of Columbia. As of March 31, 1998, after giving
effect to the Merger with Arbor, the Company operated 4,064 stores in 25
states and the District of Columbia.

Net cash provided by financing activities increased $157.3
million to $131.0 million, compared to net cash used in financing activities
of $26.3 million in the prior year period. The increase in 1998 was primarily
due to the increase in short-term borrowings that resulted primarily from the
increase in inventory discussed above, offset, in part, by a reduction in
long-term debt. On January 15, 1998, the Company redeemed the remaining $19.2
million aggregate principal amount of it 9.125% Senior Notes at 103% of
principal plus accrued interest.

Reduction of Debt Levels

The Company's financial condition remained strong at the end of
1997. Management's aggressive focus on working capital combined with the
proceeds received from: (i) the sale of the Company's 32.5% ownership interest
in Linens 'n Things, Inc., (ii) the sale of Bob's Stores, (iii) the sale of
certain Revco stores, and (iv) the sale of certain notes receivable that were
received as a portion of the proceeds from the sale of certain businesses,
allowed the Company to reduce its total debt position by approximately $422.4
million during the year to $779.8 million at December 31, 1997.

Revco Debt Retirement

Following the completion of the merger with Revco:

o On May 30, 1997, the Company repaid $600 million of bank debt
outstanding under Revco's revolving credit facility.

o On June 30, 1997, the Company redeemed all $144.9 million aggregate
principal amount of the Revco 10.125% Senior Notes at 105% of the
principal amount plus accrued interest.

o In July 1997, the Company completed a tender offer pursuant to which it
repurchased $120.8 million of the $140.0 million aggregate principal
amount of the Revco 9.125% Senior Notes at an average price of 104.61%
of the principal amount plus accrued interest.

As a result of above (collectively, the "Revco Debt Retirement"),
the Company recorded an after tax-charge of $17.1 million during the second
quarter of 1997. This charge, which includes early retirement premiums and the
write off of unamortized finance costs, has been classified as an extraordinary
item in the accompanying consolidated statements of operations.

The Revco Debt Retirement was financed with cash on hand and
borrowings under the Company's commercial paper program. See Note 7 to the
consolidated financial statements for further information about the Revco Debt
Retirement.

Goodwill

In connection with certain acquisitions which were accounted for
as purchase business combinations under APB Opinion No. 16, the Company recorded
goodwill in the amount of $776.9 million, representing the excess of the cost of
the net assets acquired over their fair value. Goodwill is being amortized on a
straight-line basis generally over periods of 40 years. At December 31, 1997,
the unamortized portion of goodwill totaled $711.3 million.

Although goodwill amortization has no impact on the Company's
cash flows, the impact on annual earnings is approximately $19.4 million.
This amount is included in depreciation and amortization.

The Company evaluates goodwill for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. In completing its evaluation, the Company compares estimated
future cash flows to the carrying amount of the goodwill. If the carrying
amount of the goodwill exceeds the expected future cash flows, the Company
considers the goodwill to be impaired and records an impairment loss. Based
on the Company's analysis of future cash flows, management believes that
goodwill is not presently impaired.

Sources of Liquidity

The Company has three primary sources of liquidity: (i) cash
provided by operations, (ii) commercial paper and (iii) uncommitted lines of
credit.

The Company issues commercial paper to finance, in part, its
seasonal inventory requirements and capital expenditures. The commercial
paper program is supported by a $670 million, five year unsecured revolving
credit facility which expires on May 30, 2002 and a $300 million unsecured
revolving credit facility which expires on June 30, 1998 (collectively, the
"Credit Facilities"). During the second quarter of 1998, the Company expects
to replace the $300 million credit facility with a 364 day unsecured revolving
line of credit. The Credit Facilities contain customary financial and
operating covenants. Management believes that the restrictions contained in
these covenants do not materially affect the Company's financial or operating
flexibility.

The Company can also obtain up to $220 million of short-term
financing through various uncommitted lines of credit.

At March 28, 1998, the Company had $628.1 million of commercial
paper outstanding at a weighted average interest rate of 5.8% and $35.0
million outstanding under various uncommitted lines of credit at a weighted
average interest rate of 5.7%.

Management believes that the Company's cash on hand and cash
provided by operations, together with its ability to obtain additional
short-term and long-term financing, will be sufficient to cover its working
capital needs, capital expenditure, debt service requirements and future cash
outlays associated with the merger with Revco and the Merger with Arbor.

Year 2000

Since 1995, the Company has been actively addressing the nature
and impact of issues presented by the Year 2000. Accordingly, management
expects to identify and complete all modifications required to support the
Year 2000 in a timely manner and believes that the cost of such modifications
will not have a material impact on the Company's results of operations,
liquidity or capital resources. The Company has also communicated with its
key vendors and suppliers to identify the nature and potential impact of issues
presented by the Year 2000 on the businesses of such vendors and suppliers.
Management is not presently aware of any vendor or supplier-related issue
presented by the Year 2000 that could have a material impact on the Company.

Capital Expenditures

Capital expenditures totaled $312.1 million, $297.5 million and
$528.9 million in 1997, 1996 and 1995, respectively. These expenditures were
primarily for: (i) new stores, (ii) improvements to existing stores, (iii)
store equipment, (iv) information systems, (v) distribution and office
facilities and (vi) remodeling completed in connection with the Revco
integration.

During 1997, the Company opened 287 new stores (including
relocations of existing stores) and expects to open approximately 300 new
stores (including relocations) in 1998. Relocations involve moving existing
in-line shopping center stores to larger freestanding locations.
Historically, relocating stores to more convenient locations and larger sizes
has generated significant improvements in customer count and revenues, driven
largely by increased sales of higher margin front store merchandise.
Management believes that relocations offer a significant opportunity for
future growth, as less than 20% of the Company's existing stores are
freestanding. However, it is unknown at this time whether such relocations in
existing or new markets served by the Company will realize the same results as
those historically achieved.

Revised Dividend

On January 10, 1996, the Board of Director approved a reduction
in the Company's quarterly dividend from $0.38 per common share to $0.11 per
common share. The Company's Board of Directors recently increased the
dividend rate on the Common Stock. See "Recent Developments". Future
dividends will be at the discretion of the Company's Board of Directors and
subject to future operating performance and financial condition.

Certain Tax Matters

As of December 31, 1997, the Company had federal net operating
loss carryforwards ("NOLs") of approximately $33.9 million expiring in the
years 2003 through 2009.

Substantially all of these NOLs are attributable to the time
period prior to Revco's emergence from Chapter 11. As discussed in Note 2 to
the consolidated financial statements, under Fresh Start Reporting, the
benefits realized from these NOLs should reduce Reorganization Goodwill (as
defined in such Note 2). Accordingly, the tax benefit of such NOLs utilized
during the three years ended December 31, 1997 (approximately $69.4 million,
$15.3 million and $18.8 million for 1997, 1996 and 1995, respectively), have
not been included in the computation of the Company's income tax provision,
but instead have been reflected as reductions of Reorganization Goodwill.
When realized, the tax benefit of the remaining NOL carryforward will also
reduce Reorganization Goodwill.

Accounting Changes

During the fourth quarter of 1997, the Company was required to
retroactively adopt SFAS No. 128, "Earnings Per Share". This statement
requires companies with complex capital structures to present basic and
diluted earnings per common share in lieu of previously reported primary and
fully diluted earnings per common share. See Notes 2 and 18 to the
consolidated financial statements for further information about SFAS No. 128.

Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation". While SFAS No. 123 established
financial accounting and reporting standards for stock-based employee
compensation plans using a fair value method of accounting, it allows companies
to continue to measure compensation using the intrinsic value method of
accounting as prescribed in APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company will continue to use its present APB opinion No. 25
accounting treatment for stock based compensation. See Notes 2 and 11 to the
consolidated financial statements for further information about SFAS No. 123.

Effective October 1, 1995, the Company early adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and recorded a pre-tax asset impairment charge of
$110.4 million ($5.0 million of which pertained to continuing operations) in
connection with the write-

down of certain fixed and intangible assets. The above charge resulted when
the Company began identifying and measuring impairment at a lower level under
SFAS No. 121 than under its previous accounting policy. Under the Company's
previous accounting policy, long-lived assets were evaluated as a group for
impairment at the operating business level if the operating business was
either incurring operating losses or was expecting to incur operating losses
in the future. Since the expected future cash flows measured at the operating
business level were in excess of the carrying value of the related assets, no
previous impairment losses were recorded.

During the fourth quarter of 1995, the Company changed its
policy from capitalizing internally developed software costs to expensing the
costs as incurred and recorded a charge of $74.5 million ($37.8 million of
which pertained to continuing operations). The effect of the change in
accounting principle has been treated as a change in accounting principle that
is inseparable from the effect of the change in accounting estimate. As a
result, the entire amount has been treated as a change in accounting estimate.
The effect of this charge was to reduce net earnings by $45.8 million, or
$0.28 per diluted common share in 1995.

Cautionary Statement Concerning Forward-Looking Statements

See "Cautionary Statement Regarding Forward-Looking Statements"
above.

SELLING STOCKHOLDER

The shares of Common Stock for which Automatic Common Exchange
Securities may be exchanged, or cash in lieu thereof, will be delivered to the
Trust by the Eugene Applebaum Revocable Living Trust (the "Selling
Stockholder"), a revocable grantor trust for the benefit of Eugene Applebaum,
the Chairman of the Board, President and Chief Executive Officer of Arbor
prior to the Merger with Arbor, pursuant to a forward purchase contract
between the Trust and the Selling Stockholder.

Mr. Applebaum has served as a member of CVS' Board of Directors
since April 1, 1998, following the consummation of the Merger with Arbor on
March 31, 1998. Since March 31, 1998, he has also served as a consultant to
CVS with respect to among other things, transitional issues and Michigan and
Toledo metropolitan real estate matters, pursuant to a Consulting Agreement
dated February 8, 1998 by and between himself and CVS. Prior to that time,
neither Mr. Applebaum nor the Selling Stockholder had any relationship with
the Company.

The following table sets forth certain information for the
Selling Stockholder with respect to such Selling Stockholder's beneficial
ownership of the Common Stock. The following table does not reflect that up to
3,636,765 shares of Common Stock may be delivered by the Selling Stockholder
to the CVS Automatic Common Exchange Security Trust pursuant to the forward
purchase contract referenced above.

Shares of
Common Stock
Beneficially
Name of Selling Stockholder Owned(1)
--------------------------- -------------------------------
Number Percentage
------ ----------

Eugene Applebaum Revocable Living Trust(2).. 3,935,309 2.1%

- ----------

(1) Information is as of March 31, 1998.

(2) Mr. Applebaum is the settlor, a co-trustee and, during his lifetime, the
sole beneficiary of the Selling Stockholder. The foregoing shares do not
include 2,098,230 shares (1.1% of the outstanding shares of Common Stock as
of March 31, 1998, including stock options granted to Mr. Applebaum that are
exercisable within 60 days) with respect to which Mr. Applebaum may be
deemed to have beneficial ownership in accordance with Commission
regulations, as described below: (i) 1,174,099 shares issuable upon exercise
of CVS options held by Mr. Applebaum, (ii) 238,650 shares held by a trust
for the benefit of Mr. Applebaum's grandchildren, the trustees of which are
Mr. Applebaum's wife and adult children, (iii) 314,122 shares held by trusts
for the benefit of Mr. Applebaum's adult children, the trustee of which is
Mrs. Applebaum, (iv) 236,359 shares owned by the Eugene Applebaum Family
Foundation, a private charitable foundation, (v) 84,571 shares owned by Mrs.
Applebaum, (vi) 28,950 shares allocated to Mr. Applebaum's 401(k) Plan
account, and (vii) 21,479 shares held in an IRA account for the benefit of
Mr. Applebaum. Mr. Applebaum disclaims beneficial ownership of the 873,702
shares described in items (ii), (iii), (iv) and (v).

In connection with the Merger with Arbor, the Company and
certain stockholders listed therein (the "Covered Stockholders") entered into
a Registration Rights Agreement dated as of March 31, 1998 (the "Registration
Rights Agreement"), a copy of which is included as an exhibit to the
Registration Statement of which this Prospectus is a part. Pursuant to the
Registration Rights Agreement, CVS agreed to use its reasonable best efforts
to cause a registration statement relating to the shares acquired by the
Covered Stockholders in the Merger with Arbor (each a "Selling Stockholder
Registration Statement") to be declared effective within 60 days after receipt
of a written request for registration from the Covered Stockholders (or 20
days in the case of the first such request) and generally to keep such Selling
Stockholder Registration Statement continuously effective until the earliest
of 30 days (subject to certain extensions) after the date such Selling
Stockholder Registration Statement is declared effective, such time as all
securities covered by the Registration Rights Agreement have been sold or
disposed of thereunder and such time as all securities subject to the
Registration Rights Agreement shall cease to be so subject. Pursuant to the
Registration Rights Agreement, the Covered Stockholders may request
registration on no more than three occasions and may make such a request only
once in any six-month period. Notwithstanding the foregoing, CVS is not
required to effect a registration unless the aggregate value of the shares
requested to be registered is equal to or more than $100 million. The method
of disposition requested by the Covered Stockholders in connection with any
demand registration may not be an offering on a delayed or continuous basis
pursuant to Rule 415 without the Company's prior written consent. On April
20, 1998, CVS and Mr. Applebaum, on behalf of himself and the other Covered
Stockholders, entered into Amendment No. 1 to the Registration Rights
Agreement pursuant to which, inter alia, (1) the parties agreed to waive the
Company's obligation to file with the SEC a registration statement in response
to an initial demand for registration request that the Covered Stockholders
delivered to the Company in March 1998 but subsequently revoked (the "March
1998 Demand"), (2) CVS acknowledged that the March 1998 Demand would not be
treated as a Demand Request, as such term is defined in the Registration
Rights Agreement, for purposes of the such agreement and (3) the parties
agreed to amend the time by which the Company must prepare and file a
registration statement in response to the demand request next succeeding the
March 1998 Demand. CVS has agreed to pay any and all expenses incidental to
performance of or compliance with any registration of shares of Common Stock
received by the Covered Stockholders in connection with the Merger with Arbor,
including, without limitation, (i) the fees, disbursements and expenses of
CVS' counsel and accountants (including in connection with the delivery of
opinions and/or comfort letters); (ii) all expenses, including filing fees, in
connection with the preparation, printing and filling of one or more
registration statements; (iii) the cost of printing or producing any
agreements among underwriters, underwriting agreements, and blue sky or legal
investment memoranda; (iv) the filing fees incidental to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
the sale of the securities to be disposed of; (v) transfer agents' and
registrars' fees and expenses in connection with such offering; (vi) all
security engraving and security printing expenses; (vii) all fees and expenses
payable in connection with the listing of the shares on any securities
exchange or automated interdealer quotation system on which the Common Stock
is then listed; and (viii) all reasonable fees and expenses of one legal
counsel for the Covered Stockholders in connection with each demand
registration, which legal counsel shall be selected by Covered Stockholders
owning a majority of the shares then being registered; provided that
registration expenses shall exclude (w) any expenses relating to any action
taken by CVS in connection with the public sale of securities pursuant to a
derivatives transaction with respect to the Covered Stockholders' shares over
and above the expenses that would have been incurred by CVS in connection with
an offering of such shares, (x) all underwriting discounts and commissions,
selling or placement agent or broker fees and commissions, and transfer taxes,
if any, in connection with the sale of any securities, (y) the fees and
expenses of counsel for any Covered Stockholder (other than pursuant to clause
(viii)) and (z) all costs and expenses of CVS incurred in connection with the
marketing of the shares in connection with any underwritten offering,
including without limitation any roadshow expenses.

DESCRIPTION OF CAPITAL STOCK

The summary of the terms of the capital stock of CVS set forth
below does not purport to be complete and is qualified by reference to the
certificate of incorporation and bylaws of CVS (the "CVS Charter" and the "CVS
Bylaws", respectively).

Authorized Capital Stock

Under the CVS Charter, CVS' authorized capital stock consists
of 1,000,000,000 shares of Common Stock, 120,619 shares of Cumulative
Preferred Stock, par value $0.01 per share (the "CVS Preferred Stock"), and
50,000,000 shares of Preference Stock, par value $1 per share (the "CVS
Preference Stock") (the CVS Preferred Stock and CVS Preference Stock being
referred to herein collectively as "Preferred Stock").

Common Stock

On May 4, 1998, there were 192,191,650 shares of Common Stock
outstanding (excluding 5,628,077 treasury shares), including 18,914,347 shares
of Common Stock issued in connection with the Merger with Arbor. The holders
of Common Stock are entitled to receive ratably, from funds legally available
for the payment thereof, dividends when and as declared by resolution of the
Board of Directors, subject to any preferential dividend rights granted to the
holders of any outstanding Preferred Stock. In the event of liquidation, each
share of Common Stock is entitled to share pro rata in any distribution of
CVS' assets after payment or providing for the payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Each holder of
Common Stock is entitled to one vote for each share of Common Stock held of
record on the applicable record date on all matters submitted to a vote of
stockholders, including the election of directors. In addition, holders of
Series One ESOP Convertible Preference Stock, $1 par value, of CVS ("CVS ESOP
Preference Stock") are entitled to vote on all matters submitted to a vote of
holders of Common Stock, voting together with the Common Stock as a single
class. Each share of CVS ESOP Preference Stock is entitled to the number of
votes equal to the number of shares of Common Stock into which such share of
CVS ESOP Preference Stock could be converted, rounded to the nearest tenth on
the record date for the applicable meeting, which is currently 1.2 votes
(subject to adjustment in the case of certain dilutive events).

Holders of Common Stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to the Common Stock. All outstanding shares of Common
Stock are duly authorized, validly issued, fully paid and nonassessable.

CVS Preferred Stock and CVS Preference Stock

Prior to and upon consummation of the Merger with Arbor, (i)
approximately 5.32 million shares of CVS ESOP Preference Stock were issued and
outstanding and (ii) no other shares of Preferred Stock were issued or
outstanding. Under the CVS Charter, the Board of Directors has the authority,
without further stockholder approval but subject to certain limitations set
forth in the CVS Charter, to create one or more series of Preferred Stock, to
issue shares of Preferred Stock in such series up to the maximum number of
shares of the relevant class of Preferred Stock authorized, and to determine
the preferences, rights, privileges and restrictions of any such series,
including the dividend rights, voting rights, rights and terms of redemption,
liquidation preferences, the number of shares constituting any such series and
the designation of such series. Pursuant to this authority, the Board of
Directors could create and issue a series of Preferred Stock with rights,
privileges or restrictions, and adopt a stockholder rights plan, having the
effect of discriminating against an existing or prospective holder of such
securities as a result of such security holder beneficially owning or
commencing a tender offer for a substantial amount of Common Stock. One of the
effects of authorized but unissued and unreserved shares of capital stock may
be to render more difficult or discourage an attempt by a potential acquiror
to obtain control of CVS by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of CVS' management. The issuance
of such shares of capital stock may have the effect of delaying, deferring or
preventing a change in control of CVS without any further action by the
stockholders of CVS. CVS has no present intention to adopt a stockholder
rights plan, but could do so without stockholder approval at any future time.

Transfer Agent and Registrar

ChaseMellon Shareholder Services, L.L.C. is the transfer agent
and registrar for the Common Stock.

UNDERWRITING

The Automatic Common Exchange Securities will be distributed as
described in the Trust Prospectus under the caption "Underwriting".

The Company and the Selling Stockholder have agreed that,
during the period beginning on the date of this Prospectus and continuing to
and including the date that is 90 days after the date of this Prospectus, they
will not offer, sell, contract to sell or otherwise dispose of any Common
Stock or other securities of the Company (other than pursuant to employee
stock option plans existing, or on the conversion or exchange of convertible
or exchangeable securities outstanding, on the date of this Prospectus) which
are substantially similar to the Common Stock or which are convertible or
exchangeable into Common Stock or other securities which are substantially
similar to the Common Stock, without the prior written consent of Goldman
Sachs & Co., except pursuant to the offering of Automatic Common Exchange
Securities described below.

In connection with the offering of the Automatic Common
Exchange Securities, the Underwriters may purchase and sell the Automatic
Common Exchange Securities and the Common Stock in the open market. These
transactions may include over-allotment and stabilizing transactions and
purchases to cover syndicate short positions created by the Underwriters in
connection with the offering. Stabilizing transactions consist of certain
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the Automatic Common Exchange Securities or the Common Stock;
and syndicate short positions created by the Underwriters involve the sale by
the Underwriters of a greater number of Automatic Common Exchange Securities
than they are required to purchase from the Trust in the Automatic Common
Exchange Securities offering. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Automatic Common Exchange Securities sold in
the offering may be reclaimed by the syndicate if such securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Automatic Common Exchange Securities, which may be higher than the price that
might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be
effected on the NYSE, in the over-the-counter market or otherwise.

The Company and the Selling Stockholder have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act.

Up to 3,162,405 shares of Common Stock (or up to 3,636,765
shares if the applicable over-allotment option is exercised in full) may be
delivered by the CVS Automatic Common Exchange Security Trust to holders of
the Automatic Common Exchange Securities upon exchange of the Automatic Common
Exchange Securities on May 15, 2001 (the "Exchange Date"). In lieu of
delivery of such shares, the Selling Stockholder may elect to pay cash on the
Exchange Date for each share then deliverable in an amount equal to the then
"Average Market Price" of the Common Stock in accordance with the terms of the
Automatic Common Exchange Securities. The Automatic Common Exchange
Securities are being offered through an underwriter or underwriters in the
manner described in the Trust Prospectus.

TRUST PROSPECTUS

The Automatic Common Exchange Securities are being offered
pursuant to the Trust Prospectus. This Prospectus relates only to the Common
Stock that may be delivered upon exchange of the Automatic Common Exchange
Securities. The Company takes no responsibility for any information included
in or omitted from the Trust Prospectus. The Trust Prospectus does not
constitute a part of this Prospectus nor is it incorporated by reference
herein.

VALIDITY OF COMMON STOCK

The validity of the Common Stock will be passed upon by Davis
Polk & Wardwell. Certain legal matters relating to the offering will be
passed upon for the Selling Stockholder by Honigman Miller Schwartz and Cohn
and for the Underwriters by Sullivan & Cromwell.

EXPERTS

The historical consolidated financial statements of CVS
Corporation and its subsidiaries as of December 31, 1997 and 1996 and for the
three years ended December 31, 1997 and the related consolidated financial
statement schedule have been incorporated by reference in this Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and given upon
the authority of said firm as experts in accounting and auditing.

With respect to the unaudited interim financial information for
the three months ended March 28, 1998 and March 29, 1997, incorporated by
reference herein, the independent certified public accountants have reported
that they applied limited procedures in accordance with professional standards
for a review of such information. However, their separate report included in
the Company's quarterly report on Form 10-Q for the quarter ended March 28,
1998, and incorporated by reference herein, states that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of
the Securities Act of 1933 for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Act.

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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

TABLE OF CONTENTS

Page

Available Information..........................................A-3
Incorporation of Certain Documents
by Reference.............................................A-3
Cautionary Statement Regarding
Forward-Looking Statements...............................A-4
The Company....................................................A-5
Recent Developments............................................A-9
Use of Proceeds...............................................A-10
Price Range of Common Stock ..................................A-10
Dividend Policy...............................................A-10
Selected Historical Consolidated
Financial and Operating Data............................A-11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...............................A-14
Selling Stockholder...........................................A-27
Description of Capital Stock..................................A-29
Underwriting..................................................A-30
Trust Prospectus..............................................A-31
Validity of Common Stock......................................A-31
Experts.......................................................A-31

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3,162,405 Shares

CVS Corporation

Common Stock
(par value $.01 per share)

Goldman, Sachs & Co.

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